Insurer’s Manner Of Handling Premium Cheque Is Negligent: Bombay High Court Upholds Compensation Order Against Insurance Company & Bank
The Bombay High Court emphasised that when the law protects insurers by expecting utmost good faith, the corollary is that the insurance companies are expected to conform to highest standards of transparency.
Justice Somasekhar Sundaresan, Bombay High Court
The Bombay High Court has upheld the Order of the State Consumer Disputes Redressal Commission (SCDRC) directing the New India Assurance Co. Ltd. (Insurance Company) and Thane Bank to jointly and severally pay compensation to a society.
A Writ Petition was preferred by the Insurance Company, challenging the Judgment of the National Consumer Disputes Redressal Commission (NCDRC), which refused to interfere with the Order of the SCDRC.
A Single Bench of Justice Somasekhar Sundaresan observed, “The National Commission has returned plausible findings on an assessment of evidence that New India failed to prove its case on the real cause for dishonour of the cheque and its own failure to present the cheque afresh particularly when evidence was led by the Thane Bank that cheque was asked to be presented afresh. This was not challenged and confronted, and the findings returned are reasonable. If an insurer’s manner of handling the premium cheque is negligent, it would be self-serving for the insurer to seek to exploit the same to repudiate the claim.”
The Bench said that the reliance on Section 64VB of the of the Insurance Act, 1938 claiming non-receipt of insurance premium is of no assistance to the Insurance Company.
Advocate Rushabh Vidyarthi appeared for the Petitioner, while Advocate Ashutosh Marathe appeared for the Respondents.
Case Background
The Petitioner-Insurance Company had issued a Standard Fire and Special Perils Policy (insurance policy) in 2004 to the Respondent-Gayatridham Phase Co-op Housing Society which was scheduled to expire on July 24, 2005. Ahead of the scheduled expiry, on July 17, 2005, the society paid the applicable premium amount for renewal of the insurance policy. The cheque towards premium amount for Rs. 18,910/- was drawn on the Thane District Central Co-operative Bank. On July 22, 2005, New India renewed the policy and issued a fresh policy for the next year i.e., between July 25, 2005 and July 24, 2006. Two days into the new policy, on July 26, 2005, torrential rains struck Mumbai leading to severe damage being caused to the society and its property, which led to filing of a claim on August 7, 2005. Although the cheque was received on July 17, 2005, after which the insurance policy was issued on July 22, 2005, the Petitioner had deposited the cheque only on July 30, 2005. On August 4, 2005, the Petitioner claimed to have written a standard letter to the society stating that the cheque issued by the society had been dishonoured, purportedly on account of insufficient funds, because of which the insurance policy issued to the society was being cancelled.
On August 7, 2005 the Respondent filed a claim request with the Petitioner, making a claim seeking indemnification for the loss suffered by the society on July 26, 2005. On August 11, 2005, the Thane Bank wrote to the Petitioner that the transaction had not been processed owing to the torrential rains. According to the Thane Bank, the advice issued by the Petitioner to the Respondent, namely that the cheque had been dishonoured owing to insufficient funds was not accurate. The State Commission directed that the cheque return memo be produced, but the same could not be produced by the Bank or the Insurance Company. Thereafter, the State Commission partly allowed the Respondent’s Complaint and directed the Petitioner and the Bank to jointly and severally pay compensation in an amount of Rs. 5 Lakhs to the society within 60 days. This direction was challenged and the National Commission upheld the same. Being aggrieved, the Petitioner approached the High Court.
Court’s Observations
The High Court in the above context of the case, remarked, “… I see no reasonable basis to interfere with the National Commission Order, which does not contain any infirmity on the ground of arbitrariness or perversity in its finding that as of January 31, 2006, New India had not repudiated the insurance policy. It is wholly unfair and inappropriate for New India to seek to base its Writ Petition on the premise of limitation and that too when it did not raise this issue before the National Commission, even while defending the Society’s claim. Worse, it is totally unfair to expect the National Commission to frame an issue on which there is no controversy presented by the conflict between the positions of the parties before the forum.”
The Court said that it is inexplicable that a party that claims that insurance premium has to be received in advance of the insurance cover taking effect, would bank the cheque nearly a week after the insurance cover took effect and the ground on which the cheque was said to have been dishonoured is also hotly contested.
“… and in my opinion, there is an evident deficiency of service by both New India and the Thane Bank, for which the Society ought not to suffer. … Indeed, receipt of amount by cheque is subject to realization but if the realization was delayed owing to New India’s own deficiency in its own operational conduct, the consequence of the same cannot be visited upon the innocent Society which had in fact received the Insurance Policy and even made a claim, which claim was processed by New India as explained above”, it added.
The Court was of the view that the attempt to rely upon the letter purporting to have cancelled a policy is an afterthought which is evidently a stratagem to raise the issue of limitation at a belated stage with a view to pick holes in the Order passed by the National Commission.
“At the least, New India ought to have had a back-up to demonstrate dishonour of a cheque owing to insufficiency of funds. New India ought to have been able to explain why the cheque had not been deposited afresh. If New India truly believed in its contentions being made today, at the least, it ought to have challenged the State Commission Order – in contrast, it neither filed an appeal nor raised an objection on limitation before the National Commission. In my opinion, such conduct does not lend itself to endorsement by way of interference with the National Commission Order in exercise of the extraordinary and equitable writ jurisdiction of this Court”, it further said.
The Court observed that the cause of the dishonour and Petitioner’s role in the handling of the purported dishonour lies at the heart of the controversy in the assessment of deficiency of service by it.
“As explained above, New India has failed on a reasonable assessment to prove its case of a dishonour on the ground of insufficiency of funds. The timing of New India’s own deposit of the cheque and its inability to deal with evidence that its banker had been asked to present the cheque afresh, was assessed and adjudicated”, it also noted.
Conclusion
The Court, therefore, held that no case for intervention in exercise of the writ jurisdiction has been made out on any of the grounds pressed into service on behalf of the Petitioner and neither is there any arbitrariness on account of limitation nor is there a failure of consideration as claimed on behalf of the Petitioner.
“On the contrary, it is New India’s deficiency of service and operational negligence that led to the situation on hand. Since despite appointment of a surveyor, New India refrained from providing the survey report, the National Commission has adopted a reasonable approach to assessing the compensation that may be granted. … Insurance companies are institutions in the financial sector, which, by design are meant to hold out a higher intensity of promise in their obligations to their constituents, and this is what backs the doctrine of utmost good faith being owed to the insurance companies by the rest of society”, it concluded.
The Court added that when the law protects insurers by expecting utmost good faith, the corollary is that the insurance companies are expected to conform to highest standards of transparency, propriety and diligence in their interaction with its stakeholders and policyholders.
Accordingly, the High Court dismissed the Petition and imposed a cost of Rs. 25,000/- payable to the society.
Cause Title- New India Assurance Co. Ltd. v. Gayatridham Phase Co-op. Housing Society & Anr. (Neutral Citation: 2025:BHC-AS:55075)
Appearance:
Petitioner: Advocates Rushabh Vidyarthi, Mohit Turakhia, and Asim Vidyarthi.
Respondents: AGP Savina Crasto, Advocates Ashutosh Marathe, and Ajit M. Savagave.
