[s 2] Definitions.

—
B N Banerjee & S K Sarvaria : Law of Insurance, 6th Edn
B N Banerjee & S K Sarvaria

B N Banerjee & S K Sarvaria : Law of Insurance, 6th Edn > B N Banerjee & S K
Sarvaria : Law of Insurance, 6th Edn > PART I - The Insurance Act, 1938 >
PART I PRELIMINARY

PART I - The Insurance Act, 1938

PART I PRELIMINARY

[s 2] Definitions.—

In this Act, unless there is anything repugnant in the subject or context,—

183[(1) “actuary” means an actuary as defined in clause (a) of sub-section (1)
of section 2 of the Actuaries Act, 2006 (35 of 2006);
(1A) “Authority” means the Insurance Regulatory and Development Authority of
India established under sub-section (1) of section 3 of the Insurance Regulatory
and Development Authority Act, 1999 (41 of 1999);]
184[(2) “policy-holder” includes a person to whom the whole of the interest of
the policy-holder in the policy is assigned once and for all, but does not include
an assignee thereof whose interest in the policy is defeasible or is for the time
being subject to any condition;]
185[(3) “approved securities” means—
(i) Government securities and other securities charged on the revenue of the
Central Government or of the Government of a 186[***] State or guaranteed
fully as regards principal and interest by the Central Government or the
Government of any 187[***] State;
(ii) debentures or other securities for money issued under the authority of any
Central Act or Act of a State Legislature by or on behalf of a port trust or
municipal corporation or city improvement trust in any presidency-town;
(iii)shares of a corporation established by law and guaranteed fully by the Central
Government or the Government of a 188[***] State as to the repayment of
the principal and the payment of dividend;
(iv)securities issued or guaranteed fully as regards principal and interest by the
Government of any Part B State and specified as approved securities for the
purposes of this Act by the Central Government by notification in the Official
Gazette; and

189[***]]

190[Explanation.—In sub-clauses (i) and (iii)”Government of a State” in

 [s 2] Definitions.—

relation to any period before the 1st November, 1956, means the
Government of a Part A State;]
191[(4) “auditor” means a person qualified under the Chartered Accountants
Act, 1949 (38 of 1949) to act as an auditor of companies;]
192[(4A) “banking company” and “company” shall have the meanings
respectively assigned to them in clauses (c) and (d) of sub-section (1) of section
5 of the Banking Companies Act, 1949 (10 of 1949)193;]
(5) “certified” in relation to any copy or translation of a document required to be
furnished by or on behalf of 194[an insurer or a provident society as defined in
Part III] means certified by a principal officer of 195[such insurer or provident
society] to be a true copy or a correct translation, as the case may be;

196[***]

197[(5B) “Controller of Insurance” means the officer appointed by the Central

Government under section 2B to exercise all the powers, discharge the functions
and perform the duties of the Authority under this Act or the Life Insurance
Corporation Act, 1956 (31 of 1956) or the General Insurance Business
(Nationalisation) Act, 1972 (57 of 1972) or the Insurance Regulatory and
Development Authority Act, 1999;]
(6) “Court” means the principal Civil Court of original jurisdiction in a district, and
includes the High Court in exercise of its ordinary original civil jurisdiction;]
198[(6A) “fire insurance business” means the business of effecting, otherwise
than incidentally to some other class of insurance business, contracts of
insurance against loss by or incidental to fire or other occurrence customarily
included among the risks insured against in fire insurance policies;]
199[(6B) “general insurance business” means fire, marine or miscellaneous
insurance business, whether carried on singly or in combination with one or more
of them;]
200[(6C) “health insurance business” means the effecting of contracts which
provide for sickness benefits or medical, surgical or hospital expense benefits,
whether in-patient or out-patient travel cover and personal accident cover;]
201[(7) “Government security” means a Government security as defined in the
Public Debt Act, 1944 (18 of 1944);]
202[(7A) “Indian insurance company” means any insurer, being a company which
is limited by shares, and,—
(a) which is formed and registered under the Companies Act, 2013 (18 of 2013)
as a public company or is converted into such a company within one year of
the commencement of the Insurance Laws (Amendment) Act, 2015 (5 of
2015);
203[(b) in which the aggregate holdings of equity shares by foreign investors
including portfolio investors, do not exceed seventy-four per cent. of the paid-
up equity capital of such Indian insurance company, and the foreign
investment in which shall be subject to such conditions and manner, as may
be prescribed;]

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 [s 2] Definitions.—

(c) whose sole purpose is to carry on life insurance business or general insurance
business or re-insurance business or health insurance business;]

204[***]

205[(8A) “insurance co-operative society” means any insurer being a co-operative

society,—
(a) which is registered on or after the commencement of the Insurance
(Amendment) Act, 2002, as a co-operative society under the Co-operative
Societies Act, 1912 (2 of 1912) or under any other law for the time being in
force in any State relating to co-operative societies or under the Multi-State
Co-operative Societies Act, 1984 (51 of 1984);
206[(b) having a minimum paid-up capital of rupees one hundred crore in case
of life insurance business, general insurance business and health insurance
business;]
(c) in which no body corporate, whether incorporated or not, formed or registered
outside India, either by itself or through its subsidiaries or nominees, at any
time, holds more than twenty-six per cent. of the capital of such co-operative
society;
(d) whose sole purpose is to carry on life insurance business or general insurance
business 207[or health insurance business] in India;]
208[(9) “insurer” means—
(a) an Indian Insurance Company, or
(b) a statutory body established by an Act of Parliament to carry on insurance
business, or
(c) an insurance co-operative society, or
(d) a foreign company engaged in re-insurance business through a branch
established in India.

Explanation.—For the purposes of this sub-clause, the expression “foreign

company” shall mean a company or body established or incorporated
under a law of any country outside India and includes Lloyd’s established
under the Lloyd’s Act, 1871 (United Kingdom) or any of its Members;]
(10) “insurance agent” means an insurance agent 209[***] 210[***] who receives or
agrees to receive payment by way of commission or other remuneration in
consideration of his soliciting or procuring insurance business 211[including
business relating to the continuance, renewal or revival of policies of insurance];
212[(10A) “investment company” means a company whose principal business is
the acquisition of shares, stocks, debentures or other securities;]
213[(10B) “intermediary or insurance intermediary” shall have the meaning
assigned to it in clause (f) of sub-section (1) of section 2 of the Insurance
Regulatory and Development Authority Act, 1999 (41 of 1999);]
214[(11) “life insurance business” means the business of effecting contracts of
insurance upon human life, including any contract whereby the payment of
money is assured on death (except death by accident only) or the happening of
any contingency dependent on human life, and any contract which is subject to

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 [s 2] Definitions.—

payment of premiums for a term dependent on human life and shall be deemed
to include—
(a) the granting of disability and double or triple indemnity accident benefits, if so
provided in the contract of insurance;
(b) the granting of annuities upon human life; and
(c) the granting of superannuation allowances and 215[benefit payable out of any
fund] applicable solely to the relief and maintenance of persons engaged or
who have been engaged in any particular profession, trade or employment or
of the dependents of such persons;]

216[Explanation.—For the removal of doubts, it is hereby declared that “life

insurance business” shall include any unit linked insurance policy or scrips
or any such instrument or unit, by whatever name called, which provides a
component of investment and a component of insurance issued by an
insurer referred to in clause (9)of this section.]

217[***]

218[***]

219[(13A) “marine insurance business” means the business of effecting contracts

of insurance upon vessels of any description, including cargoes, freights and
other interests which may be legally insured, in or in relation to such vessels,
cargoes and freights, goods, wares, merchandise and property of whatever
description insured for any transit by land or water, or both, and whether or not
including warehouse risks or similar risks in addition or as incidental to such
transit, and includes any other risks customarily included among the risks insured
against in marine insurance policies;]
220[(13B) “miscellaneous insurance business” means the business of effecting
contracts of insurance which is not principally or wholly of any kind or kinds
included in clauses (6A), (11)and (13A);]
221[(13BA) “National Company Law Tribunal” means the National Company Law
Tribunal constituted under section 10FB of 222[the Companies Act, 2013 (18 of
2013)];]
223[(13BB) “the National Company Law Appellate Tribunal” means the National
Company Law Appellate Tribunal constituted under sub-section (1) of section
10FR of 224[the Companies Act, 2013 (18 of 2013)];]
(14) “prescribed” means prescribed by rules made under 225[this Act]; and

226[***]

227[***]

(16) “private company” and “public company” have the meanings respectively
assigned to them in 228[clause (68) and clause (72) of section 2 of the Companies
Act, 2013 (18 of 2013)];

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 [s 2] Definitions.—

229[(16A) “regulations” means the regulations framed by the Insurance Regulatory

and Development Authority of India established under the Insurance Regulatory
and Development Authority Act, 1999 (41 of 1999);]
230[(16B) “re-insurance” means the insurance of part of one insurer’s risk by
another insurer who accepts the risk for a mutually acceptable premium;]
**[(16C) “Securities Appellate Tribunal” means the Securities Appellate Tribunal
established under section 15K of the Securities and Exchange Board of India Act,
1992 (15 of 1992);]

231[***]

[s 2.1] General Note

Some of the clauses of section 2 have been omitted by Act 5 of 2015 but some of the
old commentary is retained for the academic interest of readers.

[s 2.2] Definition Clause, its Interpretation

When the Act itself provides a dictionary for the words used, the court must look into
that dictionary first for an interpretation of the words used in the statute. The court is
not concerned with any presumed intention of the Legislature, its task is to get at the
intention as expressed in the statute. An artificial definition may include a meaning
different from or in excess of the ordinary acceptation of the word which is the subject
of definition; but there must then be compelling words to show that such a meaning
different from or in excess of the ordinary meaning is intended. Where within the
framework of the ordinary acceptation of the word, every single requirement of the
definition clause is fulfilled, it would be wrong to take the definition as destroying the
essential meaning of the word defined.232 But a wrong application of the definition to
cases which are not strictly covered by it cannot vitiate the definition if otherwise it is
not open to challenge.233 The words used in an inclusive definition denote extension and
cannot be treated as restricted in any sense. Where the courts are dealing with an
inclusive definition, it would be inappropriate to put a restrictive interpretation upon
terms of wider denotation.234 The word ‘includes’ in the statutory definition is generally
used to enlarge the meaning of the preceding words and it is by way of extension and
not with restriction.235 The word ‘includes’ is used in the definition clauses in order to
enlarge the meaning of words or phrases occurring in the body of the statute; and when
it is so used these words and phrases must be construed as comprehending not only
such things as they signify according to their natural import but also things which the
interpretation clause declares that they shall include.236 Where there is an explanation
to the main provision of law its scope is very much limited and at any rate the
explanation does not take place of the substantive law.237 But a proviso to a section/rule
is expected to except or qualify something in the enacting part and presumed to be
necessary.238 While interpreting statutes, it is cardinal principle that provisos are read
with the main provision which precedes it.239 The scope of the proviso, is to carve out an
exception to the main enactment and it excludes something which otherwise would have
been within the rule. It has to operate in the same field and if the language of the main
enactment is clear, the proviso cannot be torn apart from the main enactment nor can it
be used to nullify by implication what the enactment clearly says nor set at naught the

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 [s 2] Definitions.—

real object of the main enactment, unless the words of the proviso are such that it is its
necessary effect.240 The proper function of a proviso is to except and deal with a case
which would otherwise fall within the general language of the main enactment, and its
effect is to confine to that case. When the language of the main enactment is explicit
and unambiguous, the proviso can have no repercussion on the interpretation of the
main enactment, so as to exclude from it, by implication what clearly falls within its
express terms.241 However, here is no ruling in which a proviso at variance with the
enacting clause is struck down. Such a proviso ought to have been inserted by the
draftsman as an independent provision and that would have avoided the present
controversy. Thus, a proviso sometimes has to be construed as an independent
provision.242A proviso later in point of time to the enacting clause, shall prevail.
Although it is in conflict with the main enacting clause.243

[s 2.3] Sub-section (1) – Actuary and Qualification of Actuary – English

Position

Under the English Insurance Companies Act, 1958244 of England the prescribed
qualifications of an actuary are that he must be either (i) a Fellow of the Institute of
Actuaries or of the Faculty of Actuaries; or (ii) when application is made by a company
and where, in the opinion of the Board of Trade, special circumstances exist, an
Associate of the Institute of Actuaries or of the Faculty of Actuaries; or (iii) such other
person having actuarial knowledge as the Board of Trade may, on the application of a
company, approve.245

[s 2.4] Sub-section 2(1) – Actuary

To be an actuary within the definition of the Act, he must possess either of the following
qualifications, namely,—

(a) he must be a Fellow of the Institute of Actuaries, London; or

(b) he must be a Fellow of the Faculty of Actuaries in Scotland;

but the following persons may also be called actuaries within the definition of the Act
when the Controller grants an application or permits any of them to sign as actuary who
satisfies the following conditions, namely,—

(a) that he is employed by an insurer or a provident society to carry out any of his or
its obligations under the Act;

(b) that he is an Associate of the Institute of Actuaries, London or of the Faculty of

Actuaries in Scotland; or

(c) that he is a person having actuarial knowledge for any prescribed purpose.246

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 [s 2] Definitions.—

Any person signing as actuary under the Act shall be a Fellow of the Institute of
Actuaries, London, or a Fellow of the Faculty of Actuaries in Scotland [or a Fellow of the
Actuarial Society of India]:

Provided that where application is made to the Controller of Insurance247 and it is shown
to his satisfaction that the employment of an Associate of such Faculty of Actuaries, [or
of such Actuarial Society,] or of any other person having actuarial knowledge for any
specified purpose is expedient in order to enable an insurer or a provident society to
carry out any of his or its obligations under the Act, the Controller of Insurance248 may
grant the application arid permit such person to sign as actuary for the specified
purpose, subject to such conditions and restrictions as the Controller or Insurance thinks
fit to impose.249

An Actuary shall be a Fellow of the Actuarial Society of India:

Provided that where an application is made by any individual to the Authority and it is
shown to the satisfaction of the Authority that the employment of such individual having
actuarial knowledge for any specified purpose sufficient in order to enable an Indian
Insurance Company or a person to carry out any of its or his. obligations under the Act,
the Authority may grant the application and permit such individual to sign as actuary for
the specified purpose, subject to such conditions and restrictions as the authority thinks
fit to impose.250

“Actuarial Society of India” means Actuarial Society of India constituted under Societies
Registration Act, 1860 (21 of 1860).251

[s 2.5] Sub-section 2(1) – Qualification of Actuary – Present Position

“Actuary” means a person skilled in determining the present effects of future contingent
events or in finance modelling and risk analysis in different areas of insurance, or
calculating the value of life interests and insurance risks, or designing and pricing of
policies, working out the benefits, recommending rates relating to insurance business,
annuities, insurance and pension rates on the basis of empirically based tables and
includes a statistician engaged in such technology, taxation, employees’ benefits and
such other risk management and investments and who is a fellow member of the
Institute, and the expression “actuarial science” shall be construed accordingly.252

[s 2.6] Procedure for Appointment of an Appointed Actuary

See regulation 3 of the Insurance Regulatory and Development Authority (Appointed

Actuary) Regulations, 2017.

[s 2.7] Effect of Rejection of the Application

See regulation 4 of the Insurance Regulatory and Development Authority (Appointed

Actuary) Regulations, 2017.

[s 2.8] Sub-section 2(1) – Functions of Actuary

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 [s 2] Definitions.—

The main functions of an actuary under the Act are—

(i) that his certificate, regarding life insurance of the assured rates, advantages,
terms and conditions offered in such policies are workable and sound, is required
when the insurer applies for a certificate of registration under section 3 of the
Act;

(ii) that he may scrutinise the statement of soundness of terms of life Insurance
business when appointed by the insurer and approved by the Controller in case
where it appears to the Controller of Insurance that the rates, advantages, terms
and conditions mentioned in the statement of the insurer are not workable or
sound according to provisions of section 3B of the Act;

(iii)that he is to make actuarial report and abstract in terms of section 13 of the Act;
and

(iv)that he is to sign a valuation statement which is submitted along with the returns
to the Controller as provided in section 15 of the Act.

[s 2.9] Cessation of Appointment of Appointed Actuary

See regulation 7 of the Insurance Regulatory and Development Authority (Appointed

Actuary) Regulations, 2017.

[s 2.10] Powers of Appointed Actuary

See regulation 8 of the Insurance Regulatory and Development Authority (Appointed

Actuary) Regulations, 2017.

[s 2.11] Duties and Obligations

See regulation 9 of the Insurance Regulatory and Development Authority (Appointed

Actuary) Regulations, 2017.

[s 2.12] Absolute Privilege of Appointed Actuary

(1) An appointed actuary shall enjoy absolute privilege to make any statement, oral or
written, for the purpose of the performance of his functions as appointed actuary. This is
in addition to any other privilege conferred upon an appointed actuary under any other
Regulations.

(2) Any provision of the letter of appointment to be appointed actuary, which restricts or
prevents his duties, obligations and privileges under these regulations, shall be of no
effect.253

[s 2.13] Procedure for Preparation of Actual Report and Abstract

See regulation 3 of the Insurance Regulatory and Development Authority (Actuarial

Report and Abstract) Regulations, 2000.

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 [s 2] Definitions.—

[s 2.14] Sub-section (1A) – Authority

With effect from such date as the Central Government may, by notification, appoint,
there shall be established, for the purposes of this Act, an Authority to be called “the
Insurance Regulatory and Development Authority”.254

The Insurance Regulatory and Development Authority is a body corporate having

perpetual succession and a common seal with power to acquire, hold and dispose of
movable and immovable property and to contract. It can sue and be sued. The head
office of the Authority shall be at the place to be decided by the Central Government
from time to time. It is empowered to establish offices at other places in India.

[s 2.15] Composition of Authority

Refer to matter under section 4 of the Insurance Regulatory and Development Authority
Act, 1999.

[s 2.16] Duties, Powers and Functions of Authority

Refer to section 14 of the Insurance Regulatory and Development Authority Act, 1999.

[s 2.17] Sub-section (2) – Policy-holder

A policy is the documentary evidence of a contract of insurance between the parties,

and neither law nor custom disfavours oral evidence to prove the terms of the contract
of insurance.255

The assured is not prohibited either by law or by custom from effecting as many policies
as he pleases upon the same subject-matter and against the same risk. If, therefore,
the insurers want to modify the rights of the assured in this respect they must do so by
an express condition. Such a condition cannot be implied.256

The definition of “policy-holder” is inclusive definition and includes a person to whom

whole of interest of policy holder in the policy is assigned. This definition excludes an
assignee whose interest in the policy is defeasible or is for the time being conditional.
The expression “policy-holder” has been defined in section 2(2) of the Insurance Act,
1938, to include an assignee to whom the whole of the interest of the policy-holder in
the policy is assigned once and for all but excluding him whose interest in the policy is
defeasible or is for the time being subject to any condition.

The policy-holder has no right or specification or immediate control over the funds of the
insurance company. Even in cases where the contingency upon which payment depends
has determined and the policy money has become due and payable and there is default
in such payment, the grantee cannot by reason of such default resort immediately to the
property of the company but must resort only to legal process, which might in its final
result, when the process is executed, affect the property of the company. An insurance
company cannot also be deemed to be a trustee of the policy moneys of its policy-
holders even when the form of the policy creates a charge upon the funds of the
company without any direct promise to pay. An insurance company is in the position of
an ordinary debtor and must be treated accordingly. Hence, apart from the special

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 [s 2] Definitions.—

terms of any particular trust deed it is not open to the policy-holders to take advantage
of anything contained in the Articles of Association of a company, as giving them any
beneficial interest or other claim to the funds of the company on the basis that the
company is in the position of a trustee in relation to the fund.

It may be that the policy-holders have a right to intervene if the company dissipates or
wastes or diverts the funds out of which they expect to be paid the amounts assured to
them on the maturity of their policies. But in the absence of any proof of wastage or
dissipation, the form of investment is a matter for the directors to decide, subject to
their powers in the matter of investment.257

Where the share-holder of an insurance society is also a policy-holder, his rights and
liabilities would be governed by separate sets of conditions and rules. His rights as
policy-holder would be governed by the terms of the policy and his rights as share-
holder would be governed by the Articles of Association. The policy is irrelevant when
the latter rights are to be considered.258

[s 2.18] Sub-section (2) – ‘Policy-Holder’ – English Law

The expression ‘policy-holder’ is defined in the English Insurance Companies Act, 1958,
to mean the person who for the time being is the legal holder of the policy for securing
the contract with the insurance company, or, in relation to bond investment business,
means the person who for the time being is the legal holder of the bond, certificate,
receipt or other instrument evidencing the contract with the company, and—

(a) in relation to life assurance business or industrial assurance business, includes

annuitant, and

(b) in relation to accident insurance business, motor vehicle insurance business or

marine, aviation and transit insurance business, includes a person to whom,
under any policy, any sum is due or a weekly or other periodic payment is
payable, and

(c) in relation to employer’s liability insurance business, includes a person to whom

under any policy, any sum is due or a weekly payment is payable.

A policy-holder may be given a right to participate in the profits of a company and in

such a case he is given the right to participate only in such profits as are properly
accounted. Profits from the surplus fund of the company after payment of losses, if any,
will be available for distribution among the share and policy-holders.259 But where the
company undertakes to pay the policy-holder ‘dividends’ described as ‘profits’ according
to a scheduled scale, such profits could not be contingent on their being a surplus nor
could they be dependent on profits at the rate then prevailing.260

It has been observed that the ‘legal holder of the policy’ means the person who has the
legal title to the policy moneys, and therefore, includes a trustee or legal mortgagee but

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 [s 2] Definitions.—

not a mere beneficiary, an equitable mortgagee or the owner of the equity of

redemption. So also it will include a solicitor exercising his lien for costs upon his client’s
policy.261

[s 2.19] Sub-section (2) – Contract of Insurance – Entitlement of Assured to

Something

In Medical Defence Union v Deptt. of Trade the question was whether the contract was a
contract of insurance at all. The relevant facts in that case were as follows:

The Medical Defence Union Ltd claimed that it was not an insurance company carrying
on any class of insurance business within the meaning of the Insurance Companies Act,
1974. The members were paying subscription to the company and their membership
was governed by contract with each of them. Among its objects were the conduct of the
legal proceedings on behalf of members, indemnifying them against claims for damages
and costs and giving advice on various problems including employment, defamation and
professional and technical matters. The articles gave power to the Council of India at its
discretion (1) to undertake the conduct or defence of any matter or proceedings
concerning a member’s professional character or interests, and (2) to grant to any
member from Union funds or indemnity regarding any action, proceeding, claim or
demand concerning his professional character or interest. In every case, an indemnity
could be granted, restricted or declined in the Council’s absolute discretion. The question
was whether the contract between each member and the union was a contract of
insurance for the purposes of the Company Act of 1974. The same was answered in the
negative. The Court observed that one of the three elements of a contract of insurance
was that the assured would become entitled to something on the occurrence of some
event; that that “something” must normally be of the nature of money or its equivalent
and not some other benefit. It should be noticed that though the Court was prepared to
extend “money” to “equivalent of money” it refused to extend the meaning of the
expression ‘money’ to ‘benefit.’262

[s 2.20] Sub-section (4) – Auditor

An auditor within the definition of the Act must be either an Associate or Fellow of the
Institute of Chartered Accountants of India in terms of section 5 of the Chartered
Accountants Act (XXXVIII of 1949) and he has obtained a certificate of practice from the
Institute and is designated as a Chartered Accountant in terms of sections 5 and 7
respectively of the said Act. Section 2(2) of the Chartered Accountants Act gives the
definition of Chartered Accountants for all practical purposes.263 Even when a Chartered
Accountant is working as a liquidator in pursuance of an order passed by the High Court,
he must be deemed to be in practice within the meaning of section 2(2) of the said
Act.264

[s 2.21] Sub-section (4) – Powers of Auditor

Please refer to matter under same heading from section 12 post.

[s 2.22] Sub-section (4) – Functions of the Auditor

Please refer to matter under same heading in section 12 post.

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 [s 2] Definitions.—

The functions of the auditor under the Act are—

(i) he shall audit annually all insurance businesses transacted by an insurer with
respect to balance-sheet, profit and loss account, revenue account and profit and
loss appropriation account in terms of section 12 of the Act;

(ii) he shall verify that the regulations and forms for the preparation of balance-sheet
as prescribed in the First Schedule, the regulations and forms for the preparation
of Profits and Loss Accounts as prescribed in the Second Schedule and
regulations and forms for the preparation of Revenue accounts as prescribed in
the Third Schedule to the Act are complied with;

(iii)he, shall also audit the account of the period where an investigation into the
financial condition of an insurer is made as at a date other than the expiration of
the year of account as per terms of sub-section (5) of section 13 of the Act; and

(iv)he shall sign one of each four copies of returns to be submitted to the Controller
in accordance with the provisions of section 15 of the Act.

[s 2.23] Sub-section (4) – Duties and Liabilities of the Auditor

Please refer to matter under same heading from section 12 post.

[s 2.24] Sub-section (4) – Persons not to be Appointed Auditor

Please refer to matter under same heading from section 12 post.

[s 2.25] Sub-section (4) – Status of Auditor

Please refer to matter under same heading from section 12 post.

[s 2.26] Sub-section (4A) – Banking Company

“Banking company” means any company which transacts the business of banking 265[in

India].

Explanation.—Any company which is engaged in the manufacture of goods or carries on

any trade and which accepts deposits of money from the public merely for the purpose
of financing its business as such manufacturer or trader shall not be deemed to transact
the business of banking within the meaning of this clause.266

‘Banking company’ and ‘company’ [clause (4A)].—Under the Banking Regulation Act (X
of 1949) a ‘banking company’ is interpreted to mean a company which transacts the
business of banking in India. But a company which is engaged in the manufacture of
goods or carries on any trade and which accepts deposits of money from the public
merely for the purpose of financing its business as such manufacturer or trader shall not
be deemed to transact the business of banking within the meaning of section 5(c) of the
Act. Again the word ‘banking’ has been interpreted to mean the accepting, for the

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 [s 2] Definitions.—

purpose of lending or investment, of deposits of money from the public, repayable on

demand or otherwise, and withdrawable by cheque, draft, order or otherwise.267

The essential characteristic of a ‘banking company’ is its power to receive deposits

repayable in the manner indicated in section 5(1)(b) of the Act. In the absence of such
power mere power of granting loan does not make a company a banking company.268
Even when a banking company is prevented from accepting deposits under a scheme of
arrangement sanctioned by court it is still a banking company.269 The definition of
banking in section 15(1)(b) makes it clear that acceptance of deposits in sine qua non to
constitute banking business. A samajam constituted of 15 members and carrying on
money-lending business would not be banking company compulsorily registrable under
the Companies Act, when there was no evidence to show that it was formed for
accepting deposits or was actually accepting deposits at any time.270 To be a banking
company within the meaning of the definition it is not necessary that it should transact
the banking business at any particular point of time.271

[s 2.27] Company

“Company” means a company incorporated under the Companies Act, 2013 or under
any previous company law.272

[s 2.28] Sub-section (5) – Certified

This word means to give certain knowledge or information of; make evident; vouch for
the truth of; attest; to make statement as to matter of fact; to testify in writing; give a
certificate of; make a declaration about in writing under hands, or hand and seal; to
make attestation either in writing or orally as to the truth or excellence of something.273
In Black’s Law Dictionary274 the term is assigned the following meanings:—

1. to authenticate or verify in writing.

2. to attest as being true or as meeting certain criteria.

3. (of a Court) issue and order allowing a class of litigants to maintain a class
action.

The term ‘certified’ has following meanings275:—

• “Officially declared or informed”

• In relation to any or translation of a document required to be furnished by or on

behalf of an insurance company, means certified by a responsible officer of the
company to be a true copy or a correct translation, as the case maybe.

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In The Chambers Dictionary276 the term ‘certify’ is shown to mean, to declare as true; to
inform; to declare or confirm in writing; to declare (someone) insane; to refer by
certiorari (Law). In New Shorter Oxford English Dictionary277 the following meanings are
given to this word—

1. Make (a thing) certain; guarantee as certain; give certain information of.

2. Declare or attested by a formal or legal certificate, Declare (a person) officially

insane.

3. Make (a person) certain (of); assure; give (a person) formal or legal attestation
(of) of.

4. Testify to; vouch for. Give a certificate for costs on a certain scale.

But in sub-section (5) of section 2 of the Act the term ‘certified’ seems to have a limited
meaning both as to the document to be certified and the person who is to certify it. The
document to be certified to be true copy or correct translation as the case may be
should be copy or translation of a document required to be furnished by or on behalf of
an insurer or a provident society as defined in Part III. It should be certified only by
principal officer of such insurer or provident society.

[s 2.29] Sub-section (5B) ‘Controller of Insurance’

The Controller of Insurance is appointed by Central Government under section 2B. If at

any time, the Authority is superseded under sub-section (1) of section 19 of the
Insurance Regulatory and Development Authority Act, 1999, the Central Government
may, by notification in the Official Gazette, appoint a person to be the Controller of
Insurance till such time the Authority is reconstituted under sub-section (3) of section
19 of that Act.278

[s 2.30] Considerations for Appointment of Controller of Insurance

See sub-section (2) of section 2B of the Insurance Act, 1938.

[s 2.31] Powers and Functions of Controller of Insurance

The Controller of Insurance is appointed by the Central Government to exercise all

powers, discharge the functions and perform the duties of the Authority under this Act
or the Life Insurance Corporation Act, 1956 (31 of 1956) or the General Insurance
Business (Nationalisation) Act, 1972 (57 of 1972) or the Insurance Regulatory and
Development Authority Act, 1999.279 But appointment of and exercise of powers by
Controller are limited to the period when Authority is superseded and reconstituted by
Central Government as indicated in section 2B.

[s 2.32] Sub-section (6) – ‘Court’

The word “Court” is defined in clause (6) of section 2 of the Insurance Act, 1938, to

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mean the principal Civil Court of original jurisdiction in a district, and to include the High
Court in exercise of its ordinary original civil jurisdiction.

The principal Civil Court of original jurisdiction in a district is the court presided over by
the District Judge. Section 2(17) of the General Clauses Act, 1897 defines “District
Judge” to mean the Judge of a principal civil court of original jurisdiction, but shall not
include a High Court in the exercise of its ordinary or extraordinary original civil
jurisdiction.

It has been held that the principal civil court of original jurisdiction in a district is the
court of the District Judge and cannot include the Court of the subordinate Judge or Civil
Judge in the district.280

[s 2.33] Forum - Determination of

Where an insurance company’s agent at E was only authorised to canvass for proposals
for insurance and had no authority to accept the proposals, all he had to do was to see
that the proposal form was correctly filled up and to send it to the head office at C for
disposal there, and the policy money was payable at C, the cause of action, in such a
case, on the policy arose entirely at C. Even the circumstance that when the half-yearly
premium became payable, the company, instead of sending its demand to the assured,
directed its local agent to collect the money from him, would not change the forum to
E.281 So also where an insurance company and its office being at B, the amount to be
paid under the policy was payable at B, a suit on the policy was to be filed at B. The fact
that the company had a sub-agency at K did not give the Court at K jurisdiction to
entertain the suit when the agent had no power to accept any offer.282

[s 2.34] Insurance Business

The expression ‘insurance business’ has not been defined in the Act. But in the definition
clause insurance business has been classified into six broad groups, namely,

(1) ‘fire insurance business’ which is defined in clause (6A);

(2) ‘health insurance business’ which is defined in clause (6C);

(3) ‘life insurance business’ which is defined in clause (11);

(4) ‘marine insurance business’ which is defined in clause (13A); and

(5) ‘general insurance business’ ‘miscellaneous insurance business’ which is defined

in clause (13B) of section 2 of the Insurance Act, 1938.

[s 2.35] ‘Insurance’ and ‘Insurance Business’ – Distinction

There is difference between ‘insurance’ and ‘insurance business’. The former is a matter
of contract which has its origin in, and derives its incidents from the laws, usages and
customs of commercial nations; whereas the latter is the organisation through which
contract of insurance as made is carried on for profit and this organisational aspect of

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the insurance is the subject-matter of the Insurance Act, 1938, which purports to
regulate and control such organisations. Again, speaking generally, an organisation
which writes insurance is an insurance company, whether doing business as a stock,
mutual or mixed company or individual or firm, and regardless of the type of casualty or
risk insured against. Such organisations engage themselves in the business of making
contracts of insurance. These organisations when considered in the light of the
Insurance Act, 1938, include those who carry on those kinds of insurance as mentioned
in the Act and within the purpose of the said Act or rule prescribed thereunder.

[s 2.36] Proposal for Insurance

See regulation 8 of the Insurance Regulatory and Development Authority (Protection of

Policy Holders Interests) Regulations, 2017.

[s 2.37] Person Insuring may not be Owner of Property Insured

It is no more res integra that insurance of subject-matter and its ownership may not go
together and contract of insurance may very well cover the interest of a person other
than the person(s) insuring the interest/property. The person insuring the interest may
not be the owner of the property. The contract of insurance is valid as long as there is
an insurable interest in the property. The litmus test to determine, whether the persons
claiming insurable interest would suffer pecuniary loss in the event of loss of property or
would attain pecuniary advantage from the preservation of the insured policy.283

[s 2.38] Subject-matter of Insurance and Subject-matter of Contract of

Insurance – Distinction

In Ravner v Preston,284 Brett Lord Justice observed:

The subject-matter of insurance is a different thing from the subject-matter of the contract of
insurance. The subject-matter of insurance may be a house or other premises in a fire policy, or may be
a ship or goods in a marine policy. These are the subject-matter of insurance, but the subject-matter of
the contract is money, and money only. The only result of the policy, if an accident which is within the
insurance happens, is a payment of money. It is true that under certain circumstances in a fire policy
there may be an option to spend the money in rebuilding the premises, but that does not alter the fact
that the only liability of the insurance company is to pay money. The contract, therefore, is a contract
with regard to the payment of money and it is contract made between two persons, and two persons
only, as a contract.285

[s 2.39] Three Elements of Contract of Insurance

In Medical Defence Union v Deptt. of Trade286 the question case was whether the
contract was a contract of insurance at all. The relevant facts in that case were as
follows:

The Medical Defence Union Ltd claimed that it was not an insurance company carrying
on any class of insurance business within the meaning of the Insurance Companies Act,
1974. The members were paying subscription to the company and their membership
was governed by contract with each of them. Among its objects were the conduct of the

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legal proceedings on behalf of members, indemnifying them against claims for damages
and costs and giving advice on various problems including employment, defamation and
professional and technical matters. The articles gave power to the Council of India at its
discretion (1) to undertake the conduct or defence of any matter or proceedings
concerning a member’s professional character or interests, and (2) to grant to any
member from Union funds or indemnity regarding any action, proceeding, claim or
demand concerning his professional character or interest. In every case, an indemnity
could be granted, restricted or declined in the Council’s absolute discretion. The question
was whether the contract between each member and the union was a contract of
insurance for the purposes of the Act of 1974. The same was answered in the negative.
The Court observed that one of the three elements of a contract of insurance was that
the assured would become entitled to something on the occurrence of some event; that
that “something” must normally be of the nature of money or its equivalent and not
some other benefit. It should be noticed that though the Court was prepared to extend
“money” to “equivalent of money” it refused to extend the meaning of the expression
‘money’ to ‘benefit.’ Thus, the decision can even be used against the appellant and it is
not helpful to him.

