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Petitioner: EASTERN FEDERAL UNION INSURANCE COMPANY LTD. VS Respondent: BAWANY INDUSTRIES JUDGMENT
Court Name: Sindh High Court Judge(s): Ajmal Mian Title:EASTERN FEDERAL UNION INSURANCE COMPANY LTD. vs BAWANY INDUSTRIES
JUDGMENT
Reported As: 1979 CLC 321 Result: Appeal dismissed Judgment JUDGMENT ' This is a suit for the recovery of Rs, 90,586.71 being the amount of the alleged premium in respect of the four insurance policies issued by Messrs Adamjee Insurance Co. Ltd. (hereinafter referred to as the co-insurer) and the plaintiff insurance company jointly having a share of 51% and 49% respectively. The facts leading to the filing of the above suit, as disclosed in the plaint, are that in the year 1974-75, the defendant took out insurance policies as detailed in para. 3 of that plaint from the co-insurer and the plaintiff under the leadership of the former, against fire to cover the defendant's properties mentioned in the policies, namely, the buildings and machinery of the defendant's two mills, situated in the Site Area, Karachi. It has been averred that as at the time of the underwriting of these policies, it was not possible to calculate the premium accurately, the defendants were asked to pay part of the premium in advance as a security for the payment of the full premium when properly scrutinised. It has been further averred that the defendants paid part of the premium in respect of the above policies which premium was adjusted by Messrs Adamjee Insurance Co. Ltd. Towards their part of the premium and that it was agreed that the plaintiff shall recover their share of the premium. It has been further asserted that on receipt of the full information from the defendants, the plaintiff's share of the premium was calculated and the amount of Rs, 90,586.10 was intimated to the defendants during the subsistence of the insurance policies. It has been further averred that in pursuance of this arrangement the defendants paid a sum of Rs, 25,000 by way of a post-dated cheque which was required to be kept as a security for the payment of the full premium of all the four policies.
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2. It has also been asserted that during the terms of the said insurance policies the plaintiff and the co-sharer remained under risk and had undertaken to meet all claims arising out of the above four policies. It has also been averred that when on the due date, the above cheque was presented to the bank the same was returned uncashed with the remark "not arranged for". It has been further averred that the defendants admitted their liability and promised to pay the full amount but excused the delay in the payment on the short ground that they were facing financial crisis and requested for further time for the payment of the above amount. It has also been averred that the plaintiff through their letter dated 9-9-1976 asked the defendants to pay a sum of Rs, 90,586.71 in respect of the above policies and it was also pointed out to the defendants that Rs, 45,298.66 was in respect of the year 1974 and the balance was for the year 1975. It has also been asserted that the defendants' attention was also invited to the fact that the aforesaid cheque was dishonoured. It has been further asserted that thereafter the plaintiff sent another letter dated 19-11-1976 and eventually a notice dated 15-12-1976 under section 163 of the Companies Act through their Advocate. It has been further averred that in reply to the plaintiff's Advocate's above notice the defendants sent a reply dated 20-12-1976, wherein they admitted their liability and promised to clear the dues as soon as possible and they had also promised to pay Rs, 25,000 in the first week of January 1977, and to pay the balance from the next month, in instalments. It has also been averred that in spite of the above admission and promise the defendants failed and neglected to pay the due amount and, therefore, the plaintiff has to file the above suit. 3. The defendants have filed their written statement in which inter alia it has been asserted that the plaintiff never issued any of the policies as numbered in the plaint either themselves or through the co-insurer, It has also been averred that the defendants never filed any proposal for the said purpose with the plaintiff. It has been also asserted that the plaintiff neither issued any of the policies as mentioned in para. 3 nor any such premium was ever communicated or demanded by the plaintiff in writing from the defendants during the year 1974-75. It has also been averred that the paras. 