Insurance Premium Remains Unpaid If Cheque Not Encashed: NCDRC

Brief Facts of the Case

The complainant, M/s Vaibhavi Dredging Pvt. Ltd was engaged in dredging ports using barges, tugs, and dredgers. One of their barges, Vaibhavi Hopper-II, sank while working for Western India Shipyard Ltd. The incident was reported to the Deputy Conservator of Marmagoa Port Trust the following day. However, the National Insurance Company/insurer rejected the claim, stating there was no concluded insurance contract at the time of the incident because the premium had not been deposited by the complainant. The complainant challenged this decision before the State Commission, which upheld the insurer's contention. The complainant argued there was a concluded contract on the date of the incident because they had deposited a quarterly premium installment of Rs. 55,000 by cheque, which the insurer accepted. The complainant claimed the insurer issued two receipts for the premium payment and informed the insurer of the casualty the day after the incident, requesting the claim be registered, and a surveyor be deputed for wreck removal. The insurer, however, considered the receipts provisional and stated that the necessary documents were not provided by the complainant, and hence, no policy contract was concluded. Aggrieved by the State Commission's order, the complaint approached the National Commission with a First Appeal.

Contentions of the Insurer

The insurer contended that the State Commission's order was well-reasoned and based on the evidence and material on record. The insurer asserted there was no liability to indemnify the complainant because the insurance contract had not been concluded, as the premium had not been paid. Furthermore, it was highlighted that the State Commission examined whether there was a concluded contract between the complainant and the insurer before the sinking of the barge. Their finding was negative. No receipts or documents confirmed the premium payment on the supposed date. Affidavits from the insurer's cashier, development officer, and divisional manager explained that provisional receipts were issued but later canceled because the necessary documents were not submitted in time. Thus, the complainant failed to prove any transaction to conclude the contract occurred, and the insurer brought a letter on record indicating the cancellation of the receipt and return of the payment.

Observations by the Commission

The Commission observed that, in this case, the insurer hadn't encashed the cheque for the insurance premiums as of the incident date. Therefore, the insurance contract couldn't be considered concluded. This non-encashment was due to the fact that the required inspection condition survey hadn't been conducted, and the necessary documents hadn't been submitted to the insurer. The commission emphasized that the complainant's assertion that a provisional receipt had been issued couldn't validate the insurance policy's renewal since the cheque remained uncashed. Furthermore, per the State Commission's correct interpretation, such a receipt held no significance and didn't confer any rights. The commission cited the Supreme Court case National Insurance Co. Ltd. vs. Seema Malhotra & Ors. wherein it was held that an insurance contract requires reciprocal promises and if the insured fails to pay the premium or the cheque bounces, the insurer is not obligated to fulfill the contract, rendering it void. Consequently, the insurer rightfully denied the claim, and the State Commission's decision accurately reflected the legal context.

The National Commission did not find any merit in the complainant's appeal and upheld the State Commission's order.

Case Title: Vaibhavi Dredging Vs. National Insurance Co. Ltd.

Case Number: F.A. No. 862/2013

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