[s 2.40] A Co-owner can Insure and get whole Claim for whole Property

It is well settled that a person having partial interest in the property is entitled to insure
to the extent of full value of the property rather than to the extent of his actual interest.
It is not necessary that all the co-sharers should become a party to the insurance policy.
Once the insurance company receives premium for the whole property from the insured,
it makes itself liable to indemnify the loss to the property and not to the extent of share
of the co-sharer who steps forward to insure the property. Cases are conceivable where
all the co-sharers of a building are not available when the building is insured or the term
of the insurance policy already obtained for the building, comes to an end. In such event
one or more co-sharer may obtain the insurance policy not necessarily restricted to their
share in the building and may obtain an insurance policy for whole of the
building/property. The insurance company after having accepted premium for the whole
of the property cannot in the event of a fire mishap turn around, take the stand that the
Company shall only pay to the co-sharer who insured the property and that also to the
extent of their share of the property.287

[s 2.41] Sub-section (6A) – Fire Insurance Business

This expression has been defined in section 2(6A) of the Insurance Act, 1938, to mean
the business of effecting contracts of insurance against loss by or incidental to fire and
other occurrence customarily included among the risks insured against in fire insurance
policies; but it will not mean the business of effecting fire insurance contracts when it is
done Incidentally to some other class of insurance business.

A policy of fire insurance, as its name indicates, is intended to protect the assured
against loss caused by fire. In modern practice the protection normally extends to losses
caused by events which frequently are the causes of fire, but may occur without a fire
resulting. If a fire results, the policy is plainly applicable unless an exception became
operative, and there Is no commercial advantage in limiting the insurance by reference
to such a fortuitous standard.288

Fire insurance or a fire insurance policy in the sense of its subject-matter is a contract of

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indemnity by which the insurer, for a consideration, agrees to indemnify the insured
against loss of, or damage to, property by fire. Fire policies may generally be,

(i) open policies where the policy does not fix the liability,

(ii) valued policies, where the value of the property and the amount payable in case
of loss are fixed by the terms of contract; and

(iii)floating policies, where it is intended to cover property or value which cannot well
be covered by specific Insurance because of the fact that the property is changing
in quantity or location.

There was fire in a factory which was duly insured. The Insurance Company obtaining
report of Joint Surveyors and also report the opinion of a former Chief Justice of India as
to cause of fire and quantum of loss. They reported that no exact cause of fire could be
ascertained, however, according to Police report and Fire Officer report the probable
cause of fire was short circuit. The Insurance Company then obtained second opinion of
Investigator who reported the cause of fire was arson. This report was without any
factual base and without any foundation. The report of Investigator was, therefore,
discarded. The National Consumer Disputes Redressal Commission directed the
Insurance Company to pay Rs 2.26 crore with 12% interest to the assured. The Order of
National Consumer Disputes Redressal Commission was upheld by the Supreme
Court.289

[s 2.42] “Fire” and “Loss by Fire” – Claim of

A lady took out a comprehensive policy insuring her jewelry including damage by fire.
She kept her jewels and currency notes in the fire place during the summer for safety
thinking that the fireplace is the last place to be thought of by burglars. In winters
forgetting that she had kept the jewels etc. in the fire place she lighted fire without
removing them and consequently the jewels were damaged. The insurers repudiated
liability on the plea that the loss was not covered by the terms of the policy and the
damage was done by fire in a place where it was intended to be lit. The court held in
Harris v Poland,290 that the insurer was liable as the risk insured covered the risk of the
insurer’s property coming unintentionally in contact with fire. The court added that it
was immaterial whether the fire came to the insured property or the insured property
came to the fire. The court also observed that a fire caused deliberately by the insured
or at his instigation does not cover the risk.291

In Fire Insurance Policy claim for damage caused to bamboos, cut and stored by
claimant due to fire that broke out in forest the plea of insurance company was that
claimant is not entitled to get claim since stock of bamboos got gutted in a forest fire
even assuming that forest fire is excluded from purview of policy certificate. However,
there was nothing on record to indicate that stock of bamboos got gutted in forest fire.
It was specifically mentioned in fire report that supposed cause of fire was “spark due to
friction of bamboo tress” – It cannot be said that insurance company did not anticipate
possibility of accident when it issued policy certificate - In result insurance

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company/Respondent was held liable to indemnify the appellant/plaintiff in terms of

policy certificate.292

[s 2.43] Warranty in Fire Insurance Policy

Warranties in Fire Insurance Policies are construed strictly. Thus, where the warranty in
a policy of fire insurance is that “smoking and cooking be strictly prohibited in or about
the said premises except in places specially set apart for such purposes only” the
warranty can be said to have been strictly complied with when the assured posts
warning notices, and strictly prohibits smoking in and around the places where the fire
occurred. The mere fact that some employee might have, in spite of the warning and
prohibition of the assured, smoked a biri or a cigarette on one occasion does not amount
to a breach of the warranty.293

A policy of insurance can be vitiated by any breach of warranty, fraud or

misrepresentation. But failure on the part of the assured to disclose the nature of his
interest in the goods cannot be said to amount to breach of warranty. All that is required
is that the assured should have insurable interest in the subject-matter. Even the
interest of a bailee is sufficient to establish an insurable interest and an unpaid vendor
of the goods has an insurable interest in the property which is the subject-matter of the
contract of insurance.294

[s 2.44] Construction of Fire Insurance Policies

It is settled rule of construction of insurance policies that provisions relating to forfeiture

should be construed in favour of the assured and against the company. Again, another
well-recognised principle is that where the computation is for the benefit of the person
affected, as much time should be given as the language admits of, and where it is to his
detriment, the language should be considered as strictly as possible.295 It is an axiom of
interpretation when dealing with insurance companies that if there is any ambiguity in
the document, it is to be construed against the company.296

In fire insurance policies, the phrase civil commotion is used to indicate a stage between
a riot and civil war. It has been defined to mean an insurrection of the people for
general purposes though not amounting to rebellion, but it is probably not capable of
any precise definition. The element of turbulence or tumult is essential; an organised
conspiracy to commit criminal acts where there is no tumult or disturbance until after
the acts does not amount to ‘civil commotion’. It is not, however, necessary to show the
existence of any outside organisation at whose instigation the acts were done.297 Riot
and ‘civil commotion’ clause “has two limbs—(1) insurrection, riots, civil commotion; (2)
military or usurped power. The first refers to domestic disturbances of different degrees
of intensity, down to civil commotion... .The words ‘military or usurped power’ seem to
open a new and another category of event, to import something more than mere
internal incident… military and usurped power suggest something in the nature of war
than riot and tumult. This is a riot clause and a war clause combined.”298

[s 2.45] Fire Insurance – Building – Meaning

The Supreme Court in case of International Airport Authority Employees Union, while
construing the word ‘building’ in the context of section 10(1) of Contract Labour
(Abolition & Regulation) Act, 1970, has held in para 2 of its judgment as under:

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2. The sweepers with whom we are concerned in these interlocutory applications work in the car parks
in the Santacruz and Sahar Airport at Mumbai and they are six in number. It is difficult to conceive of
the airport being functional without a car park and that the car park is not a part of the building. The
airport includes not only landing and taking-off areas for the aircraft, the runways and aircraft
maintenance areas, but also passenger facilities. Passenger facilities would certainly include car parking
and it cannot be said that car parking is not a part of the building. Building in its ordinary sense would
include appurtenances which form (sic part) thereof, unless it be that the expression building is to be
understood as was done in Merchant of Venice with reference to a pound of flesh. Therefore, we cannot
agree with the stand of the respondents.299

From the law laid down by the Hon’ble Supreme Court in the above referred cases, no
common definition of word ‘building’ can be culled out. The Hon’ble Supreme Court has
construed the definition of word ‘building’ in the context in which the word building has
been used.

As per Black’s Law Dictionary (8th Edn) ‘building’ means a structure with walls and roof
esp. a permanent structure.300

The Supreme Court, in case of Jai Narain Parasrampunia (dead) v Pushpa Devi Saraf,
while interpreting the word ‘house’ occurring in an agreement to sale has observed in
paras 71 and 72 as under:

71. In P RamanathaAiyar’s Advanced Law Lexicon, Vol 2, 2005, the word ‘house’ has been defined to
mean:

‘House means a house suitable for occupation by a Military Officer or a Military Mess. The term includes
the land and buildings appurtenant to a house.’ (Cantonment (House Accommodation) Act (6 of 1923),
section 2(f)).

‘House includes any building or part of a building with its appurtenances and outhouses used for any
purpose whatsoever.’ (Orissa House Rent Control Act, 1967 (4 of 1968), section 2(3)).

House includes

(a) any part of a building occupied or intended to be occupied as a separate dwelling, and

(b) any yard, garden, outhouses and appurtenances belonging to it or usually enjoyed with it
(Housing Act, 1996 (Act 52 of 1996), section 6B(1).301

In Words and Phrases, Permanent, Edn, vol 19A, it is stated:

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The word “building necessary embraces the foundation on which it rests, and the cellar,
if there be one, under the edifice, is also included in the term ‘house’ or ‘building’. If
there be a cellar, the word ‘building includes it, unaffected by the height above the
foundation.’” [Benedict v Ocean Ins. Co]

Furthermore, it is well-settled that the building includes the land on which it stands,
unless by express stipulation it is excluded.302

The Supreme Court in case of Indian City Properties Ltd, while interpreting the word
‘building’ occurring in section 299 of the Bombay Municipal Corporation Act, 1888, has
held in paras 19 and 20 as under:

19. The word ‘structure’ is used as a generic term so that while all buildings may be structures, all
structures are not buildings. That structure which is not a building and is a platform, verandah, step, or
some other such structure external to a building may be taken over by the Commissioner under section
299(1) if it is within the regular line of the street. The words ‘some other such’ must be construed as
structures similar or like platform, verandah and step. The words must be read ejusdem generis with
the preceding words since the word ‘such’ means “of the type previously mentioned”. The word ‘other’
has also been held to indicate that it must be construed ejusdem generis. The underlying characteristic
of platforms, verandahs and steps is that they are not independent structures and are external to a
building that is they are attached to the outside and form an inessential part of a building. In our
opinion, therefore in order to be a building for the purpose of section 299, the structure would have to
be an independent, permanent structure. Thus, there is no repugnancy if one were to read the
definition of ‘building’ and section 299 and in our opinion the word ‘building’ has been used in section
299 in the sense defined in section 3(s).

20. Of the six items listed by the Commissioner in his report, learned counsel appearing on behalf of
the respondents has, as we have noted earlier, already conceded that the part of the main structure
described against Serial No. 6 would be excluded from the purview of the action proposed in the
impugned notice under section 299. Even without the concession in our view, applying the test of
independence and permanence each of the items falls within the definition of building in section 3(s) of
the Act, and therefore, fall outside the purview of section 299.303

In view of above, open place inside the boundary wall where incident of fire occurred
does not come within the definition of word ‘building’ used in the policy.304

[s 2.46] Cause of Fire and Exclusion Clause

In Halsbury’s Laws of England, 3rd Edn, vol 22, wherein it has been stated that the
cause of fire may as a general rule be disregarded, unless it arises from an excepted
peril [Adelaide SS Co, (1923) AC 292 (308) (HL), per Lord Wrenbury] or the fire was
lighted by the assured himself for the purpose of destroying the property insured. It is
not necessary that the fire should be purely accidental in origin. Fires are frequently due
to negligence and one of the objects of a fire policy is to protect the assured against the
consequences of negligence.305The policy of fire insurance as its name indicates is
intended to protect the assured against the loss caused by fire. If a fire results the
policy is plainly applicable unless an exception becomes operative.306

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E R Hardy Ivamy in General Principles of Insurance Law, while referring to the

construction of exceptions has stated that since exceptions are inserted in the policy
mainly for the purpose of exempting the insurers from liability for a loss which, but for
the exception, would be covered by the policy, they are construed against the insurers
with the utmost strictness. In a decision307, Lindley, LJ, held thus:

In case on the line, in a case of real doubt, the policy ought to be construed most strongly against the
insurers; they frame the policy and insert the exceptions. But this principle ought only to be applied for
the purpose of removing a doubt, not for the purpose of creating a doubt, or magnifying an ambiguity,
when the circumstances of the case raise no real difficulty.

[s 2.47] Fire Insurance, Loss by Theft whether Recoverable

Where an independent cause operates to produce the damage, the fact that the peril
insured against has given occasion for the operation of the independent cause does not
constitute the damage a damage by the peril insured against. The plaintiff in a contract
of fire insurance, which essentially is a contract of indemnity, has to prove the loss
actually suffered by him as a result of fire and the loss occasioned by theft cannot be
attributed to a fire which only provides the opportunity for intervention as an entirely
independent cause of damage.308

When Fire policy is issued, it would cover only that risk which ultimately causes loss by
fire – Notwithstanding the fact that loss is caused by militants related act but result ends
in a theft and not in fire, Insurance company would not be liable.309

[s 2.48] Open Policy, Assured to Prove Actual Amount of Loss and Valued
Policy

Where the policies were not valued policies, unless the assured proves the actual
amount of his loss suffered no decree can be passed in his favour.310 Again, insurance
does not necessarily give a perfect indemnity, but gives sometimes more and
sometimes less. This may happen in several cases, but particularly in the case of a
valued policy, where the measure of indemnity is fixed by the value irrespective of the
appraisement made actually as at the date of the fire in consideration of the market
rate, loss of commission and charges or value of the brokers’ services. The position in
the event of loss, in fire insurance contract, must depend on the terms of the contract
and on the value as appraised as determined by the terms of the contract, and similarly
the apportionment of that value between the broker and his client must depend on the
respective rights of property which the parties had in the property at the date of the
fire.311

[s 2.49] Insurance of Goods whether includes Profits

The subject-matter of an insurance must be properly described. Thus, if the subject-

matter is a ship, the policy must so describe it, and conversely, if it is freight which is
insured that must be so described as the subject-matter of the insurance. Similarly, by
English Law at least an insurance described as an insurance on goods, does not cover

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profits. So also where a broker in his own name has insured merchandise belonging to
his client, the right to recover must be based on an insurable interest in the goods
themselves, whether a special property like a lien or the general property, or some
other insurable interest, such as liability in case of loss of the goods. Where a policy
does not cover expected profits, the broker cannot claim to deduct commission which he
would have earned if the merchandise had not been destroyed in case when such
merchandise is destroyed.312

When the goods were described in the policy as follows:

“…Piece goods of every description and/or yarn and/or textile fabrics in pressed bales and/or in case,
the property of the insured are held by him in trust or on commission for which he is responsible… .”

On the destruction of the goods by fire the words of the policy were construed to be held
that the insurer was liable both to the extent of the lien of the assured on those goods
as well as to the whole extent of his legal liability to the true owner of these goods and
the qualifying words for which he is responsible had restricted the insurer’s liability only
to the extent to which the assured who was liable to third parties. Further that in the
event of its being proved that he was not liable to the true owners of the goods the
liability would be restricted to the lien of the assured himself on those goods for any
moneys due to him in respect of the said goods.313

[s 2.50] Duty of Assured to Disclose Material Facts which he is Deemed to

Know – Agent’s Knowledge

On the question of the duty of the assured to disclose material facts which the assured
is in law ‘deemed to know’ the following propositions should govern the case:

(1) The assured must disclose the insurer, before the contract is concluded, every
material circumstance which is known to the assured, and the assured is deemed
to know every circumstance which, in the ordinary course of business, ought to
be known by him. If the assured fails to make such disclosure, the insurer may
avoid the contract.314

(2) The term ‘circumstance’ in this connection includes any communication made to,
or information received by, the assured.
(3) Except circumstances which the assured is, under general principles of law, not
bound to disclose, where an insurance is effected for the assured by an agent the
agent must disclose to the insurer—

(a) Every material circumstance which is known to himself and an agent to insure
is deemed to know every circumstance which in the ordinary course of
business ought to be known by, or to have communicated to, him; and

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(b) Every material circumstance which the assured is bound to disclose, unless it
comes to his knowledge too late to communicate it to his agent.

(4) In the case of loss of the subject-matter of the insurance, an agent, whose duty it
is to keep his principal informed, is bound to send him information of the loss by
telegram or telephone when it is practicable to do so. This is in every case a
question of fact and must depend on the circumstances of the particular case. In
any case reasonable means of communication must be availed of though it is not
necessary that extraordinary steps need be taken or vigilance of extraordinary
nature should be exercised.

(5) The duty to disclose continues till the contract is concluded: and a contract is
deemed to be concluded when the proposal of the assured is accepted by the
insurer, whether the policy be then issued or not.315

[s 2.51] “Contract Uberrima Fides ”

A contract of insurance is contract uberrima fides and there must be utmost good faith
on the part of the assured. This imposes a duty and an obligation on the assured to
make a full disclosure of all material facts which would affect the mind of the insurer
whether to accept the risk or not and on what terms. A false answer or non-disclosure
or concealment of a material fact will avoid the policy, even though there is no fraud and
the concealment is innocent.316 In insurance contracts, the principle of “caveat emptor”
has no place, as in such cases ordinarily, the risk undertaken by the insurer can only be
learnt from the representations made by the intending insured, and non-disclosure of a
material fact is regarded as fatal to the validity of the transaction. Upon these principles,
there is a legal obligation cast upon the party proposing the insurance, to communicate,
not only every material fact of which he had actual knowledge, but he is also deemed to
know every material fact of which he ought, in the ordinary course of business, to have
knowledge.317

But where an office of the insurance company, who accepted the proposal, had
knowledge, in the course of his duty, of the real value of the motor car which was the
subject-matter of insurance, and, with a view to obtaining higher commission, was a
consenting party to making an exaggerated value ofthe car, it was held that although
there was a misrepresentation of the assured, the fact that the company’s agent was a
party to it, did not entitle the insurers to repudiate their liability in case of loss.318

The Kerala High Court has disapproved of indifferent attitude of responsible officials in
organisations like the Insurance Company. Winking the eyes for a dishonest claim to be
allowed is a deceit practise on the public and the public exchequer. Denial or delay in
the settling of a claim will defeat the very purpose of the insurance cover and will
ultimately lead to the institution losing its credibility against the business community.
What is needed is a swift action, swift honest action, with an open but critical mind so as
to ensure that only a bona fide and real claim is allowed and that it is allowed in the
quickest possible time.319

[s 2.52] Description of the Subject-matter of Insurance, Basis of Contract

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In a fire insurance contract the subject-matter of the insurance forms the basis of the
contract and proper description of the subject-matter of the contract would certainly be
essential for the purpose of identification of the goods. All that is required of the assured
is that the description should be adequate; that is, it must substantially describe the
property which is to be insured. A statement as to the ownership of the goods or the
nature and extent of the interest of the assured in the subject-matter cannot be called
‘description’ of the goods insured. Even the assured is not required spontaneously to
disclose his title to the property insured.320

[s 2.53] Insurable Interest

A contract of fire insurance, like all other contracts of insurance, requires an insurable
interest in the subject-matter of the insurance to support it; in the absence of such an
interest the contract becomes a wagering one. Finch, J in Stockdale v Dunlop,321 has
observed thus:

if there be a right in or against the property which some court will enforce…a right so closely connected
with and so much dependent for value upon the continued existence of it alone, as that a loss of the
property will cause pecuniary damage to the holder of the right against it, he has an insurable interest.

Generally speaking a person usually has an insurable interest in the subject-matter

insured where he will derive pecuniary benefit or advantage from its preservation, or will
suffer pecuniary loss or damage from its destruction, termination, or injury by the
happening of the event insured against.322But the precise nature, extent or value of the
interest is irrelevant. An equitable or beneficial interest of any kind is as effective for
this purpose as a legal interest. Interest is not restricted to ownership; it may arise
under a contract relating to the subject-matter or it may be founded upon lawful
possession. Thus, a finder who takes the object which he finds into his possession has
an insurable interest in it. Similarly, a defeasible or precarious interest is capable of
supporting an insurance. But it is not clear whether the statutory provisions which
require the names of persons interested to be inserted in policies apply to fire
insurance.323

It has also been said that the risk of incurring legal liability in consequence of the
happening of an event is an insurable risk. Thus, all insurers upon a valid policy have an
insurable interest which entitles them to reinsurer or effect a counter-insurance on the
subject-matter of the original insurance. The general rule of law is that one who effects
an insurance against the happening of an event need not, in the absence of specific
inquiry, disclose the nature of his interest in that event; but where the interest of the
assured depends upon the preservation of property and is not a right, legal or equitable,
in the property itself, but arises incidentally or from some contract in relation to the
property, the risk must be more particularly described, and in so describing the risk the
assured must necessarily specify the nature of his interest in the property.324

Insurable interest is not synonymous with legal interest. Thus, an interest under
agreement to purchase is an insurable interest.325 A warehouseman who has assumed

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the obligation to insure the goods while in his possession has an insurable interest.326
Even the interest of a bailee is sufficient to establish an interest and an unpaid vendor of
goods has an insurable interest in the property.327 Similarity, a husband has an
insurable interest in his wife’s property and a wife, in turn, has an insurable interest in
the property of her husband.328 So also a landlord may insure his rent which he may
lose through the destruction of his premises;329 a tenant of premises has an insurable
interest founded upon the beneficial enjoyment of the premises, which he loses in the
event of their destruction;330 so also a tenant renting a furnished house has an insurable
interest in the furniture.331 Likewise, a creditor, whose debt is secured by legal or
equitable mortgage upon any specific property, has an insurable interest in that
property.332So also a mortgagor has an insurable interest in the property mortgaged.333
A bankrupt remaining in possession of his estate has an insurable interest in it.334 A
man may also insure the profits which he expects from some undertaking or adventure
or from the carrying on of a business.335

Again a common carrier has an insurable interest in the goods entrusted to him for
carriage, since he is under a legal liability to make good the loss or damage to the goods
while in transit. He may also insure the interest of a bailee or owner of the goods
entrusted to him for carriage. In the latter case where the goods are lost or damaged,
he holds the insurance amount in trust for the latter.336

But a shareholder in a company, even though the company is a one-man company and
he and his nominees are the only shareholders, has no insurable interest in the
company’s property337; nor has a simple creditor of a company any insurable interest in
its property. But a share-holder can insure the capital which he has staked on the
adventure and the profits which he expects to derive from the investment. Again the
majority opinion in the U.S. is that a share-holder has an insurable interest in the
company’s property.338A mere trespasser or squatter on land has no insurable interest.
So also a son has no insurable interest in the property of his father. Likewise, a surety
on a bond given to secure the payment of mortgage on property purchased in his wife’s
name has no insurable interest where he has never acquired any lien on, or control
over, the property to secure his liability.339

[s 2.54] Contract of Insurance and its Four Essentials

The contract of insurance is to be construed from the terms used in it, which terms are
themselves to be understood in their primary, natural, ordinary and popular sense.340
Section 2(6A), section 2(11) and section 2(13A) define fire insurance business, life
insurance business and marine insurance business respectively (but with which we are
not concerned). Section 2(13B) defines miscellaneous insurance business as meaning
the business of effecting contracts of insurance which are not of fire insurance, life
insurance or marine insurance. A contract of insurance is a contract to compensate the
loss suffered by the insured on account of risks covered by the insurance policy, in
consideration of premium received.341

An insurance contract, is a species of commercial transactions and must be construed

like any other contract to its own terms and by itself. In a contract of insurance, there is
requirement of uberimma fides i.e., good faith on the part of the insured. Except that, in
other respects, there is no difference between a contract of insurance and any other
contract. The four essentials of a contract of insurance are, (i) the definition of the risk,

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(ii) the duration of the risk, (iii) the premium and (iv) the amount of insurance. Since
upon issuance of insurance policy, the insurer undertakes to indemnify the loss suffered
by the insured on account of risks covered by the insurance policy, its terms have to be
strictly construed to determine the extent of liability of the insurer. The endeavour of
the court must always be to interpret the words in which the contract is expressed by
the parties. The court while construing the terms of policy is not expected to venture
into extra liberalism that may result in re-writing the contract or substituting the terms
which were not intended by the parties. The insured cannot claim anything more than
what is covered by the insurance policy.342

[s 2.55] Cover Note and Policy of Insurance – Distinction

The Delhi High Court in the case of Chandan v KanwarLal,343 has held that cheque given
towards premium if it was dishonoured, the Insurance Company would not be liable. The
view of Delhi High Court was further approved by the Hon’ble Supreme Court in the case
of United India Insurance Co Ltd v AyebMohd.344

[s 2.56] Cover Note without Payment of Premium

If the cover note is issued in accordance with law, it like a policy, binds the insurer to
compensate for the risk undertaken by him. But when only cover note is issued and
neither premium paid nor any express acceptance of proposal is made by insurer the
payment of advance premium being condition precedent, not complied with so in
absence of conclusive contract, cover note is not of any assistance as it has no binding
character.345

[s 2.57] Proposal Form is Commercial Document

Document like proposal form is a commercial document and being an integral part of
policy, reference to proposal form may not only be appropriate but rather essential.
However, the surveyors’ report cannot be taken aid of nor can it furnish the basis for
construction of a policy. Such outside aid for construction of insurance policy is
impermissible.346

[s 2.58] Concluded Contract

The general rule is that the contract of insurance will be concluded only when the party
to whom an offer has been made accepts it unconditionally and communicates his
acceptance to the person making the offer. Though in certain human relationships
silence to a proposal might convey acceptance but in the case of insurance proposal,
silence does not denote consent and no binding contract arises until the person to whom
an offer is made says or does something to signify his acceptance. Mere delay in giving
an answer cannot be construed as an acceptance, as, prima facie, acceptance must be
communicated to the offeror. Similarly mere execution of the policy is not an
acceptance; an acceptance, to be complete, must be communicated to the offeror. The
mere receipt and retention of premium until after the death of the applicant or the mere
preparation of the policy document, is not acceptance.347

[s 2.59] Mere Receipt and Retention of Premium until after Death of Insured –
No Concluded Contract

In Life Insurance Corporation of India v Raja Vasireddy Komalavalli Kamba,348 the Apex
Court had an occasion to consider the scope and ambit of Life Insurance Corporation of

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India Standing Order, 1960 and expressed the view that mere receipt and retention of
premium until after the death of the insured or mere preparation of the policy document
is not acceptance and therefore, do not give rise to a contract. The court opined that
mere filing of a proposal form for insurance and depositing the first premium with the
Insurance Company do not create a binding contract between Insurance Company and
the proposer so as to enable the heirs of the proposer after his death to claim the
amount covered under the proposed Policy.349 It is apt to extract the dictum laid down
by the Supreme Court, which is as under:

14. When an insurance policy becomes effective is well-settled by the authorities but before we note
the said authorities, it may be stated that it is clear that the expression ‘underwrite’ signifies ‘accept
liability under’. The dictionary meaning also indicates that (see in this connection The Concise Oxford
Dictionary, 6th Edn, p 1267). It is true that normally the expression ‘underwrite’ is used in marine
insurance but the expression used in Chapter III of the Financial Powers of the Standing Order in this
case specifically used the expression ‘underwriting and revivals’ of policies in case of Life Insurance
Corporation and stated that it was the Divisional Manager who was competent to underwrite policy for
Rs 50,000 and above. The mere receipt and retention of premium until after the death of the applicant
or the mere preparation of the policy document is not acceptance. Acceptance must be signified by
some act or acts agreed on by the parties or from which the law raises a presumption of acceptance.
See in this connection the statement of law in Corpus Juris Secundum, vol XLIV, p 986 wherein it has
been stated as:

The mere receipt and retention of premiums until after the death of applicant does not give rise to a
contract, although the circumstance may be such that approval could be inferred from retention of the
premium. The mere execution of the policy is not an acceptance; an acceptance, to be complete, must
be communicated to the offeror, either directly, or by some definite act, such as placing the contract in
the mail. The test is not intention alone. When the application so requires, the acceptance must be
evidenced by the signature of one of the company’s executive officers.

15. Though in certain human relationships silence to a proposal might convey acceptance but in the
case of insurance proposal, silence does not denote consent and no binding contract arises until the
person to whom an offer is made says or does something to signify his acceptance. Mere delay in giving
an answer cannot be construed as an acceptance, as, prima facie, acceptance must be communicated
to the offeror. The general rule is that the contract of insurance will be concluded only when the party
to whom an offer has been made accepts it unconditionally and communicates his acceptance to the
person making the offer. Whether the final acceptance is that of the assured or insurers, however,
depends simply on the way in which negotiations for an insurance have progressed. See in this
connection statement of law in MacGillivray and Parkington on Insurance Law, 7th Edn, p 94, paragraph
215.350

Applying the above principles to the facts of the present case as well as keeping in mind
the relevant portions extracted by us in the earlier part of the judgment, it is clear that
mere fact that proposal form was submitted along with the first premium would not
conclude contract between the parties, unless the Insurance Company has taken steps
to underwrite the risk and issue Policy to the insured. In the absence of any material to
show that Insurance Company had underwritten the risk and issued Policy to the
insured, there was no concluded contract between the parties.351

[s 2.60] Policies of Insurance

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A long time ago Romilly, M R, in Strokes v Cowan, (1860) 30 LJ Ch 882 , observed that
“Policies of insurance” “must be considered to be securities for money.” The amount
payable under a policy of insurance is a debt due from the insurer to the insured on the
happening of a certain event or the lapse of a certain time, and the policy is the security
for such debts charged upon the property or the stocks or funds of the insurer. A Policy
of life insurance represents money due and owing to the assured at his death, and it
forms part of his estate. A policy of life insurance can be said to be an actionable claim
within the meaning of section 3 of the Transfer of Property Act and is not a mere right to
sue. In a policy of life insurance the sum insured is certain, the premium, or the
consideration for its payment is certain and the time when its payment is to become due
is certain to come. Even the present value of the policy which is called the surrender
value can be calculated. A policy of insurance is a present contract in the hands of the
assured of which he has a present right to the benefit although the fruits are to be
enjoyed in future. A life assurance policy as such would be property.

Coitton, LJ in Tucan, (1888) 40 Ch D 5 remarked,

It was contended that the policies did not come within the term ‘property’ but in my opinion, they may
be considered as acquired by purchase during his life. They are contracts by which the policy holder has
a right to recover certain sums of money from the insurance office in certain events, and the premium
which he pays may be considered as an investment so as to obtain for him a benefit of the policy
holder.

Life policies are now construed not as contracts of indemnity but to pay a certain sum in
a certain event depending on the duration of human life.352

[s 2.61] Contract of Insurance, whether can be Retrospective

A policy of insurance is a contract based on an offer and an acceptance.353

In order to decide whether a contract of insurance should apply to a loss which had
already taken place, or, in other words that the contract of insurance should be
retrospective, or again to use different language, that the risk should be a past risk and
not only a future risk, the court must try and gather the intention of the parties and
primarily the intention should be gathered from the document, i.e., policy itself which is
the repository of the terms of the contract. It is not necessary expressly to state in a fire
insurance policy that the goods are insured, loss or not loss, or whether they are in
existence or not in existence. Even in the absence of such words, if the court comes to
the conclusion that the parties clearly intended that the insurance should be
retrospective and the risk was to attach prior to the date of the insurance, the court
would hold the insurance company liable notwithstanding the absence of the words to
that effect. Thus, where A insured certain goods with B company and the cover note
which was issued on 18 June 1951 stated that the goods were insured from 15 June
1951 for a certain sum mentioned therein and the goods were destroyed by fire on the
evening of 16 June 1951 which fact neither A nor B company knew on 18 June 1951, B
company was liable under the policy on the ground that the parties intended and agreed

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that the risk should attach from 15 June 1951. When the intention of the parties was
that the risk should attach in the past and as they were ignorant whether the goods
were in existence or destroyed, there was no question of mistakes which would attract
section 20 of the Contract Act, 1872.354 But an insurance company, by accepting the
renewal of a policy of fire insurance out of time, does not take the risk of an accident
having happened in the meantime unknown to itself. It is not usual when stipulating for
fire insurance to stipulate with reference to the past. The risk to be guarded against is a
risk in the future.355 An intention to make a contract of insurance retrospective must be
clearly expressed, and prima facie an acceptance does not relate back to the date of the
proposal.356

[s 2.62] Terms of Contract of Insurance cannot be Unilaterally Changed by

Insurer

When a person takes an LIC Policy it amounts to a contract between that person and the
Life Insurance Corporation. A contract is a bilateral or multilateral agreement which
creates certain legal obligations when it is signed by the parties. A contract can only be
altered, modified or changed by mutual agreement of the parties vide section 62 of the
Contract Act.357 A contract when entered into by the parties cannot be unilaterally
changed or cancelled by one of the parties. There has to be mutual consent of the
parties for altering it. Since the rate of premium is fixed in the LIC Policy the same can
only be changed by the mutual consent of the parties and not unilaterally by the Life
Insurance Corporation. A contract signed by the parties cannot be unilaterally changed
by one of the parties. In the present case the Life Insurance Corporation entered into a
contract with the petitioner by executing the LIC Policy. This policy contains the terms
regarding the rate of the premium. Hence, the rate as mentioned in the policy cannot be
unilaterally changed by Life Insurance Corporation without consent of the person who
has taken out the policy.358

The clause in master policy permits the Corporation to revise the premium but only after
giving to the Grantees three months previous notice in writing. No such three months
previous notice was given to the petitioner. Hence, revival of the premium rate was
wholly illegal. Obviously the purpose of giving three months previous notice is that if the
premium is sought to be revised by the Life Insurance Corporation unilaterally at a rate
which is not acceptable to the grantee then the grantee may choose to cancel the policy
and withdraw his money with the Life Insurance Corporation. Unless such three months
previous notice in writing is given the Life Insurance Corporation cannot unilaterally
revise the premium rate. Since no such notice was given, the revision of the premium
rate was wholly illegal.359

[s 2.63] Risk, when Commences

In a contract for fire insurance, the risk commences at the time as and when a binding
contract of insurance is concluded and it is always open to the parties to the contract to
come to an agreement as regards the time from which the risk will commence. On the
receipt of the intimation from the company by the assured that the risk was covered,
there is a valid contract betweenthe parties and it can be enforced notwithstanding the
fact that no policy in the usual form had been issued and no premium had been paid.360
Ordinarily, unless there is, among the conditions of the issue of the policy, an express
stipulation that the policy shall not become effective until the premium has actually been
paid, the policy becomes effective from the date of its signature by the agent of the

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company. But the existence of the words in the policy that the holder of the policy had
paid the company a certain sum by way of premium would not prevent the Insurance
Company from asserting that the premium had not been paid.361 It is almost a common
practice of all insurers, except marine, to stipulate that the contract shall not begin to
take effect until the premium has been paid. But even in cases where there is such a
stipulation the insurers are competent to waive the condition. Such a waiver may be
established either by the evidence of an express agreement or may be inferred from the
surrounding circumstances of the case. Mere delivery of an executed policy cannot,
however, amount to a waiver of the condition contained in a stipulation of the nature.
The issue of a policy cannot be treated as a counter-offer.362The commencement and
duration of risk must be agreed. If the terminus ad quo is agreed upon, it will not as a
rule be necessary that the terminus ad quem should be expressed. The usual practice in
fire, burglary and accident risks is to insure for a year, and in the absence of anything to
indicate the contrary, that may be taken as an implied term in the contract. The
duration of the risk may also be inferred from previous insurances between the same
parties.363

[s 2.64] Option Clause

A fire insurance policy may also provide an option clause to the effect that either party
shall have the right to terminate the contract at any time during the currency of the risk
subject to the return of a proportionate part of the premium for the unexpired term.
Such a clause gives reciprocal right to the assured and the insurer. Neither party is
required to show justification for cancellation in a Court of Law. It is enough for the
assured to show that he wishes to terminate the policy and similarly it is enough for the
insurer to put an end in the policy by giving notice of such intention to the assured. The
guiding motive cannot be questioned in a Court of Law. Such a clause is in wide use and
does not oblige the Insurance Company to give any reason for exercise of the option
therein or to justify the sufficiency of the reason in a Court of Law. When the option is
exercised the contract comes to an end. The fact that the assured had no knowledge of
the terms and conditions of the cover notes or the usual terms and conditions of the
policy are wholly immaterial. When the assured went to the defendant-company and
filled up a proposal for fire insurance in one of its printed forms of proposals and
accepted a cover note which referred to the conditions of the insurer’s policies, the
assured was bound not only by the terms of the cover note but also by the policies
whether the assured had seen them or not.364 The right of the insurers to terminate the
risk may be limited to cases where there is an increase of hazard, but as a rule the
policy reserves to them an absolute discretion to terminate in any circumstances.365

In construing a clause of the nature stated above it has been observed by the Supreme
Court in General Assurance Society Ltd v Chandmull Jain,366 that the reason of the rule
is that where parties agree upon certain terms which are to regulate their relationship, it
is not for the court to make a new contract however reasonable. Such a condition is
intended to cancel the risk, but not avoid liability for loss which has taken place or to
avoid the risk which is already turning into loss. Cancellation is reasonably possible
before the liability under the policy has commenced or the loss has become inevitable,
and it is a question of fact in each case whether the cancellation is legitimate or
illegitimate.

