JUDGMENT
1. This appeal is filed by the Insurance Company which is the second respondent in MAOP No. 15 of 1989 on the file of the District Judge-cum-Chairman, Motor Vehicle Accident Claims Tribunal, Visakhapatnam questioning the award dated 27-7-1989 by which compensation was awarded to the claimants against the owner of the vehicle as well as the appellant/ Insurance Company.
2. Respondents 1 to 3 herein are the claimants, 4th respondent herein is the owner of the lorry while the appellant herein is the second respondent in the said O.P. with which the above said lorry is said to have been insured by the time of accident. Claimants 1 and 2 are the parents and the third claimant is the minor brother of the deceased Demudu who was working as labourer under the owner of the lorry and who was travelling in the said lorry on 23-5-1986 when the lorry met with the accident and the deceased received injuries and died on account of such injuries subsequently. The claimants filed the O.P. seeking compensation of Rs.50,000/- from the owner of the lorry as well as the appellant/ Insurance Company on account of the dealh of deceased in such accident, contending that the accident was on account of rash and negligent driving of the lorry by its driver. On the basis of the evidence placed before it, the Tribunal came to the conclusion that the deceased died on account of the accident which was caused due to the rash and negligent driving of the lorry by its driver. On the basis of the material before it, the Tribunal came to the conclusion that an amount of Rs.28,500/- shall be awarded as compensation to the claimants and directed the owner as well as the appellant/Insurance Company with joint and several liability lo pay such compensation. The claimants and the owner of the lorry have not questioned the award. The Insurance Company has, however, filed the present appeal questioning the award contending that by the time of accident the lorry was not validly insured with it and there is therefore no liability for it to pay the compensation amount to the claimants.
3. Heard both the Counsel.
4. The question that, therefore, arises for consideration in the present appeal is whether there was valid insurance for the lorry in favour of its owner by the time of accident and whether the appellant/Insurance Company is not liable to pay compensation awarded to the claimants ?
5. The owner of the lorry is 4th espondent herein and his contention is that the lorry which was involved in the accident was duly insured with the appellant/Insurance Company by the date of accident; that the Insurance Policy was issued on 28-12-1985 by the appellant; that the accident took place on 23-5-1986 and that, therefore, the appellant/ Insurance Company is also responsible to pay the compensation. Ex. B5 is a copy of the Insurance Policy which was admittedly issued by Ihe appellant for the above said lorry in favour of the owner. It is seen from Ex.B5 that the policy was issued on 28-12-1985 and the date of expiry of the said Insurance Policy was mentioned as 27-12-1986. The accident took place on 23-5-1986. Therefore, the owner of the vehicle contends that the appellant/Insurance Company is liable to pay compensation as the Insurance Policy was in force by the date of accident. On the other hand, it is Ihe specific contention of the appellant that when Ex.B5 Insurance Policy was issued, the owner of the lorry issued the cheque dated 28-12-1985 for Rs.3343/- which was the premium due to be paid by him; that the said cheque had, however, bounced and it was dishonoured by the Bank evidently as the owner had no such amount to his credit in the Bank; that on receiving such intimation from the Bank, the Insurance Company intimated the same to the owner by addressing a letter and the Insurance Policy was cancelled as the premium was not received and that, therefore, there was no valid insurance by the date of accident in the present case and as such the Insurance Company is not liable. Ex.Bl is a xerox copy of the cheque dated 28-12-1985 which was issued by the owner and which was not honoured by the Bank. Ex.B2 is a xerox copy of letter of intimation dt. 2-1-86 said to have been sent by the Bank to the Insurance Company, intimating that the cheque was being returned as “not arranged for” which is said to mean lhat the cheque was dishonoured. Ex.B3 is a xerox copy of the letter dated 8-1-86 said to have been addressed by the Insurance Company to the owner of the lorry intimating him lhat the cheque was dishonoured and that, therefore, Ihe Insurance Policy issued by it is not enforceable for want of payment of premium. Ex.B4 is a xerox