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Petitioner: MESSRS CRESCENT STAR INSURANCE CO. LTD. VS Respondent: MESSRS S. M. ABDULLAH & JUDGMENT
Court Name: Sindh High Court Judge(s): Ajmal Mian Title:MESSRS CRESCENT STAR INSURANCE CO. LTD. vs MESSRS S. M. ABDULLAH &
JUDGMENT
Reported As: 1980 CLC 1919 Result: Suit decreed Judgment JUDGMENT ' This is a suit for the recovery of Rs, 40,392.55. The facts leading to the filing of the above suit are shortly, that the defendants wanted facility in payment of premium of the policies issued in their favour and a mutual arrangement was entered into between the parties under which it was agreed that the plaintiffs on the request and advice of the defendants would issue policies and undertake risk thereunder in respect of non-payment of the premium in advance and that the defendants would pay such premium afterwards on receiving statement/bills from the plaintiffs. It has also been averred that a collateral security for the payment of premium of the policies issued by the plaintiffs under the above arrangement, the defendants furnished a bank guarantee dated 10-5-68 from the Standard Bank Ltd. To the extent of Rs, 9,000 for the period expiring on 9-11-1968, but the plaintiffs did not enforce the above bank guarantee on the understanding given by the defendants that they would pay the premium in due course under the arrangement. It has been further averred that in furtherance of the above arrangement the defendants got a number of policies issued by the plaintiffs in their favour without paying premium in advance and that under some of such policies there occurred losses for which the defendants lodged claims with the plaintiffs, which the plaintiffs paid acting upon the said arrangement and that the defendants have received a benefit of more than Rs, 4,29,000 under the said arrangement, and in view of the conduct, the defendants are estopped from challenging the said arrangement. It has also been averred that the defendants paid the premium on the policies issued from time to time under the said arrangement upto 21-5-67, but for the period commencing thereafter a sum amounting to Rs, 40,392.55 is outstanding, the detail of which including of the policies is given in the schedule
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annexed to the plaintiff marked A. It has also been averred that the plaintiffs sent registered letters mentioned in para. 7 of the plaint, in reply to which the defendants admitted their liability to the extent of Rs, 10,000 and no further amount. On the basis of the above averment the plaintiffs have claimed the above amount. 2. The defendants have filed a written statement, in which it has been averred that the agreement/arrangement alleged was contrary to law and was null and void and of no legal effect and that a bank guarantee to the extent of Rs, 9,000 was given by the defendants to the plaintiffs, which the plaintiffs did not enforce. It has denied that the defendants gave any understanding as alleged in para. 8 of the plaint. It has been further denied that there was any arrangement, as alleged or any policies were issued under the alleged arrangement. It has been averred that any policy issued under the alleged arrangment would be null and void and of no legal effect. It has been further averred that the plaintiffs had paid some claim against the policies validly and properly issued to the defendants' banker prior to the alleged agreement/arrangement. It has been denied that the claim amounting to Rs, 4,25,000 or thereabouts was paid under the alleged agreement/arrangement or that on that basis estoppel can be pleaded against the defendants or the defendants are estopped from challenging the alleged agreement/arrangement. It has also been denied that Rs, 40,392.55 or any sum is outstanding or payable by the defendants to the plaintiffs. It has been averred that the detail and statement contained in Schedule A to the plaint are not admitted and the plaintiffs are put to strict proof of each and every item thereof. It has been further averred that the various sums shown in Annexure A are not recoverable because the alleged policies certificates pertaining to them were issued contrary to law and were null and void and of no legal effect. It has also been averred that the admission of liability to the extent of Rs, 10,000 on the part of the defendants in response to the plaintiff's letters was made under mistake of facts and that the same was revoked, disclaimed and disputed. It has also been averred that the defendants are entitled to claim from the plaintiffs various sums in regard to the various proposals and/or policies properly and validly made and/or issued and that because the plaintiffs have been withholding the requisite information and particulars to prevent the defendants from determining the exact sum claimable by the defendants but they claim a round sum of Rs, 20,000. However, no formal counter claim was made and no counter fee was paid. The defendants have denied their liability to pay any amount. 3. On the basis of the above pleadings the following issues were framed on 13-4-70: "(1) What was the mutual arrangement, if any entered into between the parties and whether the arrangement actually entered into was contrary to law, null and void and of no legal effect? (2) Whether the plaintiff did not enforce the bank guarantee because the defendant had given an understanding to pay the premiums in due course and the plaintiffs relied on the understanding? (3) Whether the defendant got issued policies under the arrangement mentioned in Issue No, 1 above and, if so, whether such policies or any of them were null and void and of o legal effect? (4) Whether the benefit of Rs, 4,29,000 or thereabouts was given by the plaintiff to the defendant under the arrangement mentioned in ssue No, 1 above and whether the defendant is thereby estopped from challenging the said arrangement? (5) Whether Rs, 40,392.55 or any sum is outstanding as premium on policies issued by the plaintiff to the defendant and whether all or any of such policies were issued contrary to law and were null and void and of no legal effect and, if so, what is the effect? (6) Whether the admission of liability to the extent of Rs, 10,000 was made by the defendant under mistakes of fact and whether the same, is revocable, disclaim able and disputable? (7) Whether the defendant is entitled to claim Rs, 20,000 or thereabout from the plaintiff if so, what is its effect on the plaintiff's claim in the suit?" ' My findings on the above issues are as under:-