[s 2.65] Arbitration Clause

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Where the policy provides that on difference as to the amount of loss, it should be a
condition precedent to any right of action on the policy that the arbitrator’s award as to
loss was first to be ascertained, an action on the policy would not include proceedings to
enforce the award.367

In the Supreme Court case of Vulcan Insurance Co v Maharaj Singh,368 a fire was said to
have broken out in the factory premises of the insured and the fact was brought to the
notice of the Company by the concerned Bank, whereupon representatives of the Bank
and of the Insurance Company and some surveyors had visited the premises on the day
following the night when fire had taken place. The respondents’ claim of loss was to the
tune of Rs 2,97,000 whereas the Insurance Company has assessed it only to the tune of
Rs 4,620 and which the Company said was ‘without prejudice to the terms and
conditions of the policy and without any commitment of liability on the part of the
Insurance Company’. The Company, however, had repudiated any claim whatsoever.
Respondent No. 1, in the first instance, filed an application under section 20 of the
Arbitration Act, 1940, in the court of Muzaffarnagar where from the application was
returned to be presented in the Delhi Court which then dismissed the application holding
that the dispute arising out of the repudiation of the liability under clause 13 by the
Insurance Company was within the scope of the arbitration agreement contained in
clause 18 and a reference to arbitration could be made; but, as per clause 19, the
petition was time-barred. On appeal by the Respondent, the High Court of Delhi had set
aside the order of the trial Court and remanded the case to it for appointment of
arbitrators under section 20 of the Act and as against this order, the Insurance
Company had preferred as appeal to the Supreme Court.

The relevant clauses 13, 18 and 19 read as follows:

13. If the claim be in any respect fraudulent, or if any false declaration be made or used in support
thereof, or if any fraudulent means or devices are used by the insured or any one acting on his behalf
to obtain any benefit under this policy; or, if the loss or damage be occasioned by the wilful act, or with
the connivance of the insured; or, if the claim be made and rejected and an action or suit be not
commenced within three months after such rejection, or (in case of an arbitration taking place in
pursuance of the 18th condition of this policy) within three months after the Arbitrator or Arbitrators or
Umpire shall have made their award, all benefits under this policy shall be forfeited.

xxx

18. If any difference arises as to the amount of any loss or damage such difference shall independently
of all other questions be referred to the decision of an Arbitrator to be appointed in writing by the
parties in difference, or, if they cannot agree upon a single Arbitrator to the decision of two
disinterested persons as Arbitrators…………….And it is hereby expressly stipulated and declared that it
shall be a condition precedent to any right of action or suit upon this policy that the award by such
Arbitrator or Arbitrators or Umpire of the amount of the loss of damage, if disputed, shall be first
obtained.

19. In no case whatever shall the company be liable for any loss or damage after expiration of twelve

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months from the happening of the loss or damage unless the claim is the subject of pending action or
arbitration.

The Supreme Court referred to the case of Scott v Avery,369since when such clauses have been
commonly called Scott v Avery clauses and observed that a clause like Scott v Avery, has repeatedly
been held to be a valid one, so that If the arbitration clause in a comprehensive language taking within
its ambit any kind of dispute arising under the policy, then obtaining of an award by arbitration is a
condition precedent to the starting of any other legal proceeding.

The Court also referred to Russell on Arbitration,370where it was said that:

Even a clause of this type, however, is not absolute in effect; where the court orders that the
arbitration agreement cease to have effect in relation to a particular dispute, it has a discretion to order
further that the Scott v Avery clause cease to have effect to.

The Supreme Court then accorded its approval to the law enunciated by the Bombay
High Court,371 in the following terms:

But in clause 13 there are various contingencies set out which if established entitled the insured to
bring an action without an award having been made by Arbitrators. One of these contingencies is ‘if the
claim be made and rejected’ which if established gives a right of action, the period of limitation
provided for the suit being fixed at three months from the date of the rejection. While it is also provided
that where arbitration takes place in pursuance of condition 18 of the policy, three months’ time should
be allowed for a suit to be brought after award has been made. Therefore, it is quite obvious that a
right of action accrued after the company rejected the claim. Naturally the question would have fire to
be decided by suit as under clause 18 that question could never have been referred to arbitration.

The Supreme Court then concluded372 by saying that—

... It has been repeatedly held that such a clause is not hit by section 28 of the Contract Act and is
valid.373 Clause 19 has not prescribed a period of 12 months for the filing of an application under
section 20 of the Act. There was no limitation prescribed for the filing of such an application under the
Indian Limitation Act, 1908 or the Limitation Act, 1963. Article 181 of the former did not govern such
an application. The period of three years prescribed in Article 137 of the Act of 1963 may be applicable
to an application under section 20. Nor are we concerned in this case to decide whether the time taken
by respondent No. 1 in prosecuting his application in Muzaffarnagar court could be excluded under
section 14(2) of the Limitation Act, 1963. Nor do we propose to decide whether the application under
section 20 could be defeated on the ground of the extinction of the liability of the company under clause
19. We may, however, observe in passing that in view of the decision of this Court in Wazir Chand
Mahajan v Union of India,374 if the difference which had arisen between the parties was the one to
which the arbitration clause applied, then the application under section 20 of the Act could not be
dismissed on the ground that the claim would not ultimately succeed either on facts or on law. The

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matter would have to be left for the decision of the arbitrator. Without any discussion we may just state
that the High Court Is not right in its view that respondent No. 1’s claim was not barred under clause
19 because of the provision of law contained in section 37(3) of the Act.

So far as jurisdiction of courts is concerned, a clause in the nature of Scott v Avery

clause, does not amount to ousting of jurisdiction of courts because the courts have no
jurisdiction whatsoever and no cause of action accrues until the arbitrators have
determined.375

Again, where there is a clause in the policy to the effect that in case of an arbitration
taking place in pursuance of any difference arising as to the amount of any loss or
damage, an action or suit was to be commenced within three months after the
arbitrator’s award, it was competent to the plaintiff to bring his suit at any time within
three months of the making of the award.376

The arbitration clause in fire insurance policies may be in any of the three forms, as
follows: (i)a reference of all disputes to arbitration and arbitrator’s award to be a
condition precedent for bringing any action on the policy; (ii)a reference of any dispute
arising as to the amount of loss or damage to arbitration and action to be brought only
upon the amount as may be awarded by the arbitrator; or (iii)a reference either of all
disputes or of the amount of loss to arbitration but without any stipulation that such
reference or award shall be a condition precedent to taking action under the policy.377

[s 2.66] Fraud on Insurer

Sometimes conditions in fire insurance policies are found to contain that the policy
would be forfeited if the assured used any fraudulent means or device to obtain benefit
under the contract. It has been laid down that there is nothing to prevent the parties to
a contract from extending the consequences of fraudulent conduct and particularly so in
a contract which calls for the utmost good faith between the parties. But this should be
done in language of clarity to make it quite apparent that such was the intention.378If it
be proved that the assured effected the policy with intent to destroy the insured
property, the whole insurance will be void. Even over-valuation of property insured
would constitute important evidence in support of a plea of wilful-fire-raising or
insurance with fraudulent intent.379

[s 2.67] Average Clause

The measure of indemnity payable under a fire policy is the actual loss sustained subject
to the maximum limit of the amount upon which the premium has been paid. If the
value of the property insured be Rs 10,000 and be insured for Rs 1,000 and a loss
occurred which did not exceed one-tenth of the whole value of the property, the assured
will be entitled to recover the insurance money in its entirety, viz., Rs 1,000 because it
is upon that sum that the assured has paid the premium. But if the loss be greater than
the sum insured, he is not entitled to recover more for the reason that he did not pay
any premium thereon. In such a case the insured will be considered to be his own
insurer for the difference which should be rateable proportion of the loss. This is the rule
confined to Marine Insurance as stated in section 81 of the Marine Insurance Act.

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To avoid such predicament Fire Insurance commonly insist what is known as the
‘average clause’. The object of such a clause is to prompt the assured to insure the
property for its full value and thereby recover a larger indemnity and at the same time
to enable the insurer to earn a higher premium.380 The effect of such a clause in a policy
where a clause provides for indemnity against prevention of business caused solely by
accident which included explosion and by another clause providing that the company
was not to be liable for any prevention of business resulting from an accident caused by
fire (nor for any prevention of business from fire outside the object following the
accident), is as the Privy Council has held that the insurance of loss by explosion
covered loss by fire following that explosion, as explosion and the fire were all one. The
damage done by the fire was part of and included in the damage done by explosion for
which the assured was entitled to recover. Thus, the total prevention of business was
caused solely by the explosion within the first part of the policy. The subsequent clause
in the policy was an exception and not a qualification of the risk and the mere fact that
the words “nor for any prevention of business resulting from outside the object following
the accident” were included in a bracket was not sufficient to change its character from
an exception to a qualification.381

[s 2.68] Misdescription of Property

If the assured has not insured the subject-matter for its full value he will be treated as
his own insurer for the difference between the sum insured and the real value, and
shall, therefore, bear a rateable proportion of the loss. If, however, the loss from fire is
less than the sum insured, the assured is entitled to recover the whole loss. It follows
that where the loss is much more than the sum insured, he is entitled to recover the
whole sum insured.382

[s 2.69] Reinstatement Clause

Fire policies usually also contain a clause known as ‘reinstatement clause’ which gives
the insurer an option or restoring the property insured instead of paying the insurance
money in case of fire. By reinstatement is meant the restoration of the property affected
by the fire to the condition in which it was before the fire, in case of total loss by
rebuilding, or replacing the goods by their equivalent, as the case may be, and in the
case of a partial loss by repairing the damage.383

Again where there was stipulation in a policy not to keep openings in walls of the
insured godown but the company sanctioned installation of water-sprinkler and
temporary holes were made in walls for water-pipes to pass and the insurance was
accepted with the knowledge and risk of existing holes and a fire broke out during
installation and caused loss and damage to the premises, on a suit on the policy, it was
held that ‘holes’ were not ‘openings’ within the meaning of that term in warranty and
that the company had waived the terms and acquiesced in the installation being carried
out and could not rely on terms of warranty.384 But where there was a warranty in the
policy that no hazardous goods should be stored in the premises, on an action on the
policy the assured could not contend that he could store one per cent of such goods and
the company taking possession of salvage and keeping it for a month was not estopped
from contesting the claim.385

A policy of insurance is to be construed by the same rules as in other contracts, the duty

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of the court being to collect the meaning of the parties by taking the language employed
in a plain and ordinary sense and not to speculate on some supposed meaning which
they have not expressed. The courts will, far from favouring forfeiture, lean against
it.386Any conditions outside a policy of insurance, which run counter to the terms of the
policy itself, cannot be considered in interpreting the policy. If the Insurance policy
makes no reference to the prospectus or rules of the company it cannot be referred to in
construing the policy.387

[s 2.70] Assignment

As a general rule the policy money is not available to the assignee unless the policy
expressly or impliedly says so. Thus, when the promise was to pay the assured, his
executors, administrators and assigns, the heirs-at-law of the assured to whom the
premiums had passed on death, could not recover in respect of fire happening after the
death of the assured.388 But in U.S. a policy effected in the name of a receiver thus,
“E.S.K. receiver for N and H” was held to be available to his successor in the
receivership.389 But the conditions of a fire policy are now usually framed so that the
policy may be available to indemnify the assured and all persons to whom his interest in
the property may pass by Will or by operation of law.390

In an action on certain fire Insurance policies, the insured and his assignee failed to
prove the alleged loss by fire and their claim was found to be grossly exaggerated and
thus fraudulent. This resulted in forfeiture of all benefits under the policies. On appeal to
the Privy Council, the assignee could not be allowed to raise the questions on the merits
so far as regards even proved losses and damage caused by fire when these points were
abandoned or not raised in the lower court.391

[s 2.71] Misdescription of Premises Insured, Effect of

By ‘material misdescription’ in relation to an insurance policy is meant a misdescription

such as would affect the mind of a reasonable insurer either as to acceptance of the risk
or as to the premium which he would place upon the risk. Thus, where in a policy of fire
insurance, the property insured was described as being constructed of brick walls and
cement flooring in the ground storey, timber walls and flooring in the upper storey with
shingled roof, but the evidence was that the two outside lateral walls were, as to one-
third of their length, brick and as to two-thirds, timber, the Privy Council held that it was
material departure from the description which was that all the ground floor walls were
brick. Even if the lateral divisions which divided up the building were of brick right
through from back to front, in two cases, and made of corrugated iron in respect of the
other two, it still left the description of the building inaccurate, and it was inaccurately
described in a matter which was material for insurance purposes and hence the insured
was not entitled to claim through the policy.392

[s 2.72] Joint Insurance

In the case of a joint insurance, the fraudulent claim of one of the persons assured
would equally affect the other persons though the insurable interests of the assured
were different. Thus, where A and B jointly insured certain premises against loss by fire
with the defendant company and A made a claim for a sum of Rs 40,000 and it was
found that except for a sum of Rs 45,000 which was admitted by the insurance
company, the claim was grossly exaggerated and was fraudulent, it was held that A’s
claim failed entirely.393

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[s 2.73] Liability of Insurance Company

An insurance company by accepting the renewal of a policy of fire insurance out of time
does not take the risk of an accident having happened in the meantime unknown to
itself.394So also the receipt of the money for a new policy when the original policy lapsed
not having been renewed, by the canvassing agent did riot bind the company.395

[s 2.74] Election by Insurer – Effect

If the relevant provisions in the policy of insurance giving an option to the insurer to
replace or make good accidental loss or damage to the aircraft and the insurer exercised
the option the effect of exercise of such option has been recognised to bring an end to
the obligation to pay money and make the contract one to reinstate the subject-matter
of insurance. It has been held that such a conversion relates back to the inception of the
contract.396

The proposition was first laid down by Lord Campbell, C.J. in Brown v Royal Insurance
Co397 in the following words:

The case stands as if the policy had been simply to reinstate the premises in case of fire; because,
where a contract provides for an election, the party making the election is in the same position as if he
had originally contracted to do the act which he has elected to do.

Till this date, the proposition remains undisturbed and it has been followed in several
cases.398

[s 2.75] Arms of the Court

The question then is whether a clause in the contract is severable by an order of the
Court. It is settled law that the arms of the Court are long enough to reach injustice
wherever it is found and the Court would mould the relief appropriately to meet the
peculiar and complicated requirements of the country vide Dwarkanath v Income-tax
Officer, Kanpur, (1965) 3 SCR 536 [LNIND 1965 SC 107] (540) : AIR 1966 SC 81
[LNIND 1965 SC 107] (84); Shri Anadi Mukta Trust v V R Rudani, (1989) 2 SCC 691
[LNIND 1989 SC 295] (699-700) : AIR 1989 SC 1607 [LNIND 1971 SC 236] (1612-13);
Unni Krishnan v State of Andhra Pradesh, (1993) 1 SCC 645 [LNIND 1993 SC 1110]
(693-97) : 1993 AIR SCW 863 at (900-04), and Hochitief Gammon v State of Orissa,
(1975) 2 SCC 649 [LNIND 1975 SC 322] (656) : AIR 1975 SC 2226 [LNIND 1975 SC
322] (2231). In M J Sivani v State of Karnataka, S.L.P. No. 11012/1991 etc. decided on
17 April 1995, it was contended that since the High Court held that a part of the
notification was inapplicable to the licence for Video games, it was not severable from
the rest of the notification and the whole notification must be declared to be ultra vires
or inapplicable to video games. Rejecting the contention of the licensees on that ground,
this Court held that the entire order did not become invalid due to inapplicability of a
particular provision or a clause in the general order unless the invalid part is inextricably
interconnected with the valid part. The court would be entitled to consider whether the
rule as a whole or in part is valid or becomes invalid or inapplicable. On finding that to
the extent of the rule was not relevant or invalid, the Court is entitled to set aside or

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direct to disregard the invalid, or inapplicable part leaving the rest intact and operative.
In that case para 3(2) of the notification for licencing public places or the places of
public resort or amusement for conducting video in gaming house though was held to be
inapplicable to video games the rest of the notification was declared valid.

In Praga Tools Corpn v C A Imanual, (1969) 1 SCC 585 [LNIND 1969 SC 80] (589) : AIR
1969 SC 1306 [LNIND 1969 SC 80] (1309), Supreme Court held that mandamus may
be issued to enforce duties and positive obligation of a public nature even though the
persons or the authorities are not public officials or authorities. The same view was laid
in Shri Anadi Mukta Trust v V R Rudani, (1989) 2 SCC 691 [LNIND 1989 SC 295] : AIR
1989 SC 1607 [LNIND 1971 SC 236] and Unnikrishnan v State of Andhra Pradesh,
(1993) 1 SCC 645 [LNIND 1993 SC 1110] : 1993 AIR SCW 863. In Comptroller and
Auditor General of India v K S Jagannathan, (1986) 2 SCR 17 (36-40) : AIR 1987 SC
537 [LNIND 1986 SC 96] (544-547), Supreme Court held that a mandamus would be
issued to implement directive principles when Government have adopted them. They are
of public obligations to give preferential treatment implementing the rule of reservation
under Articles 14 and 16(1) and (4) of the Constitution.399

[s 2.76] Sub-section (6B) – “General Insurance Business”

‘General Insurance Business’ is defined in clause (6B) of section 2 to mean fire, marine
or miscellaneous insurance business, whether carried on singly or in combination with
one or more of them. Thus, ‘life insurance business’ will not come within the meaning of
‘general insurance business’, although all other kinds of insurance businesses will come
under its fold. Different kinds of general insurance business may be classified as follows,
namely,—

(1) Property insurance, which will include apart from fire insurance, (a) insurance
against burglary, house-breaking, etc., (b) insurance against, storm, tempest,
explosion, riot and civil commotion, (c) livestock insurance, and (d) motor vehicle
and aviation insurance relating to loss of, or damage to, the vehicle or aircraft.

In Mills v Smith (Sinclair third party),400 property was insured under a

householder’s comprehensive liability policy indemnifying the assured against
any liability for damage to property caused by accident. On a judgment being
obtained against the assured in respect of damage to the plaintiffs house by
the action of roots of a tree growing in the defendant’s (the assured’s) garden,
the latter claimed indemnity against the insurer (third party) under the policy.
It was held that the insurer was liable.

(2) Liability insurance, in which will include (a) employers’ liability insurance, (b)
public liability insurance, (c) motor vehicle and aviation insurance covering
against third party risks, and (d) bailee insurance.

Post Office v Norwich Union Fire Insurance Society Ltd,401 is a case of public
liability insurance which purported to indemnify the assured against all sums
for which the assured shall become legally liable to pay as compensation in

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respect of loss or damage to property, subject to a condition that no

admission, offer, promise, payment or indemnity should be made by or on
behalf of him without the written consent of the insurers. In an action by a
third party for damages against the assured caused by certain works done by
him, it was held that the action was premature. Crous Transport Ltd v Phoenix
Assurance Co Ltd,402 is a case of bailee’s insurance. The plaintiffs, a Transport
Company, received certain goods for transport and stored them in their
premises at a reasonably safe place before they could be loaded in their
lorries. During the temporary absence of their Manager, part of the goods
were stolen. The plaintiffs thereupon claimed indemnity for the loss against
their insurers, the defendants, under a policy which insured against ‘all risks
of loss…during the course of transit’ and while temporarily housed for
purposes of transport. In an action by the plaintiffs on the policy, the majority
of the Court of Appeal held that the claim should succeed.

(3) Contingency insurance, which will include (a) fidelity insurance, (b) debt
insurance, (c) loss of profits insurance, and (d) insurance against the outbreak of
war.

The insurance for machine risk forms part of the general insurance as defined
in section 2(6B) which defines ‘general insurance business’ as fire, marine or
miscellaneous insurance business whether carried on singly or in combination
with one or more of them.403

Besides there are other kinds of insurance, such as, Collision insurance, Confiscation
insurance. Embezzlement insurance, Credit insurance, Cyclone and Tronado insurance,
Hall insurance, Health insurance. Industrial insurance Solicitor’s liability insurance and
the like.404

[s 2.77] Matters to be Stated in General Insurance Policy

See regulation 11 of the Insurance Regulatory and Development Authority (Protection of

Policy Holders Interests) Regulations, 2017.

[s 2.78] Claim Procedure in Respect of General Insurance Policy

See regulation 15 of the Insurance Regulatory and Development Authority (Protection of

Policy Holders Interests) Regulations, 2017.

[s 2.79] Sub-section (6B) – Subject-matter of Insurance and Subject-matter of

Contract of Insurance

In Ravner v Preston,405 Brett Lord Justice observed:

The subject-matter of insurance is a different thing from the subject-matter of the contract of
insurance. The subject-matter of insurance may be a house or other premises in a fire policy, or may be
a ship or goods in a marine policy. These are the subject-matter of insurance, but the subject-matter of

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the contract is money, and money only. The only result of the policy, if an accident which is within the
insurance happens, is a payment of money. It is true that under certain circumstances in a fire policy
there may be an option to spend the money in rebuilding the premises, but that does not alter the fact
that the only liability of the insurance company is to pay money. The contract, therefore, is a contract
with regard to the payment of money and it is contract made between two persons, and two persons
only, as a contract.406

[s 2.80] Sub-section (6C) Health Insurance Business

The term “health” may be given a wider meaning in the context of insurance. It may
mean sound health. Collins English Dictionary defines “health” as:—

Health: the state of being bodily and mentally vigorous and free from disease, the general condition of
body and mind: in poor health, the condition of any unit, society, etc.: the economic health of a nation,
a toast to a person, wishing him or her good health, happiness, etc., (modifier) of or relating to food or
other goods reputed to be beneficial to the health: health food; a health store., (modifier) of or relating
to health, esp. to the administration of health: a health committee; health resort; health service., an
exclamation wishing someone good health as part of a toast (in the phrases your health, good health,
etc.).407

The health insurance contract is related to the category of life contracts. A life contract
would obviously include the natural process of dying and a health insurance contract
would obviously include what may be inevitable illness, which perils would be covered by
the insurance. In a normal contract of life assurance as distinct from contracts intended
to be for a term certain, the assured must have, at least a right of renewal subject to
reasonable conditions. A policy of health insurance is for insuring against the risk of
disease. One is a policy for life while the other for a healthy life. Even in a health policy,
though under an annual contract on payment of annual premium, the assured must
have a right of renewal subject to reasonable conditions, because the policy is not
intended to be for a term certain, but meant to cover the risk of disease for life so long
the renewal premium is paid, in time, as per the renewal clause. The contract of health
insurance, like that of life insurance made in consideration of an annual premium, is an
insurance for a year with an irrevocable offer to renew upon payment of the agreed
renewal premium.408

“Health insurance business” or “health cover” means the effecting of contracts which
provide sickness benefits or medical, surgical or hospital expense benefits, whether in-
patient or out-patient, on an indemnity, reimbursement, service, prepaid, hospital or
other plans basis, including assured benefits and long term care.409 The definition of
“health insurance business” by Act 5 of 2015 has expanded the meaning of “health
insurance business” by including travel cover and accident cover in it also.

[s 2.81] Registration and Scope of Health Business

See regulation 3 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

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[s 2.82] Product Filing Procedure for Health Insurance Products

See regulation 4 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.83] Withdrawal of Health Insurance Product

See regulation 5 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.84] Review of Health Insurance Product

See regulation 6 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.85] Entry and Exit Age

See regulation 12 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.86] Renewal of Health Policies issued by General Insurers and Health

Insurers (not applicable for travel and personal accident policies)

See regulation 13 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.87] Cumulative bonus

See regulation 16 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.88] Registration and Scope of Health Insurance Business

See regulation 3 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.89] Standard Nomenclature and Procedures for Critical Illnesses (not

applicable for Personal Accident and travel policies)

See regulation 3 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.90] Optional Coverage for Certain Items (applicable to General Insurers

and Health Insurers)

See regulation 3 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.91] Health service by TPA

See regulation 3 of the Insurance Regulatory and Development Authority (Third Party
Administrators- Health Service ) Regulations, 2016.

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[s 2.92] General guidelines to TPA in respect of service in relation to Health

Insurance Policies

See regulation 21 of the Insurance Regulatory and Development Authority (Third Party
Administrators- Health Service) Regulations, 2016.

[s 2.93] Servicing of Foreign Travel Policies, Non-Insurance Healthcare

Schemes

See regulation 22 of the Insurance Regulatory and Development Authority (Third Party
Administrators- Health Service) Regulations, 2016.

[s 2.94] Engagement of Services of TPAs by Insurance in relation to Health

Insurance Policies

See regulation 33 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.95] Manner of treating Cost of pre-insurance health check up by Life,

General and Health Insurers

See regulation 15 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2016.

[s 2.96] Renewal of Health Insurance Policy – Conclusions

In the contract of insurance, the term “renewal” is used to denote both extension of the
original period of cover by the exercise of a right given to the insured by the contract to
extend the period of cover without the assent of the other, and the making of a new
contract through the agreement of both. It is important to distinguish the two types of
renewal, since only in the former case, will vitiating elements in the original contract,
such as, failure to make full disclosure affect the extension, and conversely only in the
later case will a duty arise to make full disclosure, at the time of renewal. Where the
insurance (e.g. life insurance) gives the assured the right to renew automatically on the
payment of a further premium at the end of the first period, such renewal does not
constitute a new contract.410

Following conclusions were made by Gujarat High Court regarding renewal of health
insurance contract:

(1) The insured has an option under the existing Medi-claim insurance policy to
continue the cover by payment of renewal premium in time in respect of the sum
insured.

(2) In case of renewal without break in the period, the medi-claim insurance policy
will be renewed without excluding any disease already covered under the existing
policy which may have been contracted during the period of the expiring policy.
Renewal of Medi-claim insurance policy cannot be refused on the ground that the
insured had contracted disease during the period of the expiring policy so far as
the basic sum insured under the existing policy is concerned.

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(3) In cases where the insured seeks an enhancement of the amount of sum insured
at the time of renewal, the option to renew will not extend to the amount of such
enhancement and renewal in respect thereof will depend upon the mutual
consent of the contracting parties.

(4) Renewal of a medical claim insurance policy cannot be refused, despite timely
payment of the renewal premium, on the ground that continuance of the cover
would become more onerous or burdensome for the insurer due to the insured
contracting a covered disease during the period of the existing policy.

(5) The insurer may refuse renewal, even in cases where the insured has an option
to renew the policy on payment of the renewal premium in time, on the grounds,
such as, misrepresentation, fraud or non-disclosure of material facts that existed
at the inception of the contract and would have vitiated the insurance of the
cover at its inception or non-fulfillment of obligations on the part of the insured or
any other ground on which the performance of the promise under the contract is
dispensed with or excused under the provisions of the Indian Contract Act or any
other law or when the insurer has stopped doing business.

(6) The Government Insurance Companies continue to be “State” within the meaning
of Article 12 of the Constitution notwithstanding the entry of private companies in
the field of general insurance, ending their monopoly by virtue of insertion of
section 24A in the Act of 1972, and they cannot be arbitrarily cancel or refuse to
renew an existing Medi-claim policy.411

[s 2.97] Renewal and Cancellation of Health Insurance Policy

The insurer is under a duty to accept the renewal premium paid in time because of the
standing offer to renew implied in various clauses of the policy and expressly stipulated
under clause 11 of the prospectus, which standing offer can be accepted by timely
payment of the renewal premium. The cancellation clause 5.9 of the policy stating that
the policy may be cancelled by giving 30 days’ notice will have to be read in the context
of the grounds mentioned in regulation 7(1)(m) of the Protection of Policy Holders’
Interests Regulations, 2002, which provides that cancellation can be made only on
grounds of misrepresentation, fraud, non-disclosure of material facts or non-cooperation
of the insured.412

[s 2.98] Health Insurance – Contract of Insurance should Sub-serve Statutory

Provisions

The functions of the insurance companies are governed by statute. A contract of

insurance, therefore, must sub-serve the statutory provisions. It must indisputably be
construed having regard to the larger public policy and public interest guiding
nationalisation of the insurance companies.

The Patna High Court observed that:

31. Insurance Sector is regulated. The provisions of the Insurance Act are applicable to all insurance
companies irrespective of the fact as to whether they are in public sector or private sector. When a
business is regulated, all concerned would be governed thereby.

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32. It is one thing to say that the terms and conditions of a contract are statutory in nature but is
another thing to say that the statute governs or controls the business itself. It is the latter which is
applicable to the health insurance business.413

[s 2.99] Health Insurance – Exclusion Clause in Policy cannot Override Main

Purpose of Policy

There is some authority that an exclusion clause, in the context of a contract of

insurance, which is an assurance whose main purpose has to be given prominence,
should be construed strictly.414 The primacy given to the main purpose, notwithstanding
that contracting parties agreed to certain exclusions, is founded on the principle of
interpretation that if contracting parties seek to achieve a certain purpose by entering
into an agreement, the existence of exclusion clauses should be strictly interpreted and
if it tends to defeat the main purpose, should be read down by the Court; if that is not
possible, the Court should altogether ignore it.415

22. If the rule indicated in the preceding paragraph were kept in mind, it would be apparent that the
object of the insurance policy is to cater to medical expenses incurred by the insured. That is the “main
purpose” of the contract of insurance. The object of the exclusion clause is to except the liability of the
insurer. In a sense this is at variance with the object of the policy. Nevertheless, it is a part of the
contract; the Court should firstly seek to harmonise all the clauses, and attempt to give effect to it. If
one proceeds on this premise, the concept of “pre-existing condition” has to be understood. Clause 4.1
defines it as any injury which existed prior to the effective date of the insurance; and any sickness or
its symptoms which existed prior to the effective date of the insurance, whether or not the insured had
knowledge that the symptoms were relating to the sickness. It is apparent that even if there were
known diseases or conditions, which were disclosed and for which there was a likelihood of
complications arising in the future, the insurer sought to distance itself from the liability. There is no
dispute here that diabetes was a condition at the time of submission of proposal; so was hypertension.
In a sense these were “old ailments”; the petitioner was advised to undergo ECG, which he did. The
insurer accepted the proposal and issued the cover. One may ask, what then was the cover for. It is not
an accident cover policy, or a life policy. Now, it is universally known that hypertension and diabetes
can lead to a host of ailments, such as stroke, cardiac disease, renal failure, liver complications, etc.,
depending upon varied factors. That implies that there is probability of such ailments; equally they can
arise in non-diabetics or those without hypertension. Unless the insurer spelt out with sufficient clarity,
the purport of its clauses, or charged a higher premia, at the time of accepting the proposal, the
insured would assume and perhaps, reasonably that later, unforeseen ailments would be covered. Thus,
it would be apparent that giving a textual effect to clause 4.1 would in most such cases render the
medi-claim cover meaningless; the policy would be reduced to a contract with no content, in the event
of the happening of the contingency. Therefore, that clause 4.1 cannot be allowed to override the
insurer’s primary liability; the “main purpose” rule would have to be pressed into service. This finding is
reinforced in this case, as the insurer renewed the policy, in 2006, after the petitioner underwent the
CABG procedure.416

[s 2.100] General Provisions Relating to Health Policies

See chapter III of the Insurance Regulatory and Development Authority (Health
Insurance) Regulations, 2016.

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[s 2.101] Administration of Health Policies

See regulation 9 of the Insurance Regulatory and Development Authority (Health

Insurance) Regulations, 2013.