copy of the endorsement dated 27-12-1986 said to have been made by the Insurance Company in its records cancelling the Insurance Policy earlier issued by it in favour of the owner of the lorry with retrospective effect. The Insurance Company examined RW3 who was working as Assistant Administrative Officer in its office during the year 1988 on ils behalf and Exs.B 1 to B5 were marked through her. It is seen from the deposition of RW3 that the originals of Exs.Bl to B5 were produced in Court and their xerox copies were compared with those originals and then marked as Exs.Bl to B5 in the Court. In view of such circumstances, it is sought to be contended by the appellant/Insurance Company that as the cheque issued by the owner of the lorry was dishonoured and as the premium required to be paid before the Insurance Policy is issued was in fact not paid, the Insurance Policy issued by it in favour of the owner is void ab initio and will not have any force and does not cover any risk and that, therefore, it cannot be held liable to pay compensation awarded by the Court. The owner of the lorry is examined as RW2 and he has, however, contended that the lorry was duly insured with the appellant/Insurance Company which has issued the policy and the said policy was in force upto 27-12-1986; that he did not receive any communication from the appellant/Insurance Company regarding the alleged cancellation of the said Insurance Policy and that, therefore, the appellant/Insurance Company is also liable to pay the compensation.
6. The contention of the learned Counsel for the appellant is that as the cheque issued by the owner was dishonoured, no amount was received by the Insurance Company towards premium payable and as such Ex. B5 Insurance Policy is void ah initio and cannot have any force and does not cover the risk and such Insurance Policy was also subsequently cancelled and the owner war accordingly intimated about such cancellation. He has also tried to rely upon the provisions of Section 64-VB of the Insurance Act, 1938 and the provisions of Section 96(2)(c) of A.P. Motor Vehicles Acl (old) as well as the decisions reported in Oriental Insurance Company Ltd. v. Syanbai, of Karnataka High Court and ‘United India Insurance Company Ltd. v. Ayeb Mohammed, 1991 ACJ 650 (SC) of the Supreme Court in support of his contention. The provisions of Section 64-VB of the Insurance Act are as follows:
“64-VB. No risk to be assumed unless premium is received in advance :–(1) No insurer shall assume any risk in India in respect of any insurance business on which premium is not ordinarily payable outside India unless and until the premium payable is received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until deposit of such amount as may be prescribed is made in advance in the prescribed manner.
(2) For the purposes of this section, in the case of risks for which premium can be ascertained in advance, the risk may be assumed not earlier than the date on which the premium has been paid in cash or by cheque to the insurer.
Explanation :– Where the premium is tendered by postal money order or cheque sent by post, the risk may be assumed on the date on which the money order is booked or the cheque is posted, as the case may be.
…..”
The provisions of Section 96(2)(c) of the A.P. Motor Vehicles Act (Old) which refer to one of the grounds on which the Insurance Company can defend the claim filed by the claimants for compensation, are as follows :
“96(2)(c) That the policy is void on the ground that it was obtained by the nondisclosure of a material fact or by a representation of fact which was false in some material particular.”
In view of the provisions in Section 64-VB of the Insurance Act read with the provisions of Section 96(2)(c) of the Motor Vehicles Act (old), the learned Counsel for the appellant tries to contend that the owner of the lorry had to pay the premium before the Insurance Policy is issued; that no such premium is, however, paid in the present case as the cheque issued by the owner for such premium was dishonoured; that the owner had, however, obtained the Insurance Policy in his favour by not disclosing and by making false representation about a material fact that there was no amount to his credit in the Bank against which he had issued the cheque and due to which fact the cheque had to be dishonoured; that in view of such circumstances the Insurance Policy issued to him is void and that, therefore, the said policy does not cover any risk and the Insurance Company is not liable to pay any compensation. There is any amount of force in such contention of the learned Counsel for the appellant.