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4. (a) Issues Nos. 1, 3 and 5.-These issues can be taken up together as they mainly 'elate to the legality of insurance policies. There is no controversy on the question that the plaintiffs issued the insurance policies from time to time on the basis of the arrangement pleaded in the plaint. The controversy relates to the legality of such arrangement. It has been urged by Mr. Nur Mohammad learned counsel for the defendants that the alleged arrangement was hit by section 3-Ct4) of the Insurance Act (hereinafter referred to as the Act) read with rule 44 of the Insurance Rules, 1958 (hereinafter referred to as the Rules) whereas it has been urged by Mr. Hyder Ali Pirzada that the effect of section 3-C(4) read with rule 44 is not to make the insurance policies void but it will entail the penalty provided for under the Act for the alleged contravention of the aforesaid provisions. In order to appreciate the respective contentions of the parties, it would be advantageous to reproduce hereinbelow section 3-C(4) and rule 44 which read as under :- (2) 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;" "Rule 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- (0 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 the credit of the proposer or his agent sufficient to cover the full premium payable for the insurance; (iii) has a bank guarantee in Form 'X' X 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 in 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 1.-In the cases governed by this rule, no risk shall be covered from a date of earlier than- (a) the date on which the premium has been delivered in cash or by cheque to the insurer 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 posing, or by money-order. ' Explanation 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 /1I.--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 IV.-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 dispatches the premium by post within 24 hours of its collection." ' It may be noticed that under the above-quoted provisions of section 3-C(4), it has been provided that no insurer shall assume in Pakistan any risk in respect of general insurance policies (which will include fire insurance which was the subject-matter of the policies in question) unless and until the
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premium payable or such part thereof as may be prescribed has been received by him or has been guaranteed to be paid by such persons in such a manner and within such time as may be prescribed. Whereas rule 44(iii) contemplates furnishing of a bank guarantee in Form XIX for guaranteeing the payment of an amount sufficient to cover the amount of the full premium payable in lieu of cash payment. (b) It has been urged by Mr. Nur Mohammad learned counsel for the defendants that in the instant case, according to averment in the plaint, no premium was received or guaranteed in terms of section 3-C(4) of the Act read with rule 44 of the Rules and, therefore, the contracts of insurance were void ab initio. His further submission was that even a bank guarantee for an amount of Rs, 9,000 referred to in the plaint has not been relied upon for the purpose of validating the insurance policies, but a general reference has been made and, therefore, no reliance can be placed on the aforesaid bank guarantee in order to validate some of the insurance policies detailed in Annexure A to the plaint Exh. 7/8. In support of the above contention Mr. Nur Mohammad has referred to the case of Eastern Federal Insurance Co. Ltd. v. Bawany Industries (1), the case of M. Jamil Ahmed v. Commissioner of Karachi and another (2) the case of Government Clerk's Mutual Benefit Fund Nagpur v. F. Corporation and another (3). The Statutory Construction by Crawford, 1940 print p. 268, the Interpretation of Statutes, by Bindra, 1967 Edition at page 74, and Maxwell on the Interpretation of Statutes, 195; print, page 376. On the other hand, Mr. Haider All Pirzada has referred to the case of Pamulapati Bhushayya v. Commareddy Chinnapareddi and another (4), the case of Smt. Jankibai Chaunnilal v. Ratan Malu (5) and the case of Herald Robert Henry Lind v. British Insulated Calendars Construction Co. Ltd. (6). (c) (i) Reverting to 1979 Kar. Case it may be observed that in the above case the subject-matter of the controversy was section 3C of the Insurance Act and rule 44, after discussing the above provisions it has held by me that the insurance policies which were the subject-matter of the suit were enforceable as they were backed by the bank guarantees in terms of rule 44. The question as to whether an insurance policy which is not supported by a bank guarantee can be enforced, was not in issue, and, therefore, the facts of the above case are distinguishable from the instant case in respect of the insurance policies which were not backed by the aforesaid bank guarantee of Rs, 9,000. (ii) Reverting to 1958 Karachi case, it may be stated that the question before a Division Bench of the erstwhile High Court of West Pakistan Karachi Bench was as to whether the action of dissolving of the Karachi Municipal Corporation under section 280 of the Karachi Municipal Act 1933 was valid or not. It was held that the decision to dissolve the Karachi Municipal Corporation was outcome of quasi-judicial rendered the above action liable to be set aside by a writ of certiorari. It was further observed that in every case the object of the status must be looked at before deciding whether a statutory provision is merely of a directory or mandatory character and that a breach of a mandatory provision always entails legal consequence vitiating all the proceedings taken in regard of it. With reference to the above case, it may be observed that it was pointed out by Mr. Haider All Pii zada that the above case was the subject-matter of an appeal before the Supreme Court. The judgment of the High Court was reversed by the Supreme Court, the judgment of which is reported in Chief Commissioner of Karachi v. Jamil Ahmed and another (7). The majority view of 'the Supreme Court was that the main notification under: (1) PLD 1971 Kar. 323 (2) PLD 1958 Kar. 56 (3) AIR.1946 Nag. 196 (4) AIR 1960 Andh. Pra. 39 (5) 1962 Madh. Pra. 117 (6) PLD 1970 Kar. 315 ' Section 280 of the Act satisfied the requirements of that provisions and that the manner and details of publication were merely directory.