9 and 10 of the plaint are vague and evasive and no particulars of the cheque relating to the date, number and covering letter are given. It has also been averred that the plaintiff's aforesaid notice dated 15-12-1976 under section 163 of the Companies Act, for winding up of the company was vague and general and that the defendants in those days were very much purturbed due to the closure of the mills, attachment of their offices, strikes, let off, retrenchment, etc. And that the documents and files were not readily available as such they gave a general reply to the said notice. It has also been denied that the defendants' reply to the above notice contains the defendants' admission of the liability in any manner. It has also been asserted that the defendants never admitted any liability to the specific claim in respect of the insurance policies detailed in para. 3 of the plaint. It has also been averred that there was no express or implied admission of the liability on the part of the defendants and that the defendants were not liable to pay any premium in respect of the policies which were never issued by the plaintiff in order to cover the risk. It has also been asserted that the contract is void and is liable to be set aside and that the demand was false, vexatious and was fraud on statute and, therefore, the defendants in law are not liable to make any payment, as alleged by the plaintiff. 4. On the basis of the above pleadings the following 3 issues were framed (1) Whether the suit for the recovery of insurance premium is maintain. Able ? (2) What is the effect of admission of liability contained in the letter of the defendant dated 20-12- 1976? (3) Relief. 5. (a) Issue No, 1.-This is the main issue. In support of the above issue Mr. Abdul Rauf, the learned counsel for the plaintiff has relied upon Exhs. 5/1, 5/2, 5/3 and 5/4 (which are the attested copies of the four insurance policies issued by the plaintiff and the co-insurer), Exhs. 6/12, 6/13, 6/14 and 6/15
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are the plaintiff's office copies of the four insurance Policies containing the insurance numbers given in para. 3 of the plaint. Exh. 6/2, a dishonoured cheque, dated 29-1-1976, Ex. 6/5, copy of the plaintiff's letter dated 9.9-1976, Exh. 6/6 plaintiff's letter dated 19-11-1976, Exh. 6/7 plaintiff's letter dated 4-1-1977, Exh. 6/8, plaintiff's letter dated 17-1-1977, Exh. 6/9, plaintiff's letter dated 23-2-1977, Exh. 6/9. (It may be noted that Exhs. 6/5 to 6/9 are the copies of the plaintiff's letters addressed to the defendants for requesting the payment of premium in question), Exh. 6/10. Plaintiff's Advocate's notice dated 15-12-1976 under section 163 of the Companies Act, and Exh. 6/11 its reply dated 20-12- 1976. (b) Whereas Mr. Abdus Samad learned counsel for the defendants has contended that on the basis of the above documentary evidence no liability for the payment of the premium can be imposed on the defendants as there was no risk cover provided by the plaintiff for the reason that without receiving any premium the plaintiff could not have covered any risk in view of section 3(c) (4) of the Insurance Act read with rule 44 of the Insurance Rules, 1958. He further submitted that as the alleged four insurance policies were in violation of the above provisions of the Act and the Rules, they cannot be enforced through legal process. The above contentions raised by the learned counsel for the defendants involve the determination of two questions namely, as to whether in fact the four policies were issued by the plaintiff and the co-insurer, and secondly, as to whether these policies were in accordance with the Insurance Act and the Rules framed thereunder and were enforceable through legal process. (c) Reverting to the first question, it may be observed that Exhs. 5/1 to 5/4 are the attested copies of the four insurance policies. It may be noticed that at page 1 of the policies the names of the co- insurer and of the plaintiff as the insurers are mentioned. Furthermore, at page 2 of the schedule of the insurance policies in column 1 the names of the co-insurer and of 'the plaintiffs with their respective share of risk are stated i,e, 51 % and 49% respectively. In column 2 of the said schedule, the sum insured by the coinsurer is given as Rs, 76,50,000, and whereas the sum insured by the plaintiff is given as Rs, 73,50,C09. Furthermore, in column 3 the gross premium payable to the co- insurer and to the plaintiff are mentioned and whereas column 5 indicates the net premium payable by the defendants to the co-insurer and to the plaintiff. It may also be mentioned that in column 5 A the word "Sd." has also been written under the caption signature against the names of the co-insurer as well as against the name of the plaintiff, meaning thereby that both had signed the schedule with the object to admit their risk to the extent mentioned therein. It may also be pertinent to mention here that the plaintiff had served a notice under Order XII, rule 8, C. P. C. On the defendants calling upon them to produce the original insurance policies but the defendants did not produce any policy. The notice served by the plaintiff's Advocate on the defendants' Advocate has been brought on record as Exh. 6/1. In the absence of the original policies the attested copies of the policies were exhibited. On this view of the matter, it can be presumed that these attested copies reflect the correct position as to the detail