[s 2.102] Renewal of Medi-claim Policy not Same as First Contract

Renewal of a medi-claim policy subject to just exceptions should ordinarily be made. But
the same does not mean that the renewal is automatic. Keeping in view the terms and
conditions of the prospectus and the insurance policy, the parties are not required to go
into all the formalities. The very fact that the policy contemplates terms for renewal,
subject of course to payment of requisite premium, the same cannot be placed at par
with a case of first contract.417

[s 2.103] Patent and Latent Effects of Medical Negligence

In cases of medical negligence, no straitjacket formula can be applied for determining as

to when the cause of action has accrued to the consumer. Each case is to be decided on
its own facts. If the effect of negligence on the doctor’s part or any person associated
with him is patent, the cause of action will be deemed to have arisen on the date when
the act of negligence was done. If, on the other hand, the effect of negligence is latent,
then the cause of action will arise on the date when the patient or his representative
complainant discovers the harm/injury caused due to such act or the date when the
patient or his representative complainant could have, by exercise of reasonable diligence
discovered the act constituting negligence.418

[s 2.104] Medical Negligence: Discovery Rule

The Discovery Rule was evolved by the courts in the United States because it was found
that the claim lodged by the complainants in cases involving acts of medical negligence
were getting defeated by strict adherence to the statutes of limitation. In Pennsylvania,
the Discovery Rule was adopted in Ayers v Morgan.419 In that case a surgeon had left a
sponge in the patient’s body when he performed an operation. It was held that the
statute of limitation did not begin to run until years later when the presence of the
sponge in the patient’s body was discovered. In West Virginia, the Discovery Rule was
applied in Morgan v Grace Hospital Inc.420 In that case a piece of sponge had been left
in the wound during a surgical operation but its presence in the body did not come to
light until 10 years later. The court rejected the objection of limitation and observed:

It simply places an undue strain upon common sense, reality, logic and simple justice to say that a
cause of action had ‘accrued’ to the plaintiff until the x-ray examination disclosed a foreign object within
her abdomen and until she had reasonable basis for believing or reasonable means of ascertaining that
the foreign object was within her abdomen as a consequence of the negligent performance of the
hysterectomy.

Again, the court observed:

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We believe that the ‘Discovery Rule’ as stated and applied in cases cited above represents a distinct and
marked trend in recent decisions of appellate courts throughout the nation.

In Idaho the Discovery Rule was invoked in Billings v Sisters of Mercy of Idaho.421 The
facts of that case were that the plaintiff underwent a surgical operation in 1946. A
sponge was left in the wound when the incision was closed. The same was discovered in
the patient’s body in 1961. During the intervening period the patient sustained
considerable suffering, during which she consulted various physicians. After reviewing
numerous authorities at great length, the Court cast aside the earlier doctrine, adopted
the Discovery Rule and observed:

In reality, the ‘general rule’ has little to recommend it. It is neither the position of a
majority of the jurisdictions nor is it firmly based on considerations of reason or justice.
We will, therefore, adhere to the following rule: where a foreign object is negligently left
in a patient’s body by a surgeon and the patient is in ignorance of the fact, and
consequently of his right of action for malpractice, the cause of action does not accrue
until the patient learns of, or in the exercise of reasonable care and diligence should
have learned of the presence of such foreign object in his body.

The facts in Quinton v United States422 were that the wife of the plaintiff was given
blood transfusion in a government hospital in 1956. In June 1959, the plaintiff and his
wife during the latter’s pregnancy discovered that wrong type of blood was given to her
in 1956 and as a result she gave birth to a stillborn child. The Government sought
dismissal of the action for damages on the ground of limitation. The Court of Appeals
opined that when a claim accrues under the Federal Tort Claims Act, it is governed by
Federal law and not by local State law. The Court then held that the period of limitation
does not begin to run until the claimant discovers, or in the exercise of reasonable
diligence should have discovered the act constituting the alleged negligence.

In Josephine Flanagan v Mount Eden General Hospital423 the application of the rule of
discovery was considered in the background of fact that during the course of operation
done on 14 July 1958, surgical clamps were inserted in the plaintiff’s body. In 1966, the
plaintiff consulted a doctor because she experienced severe pain in the region of her
abdomen. The doctor told her that surgical clamps were discovered by x-ray analysis.
Thereafter, another operation was performed to remove the clamps. The defendants
sought dismissal of the complaint on the ground that the same was barred by time. The
court referred to the Discovery Rule and observed:

The so-called Discovery Rule employed in foreign object medical malpractice cases is in compatible
harmony with the purpose for which Statutes of Limitation were enacted and strikes a fair balance in
the field of medical malpractice. The unsoundness of the traditional rule, as applied in the case where
an object is discovered in the plaintiff’s body, is patent. ‘It simply places an undue strain upon common
sense, reality, logic and simple justice to say that a cause of action had “accrued” to the plaintiff until
the x-ray examination disclosed a foreign object within her abdomen and until she had reasonable basis
for believing or reasonable means of ascertaining that the foreign object was within her abdomen as a
consequence of the negligent performance of the operation.’

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In the case before us, the danger of belated, false or frivolous claims is eliminated. In addition,
plaintiff’s claim does not raise questions as to credibility nor does it rest on professional diagnostic
judgment or discretion. It rests solely on the presence of a foreign object within her abdomen.

The policy of insulating defendants from the burden of defending stale claims brought by a party who,
with reasonable diligence, could have instituted the action more expeditiously is not a convincing
justification for the harsh consequences resulting from applying the same concept of accrual in foreign
object cases as is applied in medical treatment cases. A clamp, though immersed within the patient’s
body and undiscovered for a long period of time, retains its identity so that a defendant’s ability to
defend a ‘stale’ claim is not unduly impaired.

Therefore, where a foreign object has negligently been left in the patient’s body, the Statute of
Limitation will not begin to run until the patient could have reasonably discovered the malpractice.
(emphasis added)

The proposition laid down in Flanagan case, was reiterated in John D Adams and
Jeanette S Adams v New Rochelle Hospital Medical Center, 919 F Supp 711.424

[s 2.105] Sub-section (7) – Government Security

Section 2(2) of the Public Debt Act, 1944 defines “Government security” to mean—

(a) a security, created and issued, [by the Government] for the purpose of raising a
public loan, and having one of the following forms, namely:—

(i) stock transferable by registration in the books of the Bank; or

(ii) a promissory note payable to order; or

(iii)a bearer bond payable to bearer; or

(iv)a form prescribed in this behalf;

(b) any other security created and issued by 3 [the Government] in such form and
for such of the purposes of this Act as may be prescribed;

“Government security” means a security created and issued, whether before or after the
commencement of this Act, by the Central Government or a State Government for the
purpose of raising a public loan and having one of the forms specified in clause (2) of
section of the Public Debt Act, 1944 (18 of 1944).425

[s 2.106] Sub-section (7A) – Indian Insurance Company

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Section 2(23A) of the Income-tax Act, 1961 defines a “foreign company” to mean a
company which is not a domestic company. Section 2(22A) of the Income-tax Act, 1961
defines “domestic company” to mean an Indian company, or any other company which,
in respect of its income liable to tax under this Act, has made the prescribed
arrangements for the declaration and payment, within India, of the dividends (including
dividends on preference shares) payable out of such income.

By virtue of Act 5 of 2015 the new Indian Insurance Company is required to be

registered and old such company is required to get registration under Companies Act,
2013 (18 of 2013) within one year. The maximum foreign holding in Indian Insurance
Company has been enhanced from up to 26% to up to 49% with the managerial control
should remain with Indian majority share-holders of the Insurance Company as further
clarified by the Explanation to clause (b). The Life Insurance Business, General
Insurance Business and Pension Business were made open to both public sector and
private sector in India.

Recently, by substitution of sub-clause (b) of clause (7A) by Act 6 of 2021 the aggregate
holdings of equity shares by foreign investors including portfolio investors are now
raised up to 74% of the paid-up equity capital of such Indian insurance company on
condition that the foreign investment in the Indian Insurance Company shall be subject
to such conditions and manner, as may be prescribed. Further, clause (aaa) of section
114 is substituted by the same Amending Act regarding Rules to be made and notified in
Official Gazette by Central Government as to conditions and manner of foreign
investment under sub-clause (b) of clause (7A) of section 2.

[s 2.107] Sub-section (7A) – Two Things – Responsibility of Public Sector

Company

Two things are apparent. One, the Central Government has come out with a new
economic policy. The monopoly status has been taken away from the General Insurance
Corporation of India and its subsidiaries. The insurance companies are required to
compete with others in the field, but the same may not necessarily mean that despite
the statutory interdicts the public sectors insurance companies must have a level playing
field with the private insurance companies.

The Supreme Court observed that:

34. We have, despite the new economic policy of the Central, no option but to proceed on the
assumption that the public sector insurance companies being a State have a different role to play. It is
not to say that as a matter of policy statutory or otherwise the insurance companies are bound to
regulate all contracts of insurance having the statement of Directive Principles in mind but there cannot
be any doubt whatsoever that fairness or reasonableness on the part of the insurance companies must
appear in all of its dealings.

35. The Authority wants the insurance companies to offer a fair deal and all the terms and conditions of
their offer must be transparent. There should not be any hidden agenda. Even they should not take
recourse to ‘ticketing contract’.426

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[s 2.108] Sub-section (9) – “Insurer” – Earlier Position

The word ‘insurer’ or ‘assurer’ ordinarily means a person or an individual who

undertakes, for compensation, to make good losses, as by fire, or to pay money in
certain contingencies, as at the death or injury of insured. An ‘assurer’ is defined as an
insurer against certain perils and dangers; an underwriter; an indemnifier. The word
‘insurer’ has relation with the word ‘insure’ which means to act as insurer, i.e., to
engage to indemnify a person against pecuniary loss from specified perils; to assure
against a loss by a contingent event on certain stipulated conditions or at a given rate or
premium; to give, take, or procure an insurance on or for; to enter into, or carry, a
contract of insurance on.427

Under common law anyone with normal contractual capacity may enter into a contract
of insurance. Even in marine insurance all persons competent to contract may be parties
to it but subject to the restrictions imposed directly and indirectly by the English
Assurance Companies Act, 1909 to 1946. The English Insurance Companies Act, 1958,
which came into force on 1 November 1958, has restricted the classes of persons who
may engage in insurance business. Maugham, J in Re North and South Insurance428 has
justified such legislation in the following words:

An Insurance company differs in its nature from almost every other trading concern. It starts, in the
first instance, without liabilities. It obtains premiums sometimes to very large amount………. In as much
as the claims come in every case after the premiums have been secured, there is always a risk that an
insurance company may, by offering what look like very advantageous terms to the public, obtain a
very large premium income which, as the result of the practical working of the company, proves to be
an insufficient income for the purpose of meeting claims.

The Insurance Act, 1938, has also restricted the classes of persons who may engage in
insurance business in India. The definition of the word ‘insurer’ given in the Act
contemplates three categories of insurers and hence these three classes of insurers can
engage in insurance business within the frame-work of the Act. Broadly speaking these
three classes of insurers are: (i) Non-Indian or foreign insurer, (ii) Purely Indian insurer,
and (iii) Lloyd’s Agents in India. Having classified the insurer into three classes
elastically the definition restricts those classes within certain bounds. Thus, a non-Indian
or foreign insurer may be (a) any individual, (b) any unincorporated body of individuals,
or (c) any body corporate incorporated under the law of any country other than India
but they must carry on insurance business and must not be Lloyd’s Agents within the
meaning of class (iii) above. Moreover, these categories of non-Indian insurer (i) must
carry on the kind of insurance business in India, or (ii) must have his or its principal
place of business or be domiciled in India, or (iii) must have employed a representative,
or have maintained a place of business in India.

The second group of insurers, namely, a corporate body incorporated under the law in
force in India, i.e., the Companies Act, 1956 or under the previous Companies Act or a
subsidiary company of any public company, must be carrying on the business of

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insurance at the date of the commencement of the Insurance Act. The difference
between the non-Indian and Indian insurer is that individual or unincorporated body of
individuals carrying on insurance business in case of non-Indian insurer would come
within the fold of the definition of insurer but in case of non-Indian insurer individual or
unincorporated body of individuals cannot so come. Only incorporated body and a
subsidiary company will come to mean an insurer within this definition so far as Indian
insurer is concerned.

[s 2.108.1] Subsidiary Company, Meaning of

A company shall be deemed to be a subsidiary of another if, but only if,—

(a) that other controls the composition of its Board of Directors; or

(b) that other—

(i) where the first-mentioned company is an existing company in respect of which

the holders of preference shares issued before the commencement of the
Companies Act, 1956, have the same voting rights in all respects as the
holders of equity shares, exercises or controls more than half of the total
voting power of such company;
(ii) where the first-mentioned company in any other company, holds more than
half in nominal value of its equity share capital; or

(c) the first-mentioned company is a subsidiary of any company which is that other’s
subsidiary.

ILLUSTRATION

Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B.

Company C is a subsidiary of Company A, by virtue of clause (c) above. If Company D is
a subsidiary of Company C, Company D will be subsidiary of Company B and
consequently also of Company A, by virtue of clause (c) above, and so on.

In determining whether one company is a subsidiary of another—

(a) any shares held or power exercisable by that other company in a fiduciary
capacity shall be treated as not held or exercisable by it;
(b) subject to the provisions of clauses (c) and (d), any shares held or power
exercisable—

(i) by any person as a nominee for that other company (except where that other
is concerned only in a fiduciary capacity); or

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(ii) by, or by a nominee, for a subsidiary of that other company, not being a
subsidiary which is concerned only in a fiduciary capacity;

shall be treated as held or exercisable by that other company;

(c) any shares held or power exercisable by any person by virtue of the provisions of
any debentures of the first-mentioned company or of a trust deed for securing
any issue of such debentures shall be disregarded;

(d) any shares held or power exercisable by, or by a nominee for, that other or its
subsidiary, not being held or exercisable as mentioned in clause (c), shall be
treated as not held or exercisable by that other, if the ordinary business of that
other or its subsidiary, as the case may be, includes the lending of money and
the shares are held or the power is exercisable as aforesaid by way of security
only for the purposes of a transaction entered Into In the ordinary course of that
business.

The composition of a Company’s Board of Directors shall be deemed to be controlled by

another company, if, but only if, that other company by the exercise of some power
exercisable by it at its discretion without the consent or concurrence of any other
person, can appoint or remove the holders of all or a majority of the directorships; but
for the purposes of this provision that other company shall be deemed to have power to
appoint to directorship with respect to which any of the following conditions is satisfied,
that is to say—

(a) that a person cannot be appointed thereto without the exercise in his favour by
that other company of such a power as aforesaid;
(b) that a person’s appointment thereto follows necessarily from his appointment as
director, managing agent, secretaries and treasurers, or manager of, or to any
other office or employment, in that other company; or

(c) that the directorship is held by an individual nominated by that other company or
by a subsidiary thereof.429

Under the English Companies Act, 1948,430 a company is deemed to be a subsidiary

company of another if—(1) the other is a member of it and controls the composition of
its Board of Directors; or (2) the other holds more than half in nominal value of its
‘equity share capital’; or (3) a company is a subsidiary of any company which is in turn
a subsidiary of another company.431

The third and the last group of insurer coming within the definition of the Insurance Act,
1938, is the Lloyd’s Agents in India. Such agents may be (a) an individual, or (b)
unincorporated body of individuals, or (c) a corporate body incorporated either under
the Indian law or under the law of any country other than India. But such persons do
not include (a) a principal agent, (b) chief agent, (c) special agent, or (d) an insurance
agent, or (e) a provident society as defined in Part III of the Act. Moreover, these

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persons must have standing contract with underwriters who are members of the Society
of Lloyd’s whereby they are authorised within the terms of those contracts to issue
protection notes, cover notes, or other documents granting insurance cover to others on
behalf of the underwriters.

[s 2.108.2] Underwriter, Meaning of

The word ‘underwriter’ is a word borrowed from the early method of obtaining marine
insurance. In such kind of insurance the insurer is commonly called the underwriter,
because he subscribes the policy. But now it has an accepted and well understood
meaning, namely, an insurer – any one who insures another, on life or property, in a
policy of insurance.432 The word ‘underwrite’ in insurance parlance, means to write one’s
name under, or set one’s name to a slip or policy of insurance, originally marine
insurance, for the purpose of thereby becoming answerable for a designated loss or
damage; hence to insure or life or property; also, to assume a certain sum or risk by
way of insurance.433

[s 2.108.3] Society of Lloyd’s

The association of underwriters and brokers came to be known as “Lloyd’s” as early

from the seventeenth century. The word “Lloyd’s” is associated with the name of Edward
Lloyd, a small coffee-housekeeper, in whose coffee-house the commercial community
interested in shipping met. The coffee-house was first situated at Tower Street in
London and after 1691 it was shifted at a place in the corner of Alchurch Lane and
Lombard Street. Here, any person requiring insurance could find insurers who would
each assume a part of his risk. Insurance contracts took the form of a bargain between
those interested in a marine adventure and other traders who were willing to take a
share of the risk for a money ‘premium’.

Although the principle of individual responsibility for the part of a risk has not been
altered, the early informality of Lloyd’s has given way in succeeding years to an
increasingly rigorous organisation and control directed by a committee. In 1871, Lloyd’s
was incorporated by Act of Parliament, i.e. Lloyd’s Act, 1871434 and in 1911, a further
Act, viz., Lloyd’s Act, 1911435 sanctioned the existing although unrecognised practice of
underwriting non-marine risks. In addition to its primary function as an incorporated
society of individual underwriters, Lloyd’s has maintained the practice of Edward Lloyd of
providing shipping intelligence by the publication of Lloyd’s List and Shipping Gazette.
The society also appoints agents in all the principal parts of the world, whose duty it is
to forward regularly its accounts of all departures from and arrivals at their ports, as
well as of losses and casualties and general information relating to shipping and
insurance; these agents are appointed by the Corporation of Lloyd’s and are not agents
of the underwriters.436

[s 2.108.4] Cover Notes, Meaning of

A ‘cover note’ is an interim protection pending the issue of a policy. It usually states that
it is to be in force for a limited period of time or until a policy is delivered. Such a note is
in fact a temporary or provisional contract of insurance, quite distinct from that
embodied in the policy, and the fact that the assured changes his mind and decides to

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negotiate with another company does not affect the cover already given him by such a
note. When the assured pays all or a part of the premium, the insurer may combine the
receipt with the cover-note which is then known as a deposit receipt.437

A slip, unlike a cover note, is not merely a contract of temporary insurance pending
inquiries, but is an acceptance of the proposal, binding the insurers to issue a policy in
accordance with its terms. A ‘slip’ contains short particulars of the risk and insurance
brokers who offer insurances of any kind to underwriting members of Lloyd’s or to
marine underwriters of insurance companies do so by means of such a ‘slip’. The
underwriter who accepts it marks on the ‘slip’ the amount which he is willing to take and
signs or initials it.438 A ‘slip’ resembles a ‘cover note’ in non-marine cases because it
binds the insurers just as a policy would have done had it been issued,439 but in marine
insurance it is nothing more than an ‘honour’ contract as no action can be brought on it
by virtue of section 22 of the Marine Insurance Act, 1906. It is, however, usual to
deliver a stamped policy in terms of the ‘slip’ even if a loss occurs in the meanwhile or
the insurers deny liability for the loss. On receipt of such a policy the assured may bring
an action upon it.440

Sometimes a ‘slip’ may be known as a ‘binder’ or a ‘binding slip’ which means a written
memorandum of the most important terms of a preliminary contract of insurance
intended to give temporary protection pending the investigation of the risk of insurer, or
until the issuance of a formal policy. It is a contract of insurance in praesenti, temporary
in its nature, intended to take the place of an ordinary policy until one can be issued. It
is also called a short method of issuing a temporary policy for the convenience of all
parties, to continue, unless sooner cancelled, until the execution of a formal policy.441

[s 2.108.5] Insurer Domiciled in India

Domicile has been defined to be ‘the country which is taken to be a man’s permanent
home,’442 but domicile and residence are not identical things. It has been said that
“domicile is an idea of law. It is the relation which the law creates between an individual
and a particular locality or country. To every adult person the law ascribes a domicile
and that domicile remains his fixed attribute until a new and different attribute usurps
its place.”443 In its legal concept the word ‘domicile’ means “the place with which a
person has a settled connection for certain legal purposes either because his home is
there or because that place is assigned to him by law.”444

Domicile may be acquired (1) by birth, (2) by choice, and (3) by operation of law. But
when A of country X goes to a foreign country Y for the purpose of his business and
even if he stays at Y until he has made a fortune he retains his domicile of origin, i.e. of
country X, and the factum of his staying at Y would be no proof that he has adopted the
domicile of his choice, viz., of country Y. But if A’s original Intention of temporarily
residing in country ‘Y could be shown to have become unlimited thereafter such a
change of purpose may be construed to be a change of domicile but not otherwise.445
The general rule is that when the intention to reside permanently in a place exists such
residence in pursuance of that intention will establish the domicile but such intention
must be conscious, or deliberate and not due to any external necessity, such as,
imprisonment, a political refugee, change of climate on grounds of health, service or on
diplomatic mission.446

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Domicile is determined by the lexfori which means that the domicile of a person has to
be determined by the law of the country of domicile. Thus, where the question as to
whether ‘A’ is domiciled in India arises it has to be ascertained according to the Indian
law. The Supreme Court in Central Bank of India Ltd v Ram Narain,447 has observed
thus,

… two constituent elements that are necessary by English Law for the existence of domicile are: (1) a
residence of a particular kind, and (2) an intention of a particular kind. There must be the factum and
there must be the animus. The residence need not be continuous but it must be indefinite, not purely
fleeting. The intention must be a present intention to reside forever in the country when the residence
has been taken up. It is also a well-established proposition that a person may have no home but he
cannot be without a domicile and the law may attribute him a domicile in a country where in reality he
has not. A person may be a vagrant as when he lives in a yacht or wanderer from one European hotel
to another, but nevertheless the law will arbitrarily ascribe to him a domicile in one particular territory.
In order to make the rule that nobody can be without a domicile effective, the law assigns what is
called a domicile of origin to every person at his birth. This prevails until a new domicile has been
acquired, so that if a person leaves the country of his origin with an undoubted intention of never
returning to it again, nevertheless his domicile of origin adheres to him until he actually settles with the
requisite intention in some other country.

Article 5 of the Constitution of India prescribes that at the date of commencement of the
Constitution, i.e., 26 January 1950, every person who has his domicile in the territory of
India, and (a) who was born, or (b) either of whose parents was born, or (c) who has
been ordinarily resident, in the territory of India, for not less than five years
immediately preceding such commencement, shall be a citizen of India. Articles 6, 7 and
8 respectively provide (i) rights of citizenship of certain persons who have migrated to
India from Pakistan; (ii) rights of citizenship of certain migrants to Pakistan; and (iii)
rights of citizenship of certain persons of Indian origin residing outside India. Article 9
provides that persons voluntarily acquiring citizenship of a foreign State shall not be
citizens of India; and Article 10 speaks of continuance of the rights of citizenship. But
the law of citizenship in India is now governed by the Citizenship Act (LVII of 1955).
Sections 3, 4, 5 and 6 of this Act respectively provide acquisition of citizenship (i) by
birth, (ii) by descent, (iii) by registration, and (iv) by Naturalisation. Sections 7 and 8
provide citizenship by incorporation of territory and renunciation of citizenship. Section 9
speaks of termination of citizenship, section 10 of deprivation of citizenship, and section
11 of Commonwealth citizenship.

Under section 3(42) of the General Clauses Act, 1897, the word ‘person’ includes both
natural and artificial persons. According to Private International Law, a corporation is
capable of having both a ‘residence’ and a ‘domicile’. Generally speaking, a company
resides where the central management and control abide. A corporation has only its
domicile of origin and it cannot change it; it is domiciled where it is incorporated.448 But
as has been pointed out by Dicey in his ‘Conflict of Laws’ that a trading corporation may
have or must have its domicile where its principal place of business is situate but in case
of other corporation its domicile is at the place where its functions are discharged.449 It
has also been held in New York Life Insurance Co v Public Trustee,450 that a company

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incorporated in the United States having an office in London where policies issued in
England were payable may have two domiciles for the purposes of jurisdiction.

[s 2.108.6] “Carrying on the Business of Insurance”, Meaning of

The Insurance Act, 1938, means by insurance business, effecting contracts of insurance.
When the definition of ‘insurer’ in section 2(9)(a) refers to anybody corporate carrying
on the business of insurance, the implication is that the body corporate is effecting
contracts of insurance. Once there has been a cancellation of registration, the company
cannot effect any new contracts of insurance. Therefore, a company cannot be deemed
to be carrying on business within the meaning of that expression in section 2(9) of the
Act even after there has been a cancellation of registration.451 But in Smith v
Anderson,452 and Central Indian Mining Co v Society Colontale Anverscise,453 it has been
said that a company would be carrying on business so long as there were liabilities still
remaining. In the Madras decision it has also been said that the phrase any on business’
occurs in several enactments and has to be construed according to the context in which
it is used and the general tenor of the enactment in which it occurs. It may be construed
in one way for the purpose of section 20 of; see also Liquidators of Pursa Ltd v CIT454;
Narain Swadeshi Weaving Mills v Commissioner of E.P.T.455; and Executors of the Estate
of Lala Shankar Sah v CIT.456

So far as section 2(9)(a) of the Act is concerned, it specially covers any body corporate
incorporated under any law for the time being in force in India.457

[s 2.109] Right to Insurer to Exercise Option – Doctrine of Relation Back

When the van belonged to the firm and every partner for that reason would be the
owner of the property of the firm because the firm is not a legal entity in the sense in
which the company under the Companies Act has a juristic personality. Firm is a
compendious name for the partners. And the High Court limited its enquiry to ascertain
whether the first part of the condition is satisfied viz. whether the driver was in the
employ of the insurer. It completely overlooked the second clause that the driver
Appellant No. 2 was driving with the permission of the insured, the firm in this case.
Two clauses are disjointed by a disjunctive ‘or’. On a proper analysis and interpretation
of the term of contract of insurance, the insurance company cannot escape the liability if
(a) insured himself was driving the vehicle or (b) the driver is in the employment of the
insurer and is driving on the order of the insurer or (c) he is driving with his permission.
The words ‘with his permission’ does not qualify the expression ‘is in the insurers
employ’. The clause can be properly read thus: ‘any other person with insurer’s
permission’. This ought to be so because a friend can always be permitted if he has a
valid driving licence to drive a friend’s, car. If in every such situation where the person
driving the vehicle is not shown to be the insurer himself or someone in his
employment, the contract of insurance would afford no protection and the insurance
company having collected the premium would wriggle out of a loophole. Therefore, the
proper construction of this condition must be to read it as stated hereinbefore.458

[s 2.110] Sub-section (10) – Insurance Agent

An ‘agent’ is a person employed to do any act for another, or to represent another in

dealings with third persons. The person for whom such act is done, or who is so

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represented, is called the ‘principal’.459 Any person who is of the age of majority
according to the law to which he is subject, and who is of sound mind, may employ an
agent.460 As between the principal and third persons, any person may become an agent,
but no person who is not of the age of majority and sound mind can become an agent,
so as to be responsible to the principal according to the provisions in that behalf herein
contained.461 No consideration is necessary to create an agency.462 The authority of an
agent may be expressed or implied.463

Agents are distinguished in respect of authority as general or special agents. The former
expression includes brokers, factors, partners, and all persons employed in a business of
filling a position of a generally recognised character, the extent of authority being
apparent from the nature of the employment or position; the latter denotes an agent
appointed for a particular occasion or purpose, limited by the employment.464 A special
agency exists when there is a delegation of authority to do a single act; a general
agency property exists where there is a delegation to do all acts connected with a
particular trade, business or employment.465 An agent in law may be either general or
special. A general agent has authority to act for his principal in all matters, or in all
matters concerning a particular trade or business or of a particular nature; or to do
some act in the ordinary course if his trade, profession or business as an agent, on
behalf of his principal. On the other hand a special agent has only authority to do some
particular act, or represent his principal in some particular transaction.466 It is perfectly
immaterial that a special power authorises the doing, not of one act, but of several acts,
for the distinction is not between one act and several acts, but between an agency for a
particular piece of business and an agency for all business or all business of a certain
class.467 A power of attorney which authorises a person to do all things and take all
steps necessary to complete the execution of a decree is a general power of attorney, as
the acts to be done might be of various and numerous kinds and could not be regarded
as constituting one legal transaction.468

Where a contract of agency provides that the agent is entitled to the usual commission
on all orders coming from his territories whether secured by him directly or “indirectly in
any other way” the agent is entitled to commission even on the orders directly secured
by the principal himself. The words “secured indirectly in any way” in the deed, in the
context in’ which they stand, must be held to refer to the securing of orders by the
principal also and not merely to orders secured by the agent in any other way than
directly.469

[s 2.111] Kinds of Agent – Earlier Position

The Act has not defined what an agent means but instead it has classified different kinds
of agents and has defined them. The classes to which the agents have been divided are:
(i)principal agent, (ii)insurance agent, (iii)chief agent, and (iv)special agent. The
classification has been based primarily on the life insurance business and insurance
business other than life insurance. Thus, the words ‘chief agent’ and ‘special agent’ have
been applied to those agents who solicit or procure life insurance business; and the
expressions ‘principal agent’ and ‘insurance agent’ have been applied to those agents
who solicit or procure general insurance business or insurance business including
business relating to the continuance, renewal or revival of policies of insurance.

[s 2.112] Sub-section (5) – Chief Agent [stood Omitted by Act 5 of 2015]

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Chief Agent is not a regular salaried employee of insurer. He performs administrative

and organising functions for the insurer and procures life insurance business for the
insurer by employing or causing to be employed insurance agent on behalf of the
insurer. For this work the Chief agent is paid commission by the insurer.

[s 2.113] Main Features of the Agents – Earlier Position

The main features common to all kinds of agents, whether chief, principal, special and
insurance agents, are: (i) they are not salaried employees of the insurer employing
them; (ii) they receive commission as consideration of their work; and (iii) their main
function is to solicit or procure insurance business or life insurance business, as the case
may be. Further, features common to ‘chief agent’, ‘principal agent’ and ‘special agent’,
are that he can procure general insurance business or life insurance business, as the
case may be, either (a) by himself personally, or (b) through insurance agents
employed or caused to be employed by him.

The insurance agent as defined in the Act has no power to employ or cause to be
employed any such agent under him. Moreover, the chief agent and the principal agent
have to perform any administrative and organising functions for the insurer which other
kinds of agents have not been empowered to perform. The definition of ‘chief agent’ and
‘principal agent’ as given in the Act is the same. According to the definition both these
classes of agents have the same common features, viz. (i) they are persons and not
individuals as in the case of insurance agents; (ii) they are not salaried employees of
any insurer; (iii) they perform their functions in consideration of commission; and (iv)
their functions are: (a) administrative, (b) organisational, and (c) procurement of life
insurance business in case of chief agent and general insurance business in case of
principal agent either by wholly or in part by employing or causing to be employed
insurance agents on behalf of the insurer. But the essential difference between them is
that the chief agent is so called in relation to life insurance business whereas the
principal agent is so called in relation to general insurance business. The difference
between the chief agent and the special agent lies in the fact that the former has to
perform administrative and organisational functions for the insurer while the latter has
not been empowered to do so. The difference between chief agent, special agent, and
principal agent on the one hand and this insurance agent on the other lies in the fact
that the latter must be an individual and must not be a firm or incorporated company,
while the former may be either of them. Further, an insurance agent must be licensed
under section 42 of the Act whereas no such licence is contemplated in case of the
former.

[s 2.114] Licence Fee for Insurance Agents and Collection Thereof

See rule 16 of the Insurance Rules, 1939.

[s 2.115] Issue of Licences to Insurance Agents

See rule 16A of the Insurance Rules, 1939.

[s 2.116] Fee for Principal, Chief and Special Agents

See rule 16C of the Insurance Rules, 1939.

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[s 2.117] Issue of Certificates to Principal, Chief and Special Agents

See rule 16D of the Insurance Rules, 1939.

[s 2.118] Issue of Duplicate Licences and Certificates

See rule 16E of the Insurance Rules, 1939.

[s 2.119] Cancellation of Licences or Certificates

See rule 16 of the Insurance Rules, 1939.

[s 2.120] Powers of Agents

The word ‘agent’ has not been defined in the English Insurance Companies Act, 1958
nor does it find any place in the body of the said Act. As all artificial persons, viz. the
companies, act only through agents, English insurance companies are no exception to
that rule. Primarily their chief agents are their directors, elected or appointed by the
members whose powers cannot be greater, but may be less than those of the company
itself. Prima facie the powers of such general agents are co-extensive with the business
entrusted to their care and will include the power to enter into written contracts of
insurance. But assurance companies employ a good number of special or local agents to
solicit applications for insurance and collect the premium. The powers of such agents
vary widely and their ostensible authority is a question of fact in each case.470

[s 2.121] A Medical Examiner, whether an Agent of the Company?

Although it has been held that a medical examiner represents both insurer and insured
as a general rule, a medical examiner of a life insurance company is held to be an agent
of the company, although he is paid by insured for the examination, and
notwithstanding a recital in the application or policy that he shall be regarded as the
agent of insured.471

[s 2.122] Insurance Agent Generally and Insurance Broker

An insurance agent may be said, generally, to be one employed by an insurance

company to solicit risks and effect insurance. The expression ‘insurance agent’ has also
been defined to be one appointed by an insurance company to perform some act or acts
in furtherance of the business of his principal. He is a person expressly or impliedly
authorised to represent the insurer in dealing with third persons in matters relating to
insurance.

In the United States there are different kinds of agents, viz.

(i) general agent i.e., an agent authorised to accept risks, agree and/or settle the
terms of insurance contracts, issue policies by filling out blank instruments which
are furnished to him for that purpose, and to renew policies is a general agent;

(ii) soliciting agent.—He is merely a special agent and has authority to perform such
acts as are incidental to the power of soliciting insurance and submitting

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applications therefor to the company, but he has no authority to bind the

company as to matters relating to the subsequent contract of insurance;

(iii)territorial or local agent for specified territory or area, although he is so called,

his field of operation may be very large and yet his powers be special and limited,
and on the other hand, his field of operations may be confined to a comparatively
small territory and yet his authority within that field be unlimited;

(iv)debit agent, he collects weekly or monthly premiums from a number of policy-

holders generally small policies of industrial insurance and the amounts so
collected are debited to the agent;

(v) policy-writing agent, an insurance agent who has authority to issue and
countersign policies is a policy-writing agent.