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(iii) Reverting to 1946 Nagpur, it may be observed that in the above case it was held that a company having failed to obtain registration certificate in terms of section 3 of the Companies Act, was obliged to stop business from 1-10-39 and that the contributions from the members from 1-10- 39 did not form the assets of the company and could not be claimed legally as part of the company's assets. (iv) Reverting to Crawford on the Construction of statutes, it may be stated that the learned author of the above book has inter alia observed at pages 267 and 268 that a statutory grant of a power, privilege or property carried with it by implication necessary to its enjoyment or exercise and that the creation of new duty or obligation or the prohibition of an act formerly lawful, carries with it by implication a corresponding remedy to assure its adherence and that an act performed in contravention to a prohibitory statute is by implication void. (v) With reference to interpretation of statutes and General Clauses Act by Bindra 1957th Edition, it may be stated that the author at page 74 of the above book has observed that a contract which involves its performance either directly or collaterally the doing of something which would be in contravention of statute of the kind referred to in the book the contract would be invalid and unenforceable. (vi) Whereas Maxwell in 10th Edition at page 376 has observed that a strong line of distinction may be drawn between the cases where the prohibition of the Act affects the performance of a duty and where they relate to privilege or power and that where the power, rights or immunities are granted with the direction that certain regulations, formalities or conditions shall be complied with, it seems neither unjust nor inconvenient to exact a rigorous observance of authority as essential to the acquisition of the right or authority conferred. (vii) Reverting to 1960 Andhra Pra., it may he stated that while considering the effect of a partnership entered into in contravention of the provisions of the Central Excise and Salt Act, a Division Bench of the Andhra Predesh High Court was pleased to observe that apart from the fact that under the rule there is distinction, cases under the Abkari, Opium or Forest Act have no application in determining the validity of the partnership made in contravention of the provisions of the Central Excises and Salt Act as the prohibition is for protection or convenient collection of revenue and that where statute merely imposes a penalty without declaring it to be illegal or void, the imposing of penalty by itself does not have the effect of making any contract made in contravention of specific provisions of the statute illegal or void. (viii) With reference to 1962 Madhya Pradesh, it may be stated that it is a case of Full Bench in which while considering the effect of non-registration of a money lender under the C. P. And Berar Money-Lenders Act (13 of 1934), it has been held that when an enactment merely imposed a penalty without declaring a contract made in contravention of it to be illegal or void, the imposition of the penalty, by itself and when no more, does not necessarily imply a prohibition of the contract. In such case the question always is whether the Legislature intended to prohibit the contract which question is to be decided upon a construction of the statute and that if the object of the enactment or one of its objects in imposing penalty is to protect general public or any class thereof, it will be construed in the absence of any other indication of contrary intention expressed in the statute, as implying a prohibition of the contract, but on the other hand, if the object of imposing a penalty is merely the protection of the revenue, the contract will not be regarded as prohibitory by implication. (ix) Reverting to 1970 Karachi case, it may be observed that the question before a Single Judge of this Court was as to whether non-registration of foreign companies under section 277 of the Companies Act will make the contract entered into by such Companies with the third parties invalid or illegal. It was held that under section 277 every company incorporated outside Pakistan has to register itself with the Registrar of Companies and to supply to the Registrar information
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prescribed under the section and the section imposes a fine on any foreign company which fails to comply with any of the requirements of section 277. But the section does not contain any provision which would have the effect of invalidating or rendering illegal any contract by a foreign company which has failed to comply with the provisions of the aforesaid section. (d) It is an admitted position that section 3-C(4) does not provide that a contract entered into in breach of the above provision shall be void, or illegal. Mr. Haider Ali Pirzada has invited my attention to the various provisions of the Act, including the provisions providing penalty for nonobservance or contravention of any provisions. In this regard he has referred to sections 3(4)( f), 3(5), 48(A) sections 102 and 103, in order to support his contention that