of the policies particularly, when no cross- examination was directed by the defendants to challenge the veracity of the above policies. (d) Mr. Abdus Samad learned counsel for the defendants has pointed out that in para. 3 of the plaint the plaintiff has not given the numbers of the aforesaid four insurance policies, namely, Exhs. 5/1 to 5/4 but have mentioned some other policies and, therefore, the above four policies cannot be relied upon by the plaintiff. But whereas the learned counsel for the plaintiff Mr. Abdul Rauf has invited my attention to Exhs. 6/12 to 6/15 which are the plaintiff's office copies of the insurance policies covering the above four general insurance policies Exhs. 5/1 to 5/4. It was submitted by the learned counsel for the plaintiff that in a co-insurance policy the insurance company which takes the major share of the risk is called the leader and the latte issues a joint policy in favour of the insured and the other co-insurer gives its own number to the risk covered by it in the joint insurance policy for accounting purpose. His submission was that Exhs. 6/12 to 6/15 contain the
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sam detail as given in Exhs. 5/1 to 5/4 except that a separate number for each insurance policy has been assigned by the plaintiff's company for it's own record for accounting purpose with the object to cover the risk to the extent mentioned in Exhs. 5/1 to 5/4. P. W. 1 Exh. 5 a representative of the coinsurer, who was summoned by the plaintiff, has stated that his company and the plaintiff had jointly issued four insurance policies on co-insurance basis, insuring building, machinery etc. Against the fire and riots and that Exhs. 5/1 to 5/4 are the true office copies of the said insurance policies. He has further stated that the share of the co-insurer was 51 % and of the plaintiff 49%. (e) In the cross-examination the above witness has further stated as follows :- "It is correct that the numbers of policies Exhs. 5/1 to 5/4 are not the same as mentioned in paragraph 3 of the plaint the policy bears our number and the co-insurer endorse their numbers on the copies of the leader's policies. We sent the original policies to the defendants bearing our numbers on the policies and not the numbers of the EFU ; It is correct that we have not mentioned in our policies Ext s. 5/1 to 5/4 the numbers given by the EFU. I have not brought the policies of the numbers mentioned in the summons which I produce marked as Exh. 5/5 because the policies are same and Adamjee Insurance Co. Has given its own numbers while the Eastern Federal Union has allotted its own numbers on the same policies for accounting purpose." ' It may also be advantageous to refer to the statement of P. W. 2 Exh. 6 on the above point who has stated as under :- "When Adamjee Insurance Co. Issued the insurance policies in favour of the defendants they supplied us duplicate copies of the insurance policies. On receiving the copies from Adamjee Insurance Co. We allotted to those copies our own numbers for accounting purposes. My company covered the risk for the entire period mentioned in the insurance policies and remained at risks for the entire period." The above-quoted statements of P. Ws. 1 and 2 clearly explain the reason as to why the same policies were given two different numbers and their testimony also establishes the fact that the four insurance policies were issue jointly by the plaintiff and the co-insurer of the amount mentioned therein. C On the basis of the above documentary and oral evidence, in my view, it has been established that in fact the four insurance policies were issued by the plaintiff and the co- insurer for covering the risk of fire and riots etc. In respect of the defendants' two mills. 6. (a) Reverting to the second question namely, as to whether the above four insurance policies were legal and enforceable as to entitle the plaintiff to maintain a suit for the recovery of premium. In order to appreciate the above point, it will be necessary to refer to the provisions of the Act and the Rules relied upon by the learned counsel for the parties, namely, section 3-C (4) of the Insurance Act and rule 44 of the Insurance Rules, 1958, which read as follows :- "3-C (1) .................................... (2) ........................ (3) ................................. (4) No insurer shall assume in Pakistan any risk in respect of general insurance business unless and until the premium payable or such part thereof as may be prescribed, has been received by him or has been guaranteed to be paid by such person in such manner and within such time as may be prescribed ;" "44. Collection where premium can be ascertained in advance.-Where the premium in respect of any insurance can be ascertained in advance, no insurer shall assume any risk in respect of general insurance business unless the insurer- (I) has received in cash or by cheque or by money-order the full premium payable for the insurance ; (ii) has an amount in deposit to credit of the proposer or his agent sufficient to cover the full premium payable for the insurance ;