An insurance broker is one who acts as a middleman between the insured and the
company; he solicits contracts from the public under no employment from any particular
company, but having secured an order places the insurance with the company selected
by Insured, or, when there is no such selection, with the company of such broker’s
choice. He is also called an insurance solicitor. A broker who effects an insurance with
an underwriter is not his agent, and is under no legal liability to him to use care or skill
in effecting the insurance.472 A broker has, in the absence of the express authority of his
principal, no authority to cancel a policy, whether it is left in his hands or not; but a
broker effecting a policy in England under instructions given to him in a foreign country
will have implied authority to cancel that policy if such authority is conferred upon him
by the law of the foreign country.473

An underwriter at Lloyd’s having express authority to act as their agent for the purpose
of underwriting policies of insurance and carrying on the business of an underwriter at
Lloyd’s has authority to underwrite guarantee policies, that being part of the ordinary
business of an underwriter at Lloyd’s.474

[s 2.123] Dual Agency, its Permissibility

As a general rule the same person cannot act as agent for both the company or Insurer
and insured. But the rule is subject to certain exceptions. The most important of these
exceptions is that he is permitted to so act with the knowledge and consent of both and
in so acting he does not represent conflicting interests.475

[s 2.124] Sub-agents

A ‘sub-agent’ is a person employed by, and acting under the control of, the original
agent in the business of the agency.476

Ordinarily an agent cannot lawfully employ another to perform acts which he has
expressly or impliedly undertaken to perform personally, unless by the ordinary custom
of trade a sub-agent may, or from the nature of the agency, a sub-agent must, be
employed.477 The general rule of the maxim ‘delegatus non potest delegare” is
embedded in section 190 of the Contract Act. The maxim imports that an agent cannot,

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without authority from his principal devolve upon another obligations to the principal
which he has himself undertaken to fulfil personally.478

[s 2.125] Statutory Agency

The different classes of agents contemplated under the Insurance Act, viz., chief agent,
principal agent, special agent and Insurance agent, are statutory agents. Insurer or
insurance company, as the case may be, cannot escape the effect of the Act, declaring
person performing certain acts relating to soliciting and contracting for insurance to be
insurer’s agent, by allowing its sole agent to employ assistants to conduct business.479
Where the insurer’s agent, to whom facts regarding the risk are correctly stated, makes
erroneous insertion in the application, the insurer is chargeable with agent’s mistake,
the agent’s knowledge being binding on the company.480 The authority of an insurance
agent never goes further than that conferred on him in writing by his insurer, or beyond
the scope of the licence issued to him under section 42 of the Insurance Act.481

[s 2.126] Distinction between General Agent of Fire Insurance Company and a

Soliciting Agent of Life Insurance Company – American Position

In the United States, there is a distinction between a General Agent of a fire insurance
company and a soliciting agent of a life insurance company. Life insurance agents are
rarely, if ever, ‘general’ agents in the sense that they execute and deliver policies as is
often done in the business of fire insurance; but they often have and exercise general
control or power with respect to the particular branch of the business committed to their
hands, and to that extent atleast are General Agents.482

[s 2.127] Sub-section (10A)

[s 2.127.1] “Investment company”

The expression ‘investment company’ in clause (10A) of section 2 of the Insurance Act
means a company whose principal business is the acquisition of shares, stocks,
debentures or other securities. The word ‘investment’ is not a word of art but has to be
interpreted in a popular sense. It is not capable of legal definition but a word of current
vernacular.483 The expression ‘investment’ ordinarily connotes the laying out of money
in such a manner that it may produce a revenue. The common way of doing so is by the
purchase of shares, stocks, securities or other property. Even “application of money in
the purchase of some property from which interest or profit is expected and which
property is purchased in order to be held for the sake of the income which it will
yield.”484 The words “invest” and “investment” have been used in the Companies Act in
the business sense of laying out money for interest or profit.485

[s 2.127.2] “Share”

The word ‘share’ has been defined to mean share in the share capital of a company, and
includes stock, except where a distinction between stock and shares is expressed or
implied.486

[s 2.127.3] “Stock”

Stock differs, in principle, from shares in the following respects:

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(i) Stock need not be numbered while shares have to be numbered; and

(ii) Stock need not be divided into equal parts but may be divided into fractions, e.g.,
assuming that the stock arises from shares of £ 1 each, a stockholder may hold £
1, 12 section 6d, worth of stock.487

[s 2.127.4] “Debenture”

The word ‘debenture’ has been defined to include debenture, stock, bonds and any other
securities of a company, whether constituting a charge on the assets of the company or
not.488 This definition has been brought, in line with the definition of ‘debenture’ given in
the English Companies Act, 1948. The Company Law Committee has observed in its
Report at para 27 thus:

A debenture means a document which either creates or acknowledges a debt. Ordinarily a debenture
constitutes a charge on the undertaking of the company or some part of its property, but there may be
debentures without any such charge, and under the law it is not necessary that the debentures should
create a charge.489

The word ‘debenture’ is not either in law or commerce a strictly technical term or what is
called a term of art but at the same time it has no precise legal definition.490 But in
Edmonds v Blaina Co,491 Chitty, J described the meaning of the term ‘debenture’ thus:

The term imports a debt – an acknowledgement of a debt – and speaking of the numerous and various
forms of instruments which have been called debenture, without anyone being able to say that the term
is incorrectly used, I find that generally – if not always – the instrument imports an obligation or
covenant to pay. This obligation or covenant is, in most cases at the present day, accompanied by
some charge or security.

In modern commercial usage a debenture means an instrument issued by the company,

normally, but not necessarily, called on the face of it a debenture, and providing for the
payment of, or acknowledging the indebtedness in, a specified sum, say Rs 1,000 at a
fixed date, with interest thereof. It usually, but not necessarily, gives a charge by way of
security, and is often though not invariably, expressed to be one of a series of like
debentures. But the term, as used in modern commercial parlance, is of extremely
elastic character, for—

(1) it is sometimes used, both by lawyers and businessmen, to describe an

instrument which is not called, on the fact of it, a debenture, e.g., a bond;
(2) it is used of an instrument which is not one of a series. A single debenture may
be issued to one man;
(3) it is not the less a debenture because—

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(a) it is not under seal; or

(b) it does not contain a charge; or

(c) it does not provide for payment at any fixed date but only in the event of
winding-up, or in some contingency; or
(d) because there is no personal liability on the company to pay but the company
charges its property as security for the debt of another person.492

[s 2.127.5] Debenture and Debenture Stock

There are differences between a debenture and a debenture stock. The main differences
are—

(i) terminologically, a ‘debenture’ is the description of an instrument, but a

‘debenture stock’ is the description of a debt or sum secured by an instrument. In
the words of Lord Lindley, it is “borrowed capital consolidated into one mass for
the sake of convenience”;
(ii) debenture stock is generally created by a trust deed which contains a covenant
for the payment, either at a fixed date or in certain events, of a specified capital
sum and also interest and gives to the trustees security, by way of mortgage or
charge, as in a debenture trust deed;

(iii)a debenture is always for a fixed sum which is transferable as an entirety but
debenture stock can be transferred in fractional amounts.

But in the matter of security, of payment of interest, and of transfer, debenture stock
differs hardly from debentures.493

[s 2.127.6] Securities

There are two classes of securities defined in the Insurance Act, 1938, viz., (i) approved
securities defined in section 2(3); and (ii) Government security defined in section 2(7) of
the Act. A security is anything that makes the money more assured in its payment or
more readily recoverable as distinguished from, e.g., a mere ‘I.O.U.’ which is only
evidence of a debt.494 The expression ‘other securities’ mentioned in clause (10A) of the
Insurance Act should be taken apparently to have been used in a sense slightly in
excess of its strict legal meaning of ‘approved securities’ and hence such securities also
include shares.495

‘Approved securities’ within the meaning of clause (3) of section 2 of the Act are: (i)
Government securities and other securities (a) charged on the revenues of, or (b)
guaranteed fully as regards principal and interest by, the Central or any State
Government; (ii) debentures or other securities for money issued under the authority

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under any Central Act or State Act by or on behalf of (a) a Port Trust, (b) Municipal
Corporation, or (c) City Improvement Trust, in any Presidency Town. Hence, Calcutta
Corporation of Debentures and Loans, Calcutta Port Trust Debentures and Loans,
Calcutta Improvement Trust Debentures and Loans, Bombay Municipal Loans, Bombay
Port Trust Loans, Madras Port Trust Loans, and Madras Corporation Loans are approved
securities; (iii) shares of a corporation established by law and where the re-payment of
principal and payment of dividend are fully guaranteed by the Central or the State
Government; (iv) securities (a) issued by the Government of any Part B State or
(b)their principal and interest are guaranteed fully by such Government; and such
securities are specified by the Central Government by notification in the Official Gazette
as ‘approved securities’ for the purposes of the Insurance Act, 1938; and (v) (1)
securities for such purposes and period and subject to conditions prescribed (a) when
guaranteed fully with regard to principal and interest by a Provincial Government in
Pakistan, or (b) charged on the revenues of any part of the Dominion; and (2)
debentures or securities for money issued by or on behalf of the trustees of the Port of
Karachi subject also to the limitations afore-mentioned.

Pakistan securities above referred to will be treated as ‘approved securities’ under rule
10A of the Insurance Rules, 1939, in the case of Insurers incorporated or domiciled in
India—

(a) for the purposes of sections 7, 98 or 73 of the Insurance Act, 1938, if such
securities had been deposited with the Reserve Bank of India pursuant to the said
Act before 15 August 1947, and continue to be so deposited with the said bank
since that date; and

(b) for the purposes of sections 27 and 27A of the said Act, if such securities had
been acquired by insurer or a provident society before 15 August 1947, and
continued to be held since that date by the insurer or the provident society
aforesaid.

“Government security” under the Public Debt Act, 1944, means (a) a security, created
and issued, whether before or after the commencement of Act by the Central or a State
Government for the purpose of raising a public loan and having one of the following
forms, namely, (i) stock transferable by registration in the books of the Reserve Bank;
or (ii) a promissory note payable to order; or (iii) a bearer bond payable to bearer; or
(iv) a form prescribed in this behalf; (b) any other security created and issued by the
Central or State Government in such form and for such of the purposes of this Act as
may be prescribed.496 A promissory note above referred to also includes a treasury
bill.497

[s 2.127.7] Social Security

The authorities or a private persons or industry are bound by the directives contained in
Part IV, Part III and the Preamble of the Constitution. It would thus be clear that the
right to carry on trade is subject to the directives containing the Constitution the
Universal Declaration of Human Rights, European Convention of Social Economic and
Cultural Right and the Convention on Right to development for socio-economic Justice.

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Social security is a facet of socio-economic justice to the people and a means to

livelihood.498

[s 2.128] Sub-section (10B) – “Intermediary or Insurance Intermediary”

Intermediary or insurance intermediary includes insurance brokers, re-insurance

brokers, insurance consultants, corporate agents, third party administrator, surveyors
and loss assessors and such other entities, as many be notified by the Authority from
time to time.499

[s 2.129] Sub-section (11) – “Life Insurance Business”

Life insurance in a broader sense comprises any contract in which one party agrees to
pay a given sum upon happening of a particular event contingent upon the duration of
human life, in consideration of the immediate payment of a smaller sum or certain
equivalent periodical payments by another party (Halsbury’s Laws of England, 3rd Edn,
vol 22, p 273). It was held by the Court of Appeal in Gould v Curtis, (1913) 6 Tax Cas
293, that for the purpose of the statutory provisions relating to relief in respect of life
insurance premiums for purposes of income-tax, a contract by which a sum is payable
on the death of the assured within a specified period and a larger sum if he is alive at
the end of the period must be held to be an insurance on life.500

Life insurance business has been defined in clause (11) of section 2 of Insurance Act,
1938, to mean the business of effecting contracts of insurance upon human life. Such
contract within the meaning of the definition will include—

(a) any contract whereby the payment of money is assured on death (except death
by accident only);

(b) any contract whereby the payment of money is assured on the happening of any
contingency dependent on human life; and

(c) any contract which is subject to payment of premiums for a term dependent on
human life.

Such contracts will also include—

(a) the granting of disability and double or triple indemnity accident benefits, if so
provided in the contract of insurance;

(b) the granting of annuities upon human life; and

(c) the granting of superannuation allowances and annuities payable out of any fund
applicable solely to the relief and maintenance of persons engaged or who have

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been engaged in any particular profession, trade or employment or of the

dependents of such persons.

The business of a company consisting exclusively in granting terminable pensions or

annuities dependent on human life in favour of the subscribers or their nominees is
insurance business as defined in section 2(11) of the Insurance Act.501

The Indian Insurance Act, 1938, mainly deals with the law relating to the business of
insurance and does not deal with any general principles of the law of different kinds of
insurance defined in section 2 of the Act. In the absence of any legislative enactment on
the subject, courts in India have in dealing with the topics of different insurances relied
so far on general rules of the law of contract as embodied in the Indian Contract Act and
Indian decisions and to a large extent on judicial decisions of courts in England and
opinions of English Jurists.502

[s 2.129.1] Life Insurance Contract, its Definitions

Section 2(11) of the Act defines ‘Life Insurance’ as the business of effecting contracts of
insurance upon human life. Insurance is a contract between the insurer and the assured.
Under such contract the assured is entitled to a certain benefit, i.e., to the payment of a
definite amount. The contract together with the other benefits assigned in it forms part
of his assets.503

[s 2.129.2] Definition from American Cases

“Life insurance is a promise to pay a certain sum upon the death of the assured.”504
“Life insurance is a contract whereby the insured agrees to pay certain sums, called
premiums, at specified times, and in consideration thereof the insurer agrees to pay
certain sums of money on certain conditions and in specified ways.”505 “Life insurance
imports a mutual agreement, whereby the insurer, in consideration of the payment by
the assured of a named sum annually or at certain times, stipulates to pay a larger sum
at the death of the assured.”506 When the policy amount is payable not on the death of
the assured but at a fixed date, it will not amount to a policy of life insurance if neither
the payment of the sum assured nor the payment of the single premium did depend on
the duration of human life.507 The law, however, is not fond of definitions, and these
definitions are to be taken, perhaps, rather as statements by the learned men who
make them, than as strict definitions which contain every essential element without
which the contract cannot exist, and which exclude everything not necessary to its
being.508

[s 2.129.3] Origin and Kinds of Life Insurance

The origin of life insurance is later than fire and marine insurances. In France it was, in
early times prohibited on the ground that it might give an incentive to those who would
benefit by the termination of a life to hasten such termination. In England, it was not so
prohibited but had the sanction of the judiciary long before such sanction given by the
Parliament. In America it followed the common law of England into such States as
adopted that system but for a long time it has been almost entirely regulated by special

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legislation in almost all States. In India, it also followed the common law of England
until the companies doing the life insurance business were governed by the Life
Assurance Companies Act (6 of 1912).

The motive for its origin is traceable to benevolence, the object being to secure to the
family of a person who is dependent on a salary, or other income which ceases with his
life, a support on the death of insured by a small contribution of the annual income.509 It
is true that over the years many new features have been added to it, which may seem
to be foreign to its original conception but the main principle on which it rests has not
been changed.510

Life insurance is designated by various names according to the nature of the terms and
conditions of the different forms of contracts or policies. They may be—

(a) Endowment insurance, i.e., a contract to pay a fixed sum to insured if he

survives for a specified period, or, if he dies within such period, to some other
person nominated or indicated. Under this head includes child’s endowment or
deferred life insurance. Considerable difficulties have arisen with regard to the
latter type of insurance as normally a person has no insurable interest in the life
of his child and such a policy would, therefore, be illegal but when the policy is in
the form now commonly current, the proposer will be regarded as holding the
policy in trust for the child.511
(b) Limited-payment insurance, i.e., a form of life insurance which contemplates
payment of premiums by insured for a specified period or until his death within
such period and for payment by insurer on the death of the Insured.

The difference between the endowment insurance and the limited-payment

lies in this that the latter becomes payable on the death of insured while the
former is payable at the termination of the endowment period or on the death
of the insured if it occurs earlier.
(c) Whole life insurance is the normal form of insurance which contemplates
payment of insurance money on the death of the insured to his legal
representatives or assigns in consideration of periodical payment of fixed
premium.
(d) Paid-up insurance, i.e., where no further premiums are to be paid. It may be of
two kinds: (a) where premium is paid as a single payment and the money
becomes payable at a time stipulated or at death if it occurs earlier; (b) where
the original policy is converted into a paid-up policy, because of a default in the
payment of premiums it means insurance reduced to an amount corresponding to
the premiums paid, so that no further premiums are required to be paid.
(e) Term insurance, i.e., insurance for a term of years only, or until insured shall
arrive at a certain age or for the term or period for which a premium has been
paid with the right to continue it from term to term on payment of the required
premium. Two-year temporary assurance policies issued by the Life Insurance
Corporation of India may be cited as an example,512 where agreement to pay
specified amount if death occurs before expiration of one year and to renew and
extend the insurance during successive years if required premiums were paid was

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held to be a contract of insurance for the term of one year only, with provisions
for renewal for successive years.
(f) Advance insurance, i.e., insurance providing for the payment to insured of a
lump sum immediately for consideration of his agreeing to make certain
periodical payments to insurer for a specified period or for the life of insured if his
life should terminate before the end of that period. Examples of this kind of
insurance may be found in contracts to furnish funds for the building of a house,
to be repaid by monthly or quarterly instalments, which shall cease on death.513
(g) Joint-life insurance, i.e., insurance on the joint-life of husband and wife,
insurance money payable if death should occur to either of them. Where premium
was paid on a policy in the name of the husband, from out of the joint fund of
husband and wife, in the form of savings bank account, then in the absence of
any material to show the exact proportion in which each of them contributed
towards the joint funds, it was held that, the insurance policy subscribed out of
such fund would belong to both of them equally.514

(h) Annuity insurance, i.e., insurance whereby insurer agrees to pay certain fixed
sum as annuity by monthly payment either at the expiration of the specified
period or earlier if death should occur to the insured.

But where a person proposed to an Insurance Company to effect a life insurance the
terms of which provide for payment of a single premium of Rs 15,000 upon a policy for
a lump sum of Rs 33,000 payable upon a fixed date not dependent upon the death of
the proposer, it was held by the Calcutta High Court,515 that such terms do not
constitute a policy of life insurance since neither the premium nor the payment of the
policy amount were made dependent on the duration of human life.

The Life Insurance Corporation of India undertakes various kinds of life insurance, of
which mention may be made of—(1) limited payment life insurance; (2) endowment
insurance; (3) joint-life insurance; (4) multi-purpose insurance; (5) children’s deferred
insurance; (6) two-year temporary insurance; (7) whole life-insurance; (8) double
endowment insurance; (9) triple benefit insurance; (10) anticipated endowment
insurance; (11) convertible whole life insurance; (12) special whole life insurance; (13)
annuity insurance including single premium to immediate or deferred annuity insurance
and educational annuity insurance; (14) fixed-term marriage endowment insurance.

[s 2.129.4] Doctrine of Classification and Doctrine of Equality

The doctrine of classification is only a subsidiary rule evolved by the Courts to give
practical contend to the doctrine of equality, over-emphasis on the doctrine of
classification or anxious or sustained attempt to discover some basis for classification
may gradually and imperceptibly erode the profound potency of the glorious content of
equality enshrined in Article 14 of the Constitution. The over-emphasis on classification
would inevitably would result in substitution of the doctrine of classification to the
doctrine of equality and the Preamble of the Constitution which is an integral part and
scheme of the Constitution. Menaka Gandhi ratio extricated it from this moribund and
put its elasticity for egalitarian path finder. Lest, the classification would deny equality to
the larger segments of the society. The classification based on employment in

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Government, semi-government and reputed commercial firms has the insidious and
inevitable effect of excluding lives in vast rural and urban areas engaged in unorganised
or self-employed sector to have life insurance offending Article 14 of the Constitution
and socio-economic justice.516

The term policy by Life Insurance Corporation confining to only salaried class from
Government, semi-government or reputed commercial firms is discriminatory offending
Article 14. Denial thereof to larger segments violates their constitutional rights. The
offending clause extending the benefit only to the salaried class in Government, semi-
Government and reputed firms is unconstitutional, subject to compliance with other
terms and conditions, the Corporation is free to enforce Table 58 policy with all eligible
lives. The offending part is severable from the rest of the conditions. In issuing a
general life insurance policy of any type, public element is inherent in prescription of
terms and conditions therein. The Corporation or any person or authority in the filed in
insurance owe a public duty to evolve their policies subject to such reasonable, just and
fair terms and conditions accessible to all the segments of the society for insuring the
lives of eligible persons. The eligibility conditions must be conformable to the Preamble,
fundamental rights and the directive principles of the Constitution.517

[s 2.129.5] Insurable Interest, the Basis of Life Insurance Contract

For the validity of a life insurance contract the first requisite is that there must be
insurable interest otherwise the contract will be void as being wagering one. It is,
indeed, difficult to define with absolute precision what will in all cases constitute an
insurable interest in the life of a person to take it out of the wagering contract. Each
case must depend on its own facts and any general rule cannot be laid down in this
regard. So far as the life of the insured himself is concerned he has an unlimited
insurable interest in his own life which is sufficient to support it and such a contract is
not against public policy. But difficulties arise where it concerns the life of another. But
certain rules have been stated in this regard thus—

Stated concisely, an insurable interest in the life of a person is an interest in having the life continue; a
person has an insurable interest in the life of another where there is a reasonable probability that he
will gain by the latter’s remaining alive or lose by his death. Stated more comprehensively, an insurable
interest exists where there is reasonable ground, founded on the relations of the parties to each other,
either pecuniary or contractual or by blood or affinity, to expect some benefit or advantage from the
continuance of the life of insured; and unless there is a reasonable pecuniary interest, or a close tie by
blood or marriage justifying the expectation of benefit or advantage from the continued life of insured,
a policy of insurance taken out on the life of another is condemned as one of wager for the purpose of
speculating on the hazard of a life in which the beneficiary has no insurable interest.518

MacGillivray has given a good working definition of insurable interest applicable to all
risks from the Life Assurance Act, 1774, thus:

Where the assured is so situated that the happening of the event on which the insurance money is to
become payable would, as a proximate cause, involve the assured in the loss or diminution of any right
recognised by law or in any legal liability there is an insurable interest in the happening of that event to
the extent of the possible loss or liability.519

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A person effecting an insurance must be actually dependent on or expect advantage

from the continued existence of the person insured. But when he effects such insurance
on his younger brother’s life he has no insurable interest and hence such an insurance
contract is void under sections 23 and 30 of the Contract Act. Even, an insurance
company can, under section 92 of the Evidence Act, prove that the person effecting
insurance is doing it for his own use and benefit and not for the use and benefit of the
person insured.520 A friend, stranger, or boarder has no insurable Interest in another’s
life; nor an uncle or aunt and nephew or niece has such interest; but a parent and child,
brother and sister, grand-parent and grand-child, husband and wife and persons in loco
parentis and persons occupying a fiduciary relationship have an insurable interest in the
life of the other. It is to be remembered that relationship by affinity alone is not
sufficient to confer an insurable interest on a step-mother, step-father or stepchild or on
a son-in-law, brother-in-law, or sister-in-law.521

[s 2.129.6] Life Insurance and Other Kinds of Insurance

The main difference between life insurance, and other kinds of insurance lies in the fact
that life insurance is a contract to pay a specified sum on a contingency involving the
death of the person insured irrespective of the value of the life itself and is not a
contract of indemnity like most insurance contracts. An accident insurance has been
spoken of as a contract of indemnity. But essentially the same principles underlie both in
life and accident insurance. Thus, where an accident policy besides providing for
indemnity against loss due to bodily injury by accidental causes, stipulates for the
payment of a certain sum to a person named in case of death of the Insured by that
accident, it is in that respect a life insurance policy.522

Life Assurance contract originally is not a contract of indemnity; but whether re-
insurance contract is one of indemnity of original insurer’s risk or an independent
contract depends on terms of re-insurance policy. Re-insurance of life assurance
contract is, however, an indemnity contract and does not fall under section 124 or
section 125 of the Contract Act.523

[s 2.129.7] Circumstances Affecting the Risk in Life Insurance

Contracts of insurance, as noticed in fire insurance, are uberrima fide. Life insurance
contracts are also so and they proceed on the basis that every material fact is disclosed
and its non-disclosure entitled the other party to avoid the contract. What facts are
material is a question of fact in each case. All such facts as, would influence a
reasonable man either to accept or to decline the risk to stipulate for a higher premium
would be material.524 So also any facts which tend to suggest that the life insured is
likely to fall short of the average duration are material facts. Hence age, health,
occupation, habits or pursuits or the previous history of the assured become also
material facts.525

A recital in a policy of insurance that all the representations, statements and

agreements in the application for the policy are made a part of the contract makes the

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truth of the statements contained in the proposal, apart from the question of
materiality, the condition of the liability of the insurance company. But where the
statements made by an insured upon his application for a policy of life insurance are not
made the basis of the contract but are to be treated merely as representations, the
materiality of the representation is an element to be considered. The falsity of the
statement involving forfeiture of the policy must, however, be established by clear and
unambiguous evidence.526 That is where the applicant’s statements are to be treated as
representations and not warranties, it is not sufficient, in the absence of fraud, to vitiate
the policy.527 Again when a life policy is issued on the basis of statements made in a
proposal form and made in what is called a “personal statement”, to the medical
examiner and if those statements eventually prove to be untrue, the policy would the
avoided.528 So also where some of the answers given by the assured in his proposal and
declaration forming the basis of the contract are untrue, the policy is void irrespective of
the question of its materiality.529

Medical questions as are usually asked in forms of applications for insurance are often
somewhat embarrassing and cannot reasonably be expected to be answered with strict
and literal truth. They must often be read with some limitation and qualification to make
them reasonable and they must always be read in a fair and commonsense way, having
regard to all the circumstances.530 Thus, in a Joint Life Insurance while the wife gave
menstruation certificate but both husband and wife were aware of her pregnancy at the
time of declaration and the wife died in child-birth it was held that the husband could
not claim the policy money.531 So also where the insured in giving his family history
concealed the death of his two brothers, the company was held not liable under the
policy.532 Similarly, the Assurance company was entitled to repudiate its liability where
two of the answers – one given to the doctor and second in the proposal form, were
found to be incorrect.533 Likewise, when the assured failed to disclose the fact that no
policy was issued to him by another company as they were not prepared to accept the
proposal at normal rates or that he had proposed twice to another company, such failure
to disclose vitiates the policy.534

There can be no doubt, however, that the general rule is that the medical questions and
the answers given have to be construed liberally and in a fair and commonsense
manner. For instance where the assured had declared in the application form that he
had no ‘sickness, ailment or injury,’ and that he was in ‘normal health’, it was held that
these words must be interpreted to include only serious disorders leaving a permanent
effect on the insured’s health. Passing ailments or disorders that might have
necessitated his going to the hospital would not show that the statements in the
declaration are false.535

In the claim under Janata personal accident claim policy the medical reports and
evidence of doctor, clearly showed that insured/policy holder died due to poisonous
snake bite. the enquiry report also showed that death was due to snake bite. the
investigation of insurance company on the basis of statement of a person who had not
seen death recorded that death was natural was found not proper and claimant was held
entitled to insurance claim.536

It is to be remembered in this connection that section 45 of the Insurance Act, 1938

contains a beneficent provision curtailing the right of the insurer to call into question any

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mis-statements made by the assured after the expiry of two years from the date of the
policy.537 But this section only applies to policies of life insurance.

[s 2.129.8] Proof of Age

Where a proposer has furnished proof of his age and the company accepted and
admitted it by an endorsement on the policy it is not entitled to say subsequently that
the age was something different from what he had stated.538 But where the age is not
admitted, the burden of proving the age initially would he on the person claiming under
the assurance; but where the age is admitted, then on the principle under the Evidence
Act the facts which are admitted need not be proved. It is for the company to prove that
the admission of age was procured by fraud and that the representation as to age is
untrue.539 Where in proof of age, a certificate of identity stating the age was signed by a
Magistrate, a medical certificate stating the age and a certificate from the officiating
Controller of Examinations of the University stating the age were produced before the
company the latter ought to have been satisfied with the proof of age submitted.540

[s 2.129.9] Construction of Life Insurance Policies

The established rule of interpretation of policies of assurance is that if the terms of a

policy are couched in ambiguous language, that interpretation should be favoured which
is beneficial to the assured. The underlying principle is that the terms of the policy,
being the language of the company, must be interpreted against it. Again where a policy
of insurance contains a clause to the effect that it is granted subject to ‘the rules and
regulations for the time being in force’, the words ‘for the time being in force’ mean the
rules and regulations in force at the time of the maturity of the policy, that is to say,
that the rules as contained in the prospectus and table of rates in force on the date of
the maturity.541

Where, by a policy of insurance the insurer undertook to pay ‘the assured or his wife A if
he predeceases her’ and on the death of the assured, A sued to recover the amount due
under the policy, it was held that there was a valid trust in favour of A, and A was
entitled to recover the money. In order to create a trust in favour of his wife, it is
sufficient if the assured intended that in the event of his death, the policy should ensure
to the benefit of his wife. Express words to this effect in the policy are not necessary.542
An agreement that the money under the policy would be paid only to the assured or to
his assign or his executor or administrator is a good contract which must bind not only
the assured but also anybody claiming title under him.543

The condition as to suicide when the policy was issued was that on the assured
committing suicide, his heirs or assignees would not be entitled to receive anything
more than the premia paid. Subsequently this rule was amended and the new rule
provided that if the assured committed suicide within two years of the issue of the
policy, the sum payable by the company would be the amount of the premia paid by him
but if, however, suicide was committed after two years of the date of the policy, there
would be no forfeiture. This provision was in force at the time of the suicide of the
assured. The amended rule was held applicable and the heirs of the assured were
entitled to claim the full amount covered by the policy.544

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Where A insured his life for the benefit of his wife B but A obtained a loan from the
company and later on surrendered his policy on receipt of certain amount, on a suit by B
for recovery of the insurance amount on A’s death on the ground that a trust had been
created in her favour, it was held that the proper person to sue was the Official Trustee
while it was not shown that the execution of the trust had become impracticable or that
the Official Trustee had disclaimed trusteeship.545 Where under the terms a policy which
has acquired a surrender value sufficient to pay at least one year’s premium is not
forfeited immediately for non-payment of the premium within ten days of grace, such
surrender value being automatically applied in payment of instalments of premium and
interest thereon to keep the policy in force for so long a term as such surrender value
will cover, the default would not cause the policy to be forfeited.546 In the instant case
annual premium of Rs 1,50,120 was payable in four quarterly instalments of which three
were duly paid and default occurred in respect of the fourth. The surrender value on the
date of default was Rs 8,630 and surrender value was held to be applied for the
payment of 4th instalment and policy could not be forfeited.

Again where the premium was not paid within the days of grace and the request to
revive the policy was not made within 12 months as stipulated, the insured was not
entitled to the revival of the policy nor was he entitled to the return of his premium. The
period of 12 months fixed in the policy for making an application for a paid-up policy or
surrender value even if it be granted was not the essence of the contract and the
assured was not entitled to a paid-up policy when he had made such claim only after the
lapse of more than four year is and had not made it within a reasonable time. Even if it
be assumed that the clauses in a policy relating to the making of an application for paid-
up policy and surrender value within 12 months are stipulations for forfeiture, they are
not stipulations in the nature of penalty against which relief ought to be granted.547

An insurance company having means of knowing ‘certain fact which would invalidate a
policy, and still accepted premiums, such acceptance of premia would not constitute any
waiver as actual knowledge’ of such fact and its condonation is necessary.548 But where
the agent of the insurer has been informed of the death of the assured, the knowledge
of the agent is knowledge of the principal, and if the insurer accepts premium after
death, the principle of waiver is attracted and the insurer is precluded from raising the
plea that the policy had lapsed.549

[s 2.129.10] Revival of Lapsed Policy

The revival of a lapsed policy is not dependent on the goodwill or grace of the company
but on the fulfilment of certain prescribed conditions. The very idea underlying such
revival is, of course, that the assured should be alive on the date of revival. If he was
dead when the policy is in the state of lapse, there can be no revival.550 And, in the
absence of any thing to show that the policy was revived from any specified date, the
revival must be held to have taken place from the original date of issue and not from
the date of the revival with the effect that an indisputable clause contained in the policy
will apply equally to the revived policy.551 When the conditions mentioned in the policy
are fulfilled the renewal of lapsed policies follows as a matter of course. The insurer
cannot add further terms to the existing conditions if and when the revival is desired so
as to affect the terms of the original agreement. Thus, where the original agreement did
not require that the assured should continue to be alive at the time when the company

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takes up the application for renewal for consideration the contention that the death of
the assured so operated as to render the revival of the lapsed policy ineffective is not
tenable nor i.e. the contention that until the acceptance of the renewal application and
the issue of the memorandum stating that the policy has been revived, the policy
remains lapsed, is acceptable.552 Where the deceased, during his lifetime, did all that he
was required to do under the terms of the policy for its revival and the authorities got
the deceased examined by their medical expert and were satisfied as to his health, the
policy, was revived during the lifetime of the assured. If the corporation authorities
remained absolutely silent over the matter and did not communicate to the assured that
the report did not satisfy the Corporation authorities from the conduct of the
Corporation authorities it is inferred that the medical report obtained by them through
their doctor was satisfactory.553 It has also been said that the expression ‘continued
good health’ could only refer to good health from that date from which the risk under
the original policy started to the date of the declaration and not till the consideration by
the Director. The fact that by the time of the death of the assured, the challan and the
declaration of good health sent by the insurance agent did not reach the insurance
company but was received after the death and was later on kept in the “amanat”
account and then adjusted towards the revived policy, would not affect the accruing of
the liability for the insurer company.554

[s 2.129.11] Payment of Premium

When an insurance company accepts a proposal for life insurance subject to the
payment of the first premium thereunder within 30 days from the date of such
acceptance it is in law a counter-offer to be completed thereafter into contract by the
fulfilment of that condition as required thereunder.555 When a policy provides that
premiums should be paid on certain fixed dates and in order that the policy may not
lapse, allows certain days of grace within which the premium has to be paid, the days of
grace must be computed from the next day after the due date fixed for the payment of
the premium.556 The due date cannot be called the date on which grace or favour was
shown to assured. The first day on which such grace could be shown would be the day
subsequent to the due date. Hence, in calculating the day of grace, the due date should
be excluded.557 Again, where a policy was kept alive by surrender value but subsequent
premiums were paid after due date but before days of grace the premiums should be
held effective as if made before due date.558

Expiry of grace period of one month—The period of one month was taken of 30 days.559

[s 2.129.12] Contract of Life Insurance

It is well-known that a contract of insurance based on human life can be effected in two
ways (a) the insurer, in consideration of payment of periodical premia, undertakes to
pay the person for whose benefit the insurance is made a stipulated lump sum upon the
death of the person whose life is insured or the happening of any contingency
dependent on human life (e.g., usual life policies or endowment policies) and (b) the
insurer, in consideration of payment of a gross sum premium, undertakes to pay the
person for whose benefit the insurance is made annuity equivalent (either annual or
monthly installments) after a certain age on the happening of a contingency depending
upon the duration of human life, (e.g., deferred annuity policies). In either case it is
insurance against the risk of penury and as such is a contract of insurance. That

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contracts of insurance based on human life are effected in one of the two ways
mentioned above will be clear from the manner in which the concept of life insurance is
understood in the legal and commercial world. In Halsbury’s Laws of England,560 the
following passage occurs in para 7 under the heading ‘Main types of risk’:

7. Main types of risk. For convenience the different types of insurance business may be classified as
follows: (1) marine, aviation and transport insurance; (2) ordinary long-term insurance; (3) personal
accident insurance; (4) property insurance; (5) liability insurance; (6) motor vehicle insurance; (7)
pecuniary loss insurance; (8) war risks insurance; and (9) industrial assurance

Sub-section (2) deals with ‘ordinary long term insurance business’ and says – ‘ordinary
long term insurance business’ means the business of effecting and carrying out
contracts of insurance on human life or to pay annuities on human life [section 83(2)(a)
of Insurance Companies Act, 1974]

In Bouvier’s Law Dictionary,561 the following passages occur under the caption ‘Life
Insurance’:

Life Insurance. The insurance of the life of a person is a contract by which the insurer, in consideration
of a certain premium, either in a gross sum or periodical payments, undertakes to pay the person for
whose benefit the insurance is made, a stipulated sum, or annuity equivalent, upon the death of the
person whose life is insured, whenever this shall happen, if the Insurance be for the whole life or in
case this shall happen within a certain period, if the Insurance be for a limited time.