7. The observations made by Their Lordships in the above cited decision of the Supreme Court reported in United India Insurance Company Ltd. v. Ayeb Mohammed, (supra) lend support to the above said contention of the learned Counsel for the appellant that there was no valid Insurance Policy covering the risk as the premium was not paid in view of the provisions of Section 64VB of the Insurance Act. In the said case also, the insurer had issued the cover note undertaking the risk in terms of the requirements of the Motor Vehicles Act and the insured had issued a cheque covering the premium and the said cheque had bounced and as such the premium amount was not paid to the insurer. It was contended on behalf of the insurer that inasmuch as the cheque had bounced and the premium was, therefore, not paid, the cover note had become ineffective and there was no policy, which obliged the insurer to pay the compensation. On the other hand, it was sought to be contended on behalf of the insured that in the absence of steps taken for cancelling the cover note, the insurer’s liability continued although the cheque had bounced. It was also found in that case that a notice of cancellation which was said to have been issued by the insurer to the insured was not served on the insured. In those circumstances, the High Court had observed in the impugned judgment that the insurer was liable to pay compensation. Referring to those circumstances, Their Lordships of the Supreme Court have observed in para 4 of the judgment as follows:
“In the impugned judgment, the High Court has taken the view that in the absence of steps taken for cancelling the cover note, the insurer’s liability continued, although the bouncing of the cheque and steps taken by the insurer cancelling the cover note have been found as a fact. In fact, the insurer had issued notice to the registering authority and parties that the cheque bounced and the liability ceases but the High Court has recorded a finding that the notice of cancellation has not been served on the insured. The fact that the cheque had bounced was a matter within the knowledge of the insured. At any rate, there would be that presumption and, therefore, in ordinary circumstances, no special notice would be required.”
It is clear from such observations made by I the Supreme Court that when once the cheque issued by the insured for the premium amount has bounced and the premium amount was thus not paid, the Insurance Policy issued by the insurer is ineffective and not valid and that no special notice of cancellation need be issued by the insurer to the insured in order to avoid the liability under the policy already issued. In the present case also, Ex.B1 cheque issued by the insured at the time of obtaining the Insurance Policy on 28-12-1985 was not honoured by the Bank as seen from Ex.B2 evidently on account of the fact that there was no amount lying to the credit of the insured by that time. As such the premium towards the Insurance Policy was not received by the insurer. Issuing of Ex. Bl cheque is not denied by the insured who is examined as RW2 in the present case. When a question was put to him regarding the mode of payment of the insurance premium during his cross-examination, he went to the extent of stating that he does not remember whether he paid the premium in cash or by cheque unless he looks into his accounts. That clearly shows that RW2 was maintaining accounts, but he did not choose to produce such accounts before the Court in order to prove that he had in fact paid the premium amount, and if so by what mode. Under those circumstances, there is no reason to disbelieve Ex.Bl and Ex.B2 and the evidence of RW3 who is the Assistant Administrative Officer in the office of the appellant/Insurance Company. It is clear from such evidence that the cheque issued by the insured had bounced and the premium amount was not paid at the lime of issuance of Ihe Insurance Policy. Therefore, in view of the provisions of Section 64-VB of the Insurance Act, the said policy is ineffective and not valid and as such there is no liability for the appellant under such Insurance Policy.