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(iii) has bank guarantee in Form 'XIX' guaranteeing the payment of an amount sufficient to cover the amount of the full premium payable for the insurance in question and also previous insurance, if any, in respect of which the premium has not been paid ' Provided that in the case of annual insurance "connected with aircraft hulls" and "connected with marine hulls", an insurer may cover the risk of respect thereof if an amount not less than one-fourth of the premium payable has been paid or guaranteed to be paid in the manner laid down in this rule and a clause governing the payment of the premium in instalments not exceeding four in number is endorsed on the policy. Explanation I.-In the cases governed by this rule, no risk shall be covered from a date earlier that- (a) the date on which the premium has been delivered in cash or by cheque to the insurer or to his agent or into a collecting Bank duly authorised in that behalf; (b) the date on which the premium has been remitted to the insurer or to his agent or into a collecting Bank duly authorised in that behalf, in cash or by cheque by either registered post or under a letter with certificate of posting or by money-order. ' Explanation II.-In the case of a request for insurance accompanied by a cheque or money-order, it will be permissible for the insurer retrospectively to commence the risk from the date of posting the cheque or the date of remittance of the amount by money-order, as the case may be. ' Explanation III.- Payment by cheque shall mean that the cheque is valid for encashment on the next Bank working its receipts by the insurer and shall be so presented. ' Explanation W.-Every agent shall deposit the full premium so collected with the insurer within 24 hours of the collection, excluding Bank and postal holidays. It would be sufficient compliance with this regulation if the agent despatches the premium by post within 24 hours of its collection." (b) It may be noticed that subsection (4) of section 3-C (which was enacted by Act XXVII of 1958) provides that no insurer shall assume in Pakistan any risk in respect of general insurance policies unless and until the premium payable or such part thereof, as may be prescribed, has been received by such person in such manner and within such time as may be prescribed. It contemplates that an insurer before issuing a general insurance policy which covers a fire policy, should either receive the premium or the premium should have been guaranteed to be paid. Whereas rule 44, quoted herein-above, provided that where the premium in respect of any insurance can be ascertained in advance no insurer shall assume any risk in respect of general business unless the insurer has received in cash or by cheque or by money-order the full premium payable for the insurance of an amount in deposit to the credit of the proposer or his agent sufficient to cover the full premium or a Bank guarantee in Form XIX guaranteeing the payment of the amount sufficient to cover the amount of the full premium. In other words rule 44 categorises three different categories for the payment of premium, namely- (1) cash or by cheque or by money order, (ii) a deposit with the insurer to the credit of the insured for adjustment of the premium, (iii) a bank guarantee for the premium. (c) The above four insurance policies were backed by a Bank Guarantee of Rs, 1,50,000 mentioned in Exhs. 5/1 and 5/4. The other two insurance policies Exhs. 5/2 and 5/3 give the receipt No, in respect of the above bank guarantee. It may be advantageous to give the detail of the four insurance policies in respect of the subject-matter insured, the amount of the premium and the period etc. Which is as under :-{{TABLE}} 2 3 4 5 Exh. No, Subject-matter of Period. Amount Bank guarantee/ the insurance. Of premium. Receipt. (1)5/1 Defendants's mill 1-10-74.
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63650.61 No, 74/1048 for No, 1 situated in to Rs, 1,50,000 paid SITE on Plot 1-10-75. Vide S. No, No, 4/5 building 19878/10/75 & machinery. Dated 22-10-75. (11)5/4 Defendant's mill 1-10-74 Rs, 28,774 No, 74/1048 for No, 1 situated in to Rs, 1,50,000 paid SITE on Plot 1-10-75. Vide S. No,, No, A/5 building 19878/10/75 & machinery. Dated 22-10-75. 1 2 3 4 5 (iii)5/2 (iv)5/3 Defendant's mill No, 1 situated in Site on Plot No, A/5 building & machinery. Defendant's mill No, 2 situated in 1-10-75 to 1-10-76. 