An agreement by the insurer to pay to the insured or his nominee a specified sum of money, either on
the death of a designated life, or at the end of a certain period, provided the death does not occur
before, in consideration of the present payment of a fixed amount, or of an annuity till the death occurs
or the period of Insurance is ended.562

[s 2.129.13] Contracts of Insurance, Construction, Principles of

In interpreting the terms of a contract of insurance they should receive fair, reasonable
and sensible construction in consonance with the purpose of the contract as intended by
the parties. An attempt should be to construe the contract in a liable manner so as to
accomplish the purpose or the object for which it is made. Where the construction is
doubtful, the courts lean strongly against the party who prepared the contract. Where
there is a susceptibility of two interpretations, the one favourable to the insured is to be
preferred. The rule of construction against the insurer and favourable to the insured
stems from what otherwise is called the rule of contra proferentem which is based on
the maxim verba chartarum fortius accipiuntur contra proferentem. In their anxiety not
to subvert the very object and purposes of insurance, which is to give fullest protection
to the policy-holder or his nominee, the courts indulge in making every presumption
favourable to good faith and reasonableness in preference to equivocation or verbal
jugglery.563

It must, however, be remembered that it is the duty of the court to give effect to the

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bargain of the parties, and when the bargain is reduced into writing effect should be
given to the language employed in stating the bargain. So, where a policy contained a
term conferring a right in either party to terminate the policy at any time, the policy
comes to an end for the exercise of that right.564

MP Ellinghaus, Senior Law Lecturer of University of Melbourne in his “In defence of

Unconscionability” (1968-1969) 78 Yale Law Journal page 757 at 766 states that—

The relevance of the respective bargaining positions of the parties to the issue of unconscionability is
beyond dispute, although to ask the draftsman for a comprehensive statement of precise nature and
scope of this relevance.

He further stated at page 767 that bargains:

Struck between seeming equals which, on closer investigation, turn out lopsided because of particular
circumstances of the case.

He further expressed the view that the test of a reasonable or average man is to be
applied in preventing exploitation of the under-privileged (vide pages 768 to 774). He
ends up his discussion at page 814 that the doctrine of “unconscionability is a residual
category of shifting content and expansible nature.”565

[s 2.129.14] Unfair or Irrational Clause in Contract

An unfair and untenable or irrational clause in a contract is also unjust amenable to

judicial review. In common law a party was relieved from such contract.566 In Gillespie
Brothers and Co Ltd v Roy Bowles Transport Ltd,567 Lord Denning for the first time
construing the indemnity clause in a contract stated that the Court to permit party to
enforce his unreasonable clause, even when it is so unreasonable, or applied so
unreasonably, would be unconscionable, it was stated:

When it gets to this point, I would say, as I said many years ago. There is the vigilance of the common
law which while allowing freedom of contract, watches to see that it is not abused. It will not allow a
party to exempt himself from his liability at common law when it would be quite unconscionable for him
to do so.

In Lloyds Bank Ltd v Bundy, (1974) 3 All ER 757, inequality of the bargaining power was
enunciated by Lord Denning MR and held that one who enters into a contract on terms
which are very unfair or transfers property for a consideration which is grossly
inadequate when his bargaining power is grievously impaired by reason of his own
needs or desires, or by his own ignorance or infirmity...the one who stipulates for an
unfair advantage may be moved solely by his own self-interest, unconscious of the

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distress he is bringing to the other... One who is in extreme need may knowingly
consent to a most improvident bargain, solely to relieve the strains in which he finds
himself. It would not be meant to suggest that every transaction is saved by
independent advice. But the absence of it may be fatal. In A Schroeder Music Publishing
Co Ltd v Macaulay (Formerly Instone), (1974) 1 WLR 1308 , House of Lords
considered and held that a party to a contract would be relieved from the terms of the
contract. In the course of his speech learned Lord Deplock outlined the theory of
unreasonableness or unfairness of the bargain to relieve a party from the contract when
the relative bargaining power of the parties was not equal. In that case the song writer
had contracted with the publisher the terms more onerous to him and favourable to the
publisher. The song writer was relieved from the bargain of the contract on the theory of
restraint trade opposed to public policy. The distinction was made even in respect of
standard forms of contract emphasising that when the parties in a commercial
transaction having equal bargaining power have adopted the standard form of contract,
it was intended to be binding on the parties. The court would not relieve the party from
such a contract but the contracts are between the parties to it, or approved by any
organisation representing the interests of the weaker party, they have been directed by
that party whose bargaining power, either exercised alone or in conjunction with others
providing similar goods or services, enables him to say: “If you want these goods or
services at all, these are the only terms on which they are obtainable. Take it or leave
it.” In Levision v Steam Carpet Co Ltd, (1978) 1 QB 69 , Lord Denning M.R. reiterated
the unreasonable clause in the contract would be applied to the standard form of
contract where there was inequality of bargaining power. In Photo Production Ltd v
Securicor Transport Ltd, 1980 AC 827 , considering the Unfair Contract Terms Act,
1977, Lord Wilberforce during the course of his speech emphasised the unequal
bargaining power as an invalidating factor upheld the contract in that case since it was
commercial bargain between two competent party to enter into a contract on equal
bargaining power. Lord Deplock also reiterated his earlier view. Lord Scarman agreeing
with Lord Wilberforce described that a commercial dispute between the parties well able
to look after themselves, in such a situation what the parties have agreed expressly or
impliedly is what matters, and the duty of the courts is to construe their contract
according to their tenor. It was held that in that case that parties have equal bargaining
power and intervention of the Court to relieve the party from the contract was not called
for. The Civil Code of Germany in section 138(2), thereof release a person from the
contract when the party has no equal bargaining power.

In this “The Bargain Principle And Its Limits” published in (1982) 95 Har LR 441, Prof.
M.A. Eisenberg quotes Prof. Arthur Leff from the latter’s article “Unconscionability of the
Code” published in (1967) 115 U. Pen. Law Review 485 at 494 stating that:

The purpose of contract law is not simply to create conditions of liability, but also to respond to the
social process of promising.

He stated that since the law does not enforce a promise as such, a legal analysis of
bargain of promise must start with a question whether such promise is enforceable at
all. He further quoted Aurthor Leff analysing the distinction between procedural and
substantive unconscionability. Procedural unconscionability is fault on unfairness in the
bargaining process and substantive unconscionability is fault or unfairness in the

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bargaining outcome – i.e., unfairness of terms. Quoting section 208 of the Restatement
(Second) of Contracts, he stated at page752 that:

Over the last fifteen years, however, there have been strong indications that the principle of
unconscionability authorises a review of elements well beyond unfair surprise, including, in appropriate
cases, fairness of terms.

He further states that:

Theoretically it is possible for a contract to be oppressive taken as a whole, even though there is no
weakness in the bargaining process.

Professor Eisenberg propounds the basic test thus:

Whether the clauses involved are so one-sided as to be unconscionable under the circumstances
existing at the time of making of the contract – The principle is one of the prevention of oppression and
unfair surprise and not of disturbance of allocation of the risks because of superior bargaining power.

He further stated at page 799 that:

Over the past thirty years a new paradigmatic principle – unconscionability has emerged. This principle
explains and justifies the limits that should be placed upon the bargain principle on the basis of the
equality of a bargain.

At page 800, he stated that:

The paradigma (unconscionability) must be articulated and extended through the development of more
specific norms to guide the resolution of specific cases, provide affirmative relief to exploited parties,
and channel the discretion of administrators and legislators. In accomplishing this task, it now appears
that the distinction procedural and substantive unconscionability, which may have served a useful
purpose at an earlier stage, does not provide much help once the relatively obvious norms of
unconscionability, such as unfair surprise, have been articulated. Development of more specific norms
must, instead, proceed by the identification of classes of cases in which neither fairness nor efficiency
supports the application of the bargain principle – an effort that can be guided in part by the
reconstruction and extension of existing contract doctrines.

He concluded that:

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Increase in the complexity of some areas of law may be desirable, if it accurately mirrors the increased
complexity of social and economic life. Placing limits on the bargain principle involves costs of
administration. Failure to place such limits, however, involves still greater costs to the system of
justice.568

In V Raghunadha Rao v State of Andhra Pradesh,569 the Andhra Pradesh High Court
considered the constitutionality of clauses 11, 29, 59, 62(b) and 73, the A.P. Standard
Specifications on the anvil of Articles 14 and 19(1)(g), the dotted lines contract entered
by the petitioner therein under Article 298 and declared clause 73 an arbitration clause
of reference to officers that dealt with the contract as arbitrary and ultra vires of the
Constitution.

It is, therefore, the settled law that if a contract or a clause in a contract is found
unreasonable or unfair or irrational one must look to the relative bargaining power of
the contracting parties. In dotted line contracts there would be no occasion for a weaker
party to bargain or to assume to have equal bargaining power. He has either to accept
or leave the services or goods in terms of the dotted line contract. His option would be
either to accept the unreasonable or unfair terms or forego the service forever. With a
view to have the services of the goods, the party enters into a contract with
unreasonable or unfair terms contained therein and he would be left with no option but
to sign the contract.570

[s 2.129.15] Contracts of Adhesion

In USA, the standard forms of contracts are called “Contracts of Adhesion.” Professor
Todd D Rakoff of Harvard University in his Contracts of Adhesion 1982 83, 95 Harvard
Law Review page 1174 surveyed the development of the standard form of contracts.
The social phenomenon and the legal effect of the standard form of contracts is stated
at page 1191 that if the presumption of enforceability is retained, it threatens to
continue generate undesirable results, thus:

This expansion is made manifest by the explanatory comment, which states that reason to believe the
adherent would not knowingly have singed may be inferred from the fact that the term is bizarre or
oppressive, from the fact that it eviscerates the non-standard terms explicitly agreed to or from the fact
that it eliminates the dominant purpose of the transaction.

At page 1193, it was further stated that:

In the last decade or two, Courts analyzing contracts of adhesion have applied the categories of public
interest and superior bargaining power to a substantially broader set of situations than would fit within
the analogous doctrines of ordinary contract law concerning business affected with a public interest and
transactions tainted by economic duress.

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At page 1215, he further stated:

The problems in Leff’s and Slawson’s analyses are fundamental, and indeed would seem to inhere in
any attempt to justify from a public law perspective the proposition that form terms have some initial,
yet offer defensible, validity. The public law model focuses on the aggregate ordering of standardised
transaction; but once the existence of a “public” issue can be found in the mere presence of a mass
transaction, there appears to be no reason to let a private party stipulate any form term. Efforts to
overcome this problem by some notion of delegated authority are forced. The supposed delegation is
not based on any actual event, and considering would run counter to basic public law notions:
legitimate governmental bodies should be disinterested in fact and should also be subject to role-
defining rules and rituals the encourage consideration of the public interest.

In Chapter IV “Toward the Development of New Doctrine,” at page 1249 he states that
there exists:

‘Gross inequality of bargaining power’ or the life (in the usual sense of a wide disparity of economic
resources) ought not to be a prerequisite to finding a contract of adhesion. Put simply, the practice of
standard form contracting is not based on the exercise of pre-existing market power.

All that is necessary is whether the presence of the correlative social role of the drafting
party and adherent is available in equal terms is the test. The doctrine of unequal
bargaining power, the doctrine of unconscionability “unjust in some sense” etc., were
considered and formulated doctrines for applying the amended 211 Restatement
(Second) of contracts.571

[s 2.129.16] “Sickness, Ailment or Injury”, Meaning of

The contract of life insurance being one of utmost good faith and the probable
expectancy or duration of the life of the policy-holder being an important element in it,
the controlling factor in the construction of terms ‘sickness, ailment or injury’ in the
application of the insured for revival of his lapsed policy must necessarily be the intent
of the parties without attaching to any one of these terms any technical or theoretical
meaning. The terms refer to disorders of substantially serious nature affecting general
health and do not include passing indispositions which do not affect the applicant’s
general health. But if the insured learns from his physician that he is suffering from
pulmonary tuberculosis, a warranty of good health in the application for revival of policy
would be a good ground for avoidance of the insurance contract as the disease is such
which definitely involves impairment of the health of the insured and thus renders the
insured precarious risk.572

[s 2.129.17] Proposal Form, its Object and Function

The object of proposal form is to provide information on which the insurers act in
deciding whether to accept the proposal at all, or if so, at what premium. So in signing,
completing and submitting the proposal form there is a duty on the proposer to make a

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full and frank disclosure of material facts and to be accurate in representations which he
makes as to material facts. In the proposal form the proposer has to reveal to the
insurers a host of circumstances, such as, the circumstances in which the assured is
placed, his habits, the mode of life, his age, occupation and other personal details. But
the obligation to disclose does not extend to matters not within the knowledge of the
proponent. Thus, if an experienced doctor cannot without special tests discover the
existence of a disease such as hepatitis, it is not reasonable to expect the proposer who
is an ignorant layman, to disclose that disease, even if it be assumed that he suffered
from the same.573 But it is to be remembered that there is a legal obligation cast upon
the proponent to communicate not only every material fact of which he had actual
knowledge, but also every material fact of which he ought, in the ordinary course of
business to have knowledge.574 The duty to disclose material facts continues right up to
the conclusion of the contract and also implies any material alteration in the character of
the risk which may take place between proposal and acceptance. Thus, if the proponent
is accustomed to heavy drinking this is a material fact requiring disclosure as it would
guide the insurer in determining whether to take the risk and if so at what premium and
on what condition.575

[s 2.129.18] Assignment

Where an insured has assigned the policy during his lifetime to a third person, the
money due under it does not form part of his estate and after his death his heir asking
for a succession certificate is not entitled to the money due under the policy.576 But it is
within the competence of an assured to make a conditional assignment of the policies
taken out by him whenever such policy was an ordinary life policy or an endowment
policy, providing therein that in the event of the death of the assignee, the benefits of
the policy would revert to him and the assignee alone is entitled to receive the sum
assured in the case of the death of the insured before the day named.577

Where a condition in the policy was that it would be void if the assured commits suicide
within the year of the existence of the policy and the assured kills himself after a period
of 18 months, it was held, on a suit by the assignee of the policy, that he was entitled to
recover from the Insurance company the amount due under the policy.578 Again where a
policy provides that the amount is payable to the assured or his wife if he predeceases
her but the assured has assigned all the benefits under the policy to a bank for valuable
consideration, the assignee bank is entitled to the money on the death of the assured
and the wife of the assured cannot claim the money because the trust in her favour
could only arise on the death of the assured and she has no vested interest in the
subject-matter of the policy until the happening of the event contemplated under the
policy.579

A postal life insurance policy was assigned by the assured in favour of his sons. Later on
to obtain the surrender value himself the assured made a surrender of the policy which
the insurer refused to accept because of the assignment. Thereafter the policy was
reassigned in favour of the assured and the insurer was requested to take action in the
matter. Upon these facts it was held that even if section 130, Transfer of Property Act,
was applicable, there was no valid surrender in the instant case. The first letter
surrendering the policy had no validity. The second letter too sent after the re-
assignment did not have that effect. It followed that the heirs of the assured were
entitled to the policy money and not to the surrender value.580

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[s 2.129.19] Life Insurance Involving Married Lady

When a lady is involved in a contract of life insurance. It is always necessary that the
policy should be a joint policy in the sense that both the husband and wife should join
together unless otherwise exempted. One peculiar feature of a policy in which a married
lady is involved is that the Corporation does not accept the insurance policy if the lady
concerned is either pregnant or if she has delivered a child within six months prior to the
date of proposal and on that point the instructions contained in the Manual of
Instructions issued by the Corporation are clear.581

[s 2.130] Matters to be Stated in Life Insurance Policy

See regulation 9 of the Insurance Regulatory and Development Authority (Protection of

Policy Holders Interests) Regulations, 2017.

[s 2.131] Claim Procedure in Respect of Life Insurance Policy

See regulation 14 of the Insurance Regulatory and Development Authority (Protection of

Policy Holders Interests) Regulations, 2017.

[s 2.132] Policy Lapsed more than 5 years ago

The Refund of Premium Impermissible – Insurance policy obtained by the petitioner

having lapsed for more than five years, the revival being not permissible, also, being not
surrenderable, the Life Insurance Corporation of India is justified in declining to repay
the first premium amount of Rs 50,104.582

[s 2.133] Presumption of Death

Section 107 says that when the question is whether a person is dead or alive and it is
shown that he was alive within 30 years (immediately preceding the date when the
question arises), the burden of proving that he is dead is on the party who contends
that the person is dead. When any party to a proceeding asserts that a person is dead
and it is shown that the person was alive within 30 years immediately preceding the
date when the question is to be decided, the burden of proving that the person is dead
is on the person who asserts the person to be dead. Section 108 of the Act is in the
nature of exception to the rule contained in section 107 of the Act and states that when
a person has not been heard of for seven years by those who would naturally have
heard of him if he had been alive, the burden of proving that he is alive is shifted to the
person who asserts that the person is alive. In other words, if a person has not been
heard of for a period of more than seven years by the persons who would naturally have
heard of him if he had been alive, then a presumption arises of his death. Though
section 108 of the Act raises a presumption of death of a person if he has not been
heard of for a period of seven years by the persons who would naturally have heard of
him, it raises no presumption as to the date of his death.

The date of his death, if disputed, must be proved as any other fact.

If the test of preponderance of probability laid down by section 3 of the Act is applied,

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that is to say a fact is said to be proved if the court considers its existence to be so
probable that a prudent man ought, under the circumstances of the particular case, to
act upon certain supposition that it exists.583

[s 2.134] Clause (11) – Annuity

The expression ‘Annuity’ has no statutory definition. However, according to Black’s Law
Dictionary, it means an obligation to pay a stated sum usually monthly or annually to a
stated recipient.584 An annuity is a right to receive de anno in annum a certain sum;
that may be given for life, or for a series of years; it may be given during any particular
period, or in perpetuity; and there is also this singularity about annuities, that, although
payable out of the personal assets, they are capable of being, even, for the purpose of
devolution, as real estate; they may be given to a man and his heirs, and may go to the
heir as real estate (See: Advanced Law Lexicon by P Ramanatha Aiyar, 3rd Edn,
2005).585

In Commissioner of Wealth Tax v P K Banerjee,586 the Supreme Court held that in order
to constitute an annuity, the payment to be made periodically should be a fixed or pre-
determined one, and it should not be liable to any variation depending upon or on any
ground relating to the general income of the fund or estate which is charged for such
payment. The court cited with approval the observations of Jenkins, LJ in Re, Duke of
Norfolk Public Trustee v Inland Revenue Commissioner587 which reads thus:

An annuity charged on property is not, nor is it in any way equivalent to an interest in a proportion of
the capital of the property charged sufficient to produce its yearly amount. It is nothing more or less
than a right to receive the stipulated yearly sum out of the income of the whole of the property charged
(and in many cases out of the capital in the event of a deficiency of income). It confers no interest in
any particular part of the property charged, but simply a security extending over the whole. The
annuitant is entitled to receive no less and no more than the stipulated sum. He neither gains by a rise
nor loses by a fall in the amount of income produced by the property, except in so far as there may be
a deficiency of income in a case in which recourse to capital is excluded.

[s 2.135] General Annuity Business

“General annuity business” means the business of effecting contracts to pay annuities
on human life but does not include contracts under pension business.588

[s 2.136] Sub-section (11) – Right of Employees to Receive the Annuity

The rights of the employees to receive the annuity and quantum of the annuity get
crystallized at the time of purchase of the annuity.589

In Sasadhar Chakravarty v UOI,590 the question arose as to when the right of employee
to receive annuity and the quantum thereof gets crystallised. In that case, the employer
had set up a non-contributory superannuation fund under the provisions of Income-tax
Act, 1961. On retirement, under the rules of the fund, the retired employee was
receiving an annuity under the policy purchased by the members of the fund from LIC. A
writ petition was filed by retired employee contending that certain improvements have

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been effected in the executive staff fund to which the pensioners who had already
retired were entitled and denial thereof was arbitrary and violative of Article 14 of the
Constitution. The retired employee claimed right to the larger benefits which though not
available at the time of his retirement but were being given to the employees who
retired after the improvements to the fund have been made. This Court held that the
right of the employee to receive an annuity and the quantum thereof get crystallised at
the time of purchase of the annuity under the then existing scheme of the LIC and any
subsequent improvements in a given pension fund scheme would not be available to
those persons whose rights are already crystallised under the scheme by which they are
governed because the amounts contributed by the employer in respect of such persons
are already withdrawn from pension fund to purchase the annuity. With reference to
rules 85 and 89 of Income-tax Rules, this Court held that the same are meant to
safeguard the monies deposited in the superannuation and to secure the annuitant
annuity amount. Undoubtedly, rule 89 requires the Trustee to purchase an annuity from
the LIC to the exclusion of any one else but this provision must be judged in the context
of the fact that the contracts of life insurance which are entered into by the LIC are
backed by a Government guarantee which is provided by section 37 of the Life
Insurance Act, 1956. The Court observed right of an employee to receive the annuity
and the quantum gets determined at the time when the annuity is purchased. Any
subsequent improvement in a given pension fund will benefit only those whose moneys
form part of the pension fund. As soon as an employee retires, an annuity is purchased
for his benefit under rule 89, there remains no scope for any fresh contribution on his
account so as to entitle him to an increased pension prospectively on the basis of the
improvements made subsequently in the pension scheme of a fund since the existing
pensioners form a distinct class.591

The ratio decidendi of the Sasadhar Chakravarty’s case (supra) is that the moment
annuity is purchased, the fund leaves the corpus and the relations between the two are
snapped. The corpus to the extent required for purchase of annuity leaves the trust fund
and all connections between trust fund and retirees are severed. Thus, once the annuity
is purchased, there remained no connection with the quantum of the fund. Therefore,
annuitants are in no way concerned with the financial position of the fund for which
annuity was purchased. They cannot be asked to further contribute. That is the basic
question in the present case. It matters little that the present case is of reverse position
inasmuch as in the case of Sasadhar Chakravarty this Court was considering the case of
a retired employee who was seeking right in the improvement whereas in the present
case the question is about reducing the benefits or rights of the retired employees. The
question is about applicability of the principle. Applying the principle in Sasadhar
Chakravarty’s case to the present case, Supreme Court as in no doubt that after
retirement retirees are not liable for any deficit in the fund which is sought to be made
good by recovery from them which is the effect of retrospective amendment. Further, as
already noted it was a benefit and rolling scheme as opposed to a contributory scheme.
Neither clauses 32 and 33 or the Trust Deed nor rule 14 has any applicability on
question of retrospective operation of amendment to the retired employees. It has been
admitted that the form of insurance annuity policy with LIC was adopted as a result of
mandate of the statute. Having done that, the appellants are bound by the
consequences flowing from purchase of annuity. In view of what is said above there is
neither any substance in the contention that contract was between LIC and the trustees
nor is it of any consequence in view of the conclusion that the amount, on retirement of
employees, leaves the fund for purchase of annuity and the rights of the retirees are
crystallised on their retirement by purchase of annuity and thus no amount can be

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claimed from them by making applicable amendment dated 3 April 2002 with
retrospective effect.592

[s 2.137] Sub-section (11) – Life Insurance Business Includes Annuities on

Human Life

The definition of ‘life insurance business’ as given in section 2(11) of our Insurance Act,
1938 clearly includes, by a deeming provision, the business of granting of annuities
upon human life within the expression ‘life insurance business’.

In CIT v General Family Pension Fund,593 the Calcutta High Court has held that if the
right to payment under annuity contract is governed by the happening of a contingency
which depends in any way upon the duration of human life the business of effecting such
a contract is life insurance business. When the same case came up in appeal before this
Court this Court confirmed that view by observing that where the business of a company
consists exclusively in granting terminable pensions or annuities dependent on human
life in favour annul of the subscribers such business is fife insurance business.

In Chandulal Harjiwandas v CIT, Gujarat,594 while dealing with a policy called “Children’s
Deferred Endowment Assurance” issued by the Life Insurance Corporation of India in the
context of the question whether rebate was allowable on the premia paid during the
minority of tile life assured under section 15(1) of the Indian Income-tax Act, 1922,
Supreme Court at page 631 of the Report (ITR), (at p 818 of AIR) has observed thus:

‘Life insurance in a broader sense comprises any contract in which one party agrees to pay a given sum
upon the happening of a particular event contingent upon the duration of human life, in consideration of
the immediate payment of a smaller sum or certain equivalent periodical, payments by another party
(Halsbury’s Laws of England, 3rd Edn, vol 22, p 273).’ In the light of the above discussion the position
becomes quite clear that annuities dependent on human life constitute a species of contracts of life
insurance and would normally fall within the expression ‘any policy of insurance’ occurring in section
5(1)(vi) of the Wealth Tax Act.595

[s 2.138] Sub-section (11) – Purchase of Annuity is Purchase of Insurance

Policy – Right of Retired Employee

In Chandulal Harjivandas v CIT, Gujarat596 insurance policy was purchased by the father
of the assessee and the life assured was that of the assessee. The claim of assessee for
rebate of insurance premium under section 15(1) of the Income-tax Act, 1922 was
rejected. On reference, the High Court upheld this view of the Revenue holding that
contract of insurance with LIC was entered into by the father of the assessee and that
the contracting parties were the father of the assessee and the LIC. This court reversing
decision of the High Court held that the contract of insurance must be read as a whole;
in substance it is a contract of life insurance with regard to the life of the assessee and
that the main intention of the contract was the insurance on the life of the assessee and
other clauses are merely ancillary or subordinate to the main purpose, under section
2(11) of the Insurance Act, the purchase of annuity amounts to purchase of an
insurance policy. It would make no difference, as to who made the payment.

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The LIC having accepted the annuity and having effected monthly payments can neither
reduce the annuity amount nor refund it to the trust to the detriment of the retirees
since the annuity has already crystallised and no change can be made in such annuity as
stipulated by the impugned amendments. LIC has obligation to fulfill the promise given
by it to the retirees, who are assured under the annuity scheme.597

In Commissioner of Wealth Tax, Punjab, Jammu and Kashmir, Chandigarh, Patiala v

Yuvraj Amrinder Singh,598 it was held that annuities dependent on human life constitute
a species of contract of life insurance. In Life Insurance Corporation of India v Asha
Goel, (2001) 2 SCC 160 [LNIND 2000 SC 1870] , interpreting scope of section 45 of the
Insurance Act, 1938, Supreme Court laid down the parameters within which powers
under section 45 could be exercised to repudiate the claim under a contract of
insurance.

[s 2.139] Micro Insurance

For general micro-insurance product, life micro-insurance product, micro- insurance

agents their appointment and code of conduct, distribution of micro-insurance products,
issuance of micro-insurance policy contracts etc.

The Insurance Regulatory and Development Authority (Micro Insurance) Regulations,

2015 may be referred to.

[s 2.140] Denial of Claim by Insurer

Denial of claim, under a Life Insurance Policy, by the Life Insurance Corporation must
meet with stringent standards of public accountability, fairness, reasonableness and
plausibility so as to inspire public confidence to justify the allegation that there was
material suppression of facts by the person who took out the insurance, that he was at
every given time, when the insurance policies were sought and signed, was conscious of
the fact and knew that he was harbouring and labouring under a disease or ailments.
That the insured may have had a premonition of his death is not a plausible explanation
to reject the claim.599

[s 2.141] Sub-section (13A) – Marine Insurance Business

The expression ‘marine insurance business’ has been defined in clause (13A) of section
2 of the Insurance Act, 1938. It is an all-comprehensive definition and within its fold is
included the business of effecting contracts of insurance upon vessels of any description.
It also includes (a) cargoes, (b) freights, and (c) other things of whatever interests
which can be legally insured such as goods, wares, merchandise and any property. Such
insurance can be made for any transit by land or water or both including incidental risks
to such transit, such as, warehouse risks. Even customary risks as are included in
marine insurance policies come within its fold. Thus, transit by land can be the subject-
matter of a marine insurance.600 So also where an insurance company undertakes to
carry the goods to the places of destination by railway, motor and lorry, etc., covering
various risks including non-delivery and issues policies to that effect the company in
issuing such policies intends to do marine insurance business within the meaning of
clause (13A) of section 2 of the Insurance Act.601

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(i) Policy of Sea – Insurance or Sea Policy – The expression policy of Sea-Insurance
or sea policy has been defined in clause (20) of section 2 of the Indian Stamps
Act in the following terms:

(20) “Policy of sea-insurance” or “sea-policy”—

(a) means any insurance made upon any ship or vessel (whether for marine or
inland navigation), or upon the machinery, tackle or furniture of any ship or
vessel, or upon any goods, merchandise or property of any description
whatever on board of any ship or vessel, or upon the freight of, or any other
interest which may be lawfully insured in, or relating to, any ship or vessel,
and
(b) includes any insurance of goods, merchandise or property for any transit
which includes, not only a sea risk within the meaning of clause (a), but also
any other risk incidental to the transit insured from the commencement of the
transit to the ultimate destination covered by the insurance.
Where any person, in consideration of any sum of money paid or to be paid
for additional freight or otherwise, agrees to take upon himself any risk
attending goods, merchandise of any description whatever while on board of
any ship or vessel, or engages to indemnify the owner of any such goods,
merchandise or property from risk, loss or damage, such agreement or
engagement shall be deemed to be a contract for sea-insurance.602

(ii) Marine Adventure and Maritime Perils – The expression “marine adventure” and
“maritime perils” have been defined in clauses (d) and (e) of section 2 of the
Marine Insurance Act as follows:

(d) “marine adventure” includes any adventure where—

(i) any insurable property is exposed to maritime perils;

(ii) the earnings or acquisition of any freight, passage money, commission,

profit or other pecuniary benefit, or the security for any advances, loans,
or disbursements is endangered by the exposure of insurable property to
maritime perils;
(iii)any liability to a third party may be incurred by the owner of, or other
person interest in or responsible for, Insurable property by reason of
maritime perils;

(e) “maritime perils” means the perils consequent on, or incidental to the
navigation of the sea, that is to say, perils of the seas, fire, war perils, pirates,
rovers, thieves, captures, seizures, restraints and detainments of princes and

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peoples jettisons, barratry and any other perils which are either of the like
kind or may be designated by the policy.603

[s 2.141.1] Risk under Marine Insurance

Underwriters in a policy of marine insurance undertake, in consideration of a certain

premium, to indemnify the party insured against loss arising from certain perils of the
sea, or sea risks to which the ship, merchandise or freight of the insured may be
exposed during a particular voyage or for a specified period of time. Coverage of such
risks is essential for commerce, as it tends to promote the spirit of maritime adventure
by diminishing the risk of ruinous loss to which those who engaged in it would otherwise
be exposed. The liability of an insurer in such insurance can arise only if the loss is
attributable to a peril which has been insured against. If an obstruction takes place, the
insurer is liable for the loss which is the result of theft, pilferage or non-delivery subject
to the overriding condition that the loss or damage arises from an external cause. But
the deliberate short supply of the goods by the consignors themselves is not an external
cause. So also a wilful misconduct of the assured such a loss arising from the wilful
misconduct of the assured is also excluded on the ground of public policy.604

[s 2.141.2] Contract of Marine Insurance

Marine insurance is a contract to indemnify against loss from marine perils. It is defined
as a contract whereby the insurer undertakes to indemnify the assured, in the manner
and to the extent thereby agreed, against marine losses, that is to say, losses incidental
to a marine adventure.605 It is general if the perils insured against are such as the law
would imply from the nature of the contract, but is special if additional perils are
expressed in the policy. By its express terms or by usage or trade, a contract of marine
insurance may be extended so as to protect the assured against losses on inland waters
or against any land risk which may be incidental to a sea voyage, and it may also cover
a ship in the course of building, or the launch of a ship, or any adventure analogous to a
maritime adventure.606 Where a contract which is substantially one of marine insurance
contains an ancillary clause covering the assured’s liability to third parties, the special
rules governing the contract of marine insurance will be held applicable to this ancillary
clause.607 So also when the document contains all the terms of a contract of insurance,
the policy is of sea-insurance though described as certificate of insurance.608

[s 2.141.3] Contract of Marine Insurance Covers Sea and Land Risks

The Marine Insurance Act of 1963 which has codified the law relating to marine
insurance defines “marine insurance” in section 3 as under:

A contract of marine insurance is an agreement whereby the insurer undertakes to indemnify the
assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, the
losses incidental to marine adventure. (Emphasis supplied)

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The expression “marine adventure” and “maritime perils” have been defined in clauses
(d) and (e) of section 2 of the Marine Insurance Act as follows:

(d) “marine adventure” includes any adventure where—

(i) any insurable property is exposed to maritime perils;

(ii) the earnings or acquisition of any freight, passage money, commission, profit
or other pecuniary benefit, or the security for any advances, loans, or
disbursements is endangered by the exposure of insurable property to
maritime perils;
(iii)any liability to a third party may be incurred by the owner of, or other person
interest in or responsible for, Insurable property by reason of maritime perils;

(e) “maritime perils” means the perils consequent on, or incidental to the navigation
of the sea, that is to say, perils of the seas, fire, war perils, pirates, rovers,
thieves, captures, seizures, restraints and detainments of princes and peoples
jettisons, barratry and any other perils which are either of the like kind or may be
designated by the policy.