8. In a recent decision of the Karnataka High Court reported in Oriental Insurance Company Ltd. v. Syaribai, (supra), the same point arose for consideration and Their Lordships, following the above cited decision of the Supreme Court, have observed that as the cheque issued by the insured had bounced, the premium for the Insurance Policy cannot be said to have been paid to the insurer and as such, in view of the provisions of Section 64-VB, such policy is ineffective and the insurer cannot be held liable to compensate the claimants. Their Lordships also negatived the contention of the insured that in the absence of cancellation of the Insurance Policy by giving special notice to the insured, the insurer cannot escape his liability under the Insurance Polity in view of the observations made by the Supreme Court in the above cited decision. In the present case, as a matter of fact, it is the specific contention of the appellant/Insurance Company that soon after receiving Ex.B2 letter from the Bank intimating that the cheque could not be honoured, the appellant issued Ex.B3 letter of cancellation dated 8-1-1986 to the insured and also later on cancelled the Insurance Policy under Ex.B4 endorsement. It is no doubt true that the appellant is not able to produce any proof of service of Ex.B3 letter. But even if it is to be said that such letter of cancellation was not addressed by the appellant to the insured, it will not render the Insurance Policy effective in view of the law laid down by the Supreme Court in the above cited decision, as already stated above. Therefore, the contention of the learned Counsel for the owner of the lorry in the present case that notice of cancellation was not served on the owner of the vehicle and as such the Insurance Policy remains valid, cannot be accepted.
9. It is also sought to be contended by the learned Counsel for the insured in the present case, that as contemplated in the explanation to Section 64-VB of the Insurance Act, the premium was tendered by the insured by issuing a cheque and that, therefore, the risk shall be assumed on the date on which the cheque was issued and as such, the insurer cannot avoid his liability on the ground that the cheque was subsequently dishonoured. This contention also cannot be accepted. Mere issuing of a cheque which could not be honoured for want of funds in the Bank, does not amount to issuing of a cheque as contemplated in the explanation to Section 64VB of the Insurance Act. For the purpose of Section 64-VB of the Insurance Act, a cheque would be a cheque if on presentation it is capable of being encashed immediately and is not returned for insufficiency of funds. The risk can be assumed on the part of the insurer and such risk commences only on payment of premium by the insured in advance by a cheque or in cash which is a condition precedent for assuming the risk. Therefore, such contention of the learned Counsel for the insured cannot be accepted.
10. In the decision of the Madhya Pradesh High Court reported in United India Insurance Company Ltd v. Ratan Singh, , also the same view was expressed after referring to the above cited decision of the Supreme Court. It is observed in the said Division Bench decision of the Madhya Pradesh High Court in para 13 as follows:
“Therefore, in view of Section 64-VB and the law laid down by the Apex Court in the case of Ayeb Mohammed, 1991 ACJ 650 (SC), the vehicle (truck) was not insured, as, for assuming the risk, the premium was not received by the petitioner company because of bouncing of the cheque; on mere issuance of cover note against the cheque so issued, there was no risk or contract, as there was no payment. In such circumstances, the petitioner-company cannot be made liable to pay any amount of compensation either interim or final.”
11. It is also sought to be contended by the learned Counsel for the owner of the vehicle that the insurer had failed to notify the cancellation of the Insurance Policy to the registering authority in whose records the registration of the vehicle covered by the policy of insurance is recorded, and that in view of such failure to notify such cancellation to the registering authority, the insurer cannot escape the liability under the Insurance Policy for third party risk. Such intimation to the registering authority is contemplated under Section 105 of the Motor Vehicles Act, 1939 which governs the present case. But there is nothing in Section 105 or any other provision of the Motor Vehicles Act, 1939 which says that a omission to notify the registering authority about the cancellation of the Insurance Policy will keep alive the rights of third parties to claim the benefits under the third party risk policies. The same view was held by the Calcutta High Court in the decision reported in Bir Singh v. Sm. Hashi Rashi, . This is so, especially in a case where the Insurance Policy is invalid and ineffective right from its inception for want of payment of premium in view of the provisions of Section 64-VB of the Insurance Act. Therefore, the above said contention of the learned Counsel for the insured cannot be accepted. In view of all such circumstances, the Insurance Policy in the present case is ineffective and will not clothe the appellant/ Insurance Company with any liability to pay compensation amount to the claimants as the Insurance Policy was ineffective right from its inception for want of payment of premium. Therefore, the award of the Tribunal is liable to be set aside in so far as it relates to the liability of the appellant/Insurance Company.
12. In the result, the appeal is allowed but without costs and the award of the Tribunal is set aside in so far as it relates to the liability of the appellant/Insurance Company.