1-10-76 to Rs, 63,650.61 Rs, 28,774 Receipt No, 19874 dated 22-10-75. Receipt No, 19874 dated Site on Plot 1-10-77 22-10-75. No, A/5 building and machinery. {{TABLE}} ' It may be observed that Exhs. 5/1 to 5/4 cover 1 year period commencing from 1-10-74 to 1-10-75 and the total amount of premium payable by the defendants to the co-insurer and to the plaintiff for the above two Insurance Policies was Rs, 92,424.61 against which the bank guarantee of Rs, 1,50,000 mentioned hereinabove was provided by the defendants. Exh. 5/1 bears guarantee No, of 1974 and has also mentioned that 'paid vide receipt No, 19878/10/75 dated 22-10-75. The above endorsement indicates that in addition to the Bank Guarantee the premium was also paid whereas Exhs. 5/2 and 5/3 cover the insurance policy commencing from 1-10-75 to 1-10-76. (d) It may be observed that the above two insurance policies have referred to the aforesaid receipt No, 19878/75 dated 22-10-75. The total premium of these two insurance policies payable by the defendants was also the same amount as of Exhs. 5/1 and 5/4, viz. Rs, 92,424.61. In other words the total premium payable against the four insurance policies was Rs, 1,84,849.22 and whereas the amount of the bank guarantee was only Rs, 1,50,000. However, this deficiency has been covered by the fact that the defendants had paid to the co-insurer their share of the premium referred to hereinabove. P. W. 1 (Exh. 5) has also stated that Adamjee Insurance Co. Received their share of premium on 2-10-75 a total sum of Rs, 47,136.54 on the two insurance policies were issued in 1975. It appears that before the receipt of the above payment the co-insurer had also received the in above. In view of the fact that the above four insurance policies were backed by a bank guarantee of Rs, 1,50,000 and by the cash payment of the premium in respect of the two earlier policies issued in 1974 referred to her share of the co-insurer these policies have complied with the provisions on section 3 (e)(4) of the Insurance Act, 1938, quoted hereinabove as well as the requirement of rule 44 of the Insurance Rules, 1958, quoted hereinabove, and, therefore, prima facie these insurance policies were valid and legal. (e) Mr. Abdus Samad learned counsel for the defendants has submitted that under clause (2) of rule 51 of the Insurance Rules, 1958, it has been provided that where the risk in respect of any insurance is covered on the basis of a bank guarantee under rule 44 (iii), the premium in respect of the risk assumed in a calendar month should be paid before the end of next succeeding calendar month. It was urged by him that as admittedly no payment was made to the plaintiff by the defendants the above insurance policies were not valid. In my view the above contention is devoid of any force inasmuch as the comparison of rules 44 and 51 clearly bears out that whereas rule 44
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has used prohibitory language by providing that whereas premium in respect of any insurance can be ascertained in advance no insurer shall assume any risk in respect of general insurance policies unless the insured either pays the amount in cash or provides a bank guarantee, etc. And whereas in rule 51 no such prohibitory language has been employed. It is true that it provides that premium in respect of the risk assumed should be paid before the end of the next succeeding calendar month. In my view the above provision seems to be directory in nature and not mandatory. The object of section 3(c)(4) and rule 44 appears to be that the recovery o the premium should be ensured before assuming the risk in respect of a general insurance and that object is achieved if the premium is guaranteed by a bank guarantee. The provisions of rule 44 are in consonance with the aforesaid provisions of section 3(c)(4) of the Act. (f) Before parting with the discussion, it may be pertinent to point out that under clause (7) of the above rule 51, it has been provided that in case of co-insurance the premium shall be deemed to have been duly paid if paid on the full insurance policy to any one of the co-insurers. In other words the above clause of rule 51 authorises the collection of premium or obtaining of a bank guarantee by the co-insurer on behalf of the other co-insurers. In this regard, it may be observed that the co- insurer had forwarded the bills for the entire premium in respect of the above four insurance policies, i,e, even in respect of amount of the premium payable to the plaintiff. The above bills have been brought on record and have been exhibited as Exhs. 5/6, 5/7, 5/8 and 5/9, the details of the above bills are as follows:- (I) Exh. 5/6 bill dated 23-10-74 for an amount of premium demanded Rs, 18,777. (II) Exh. 5/7 bill dated 23-10-74 for an amount of premium demanded Rs, 63,650.61. (iii) Exh. 5/8 bill dated 23-10-75 for the amount of premium demanded Rs, 28,774. (iv) Exh. 5/9 bill dated 23-10-75 for an amount premium demanded Rs, 63,650.61. ' It may be noticed that the above-quoted amounts correspond with the amounts of the net premiums payable under the four insurance policies and the bills were forwarded to the defendants in the month of October of 1974 and 1975 when the above insurance policies had commenced. In this regard the statement of D. W. 1, Exh. 7 may be pertinent to refer, wherein inter alia he has stated that, "I had received the bills Exh. 5/6 to 5/9". He has further stated as follows:- "It is correct that the policies Exhs. 5/1 to 5/4 mention the name of A damjee…
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