A reading of the definition of “marine insurance” contained in the Marine Insurance Act
of 1963 and “marine insurance business” contained in the Insurance Act of 1938 clearly
goes to show that in the Insurance Act of 1938, the expression “marine insurance
business” has been used in much wider sense to mean the business of effecting
contracts of insurance upon vessels of any description, including cargoes, freights etc.
“for any transit by rail or water or both”. It thus covers both sea-insurance as well as
insurance of carriage of goods by road, rail or other means of transport. Article 47 of the
Indian Stamp Act provides different rates for sea insurance and other insurance. On a
perusal of the definition “sea insurance” contained in clause (20) of section 2 of said Act,
it becomes abundantly clear that a policy of sea insurance is confined to cover insurance
of goods against sea risk. By sub-clause (b) thereof, such insurance has been extended
to cover other risks “incidental to the transit from the commencement of the transit to
the ultimate destination covered by the insurance”. This thus takes within its ambit risk
to the goods while in transit even by road or rail but it is only when such risk is
“incidental to transit by any ship or vessel”. Thus, clause A of Article 47 applies only to
policies of insurance of goods covered by sea policies. The definition of the expressions
“marine insurance”, “maritime adventure” and “maritime perils” contained in the Marine
Insurance Act also goes to show that this Act applies only to marine insurance which is
intended to indemnify the insurer against marine losses i.e. losses incidental to marine
adventure. It is only by virtue of section 4 of said Act that a contract of marine
insurance under the said Act may cover mixed sea and land risks.609

[s 2.141.4] Marine Policies – Classification and Distinction

Marine policies may be classified into (1) interest and wager policies, (2) valued and
open policies, (3) voyage and time policies, and (4) floating or running policies. An
interest policy in marine insurance is one in which assured has real substantial interest

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in thing insured, whereas a wager policy is one in which assured has no such interest. A
valued policy of marine insurance is one in which the parties have agreed on the value
of the subject-matter of the insurance, whereas an open or unvalued policy is one in
which the parties have stated on sum as the value of the interest, but have left the
amount to be proved in the event of a loss. A voyage policy is one which covers a loss
on a trip between designated termini, whereas a time policy limits the risk to a specified
period of time. A mixed policy has elements of both voyage and time policies. A floating
or running policy is one in which the underwriter agrees to insure property of the
insured, the particulars of which are to be subsequently determined as provided in the
policy.610 The difference in form between a valued and an unvalued policy is that in a
valued policy the blank in the valuation clause is filled-up with the sum at which the
parties agree to value the subject-matter insured, whereas, in an unvalued policy it is
left blank. The difference in legal effect between the two policies is that in the case of an
unvalued policy the value of the subject-matter insured is not admitted but has to be
subsequently ascertained, whereas in the case of a valued policy, unless it is voidable on
the ground of fraud or for some other reason, the value fixed by the policy is, as
between the insurer and the assured, conclusive of the value of the subject intended to
be insured whether the loss is total or partial. But valuation can be opened to show that
part only of the subject intended to be valued in the policy was actually at risk. The
question as to what was intended to be valued in the valuation clause depends upon the
intention of the parties, and that intention is to be ascertained from the words of the
clause, having regard to the circumstances under which the contract of insurance was
made.611

[s 2.141.5] Marine Policies, Construction of

Marine policies are to be construed in the same way as other commercial documents.
The general rule is that they are to be construed to further the intention of the parties
rather than to frustrate it. The sense and meaning of the contract has to be gathered
from the terms therein. Such terms are to be read in their plain, ordinary and popular
sense unless they have acquired any special meaning in the usage or trade or the
context unequivocally points to mean in some other special or peculiar sense.612 As
between printed and written words greater weight is to be given to the latter as they are
the immediate terms chosen by the parties in preference to printed ones which are to be
struck out when they appear to be inconsistent with written words.613 When the words
are ambiguous, one has to look at all the surrounding circumstances at the time of the
making of the contract. Such surrounding circumstances may be the act, conduct and
course of dealing of the parties.614 Again where technical words or geographical terms
are used evidence may be adduced to show that they differ from their technical or
geographical import in insurance business and in that case secondary meaning should
be given effect to.615

There are also certain special rules of construction which are often applied to insurance
policies. Thus, the rule of ejusdem generis is applicable to construe words as ‘or other’
when preceded by a particular enumeration of causes. So also the maxim ‘verba
charterum fortius accipiuntur contra proferentem’ is applied when an ambiguity cannot
be removed by any other rule of construction. It has been said that in dealing with the
construction of policies, whether life, fire or marine, an ambiguous clause must be
construed against rather than in favour of the insurer.616

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[s 2.141.6] Role of Custom and Usages in Construing Marine Policies

Custom or usage plays an important role in construing marine insurance contracts.

Custom or usage is admissible in evidence to explain any ambiguous terms in the
contract. But the admissibility of evidence in this regard is subject to two conditions,
namely (1) the usage must not be inconsistent with the express terms of the contract,
and (2) it must be notorious and general in insurance business, or in particular trade to
which the contract relates and not unreasonable. Such usage need not be one of the
whole mercantile world of which the court would take judicial notice, nor is it material
that the trade itself is of recent origin.617

[s 2.141.7] Loss Due to Perils of Seas, a Question of Fact

Where there is an accidental incursion of sea-water into a vessel and in a manner where
sea-water is not expected to enter in the ordinary course of things and there is
consequent damage to the thing insured, there is prima facie a loss by perils of the
seas. The accident may consist in some negligent act such as improper opening of a
valve, or a hole made in a pipe by mischance, or it may be that sea-water is admitted
by stress of weather, or by the vessel keeling over owing to some accident or by the
breaking of hatches or other coverings. It is the fortuitous entry of the sea-water which
is the peril of the sea in such cases. Whether in any particular case there is such a loss
is a question of fact. On any voyage, the ship may, though not necessarily, encounter a
storm, but if in consequence of the storm cargo is damaged by the incursion of the sea,
it would be a question of fact whether the damage was or was not due to a peril of the
sea. In such a case one has to take a broad commonsense view of the whole position. It
cannot be predicated that where damage is caused by a storm even though its incidence
or force is not exceptional, a finding of loss by perils may not be justified. Even where
the ventilators of a ship during voyage are closed to prevent incursion of sea-water and
the closing of the ventilators damages the rice cargo by causing it to heat and ferment,
the damage is recoverable as a loss by perils of the sea.618 In the same case it has been
observed that even though such a loss is not strictly recoverable as a loss by perils of
the seas, it is within the general words ‘all other perils, losses and misfortunes, etc.,’
contained in the Marine Insurance Policy.

The term ‘perils of the seas’, as used in a marine policy, does not include every casualty
which may happen to the subject-matter of the insurance on the sea; it must be a peril
of or due to the sea. It does not, for instance, cover fire or capture at sea, nor any loss
proximately caused by insects, or the wilful throwing away of a ship. Again, unless the
policy otherwise provides, it will not cover damage done by the bursting of the air-
chamber of a donkey-engine, owing to a valve being closed which ought to be kept open
whereby water is forced up into the air-chamber and causes an explosion. Speaking
generally, the term ‘perils of the seas’ refers only to fortuitous accidents or casualties of
the seas, and does not include the ordinary action of the winds and waves.619

Where goods on board a vessel were covered by a policy inter alia against takings at sea
or other similar perils, losses or misfortunes and/or theft, and were adversely dealt with
by the master of the vessel under instructions from its owner by mortgaging the entire
cargo, and the owner of the goods had to incur expenditure in recovering them and
thereby averted a loss incurred in respect of a loss covered by the policy, it was held

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that the loss was covered by the policy and was therefore recoverable. Following the
opinion of Lord Wright in Rikards v Forestal Law Timber and Railway Co,620 the Court of
Appeal ruled that although the expression ‘takings at sea’ included capture and seizure,
it was not confined to such takings only and covered any wrongful act done by the
owners of the vessel adversely to the interests of the owner of the goods such as
conversion.621

[s 2.141.8] Words ‘Lost and not Lost’, Construction of

In marine insurance policy, the words ‘lost or not lost’ which are wholly technical in their
nature are used for situations where a policy of insurance has been effected after the
goods have been laden on board the ship. When the insurance is ‘lost or not lost’ the
thing insured may be irrecoverably lost when the contract is entered into and yet the
contract will be valid. It is a stipulation for indemnity against past as well as future
losses, and the law upholds it.622

[s 2.141.9] “Losses and Misfortunes” how to be Construed

Merchants insure the goods with the company to cover any risk in their being safely
landed at the port of destination, and if the goods are not so landed, when once they
were put on board, and if the loss of goods has arisen, then certainly it is ‘a loss and a
misfortune’ which is covered by the terms of the insurance policy. The insurance
company cannot, therefore, be exonerated from its liability to honour its obligations to
the insured, in the case of total loss of goods insured.623

[s 2.141.10] Loss, Partial, Total or Constructive, Difference

A loss in respect of insured goods may be either total or partial. Any loss other than a
total loss is a partial loss. A total loss may be either an actual total loss or a constructive
total loss. In the case of an actual total loss, which is also known as absolute total loss,
the assured is entitled to recover from the underwriter the whole amount covered by the
policy without giving any notice of abandonment. But in the case of constructive total
loss the assured has the option to elect to treat the loss as a total loss or partial loss
and hence he cannot recover for a total loss unless he has given due notice of
abandonment. Where by reason of the perils insured against, the assured is
permanently and irretrievably deprived not only of all present possession and control
over the thing insured, but of all reasonable hope or possibility of ever ultimately
recovering possession of it, it will be a case of absolute total loss.

If there is anything to abandon abandonment must take place and in such cases the loss
will be constructive total loss. Such a loss generally takes place when the subject is not
wholly destroyed but its destruction is rendered highly probable, or where its recovery
though not utterly hopeless is exceedingly doubtful. Where the assured is deprived of
the possession of his goods by a peril insured against and it is unlikely that he can
recover the same or that the cost of recovering the goods or repairing the damage to
the same would exceed the value of the goods themselves, then also it may be said that
there is a constructive total loss. In all such cases of constructive total loss the thing
assured or at least a part of it is supposed to exist in specie and there is a possibility
however remote of its value being in some way affected by the measures that may be

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adopted for the recovery or preservation of it. The expression ‘in specie’ is to be
understood in a business sense. Goods arriving in an unmerchantable condition are
considered to have lost their species although they may not have changed to anything
else and cannot be said to have ceased to exist. If the goods recovered are
merchantable and capable of being used for the purposes for which goods of their
species are ordinarily used it has to be taken that the goods have been recovered in
specie and that there has been no absolute total loss or even constructive total loss.624

A constructive total loss is a device intended to sub-serve the purpose of indemnity by

enabling the assured, when by insured perils the postulated danger of loss of
deprivation is caused, to disentangle himself, subject to definite limits and conditions
from the danger and throw the burden upon the underwriters. As observed above there
are two main grounds on which a constructive total loss may be founded, namely,

(1) when the assured is deprived of the possession of the insured property in
circumstances which make it unlikely that he can recover it within any assignable
time, e.g., it may be captured by the enemy or by the assured’s own Government
or by pirates or a ship may be deserted by the master and crew;

(2) it may be so damaged by the perils insured against that the cost of repairing the
damage or of carrying the goods to the port of destination may be so great as to
make it in the mercantile sense impracticable to incur the cost.625

[s 2.141.11] Proximate Cause of Loss

The maxim causa proximo non remota spectator is the fundamental principle of marine
insurance. Hence an underwriter cannot be made liable for any loss which is not
proximately caused by a peril insured against, conversely, the underwriter is liable for
any loss proximately caused by a peril insured against. The word ‘proximate’ means
proximate in efficiency and not proximate in time. It means the same thing as
‘dominant’ or ‘effective’ or ‘direct’ cause. Causa proxima in marine insurance law does
not necessarily mean the cause last in time but what is ‘in substance’ the cause or the
cause ‘to be determined by commonsense principles’.626

[s 2.141.12] Frustration Clause

Frustration clause in the marine policy means a clause to the effect as follows: “This
policy is warranted free of any claim based upon loss of, or frustration of, the insured
voyage or adventure caused by arrests, restraints or detainments of Kings, Princes,
peoples, usurpers or persons attempting to usurp power.” This clause protects only
against claims based upon loss of the insured voyage relating to the goods caused by
restraint of princes, etc., and does not afford any protection against claims for loss of
the goods themselves.627

[s 2.141.13] Stamp Act is Applicable to Sea Insurance Policy

A conjoint reading of the provisions of Marine Insurance Act, 1963, Insurance Act, 1938
and Stamp Act, 1899 clearly goes to show that Article 47A of the Stamp Act is applicable

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only to a policy of insurance falling within the description of “sea insurance”. Other
policies of insurance of goods against risks in transit are covered by Article 47B which
provides for a fixed stamp duty of Re. 1 in cases where the sum insured is Rs 5,000 or
more. To say which of the two clauses of article 47 is applicable it is necessary to
consider the true nature of the policy in the instant case to decide whether it can be
described as “sea policy” or not.628

[s 2.142] Interpretation of Marine Insurance Policy

After considering the ratio with regard to the construction of the terms of the policy it
transpires that while interpreting the policy the courts should keep in view the intention
of the parties as well as the words used in the policy. If the intention of the parties sub-
serves the expression used therein then the expression used in that context should be
given its full and extended meaning. In the present case, as is apparent on reading of
the Institute Cargo clause and the coverage, terms of the policy and the extended
coverage, the intention that appears from these terms and conditions that the goods
were first covered from port in China, destination in Calcutta port and thereafter
extended coverage was sought and in that it was extended to any part of the Republic of
India. If these two terms of the policy are read in conjunction then it clearly transpires
that the goods are covered till they reach the destination in any part of India. If the
extended cover would not be given the policy would extend to Calcutta port. If extended
coverage is read, which clearly stipulates that this extension is covered on same terms
and conditions of the original policy then it could mean that the policy has been covered
till the goods reach the consignee in any part of the country in India. In fact, the
extended coverage was only meant for the goods to be covered till they reach
destination either by rail or road in any part of the country.

If this extended coverage is not interpreted to mean that goods should reach the
destination in any part of India, then the extended coverage on payment of higher
premium would be meaningless. The coverage was sought because the final destination
of the goods was not at Calcutta port. When the coverage was extended on same terms
and conditions that would mean that the goods were covered till the same reached in
any part of the country in India. In the present case, the goods reached the Calcutta
port and they were taken to different sheds. But unfortunately, the goods were
destroyed by fire at Calcutta port itself. Therefore, since the goods were covered from
Calcutta port till the same reach its destination and they were lying on storage, that
would cover the goods by the extended policy and the insurer cannot defeat the claim of
the claimant that the goods once reached the destination at Calcutta the policy stood
discharged. The contention of Mr. Mehra that the extended coverage does not cover the
goods in transit till they reach any part of the country is not correct because the transit
infers storage also till it reaches its destination. The damage on the rail or road would
also include that in transit the goods are to be kept in transit shed, the policy would
cover that also. If this interpretation is not given then the extended coverage would be
of no use. Looking to the expression used in the background of the intention of the
parties, it clearly transpires that once the goods were insured, then till they reach any
part of the country shall be covered by the extended coverage.629

[s 2.143] Marine Insurance – Withdrawal of Complaint in Consumer Forum –

Suit Maintainable

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Where complaint in Consumer forum was withdrawn before filing suit, the Suit was held
maintainable.630

[s 2.144] Sub-section (13B) “Miscellaneous Insurance Business”

“Miscellaneous insurance business” has been defined in clause (13B) of section 2 of the
Insurance Act, 1938, to mean the business of affecting contracts of insurance which is
not principally or wholly of life insurance business as defined in clause (11) or of fire
insurance business as defined in clause (6A) or of marine insurance business as defined
in clause (13A) of section 2 of the Act. Thus, within its fold will come all other insurance
businesses except life, fire or marine insurance business.

[s 2.145] Motor Insurance

Motor insurance or more precisely called motor vehicle insurance may include insurance
against loss of, damage to, or loss of the use of, a motor vehicle and its equipment,
whether caused by fire, explosion, theft or collision; liability for damage to persons or
property through operation of the vehicle; hazards incidental to transporting the vehicle
by land or water; or other insurable hazards. A full coverage policy, as respects
insurance on a motor vehicle, means a policy which insures against risks of fire, theft,
collision, property damage and indemnity on the owner’s liability.631 By its nature motor
insurance is a composite insurance which covers both liability and contingency
insurance. Apart from it, such insurance is compulsory under the provisions of the Motor
Vehicles Act, 1988, chapter XI of the said Act deals with insurance of motor vehicles
against third party risks. Section 146 of the Act provides that no person shall use,
except as a passenger, or cause or allow any other person to use a motor vehicle in a
public place, unless there is in force in relation to use of the vehicles by this person or
that other person, as the case may be, a policy of insurance complying with the
requirements of the said chapter of the Act. Requirements of the policies and limit of
liability have been provided in section 147 of the Act. Such requirements are as laid
down in sub-section (1), clauses (a) and (b) as follows:

(1) that the policy of insurance must be issued by a person who is an authorised
insurer;

(2) that the policy should insure the person or classes of persons specifically
mentioned therein upto the limit provided under sub-section (2) against any
liability which may be incurred by him or them in respect of the death of or bodily
injury to any person caused by ‘or arising out of the use of the vehicle in a public
place’.632

[s 2.145.1] Use of the Vehicle in a Public Place – Scope of

The words ‘use of the vehicle in a public place’ have been interpreted in Rendall v Motor
Insurance Bureau,633as meaning that there is a sufficient user of the motor vehicle if
any major part of it is in a public place irrespective of the entire vehicle being on the
public place, as for example, if the front wheels are on such a place after the vehicle
was put in motion. Further, the words ‘any liability…in respect of the death or bodily

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injury to any person…arising out of the use of the vehicle in a public place’ are wide
enough to cover cases where the death or bodily injury has been caused by deliberate
criminal act of the assured. No distinction has been made by the legislation between a
deliberate act or negligent act. The only criterion is whether liability for damages has in
fact been incurred resulting in a Judgment of the court for the plaintiff as a consequence
of the act complained of.634

The limits of liability provided under the sub-section (2), section 147 are—

(a) save as provided in clause (b), the amount of liability incurred,

(b) in respect of damage to any property of a third party a limit of rupees six thousand:

Provided that any policy of insurance issued with any limited liability and in force immediately before
the commencement of this Act, shall continue to be effective for a period of four months after such
commencement or till the date of expiry of such policy whichever is earlier.

[s 2.145.2] Liabilities for which Policy not Required

After stating the general risk in section 147(1)(b) that the statutory policy under section
146 shall insure the assured against any liability incurred by him in respect of the death
or bodily injury to any person caused or arising out of the use of the vehicle, provision is
also made therein in the form of two exceptions (i) and (ii) declaring that in respect of
liabilities mentioned in the said exceptions the policy need not provide any cover, that is
to say, the policy remains valid despite the absence of such cover. The following is the
form in which the provisions are framed:

Provided that a policy shall not be required—

(i) to cover liability in respect of the death arising out of and in the course of his employment, of
the employee of a person insured by the policy or in respect of bodily injury sustained by such
an employee arising out of and in the course of his employment other than a liability arising
under the Workmen’s Compensation Act, 1923, in respect of the death of or bodily injury to
any such employee—

(a) engaged in driving the vehicle, or

(b) if it is a public service vehicle, engaged as a conductor of the vehicle or in examining

tickets on the vehicle, or

(c) if it is a goods carriage, being carried in the vehicle, or

(ii) to cover any contractual liability.

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It follows from the foregoing provisions that there are two categories of liabilities which
do not require to be covered by a policy of compulsory motor insurance under section
146 of the Motor Vehicles Act, 1988. The intention of the Legislature appears to be to
totally exclude liabilities to voluntary passengers, that is to say, to persons who do not
pay for their carriage or who have no connection with the intended journey. In giving
effect to this Intention the language employed is not quite happy. After stating the
general rule as to what classes of persons whose liabilities have to be insured against by
the policy, the section proceeds to lay down certain exceptions and also exceptions to
the exceptions, thereby creating a positive rule.

[s 2.145.3] Passengers Carried for Hire or Reward, who are?

One class of passenger risks which the statutory policy should cover is “in respect of
liability to passengers carried for hire or reward.” These words would at once suggest
that the vehicle in question is a vehicle which is habitually or normally used for the
carriage. This expression which has been borrowed from section 26(1) of the Road
Traffic Act, 1930, corresponding to section 147(1), M.V. Act, 1988 has given rise to
different interpretations in several cases in English courts beginning from Wyatt v
Guildhall Insurance Co635 and ending with the case of Albert v Motor Insurance
Bureau,636 a case decided by the House of Lords. Even in Albert’s case, cited above,
different views were expressed by the Lords sitting in judgment against the decision of
the Court of Appeal. There appears to be no reported case in India on this question and
it is worthwhile explaining the various views obtaining in England. In Albert case the
appellant was the widow of one Joseph Albert, who was killed in a motor accident while
he was a passenger in a car owned and driven by Quirk, a docker. For a period of eight
years Quirk was regularly carrying fellow dockers in his car to their place of work. It was
a regular and understood agreement between him and his passengers that they would
pay to him varying sums of money as remuneration for their carriage in his car,
although some times the reward took the shape of a pint of beer or a packet of
cigarettes. The carriage in Quirk’s car was not limited to close friends but was available
to any docker who was going to the same dock. Although Quirk did not advertise his
services nor has solicited custom, he in effect operated a private service partly to help
his friends and partly to finance his motoring expenses. While driving his car on one
such occasion there was an accident to the car in which Albert was killed. His widow, the
appellant, sued Quirk for damages and obtained judgment she was unable to satisfy
owing to impecuniousness. She then sued the respondent on the basis of the Judgment
obtained against Quirk, the insurance company which should have indemnified Quirk
having in the meantime failed. The action was brought against the Bureau because in
England the Bureau has accepted liability to satisfy judgment in such cases where the
liability was one which was required to be covered by a policy of insurance or security in
terms of the Road Traffic Act. While reversing the judgment of the Court of Appeal which
dismissed the plaintiffs claim, the House of Lords came to the unanimous conclusion,
though for different reasons, that the claim was well-founded.

According to the majority (Lord Donovan, Lord Pearson and Lord Diplock) the phrase the
vehicle in which passengers are carried for hire or reward’ would not cover a vehicle
carrying a passenger on some isolated occasion, nor social arrangement between friends
whereby one agreed to give the other a life in his car for a particular purpose, the other
contributing towards the expenses of the journey. The test to be applied was whether

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there had been a systematic carrying of passengers which was beyond the bounds of
mere social kindness, i.e., whether the carrying had become a predominantly business
arrangement rather than a predominantly social one. In the former character, i.e., of a
business nature, it was immaterial that neither the driver nor the passenger intended
any commercial relationship to result between them. In other words, there “need be no
legally enforceable contract for the purpose.637 Lord Dilhorn while expressing the same
view said that there must be more than a mere social arrangement and when that test
is satisfied, it is immaterial if the carrying was done on a single isolated journey, if the
operation, on the facts of a particular case, be of a business or commercial nature. On
the other hand Lord Cross took, the view that in order to constitute ‘carrying for hire or
reward’ there must be an agreement for the making of a payment in respect of the
carriage sufficiently certain in its terms to constitute a legally enforceable contract,
although the agreement would be sufficient for this purpose even though it contained a
term, express or implied that it could not be sued on. It is to be remembered in this
context that failure to take out a policy of insurance against third party risks in terms of
section 147 is an offence under section 177 of the Motor Vehicles Act, 1988 and as such,
section 147 must be strictly construed.

It may, however, be pointed out that there is nothing to prevent the parties to a
contract of insurance from stipulating by the introduction of a special clause in the
contract for indemnity to cover liability for the death or bodily injury to a voluntary or
gratuitous passenger in a motor vehicle. This point is implied in the case of
Gopalakrishnan v Sankara Narayanan,638 the only reported case in India on the
interpretation of the phrase ‘passengers for hire or reward’. There the widow of a pillion
passenger on a scooter was held not entitled to claim indemnity against the defendant
insurance company, for the death of her husband was as a result of the combined
negligence of the driver of the scooter and of the lorry with which it collided. While
holding that the owner of the scooter was not bound to take out a policy in respect of
third party risks to cover the claim of a pillion passenger carried gratuitously, the
learned judge observed that since the policy in the case was not produced before the
court, there was no evidence to show that the insurance of the scooter covers any
liability of the kind relied on by the plaintiff.

[s 2.145.4] “Passengers Carried by Reason of or in Pursuance of a Contract of

Employment” [Proviso (ii), section 95, M.V. Act, 1939]

This phrase has also given rise to some controversy both in India and in England. These
words occurring in proviso (ii) are not qualified as in proviso (i) by the words “of the
employee of the person insured by the policy”. It follows that under proviso (ii) the
passenger carried need not be an employee of the person insured, but may be employee
of any person other than the insurer. This question came for consideration in Izzard
Universal Insurance Co639 and Lord Wright while reversing the judgment of the court of
appeal and restoring that of the trial Judge observed: “I cannot accept the respondents’
contention that ‘contract of employment’ should be construed…as ‘subject to the implied
limitation’ with the person insured by the policy. Such a departure from the clear
language used cannot, I think, be justified”. The interpretation of the expression ‘by
reason of or in pursuance of a contract of employment was adopted and followed in
Oriental Fire and General Insurance Co v Gurudas Kour.640 In that case, a goods truck
was hired by some persons for carrying their goods. The owners of the goods were also
sitting in the truck while it was being driven by an employee of the truck owner and

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during the course of the transit, the truck met with an accident which resulted in the
death of some of the goods’ owners. In an action by the dependents of the deceased,
the Claims Tribunal awarded compensation to the plaintiffs. On appeal the Full Bench
unanimously held that the insurers of the truck were not liable to indemnify the assured
against the liability to the plaintiffs for the reasons (1) that the policy was not one that
was required to cover liability under clause (b) of sub-section (1) of section 95 [New
section 147, M.V. Act, 1989] and (2) that the hirers were not on the truck at the time of
the accident by reason of or in pursuance of a contract of employment because they
were not employed by any one to go on the vehicle, but were on it as owners of the
goods carried on it. In the course of the judgment, it was observed that the normal and
ordinary meaning and scope of the expression ‘a contract of employment’ points to a
person being employed to do something or to carry out something for another person,
or to render service in one shape or another for the employer.641

Where, however, the owner of the goods, instead of himself travelling in the vehicle in
which the goods are carried, instructs or orders his servant or employee to travel in it so
as to look after the delivery of the goods, the case is covered by exception (ii) to section
95(1) of the Act [New section 147, M.V. Act, 1988]. The person carried in the vehicle in
such circumstances, though he is not an employee of the insured but only an employee
of the goods owner, is entitled to recover indemnity from the insurer for the reason that
he was travelling by reason of or in the course of his employment. What is necessary for
the application of the provisions of proviso (ii) is that for sufficiently practical or business
reasons the person must be on the vehicle in pursuance of a contract of employment.
On the other hand, where an employer is allowed to travel in a motor vehicle belonging
to the employer, not in the capacity as a workman of the employer, but as a person who
is allowed to board the vehicle for being carried from one place to another with the
consent of the employer, it cannot be said that he was travelling in the course of his
employment. So much so, if an accident occurs to the vehicle during its journey and the
employee is either killed or injured, it cannot be held that the accident arose out of and
in the course of the employment.642

Apart from the statutory policy, a third party liability policy may provide—

(a) cover against legal liability for bodily injury to or death of any third party even
excluded by the Act;
(b) cover against damage to or destruction of a third parry’s property;
(c) cover against fire and theft of the vehicle itself including accessories; and also
against loss or damage howsoever caused;
(d) cover against loss of profits in case of a profit earning vehicle;
(e) cover against personal accident sustained by the assured himself by reason of his
use of the car;
(f) cover against liability to any person driving the insured car with the permission of
the assured;

(g) cover to the assured while driving any other vehicle.

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Policies of motor insurance covering third party liability may be limited or general or
fully comprehensive.643 It will be observed that the statutory duty to insure against third
party liability only extended to the use of the motor vehicle by the owner himself or by
any person driving it with his permission in a public place. It does not obviously cover
any liability arising from a passenger’s negligence as where a pedestrian was struck and
injured by a door of the vehicle negligently left open by a passenger.644

[s 2.145.5] Principles Applicable

Like fire and marine insurance contracts, a contract of motor insurance is a contract of
indemnity but such indemnity relates to the insurance of the car or the vehicle as an
insurance of property and to third party liability as in liability insurance and hence the
principles applicable to those kinds of insurance are applicable to such indemnity. But
where a policy provides for the death or disablement of the assured himself, the
contract contained therein is not in the nature of an indemnity. In such a case the
contract partakes the nature of life insurance or personal accident insurance and hence
the principles governing those kinds of insurance will be applicable to such a policy.645

[s 2.145.6] “Third Parties”, Meaning of

The expression “Third parties” has not been defined in the Act nor do we find any
definition in the corresponding English enactments. A third party in relation to a contract
is a person who is not a party to it, i.e., who is neither the promisor nor the promisee.
But in relation to a contract of insurance, the expression has a wider meaning. Tomlin, J
said in a case646:

The phrase means a third party with reference to the assurer and the policy-holder, and possibly the
assured, because the policy-holder and the assured may conceivably be different persons. However, in
a policy of Motor Insurance against third party risks, the phrase has a wider meaning. In this species of
insurance, the assured is not the only person entitled to the benefit of the insurance. Persons totally
unknown to either the insurer or the insured at the time they entered into the contract, may become
entitled to the benefit of the indemnity afforded by the policy i.e., every person to whom a liability may
be incurred by a person insured under the policy while the insured car was being used in a public place.
As such, the expression includes all persons carried in the insured car otherwise than as voluntary
passengers, and all persons using the road or other public place as pedestrians or persons carried in
vehicles other than insured vehicle. This is what is meant when section 147(1)(b), M.V. Act, 1988
states that a policy of compulsory insurance must be “against any liability…….in respect of the death or
bodily injury to any person caused by or arising out of the use of the vehicle in a public place.

The protection afforded by a policy against third-party risks remains in force even after
the death of the insured until there is a revocation of the permission to drive given to
the owner’s son in terms of the policy. Accordingly, where an accident happened while
the car was being driven by the son after the insured’s death, it was held that since the
car remained as part of the father’s estate, the son was entitled to the protection of the
policy.647 The liability cannot in any case be repudiated, if a third-party is injured while
the insured’s car was being driven by a person under an order or permission of the
insured.648

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[s 2.145.7] Clauses in a Policy, Construction of

Where a policy contained a clause that the foregoing indemnity..........shall be available

in the same manner and under the same conditions as it is available to the insured to
any person or persons while riding in or legally operating the automobile for private or
pleasure purposes with the permission of the insured, these wide words in the policy
would not entitle anyone to claim the benefit of the policy even if answering the general
description unless it is established that the person who directed the insurance to be
effected actually intended to cover that particular person or at least some one who
should answer that description. The mere generality of the language is not in itself
sufficient; nor was that other party a party to the contract even in equity as a
beneficiary as there was no clear proof to show that the insured intended to constitute
himself a trustee for that other in entering into the contract, either specifically or as a
member of a class. Even if it was assumed that ‘any person’ was a cestuique trust in
regard to the insurance, the contracting party, i.e., the insured, had no insurable
interest in the former’s personal liability for damages and the contract would be void in
respect of that particular risk being a wagering contract.649 Thus, a policy of insurance
effected by A which provides that either on the death of A or at the expiration of a
particular period, the insurer will pay the sum assured to B, does not confer any
contractual right upon B nor does the taking of the policy in that form operate as a trust
in favour of B. Consequently, on the death of A or on the expiration of the specified
period, the executor of A or A himself, as the case may be, are the only persons who
can recover the money from the insurer and B has no claim to it.650

So also under a similar exception clause in a policy, where the vehicle was being driven
by the insured the steering, braking and control of the vehicle were seriously impaired
by reason of its being overloaded, and an accident happened, it was held that the
insurers were not liable because the vehicle was at the time in an unsafe or unroad-
worthy condition.651

Where there is an exception to the policy providing that the insurer will not be liable if
the vehicle driven by the insured is in an unsafe condition, or an accident having
happened because of the insured driving such unsafe vehicle, it was held that the
insurer was not liable.652 Again, where the policy provides that the company shall
indemnify the insured against the legal liability in respect of death of, or injury to, the
passengers, the condition is for the benefit of the insured and the passenger does not
become beneficiary under an implied trust. The passenger being a stranger to the
contract cannot sue the company for money payable under the policy.653

Where a condition in the policy imposed a duty on the assured to take precautions to
keep the car in good repair and also excluded liability of the car was driven in an unsafe
condition, and an accident occurred while the car was being driven in breach of such
conditions, it was held that the liability of the insurers was excluded.654 Where a policy
contains a clause that the insurer would not be liable for the results of an accident while
the vehicle was being driven by any person other than the driver, no liability attaches
where an accident happened while it was being driven by a mechanic of an independent
contractor.655

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Where a policy was issued subject to terms and conditions “whether inscribed on the
face of the policy or endorsed thereon” and an entry in the schedule as “carrying
passengers only” was made under heading “Used for following purposes” and the bus
was used for carrying cages of moneys and there was an accident and fire, it was held
that the company was absolved from the obligation.656 But where the policy nowhere
mentioned that it was confined exclusively to the lorry carrying passengers only and the
lorry was burnt while carrying passengers and tins of oil, it was held that company was
liable.657

A motor insurance policy does not remain in force if there is a change of ownership of
the car insured unless there is an agreement between the company and the new owner
that the policy shall remain in force.658 If there be in the policy a provision which
requires a transfer of ownership of the vehicle to be assented to by the insurer and only
on proof of such a fact the cover will ensure to the benefit of the transferee from the
power who had taken out the policy, such a provision will not militate against any of the
existing provisions of the Motor Vehicles Act. The law does not make any provision to
counteract the effect of such a clause. Where no approval of a transfer is obtained from
the insurer but the vehicle is registered by the Transport Authorities in the name of the
transferee, the result is that the vehicle runs without a cover of a policy. Such user of
the vehicle without a cover of insurance merely makes the person using it liable for an
offence under section 146(1) [old section 94(1)] of the Motor Vehicles Act.659

But a policy of insurance does not lapse the moment the insured parts with the
ownership of the vehicle. Sale of the vehicle is not a ground under section 96 of the
Motor Vehicles Act [New section 149, M.V. Act, 1988] to avoid a policy of insurance.
Hence where the owner of a vehicle which is insured under the Act against the third-
party risks sells the same to another but the transfer of ownership or transfer of the
policy has not yet taken place, and an accident occurs the insurance company cannot
escape its liability under the policy.660

Again where one of the conditions of the policy was that “the company will indemnify
the insured against loss or damage to the motor car whilst in transit by road, rail, etc.,”
the word ‘loss’ should be construed to mean the loss of the article in bulk, either by
disappearance or destruction. But where the article was known to be in existence and
was also available on conditions which were within the power of the insured but of which
he chose not to take advantage, the insurer could not be made liable under the policy.
Further, the loss should occur while the car was in transit and the burden of proving that
such loss had occurred was on the person alleging such loss.661

Where a policy provided that the insurer will indemnify the owner for loss or damage to
the car caused by “accidental external means” and also provided that no liability
attaches where the loss etc., is due to “earthquake or other convulsion of nation: it was
held that since the loss in the instant case was caused by the tumbling down of the
vehicle while it was parked owing to the subsidence of the soil underneath the vehicle,
the insurer remained liable.662

A condition in a policy requiring notice of the accident to be given by the insured to the

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insurer can be waived by the latter by his conduct in taking notice of the accident from
other sources and offering to take part in the proceedings against the insured as a
consequence of injuries or loss caused to a third-party by the negligence of the
assured.663

A policy of insurance of a motor car provided that the owner of the car would be
indemnified against loss or damage to the car. The owner sold the car to H in return for
a cheque which proved worthless. He resold it to another and disappeared. There was
no evidence to show that subsequent purchaser had knowledge of H’s fraud. Owner of
the car claimed compensation for loss of the car under the insurance policy. He could
not claim under the policy because by sale he had parted with the car and the owner did
not suffer loss of car. The loss was the loss of only sale proceeds.664

[s 2.145.8] Right to Avoid the Policy by Insurer, Grounds for

An insurer who has issued a policy of motor insurance against third party risks is also
entitled to avoid liability under it not only for fraud and misrepresentation etc., but also
on certain grounds specified in section 149(2) (a) and (b) of the Motor Vehicles Act,
1988. The defences open to the insurer under the sub-clause (a) are statutory defences,
those under sub-clause (b) are common law defences made available to the insurer. It
will be observed that the insurer undertakes a vicarious liability under the policy issued
by him, and that under the provisions of section 149(1) of the Motor Vehicles Act, 1988
any judgment obtained against665 the insured is also enforceable against the insurer as
if he were the judgment-debtor, subject to the provision of sub-section (2) of the same
section, which enables the insurer to avoid the policy on certain specified grounds or no
more. That is to say, the insurer is entitled to defend the action by the third party only
on any of the grounds specified in sub-section (2) of section 149 and on no other
grounds. For instance, a defence which denies the factum of the accident, or negligence
on the part of the assured, or the quantum of damages are not open to the insurer.
Such defences are no doubt open to the assured and If the defence succeeds, the
insurer is entitled to take advantage thereof.666 If, however, the assured remains ex
parte and does not choose to defend the action, the curious result may arise, viz., that
the insurer loses the benefit of such defences and may be bound by the consequences.