the Act itself provides penalty for contravening any provisions of the Act, and that the effect of non-observance of any of the provisions has no bearing on the validity of the contract entered into between an insurance company and a third party. The object of section 3-C(4) seems to be to ensure the recovery of premium and not to provide any protection to the public from any act of insurance companies. In my view the Ac and the rules framed thereunder is a complete code providing penalty for non- observance or contravention of any provision of the Act or the Rules B and that an insurance policy issued in deviation or contravention of section 3-C(4) and rule 44 will not be illegal and unenforceable. I am incline to agree with the .View taken in the above cited cases of 1960 Andhra Pradesi. And 1962 M. P. That in order to determine the validity of a contract one will have to see the object of the enactment or the provision which is in issue and that if the object of the enactment or one of the objects in imposing penalty is to protect general public or any class thereof, it will be construed in the absence of any other indication or contrary intention expressed in the statute as implying a prohibition of the contract. On the other hand, if the object of imposing penalty is merely the protection of the revenue, the contract will not be regarded as prohibited by implication. In the instant case, as observed by me earlier, the intention of section 3-C(4) seems to be to ensure the recovery of such premium. The insurance policies in question cannot be termed as illegal being against the public policy etc. The rulings cited by Mr. Nur Mohammad learned counsel for the defendants referred to hereinabove in my view have no direct bearing on the point in issues, whereas the observations made in the above three books on the interpretation of statutes cited by Mr. Nur Mohammad provide general propositions of law, to which there cannot be any cavil. But as I pointed out hereinabove that the basic question in the present case is to ascertain the object of section 3-C(4) and if the object was merely to ensure the recovery of the premium in the absence of express provision making the contract illegal or unenforcable, no such inference can be drawn by implication. (e) It may be observed that it was urged by Mr. Haider Ali Pirzada that if it is to be held by this Court that the insurance policies in question were void, in that event, section 65 of the Contract Act can be pressed into service and that the plaintiffs will be entitled to recover the premium on the basis of the above section. In this regard reliance was placed on the case of Thakurain Harnath Kuar v. Thakur Indar Bahadur Singh (1) the case of Bagu Raja Mohan Manucha and others v. Babu Manzoor Ahmed Khan and others (2) the case of Province of West Pakistan and another v. Messrs Asghar All Muhammad All & Co. (3) and the case of Nazir Ahmed Khan and 2 others v. Muhammad Ashraf Khan and 3 others (4). Where as it was urged. By Mr. Nur Mohammad learned counsel for the defendants that though section 65 will be attracted if it is to be held that the insurance policies were void, but no relief can be granted to the plaintiffs as alleged benefit received by the defendants cannot be assessed in terms of money as the defendants have not received any claim under the insurance policies in question and that the suit has not been framed in terms of section 65 of the Contract Act. Whereas Mr. Pirzada pointed out that as the defendants under the terms of the pledge with their bankers were obliged to keep the goods (i,e, bales of cotton) insured, they have received the benefits, which can be assessed in terms of premium.
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(f) The parties are on issue on the question of the number of policies in respect of which premium has not been paid. The plaintiffs have filed a statement annexed to the plaint as Annexure A containing the details of the insurance policies, the dates and the premium payable. The above statement has been exhibited as Exh. 7/8 and has been proved through P. W. 3. Whereas the defendants have also filed a statement containing the details of the insurance policies issued by the plaintiff i,e, Exh. 8/19. It has also been urged by Mr. Nur Muhammad on the basis of the deposition of D. W. 1 Fazl-ur-Rehman that an adjustment of a sum of Rs, 11,480-95 which was paid by Standard Bank of Pakistan on behalf of the defendant, has not been given in Exh. 7/8. Whereas it was urged by Mr. Pirzada that the defendants have not given the break-up of the insurance policies or the premium in respect of which the above amount was paid. It may be pertinent to point out that in reply to para. 6 of the plaint the defendants have not specifically denied the issuance of any of the insurance policies listed in Exh. 7/8. They have averred that the details and statements contained in the schedule marked as Annexures A to the plaint are not admitted and the plaintiffs are put to strict proof of each and every item thereof. It may be noted that no cross-examination was directed in order to demonstrate that any one of the insurance policies mentioned…
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