[s 2.145.9] “Knock-for-Knock Agreement” and “Excess and No-Claims Bonus”

Clauses

‘Knock-for-Knock’ agreement and ‘excess and no-claims bonus’ clauses have their origin
in the insurance of the vehicle itself. The ‘Knock-for-Knock’ agreement is operative only
between insurers where accident involves more than one insured vehicle. In such an
agreement each insurer is responsible for the damage to the car irrespective of the
consideration as to who is legally responsible for causing the damage. But such an
agreement cannot be enforced against the individual assured.667 The excess and no-
claims bonus clauses are of two forms, namely:

(1) where the clause provides that the liability for damage up to a specified amount
shall be borne by the assured, and

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(2) where it allows a rebate of premium in the form of a bonus if no claim is notified.
The object of these clauses is to avoid a multiplicity of claims for minor damage
to the insured car.668

[s 2.145.10] Insured Transferring the Vehicle, Policy Continuing in his Name –

Transfer

It can take benefit of an extended clause covering the driver.

This question arose in Sohan Lal Surinder Prakash v National Insurance Co669 wherein it
was held that to take advantage of the extended clause it was necessary to prove
permission or order of the insured. In the absence of such proof there would be
presumption that the vehicle was driven on behalf of or for the transferee.

[s 2.145.11] Transfer of Vehicle – Policy Thereon – If Lapses

Where insured vehicle is transferred, in the absence of stipulation to the contrary

expressly made in the policy, the policy lapses upon the transfer of the motor vehicle.
An insurance policy is a personal contract for indemnity and as such the benefit of the
policy is not available to the transferee without an express agreement with the
insurance company.670

[s 2.145.12] Vehicle Driven by Unlicensed Person – Accident – Insurance

Company’s Liability

Under section 149(2)(a)(ii) of the Motor Vehicles Act, 1988 the insurer can defend an
action, inter alia, on the ground that there has been a breach of the condition of the
policy excluding driving by a named person or persons, or any person who is not duly
licensed, or by any person who has been disqualified for holding or obtaining a driving
licence during the period of qualification. Consequently, in the event of a violation of the
condition the insurance company is absolved from liability.671 The insurance company is
required to prove that there was a breach of the term of the contract of insurance as
evidenced by the policy of insurance on the ground that the driver who was driving the
vehicle at the relevant time did not have a valid driving licence. Once the insurance
company failed to prove that aspect, its liability under the contract of insurance remains
intact and unhampered and it was bound to satisfy the award under the comprehensive
policy of insurance.672

[s 2.146] Accident

In Halbury’s Laws of England, the meaning of the word ‘accident’ is given and also
‘accidental death’ in case of exposure to natural elements as stated to be accidental
death.

569. Meaning of ‘accident’: The event insured against may be indicated in the policy solely by reference
to the phrase ‘injury by accident’ or the equivalent phrase ‘accidental injury’, or it may be indicated as
injury caused by or resulting from an accident’. The word ‘accident’, or its adjective ‘accidental’ is no

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doubt used with the intention of excluding the operation of natural causes such as old age congenital or
insidious disease or the natural progression of some constitutional physical or mental defect; but the
ambit of what is included by the word is not entirely clear. It has been said that what is postulated is
the intervention of some cause which is brought into operation by chance so as to be fairly describable
as fortuitous. The idea of something haphazard is not necessarily inherent in the word; it covers any
unlooked for mishap or an untoward event which is not expected or designed. or any unexpected
personal injury resulting from any unlooked for mishap or occurrence. The test of what is unexpected is
whether the ordinary reasonable man would not have expected the occurrence, it being irrelevant that
a person with expert knowledge, for example of medicine, would have regarded it as inevitable. The
stand point is that of the victim, so that even wilful murder may be accidental as far as the victim is
concerned.

571. Exposure to elements. Even where there are no antecedent circumstances which can be separately
visualized and described as ‘an accident’, the results to the victim may nonetheless be accidental.
Injury or death caused by lightning, sunstroke or earthquake has been held to be accidental. Similarly,
where a man in the course of his work is exposed to excessive heat coming from a boiler and becomes
exhausted or has to stand in icy cold water and sustains pneumonia or, having got overheated, is
exposed to a drought resulting in pneumonia or sustains sub-acute rheumatism as a result of baling out
of a flooded mine, his injuries have been held to be accidental.673

When the deceased insured was killed allegedly by a group of persons belonging to
other faction – Murder of deceased insured only be understood as an “accident” for
purpose of contractual obligation by insurance company for awarding compensation.674

[s 2.147] Accident Insurance – Insurer not Liable before Commencement and

after Expiry of Policy

Para 423 and 424 of the Corpus Juris Secumdum (vol 45) deal with head
“Commencement and Duration of Risk”. Para 424 provides as under:

424. Accident Policy

The time for commencement and duration of the risk under a policy of accident insurance is determined
by reference to the controlling provisions of the contract.

The time at which the risk commences under a policy of accident insurance is to be determined by
reference to the terms of the contract. In the absence of stipulation to the contrary, an accident
insurance policy takes effect from its date, and a policy bearing a given date and insuring for the future
only will not permit a recovery for a loss occurring prior to such date.

The duration of the risk is such period as is fixed by the contract, and the insurance company is not
liable for an accident occurring after such time, although the beneficiary may recover where injury
occurred during the period for which the premium has been paid even though the death of insured took
place after such period... .

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When insurance company is not liable for the accident occurring after the period of
policy, similarly the insurance company cannot be held liable when the accident occurred
prior to commencement of the policy. The Apex Court in the case of National Insurance
Co Ltd v Seema Malhotra,675 was considering a motor accident claim policy. Following
was laid down in paragraph 8 of the judgment:

8. ... The essence of the insurance business is the coverage of the risk by undertaking to indemnify the
insured against loss or damage. They agree to pay the damages arising out of any accident by taking a
chance that no accident might happen. Motivation of the insurance business is that the premium would
turn to be the profit of the business in case no damage occurs. Such business of the insurance company
can be carried on only with the premium paid by the insured persons on the insurance policy. The only
profit, if at all the insurance company makes, of the insurance business is the premium paid when no
accident or damage occurs...

In the case of National Insurance Co Ltd v Jijubhai Nathuji Dabhi,676 the accident took
place on 25 October 1983 at 11.14 a.m. and the policy was renewed on 25 October
1983 at 4 p.m. The Apex Court held that insurer was not liable. Following was laid down
in paragraph 3 of the said judgment:

3. This Court in New India Assurance Co v Ram Dayal, (1990) 2 SCR 750 : (1990) 1 All WC 689, had
held that in the absence of any specific time mentioned in that behalf, the contract would be operative
from the midnight of the day by operation of provisions of the General Clauses Act. But in view of the
special contract mentioned in the insurance policy, namely, it would be operative from 4.00 p.m. on
October 25, 1983 and the accident had occurred earlier thereto, the insurance coverage would not
enable the claimant to seek recovery of the amount from the appellant-company.

The judgment of Karnataka High Court in the case of Krishna Subbarao Naik v Palani
Swamy,677 is also to the same effect. The Kolkata High Court in the case of New India
Assurance Company Ltd v Maya Das, 2003 (1) TAC 726 , was considering a case where
coverage of vehicle was from 31 August 1990 to 30 August 1991 and the accident took
place on 12 January 1992. Although the policy was taken earlier but after expiry of
coverage period on 31 August 1991, no renewal was taken and renewal was taken at
the time when the accident took place. Following was laid down in paragraphs 7 and 9 of
the said judgment:

7. The Assistant Manager of the appellant/Insurance Company by an affidavit has disclosed the
document stating that the policy of insurance being No. 3152050701658 for a period of 12 months from
31st August, 1990 to 30th August, 1991 covering the use of vehicle No. WGD 1610 (the offending
vehicle) was issued in favour of the owner of the vehicle and that the said policy of insurance was not
renewed by the appellant/Insurance Company after the expiry of the coverage period on 30th August,
1991. As there was no coverage of the vehicle on the date of the incident the Insurance Company is not
liable to pay any part of the awarded compensation to the claimant. Therefore, this appeal should be
allowed and the judgment and award passed by the Tribunal are set-aside.

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9. Since the vehicle was not covered under any insurance on the date of the accident, the Tribunal is
directed to take appropriate steps for proceeding against the insured. Sri Dhiren Guha, the owner of the
offending vehicle for realisation of the balance amount of ₹ 35,000 with interest thereon @ 9% per
annum from the date of the filing of the claim petition till realisation. The insured, Dhiren Guha, is
directed to deposit with the Tribunal the aforesaid sum in cash together with interest as mentioned
above within one month from the communication of this order to the Tribunal. The Tribunal shall
disburse the said amount by an Account payee cheque in favour of the claimant on proper
identification.

The Apex Court in the case of New India Assurance Co Ltd v Sita Bai,678 was also
considering a case where accident took place on the same day, i.e., 16 April 1987 at 10
hours whereas the commencement of the policy was at 21 hours on 16 April 1987.
Following was laid down in paragraph 7 of the said judgment:

7. In the fact situation of this case, since the commencement of the policy at 21.00 hours on 16th April,
1987 was after the accident which had occurred at 10.00 hours on 16th April, 1986, the Tribunal as well
as the High Court were wrong in burdening the appellant-Insurance Company, with any liability under
section 92A of the Motor Vehicles Act by applying the law laid down in Ram Dayal’s case, which, on
facts, had no application to this case. This case is squarely covered by the judgment in Jikubhai’s case
and the other judgments following it as noticed above. The impugned order against the appellant
cannot thus be sustained. The same is hereby set aside. The appeal consequently succeeds and is
allowed insofar as the appellant is concerned. No costs.

A Janta Personal Accident Policy Scheme of general insurance launched by State of UP

for all the farmers of State. The Scheme was applicable in the cases of accident causing
death or physical loss to the farmers. When accident in question took place insurance
policy had not commenced. It was held, that the insurance company cannot be held
liable for the accident which took place after the period of policy stood expired or where
the accident occurred prior to commencement of the policy. However, petitioner may
raise claim, if there was some policy in force at the time of accident.679

[s 2.148] Accident Insurance – Date of Accident and not Date of Death Matters

The Insurance cover must be available on date of accident and not on date of death.
When accident policy was taken subsequent to date of accident but before death of
insured no claim is available against policy.680

The death caused due to drowning in swimming pool is an accidental death in terms of
the insurance policy provided under the Insurance Act, 1938 – Therefore, the insurance
company is liable to pay sum assured to the heirs of deceased insured.681

[s 2.149] Vehicle Driven with the Permission of Insured Firm

When the van belonged to the firm and every partner for that reason would be the
owner of the property of the firm because the firm is not a legal entity in the sense in

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which the company under the Companies Act has a juristic personality. Firm is a
compendious name for the partners. And the High Court limited its enquiry to ascertain
whether the first part of the condition is satisfied viz. whether the driver was in the
employ of the insurer. It completely overlooked the second clause that the driver
appellant No. 2 was driving with the permission of the insured, the firm in this case. Two
clauses are disjointed by a disjunctive “or”. On a proper analysis and interpretation of
the term of contract of insurance, the insurance company cannot escape the liability if
(a) insured himself was driving the vehicle or (b) the driver is in the employment of the
insurer and is driving on the order of the insurer or (c) he is driving with his permission.
The words “with his permission” does not qualify the expression “is in the insurers
employ”. The clause can be properly read thus: “any other person with insurer’s
permission”. This ought to be so because a friend can always be permitted if he has a
valid driving licence to drive a friend’s, car. If in every such situation where the person
driving the vehicle is not shown to be the insurer himself or someone in his
employment, the contract of insurance would afford no protection and the insurance
company having collected the premium would wriggle out of a loophole. Therefore, the
proper construction of this condition must be to read it as stated hereinbefore.682

[s 2.150] Burglary Insurance

Burglary insurance is also known as robbery and theft insurance. It may be defined as
insurance against loss of property by the depredations of burglars and thieves. It is
regarded as a branch of casualty insurance.683 A policy of burglary insurance is not
confined to loss by burglary alone but losses by analogous crimes, e.g., house-breaking
are also covered in it. In para 670 of Halsbury’s Laws of England,684 it has been stated
that in ordinary practice, the protection given by a burglary insurance policy is not
confined to loss by burglary in the strict sense, but extends to loss by analogous crimes
such as theft and robbery, where the schedule to an agreement had recorded as follows:

It is hereby declared and agreed that this policy shall not extend to cover loss of property covered by
the within policy if abstracted from safe of strongroom following the use of a key to the safe or strong-
room or any duplicate thereof unless such key has been obtained by violence or the threat of violence
to the insured or to a member of his staff.

It was held, in Jagadhatri Bhandar and Jagadhatri Oil Mills v Commercial Union
Assurance Co Ltd,685 that though the policy had been termed as Burglary and House
Breaking Policy, by the agreement as embodied in the schedule, it had been extended to
loss of the properly on account of robbery as well, and the High Court was, therefore,
unable to accept the contention that as the entry of miscreants was neither forcible nor
violent, the claim of the plaintiff was not admissible under the policy. The Court had to
point out that there is no difference between the two circumstances, namely, where the
miscreants obtained the key from the person in possession of the same by violence or
threat of violence and opens the safe with the key, and where he compels such person
at the point of a revolver to open the safe with the key. In the first case, the key is
actually obtained; in the second, the person in possession of the key is compelled to
open safe which he does, of course, not voluntarily.

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Where the perils insured against are described in the technical terms of the criminal law,
there is a presumption that the terms used are intended to bear their technical
meaning.686 But this presumption is rebuttable specially where the policy defines the
word ‘burglary’ and in that case the meaning as given in the policy should be given in
preference to the technical meaning.687

Where there is a policy which insures against loss by burglary, house-breaking or theft,
but says nothing of “robbery”, it must on any reasonable interpretation, be held to
include ‘robbery’ within the courage for theft. The three terms, ‘house-breaking,’
‘robbery’ and ‘theft’ are merely variations in the process of causing loss or injury within
the meaning of the word ‘loss’ contemplated by the policy. Otherwise its exception must
clearly and expressly be made known to the party insured, but not by implication to be
inferred from omission.688

The entries in the account book of the firm kept in the regular course of business as to
the loss of money cannot be rejected when they were corroborated by other evidence of
accountant and partner of the firm. The fact that there was no evidence that no part of
the amount was recovered by the police during investigation of case is no ground for
rejecting the entries when it was not the case of the insurer company that the police
had been able to apprehend the robbers and recover the amount or any part thereof.689

When concealment of material facts is alleged in defence to a claim under a burglary

policy, the insurer must prove (i) that the facts alleged to have been concealed by the
assured were true; (ii) that they were material facts, and (iii) that they were within the
special knowledge of the assured. The test to determine materiality is whether the fact
has any bearing on the risk undertaken by the insurer. If the fact has any bearing on
the risk, it is a material fact; if not it is immaterial. Thus, where a policy contained inter
alia, the question: Have you ever sustained a loss by fire, burglary, house-breaking and
larceny, to which the assured replied in the negative, the fact of burglary having been
committed five years back in the ground-floor of the same premises had no bearing on
the risk undertaken by the insurer by insuring goods in the first floor of the same
premises. So also the fact of the previous burglary was not a material fact.690 Where the
policy provided that the proposal and declaration should be the basis of the contract and
should be considered as incorporated therein, the insurer could not repudiate the claim
without repudiating the policy on the ground that there was a material mis-statement or
non-disclosure in the proposal form relating to the value of the contents.691

[s 2.151] Burglary Insurance – Typewritten or Handwritten Additional Clause

– Effect

The entire insurance policy of burglary and house breaking is in the printed form and all
the terms and conditions are provided in prints whereas the risk of theft has been
expressly covered by super imposition of a typed condition in a schedule annexed
thereto. It is by now well-settled proposition of law that in a printed contract if the
parties impose an additional clause by type written or hand written then such special
clause becomes a part and parcel of the contract and infact overrides the general terms
and conditions of the said contract. In view of the aforesaid position in law which is now
well-settled it is not possible to accept that the policy did not cover the risk of theft.
When the risk of theft is expressly covered by putting special condition in the schedule

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and not only that but in respect of the said coverage of the risk the defendant has
demanded extra premium and admittedly the plaintiff has paid the said extra premium.
Once the defendants having received the consideration for covering the risk of theft it is
not permissible nor possible to permit them to wriggle out of their obligation under the
said policy in respect of the risk arising out of theft.692

When the limit of insurance cover enhanced by accepting enhanced premium before
incident the insurer is liable to indemnify plaintiff.693

[s 2.152] Meaning of Theft

The meaning of “theft” as assigned in the Indian Penal Code cannot be applied in case of
a Policy of insurance issued by the Insurance Company unless of course it is specifically
applied under the terms and conditions of such Policy. The “theft”, according to Black’s
Law Dictionary, means – the felonious taking and removing of another’s personal
property with the intent of depriving the true own of it; larceny. “Larceny” according to
Black’s Law Dictionary, means – the unlawful taking or carrying away of someone else’s
personal property with the intent to deprive the possessor of it permanently. The theft
has not been defined in the contract of insurance entered into between the parties,
therefore, it has to be given the meaning as understood in common parlance and not
with the vigor of proof under the criminal law.694

[s 2.153] Theft of Insured Vehicle – Its Recovery – Subrogation

In a case of theft of vehicle there was delay in making payment to the insured –
Subsequent recovery of vehicle after transfer of R.C. – Held that in such a case insured
cannot deny payment by relying on the letter of subrogation. A letter of subrogation
creates a right to an insurer after the incident of theft is reported and when the terms of
the contract and insurance comes into play. Therefore, insurer is bound to indemnify the
insured.695

[s 2.154] Fidelity Insurance

‘Fidelity’ according to dictionary means faithfulness, loyalty. In insurance terminology it

is understood as assurance to indemnify against loss consequent upon the dishonesty or
default. Usually, the assured and the person whose fidelity is assured stand to each
other in relation of employer and employee. As the use of the word ‘fidelity’ indicates, it
is a policy intended to protect the assured against the contingency of breach of fidelity
on part of a person in whom confidence has been placed’. It is a contract whereby, for a
consideration, one agrees to indemnify another against loss arising from the want of
honesty, integrity or fidelity of an employee or other person holding a position of trust.
In Black’s Law Dictionary ‘fidelity insurance’ is explained as under:

Fidelity Insurance ———From of insurance in which the insurer undertakes to guaranty the fidelity of an
officer, agent, or employee of the assured, or rather to indemnify the latter for losses caused by
dishonesty or want of fidelity on the part of such a person.

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In Halsbury’s Laws of England,696 a Fidelity Guarantee Insurance is described as

pecuniary loss insurance, not falling within normal class related to contingency but,

for making payment in the event of a specified event occurring, the payment representing either the
loss or the possibility of loss which that event entails... . A Fidelity Policy which insures the assured
against losses which he may sustain by the default of his employee is a policy of pecuniary loss.

It is a policy,

intended to protect the assured against contingency of a breach of fidelity on the part of a person in
whom confidence has been reposed... .

In para 798 dealing with time and notice it is stated,

The duty of giving notice of the loss to the insurers does not arise until the employer has satisfied
himself of his employee’s dishonesty; the employer is under no duty to notify mere suspicion. However,
if the policy fixes a time from the date of loss for giving notice to the insurers, the assured will be
unable to recover if the time has expired before he becomes aware of the loss.

Fidelity Guarantee is thus different from contingency guarantee. The insurance under it
is for honesty, against negligence or for being faithful and loyal. The protection afforded
is different than normal insurance policies. Its consequences and enforcement are also
not the same. The employer or the principal has first to be satisfied about the breach.
No action can be taken on suspicion. In contingency insurance the cause of action arises
immediately whereas in Fidelity Guarantee it has to be ascertained and verified. And on
being satisfied the company must necessarily be informed of it to enable the principal to
seek its remedy in the court of law.

Such being the nature of Fidelity Insurance its enforceability depends on satisfaction by
the insured of dishonesty or negligence of the other side and its intimation either during
the contract period or within the time agreed from the termination of contract.697

There is no substance in the argument that, because the plaintiff had answered “Yes” to
the question as to whether he had a fidelity guarantee policy covering the employees
carrying/handing the cash, in the proposal for money insurance, it has to be construed
that fidelity guarantee was not available to the plaintiff under the said Money Insurance
Policy and that the plaintiff was having some other fidelity guarantee policy under some
other company.698

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[s 2.155] Industrial Insurance

Industrial insurance is sometimes called people’s prudential insurance or family

insurance. This type of insurance had its origin in the early guilds, friendly societies or
burial societies. It is a sort of insurance under which small policies of accident, health or
life insurance are issued in consideration of weekly payments, in contradiction to
ordinary plan of insurance, where premiums are payable yearly, half-yearly, quarterly or
monthly. This type of insurance is effected on the lives of the labouring classes for small
amounts, the payments being made in weekly instalments.699 The underlying principle
of industrial insurance is to provide a means whereby the labouring and more
unfortunate masses may be able to carry small amounts of insurance on the payment of
a small proportion of weekly wages or earning to meet such exigencies as may and
usually do arise in case of death.700 This character of insurance has for its object not so
much the creation of a fund to provide for the future support and maintenance of the
family or near relatives of insured or to augment his estate, or ordinary life insurance
does, but mainly to provide a reasonable fund with which the insured may procure in his
last sickness needed aid by way of nursing, medical attention, etc., and to secure him a
decent burial.701

Industrial insurance has also been called a somewhat specialised form of life insurance
where premiums are payable usually in very small sums at short intervals. Under the
Industrial Assurance Act, 1923,702 industrial insurances are called those insurances
where the premiums are received by collectors and are payable at intervals of less than
two months. These insurances are subject to certain special statutory provisions.703 The
industrial assurance legislation applies to registered friendly societies which carry on
industrial assurance business and such societies are known as collecting societies.704

The industrial insurance is now governed by the Employees’ State Insurance Act (XXXIV
of 1948) which provided for certain benefits to employees in case of sickness, maternity
and ‘employment injury’ and for certain other matters in relation thereto under section
38 of the said Act, all employees in factories or establishments shall be insured in the
manner provided by the Act. The insurance is effected by contributing at the rates
mentioned in the Schedule of the Act both by the employers and the employees and
such contributions are paid weekly.

The insured persons or their dependents, as the case may be, are entitled to the
following benefits:

(a) sickness benefit, i.e., periodical payment to any insured person in case of his
sickness certified by a duly appointed medical practitioner;

(b) maternity benefit, i.e., periodical payments in case of confinement to an insured

woman, certified to be eligible for such payments by a prescribed authority;

(c) disablement benefit, i.e., periodical payments to an insured person suffering from
disablement as a result of an employment injury sustained as an employee and
certified to be eligible for such payments by a prescribed authority;

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(d) dependent’s benefit, i.e., periodical payments to such dependents of an insured

person who dies as a result of an employment injury sustained as an employee as
are entitled to compensation under the Act; and

(e) medical benefit, i.e., medical treatment for and attendance on insured
persons.705

The right to receive any payment of any benefit under the Employees’ State Insurance
Act, 1948, is neither assignable nor transferable; but when a person is entitled to any of
the benefits provided by the Act he shall not be entitled to receive any similar benefit
admissible under the provisions of any other enactment. Thus, this provision is wide
enough to prevent a dependant from receiving any benefit similar to “dependent’s
benefit” which he is entitled to receive under any other enactment, e.g., Workmen’s
Compensation Act. But it is not wide enough to prevent a dependent from recovering
damages from a third person who is liable in tort to pay damages for causing death by
his negligence.706

[s 2.156] Agricultural Insurance Scheme – Validity

Agricultural Insurance Scheme – Validity of – Scheme is limited to the class of farmers

getting subsidies loans from the financial institutions who have got to be saved against
ruin by general calamities affecting the area in question.

The Scheme benefits the farmer indemnifying him against the crop loss. The amount of
loan will be recovered from the insurance amount thereby a double purpose is served.
The poor cultivator is indemnified against loss and the financial institutions which are co-
operative banks are indemnified against loss by the general insurance corporation. This
is a social security measure meant for the benefit of rural population and benefits only
those who take loans from the financial institutions. In other words, it is limited to the
class of people who are getting subsidised loans from such institutions who themselves
have got to be saved against ruin by general calamities affecting the area in question.
Such a scheme cannot be said to be in any manner, unreasonable or arbitrary.707

[s 2.157] Sub-section (13BA) – “National Company Law Tribunal”

The earlier position was that the Central Government shall, by notification in the Official
Gazette, constitute a Tribunal to be known as the National Company Law Tribunal to
exercise and discharge such powers and functions as are, or may be, conferred on it by
or under this Act or any other law for the time being in force.708 Now the National
Company Law Tribunal is to be notified as per section 10FB of now the Companies Act,
2013 (18 of 2013).

[s 2.158] Sub-section (13BB) – “The National Company Appellate Tribunal”

The earlier position was that (1) The Central Government shall, by notification in the
Official Gazette, constitute with effect from such date as may be specified therein, an
Appellate Tribunal to be called the “National Company Law Appellate Tribunal” consisting
of a Chairperson and not more than two Members, to be appointed by that Government,
for hearing appeals against the orders of the Tribunal under this Act.

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(2) The Chairperson of the Appellate Tribunal shall be a person who has been, a Judge
of the Supreme Court or the Chief Justice of a High Court.

(3) A Member of the Appellate Tribunal shall be a person of ability, integrity and
standing having special knowledge of, and professional experience of not less than 25
years in, science, technology, economics, banking, industry, law, matters relating to
labour, industrial finance, industrial management, industrial reconstruction,
administration, investment, accountancy, marketing or any other matter, the special
knowledge of, or professional experience in which, would be in the opinion of the Central
Government useful to the Appellate Tribunal.709 But now the National Company Law
Appellate Tribunal is required to be constituted under sub-section (1) of section 10FR of
the Companies Act, 2013 (18 of 2013).

[s 2.159] Sub-section (16) – “Private Company”

Earlier as per section 2(35) of Companies Act, 1956 “private company” means a private
company as defined in section 3;710

“private company” 711[means a company which has a minimum paid-up capital of one lakh rupees or
such higher paid-up capital as may be prescribed, and by its articles,—]

(a) restricts the right to transfer its shares, if any;

(b) limits the number of its members to fifty not including:

(i) persons who are in the employment of the company, and

(ii) persons who, having been formerly in the employment of the company, were members of
the company while in that employment and have continued to be members after the
employment ceased; and

(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the
company;

712(d) prohibits any invitation or acceptance of deposits from persons other than its members,
directors or their relatives:] Provided that where two or more persons hold one or more shares
in a company jointly, they shall, for the purposes of this definition, be treated as a single
member.713

Now section 2(68) of Companies Act, 2013 (18 of 2013) is applicable which is given
below:

2(68) “private company” means a company having a minimum paid-up share capital as may be
prescribed, and which by its articles,

(i) restricts the right to transfer its shares;

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(ii) except in case of One Person Company, limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly,
they shall, for the purposes of this clause, be treated as a single member:

Provided further that—

(A) persons who are in the employment of the company; and

(B) persons who, having been formerly in the employment of the company, were members of
the company while in that employment and have continued to be members after the
employment ceased,

shall not be included in the number of members; and

(iii)prohibits any invitation to the public to subscribe for any securities of the company.

[s 2.160] Sub-section (16) – “Public Company”

As per section 2(37) of Company Act, 1956 “Public Company” means a public company
as defined in section 3;714 Every public company, existing on the commencement of the
Companies (Amendment) Act, 2000, with a paid-up capital of less than five lakh rupees,
shall within a period of two years from such commencement, enhance its paid-up capital
to five lakh rupees.715

In Saghir Ahmad v State of Uttar Pradesh, (1995) 1 SCR 707 [LNIND 1995 SC 174] :
AIR 1954 SC 728 [LNIND 1954 SC 128] , the Constitution Bench at the earliest buried
fathom deep that the State is free to carry on trade or business in the same position as
a private trader. In A Sanjeevi Naidu v State of Madars, (1970) 3 SCR 505 [LNIND 1970
SC 33] : AIR 1970 SC 1102 [LNIND 1970 SC 33] , another Constitution Bench held that
the acts of the authorised officers are the acts of the State itself and not as the
delegates of the Government. In Ramana Dayaram Shetty v International Airports
Authority of India, (1979) 3 SCR 1014 [LNIND 1979 SC 275] : AIR 1979 SC 1628
[LNIND 1979 SC 275] , another Constitution Bench held that in a welfare State in
regulating and dispensing special services including contracts, the citizen derives rights
or privileges by entering into favourable relations with the Government. The
Government, therefore, cannot anchor its role as a private person. The exercise of the
power or discrimination to award contract etc. must be structured by rational, relevant
and non-discriminatory standards or norms. In Kasturi Lal Lakshmi Reddy v State of
Jammu and Kashmir, (1980) 3 SCR 1338 [LNIND 1980 SC 250] : AIR 1980 SC 1992
[LNIND 1980 SC 250] , it was further held that every activity of the government has a
public element in it and it must, therefore, be informed with reason guided by public
interest. It cannot act in a manner which would benefit a private party at the cost of the
State. In MC Mehta v UOI, (1987) 1 SCC 395 [LNIND 1986 SC 539] : AIR 1987 SC 1086
[LNIND 1986 SC 539] , another Constitution Bench held that it is dangerous to
exonerate corporations from the need to have constitutional conscience which makes
governmental agencies what their mien amenable to constitutional limitations, the Court

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must adopt such standards “as against the alternative of permitting them to flourish as
an imperium in imperio”.716

Now section 2(71) of the Companies Act, 2013 is applicable which is given below:

2. (71) “public company” means a company which—

(a) is not a private company;

(b) has a minimum paid-up share capital as may be prescribed:

Provided that a company which is a subsidiary of a company, not being a private company, shall be
deemed to be public company for the purposes of this Act even where such subsidiary company
continues to be a private company in its articles (omitted by Act 5 of 2015).

[s 2.161] Sub-section 16(B) Re-insurance Programme

See regulation 3 of the Insurance Regulatory and Development Authority of India (Re-
insurance) Regulations, 2018.

[s 2.162] Cross Border Re-insurer (CBR)

See regulation 4 of the Insurance Regulatory and Development Authority of India (Re-
insurance) Regulations, 2018.

[s 2.163] Procedures for Re-insurance Placements

See regulation 5 of the Insurance Regulatory and Development Authority of India (Re-
insurance) Regulations, 2018.

[s 2.164] Inward Re-insurance Business

See regulation 9 of the Insurance Regulatory and Development Authority of India (Re-
insurance) Regulations, 2018.

[s 2.165] Re-insurance Advisory Committee

See section 101B of this Act and the Insurance Regulatory and Development Authority
of India (Re-Insurance Advisory Committee) Regulations, 2019.

183 Subs. by Act 5 of 2015, sec. 3(i), for clauses (1) and (1A), (w.r.e.f. 26-12-2014). Earlier
clauses (1) and (1A) were amended by Act 41 of 1999, sec. 30 and Sch. I (w.e.f. 19-4-2000) and by
Act 42 of 2002, sec. 2 (w.e.f. 23-9-2002). Clauses (1) and (1A), before substitution by Act 5 of 2015,
stood as under:

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 [s 2] Definitions.—

“(1) “actuary” means an actuary possessing such qualifications as may be specified by the
regulations made by the Authority.
(1A) “Authority” means the Insurance Regulatory and Development Authority established
under sub-section (1) of section 3 of the Insurance Regulatory and Development Authority Act,
1999”.

184 Subs. by Act 6 of 1946, sec. 2, for clause (2) (w.e.f. 20-3-1946).
185 Subs. by Act 47 of 1950, sec. 3, for clause (3) (w.e.f. 1-6-1950).
186 The words “Part A” omitted by the Adaptation of Laws (No. 3) Order, 1956.

187 The words “Part A” omitted by the Adaptation of Laws (No. 3) Order, 1956.

188 The words “Part A” omitted by the Adaptation of Laws (No. 3) Order, 1956.

189 Sub-clause (v) omitted by Act 42 of 2002, sec. 2 (w.e.f. 23-9-2002).

190 Added by the Adaptation of Laws (No. 3) Order, 1956.

191 Subs. by Act 47 of 1950, sec. 3, for clause (4) (w.e.f. 1-6-1950).
192 Ins. by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950).
193 Now renamed as Banking Regulation Act, 1949 (10 of 1949).
194 Subs. by Act 13 of 1941, sec. 2, for “an insurer” (w.e.f. 8-4-1941).
195 Subs. by Act 13 of 1941, sec. 2, for “the insurer” (w.e.f. 8-4-1941).
196 Clause (5A) omitted by Act 5 of 2015, sec. 3(ii) (w.r.e.f 26-12-2014). Earlier clause (5A) was
inserted by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950). Clause (5A), before omission by Act 5 of 2015,
stood as under:

“(5A) “chief agent” means a person who, not being a salaried employee of an insurer, in
consideration of any commission—

(i) performs any administrative and organising functions for the insurer, and
(ii) procures life insurance business for the insurer by employing or causing to be employed
insurance agents on behalf of the insurer;”.

197 Subs. by Act 41 of 1999, sec. 30 and Sch.I, for clause (5B) (w.e.f. 19-4-2000). Earlier clause
(5B) was inserted by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950).
198 Ins. by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950).
199 Ins. by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950).
200 Ins. by Act 5 of 2015, sec. 3(iii) (w.r.e.f. 26-12-2014).
201 Subs. by Act 47 of 1950, sec. 3, for clause (7) (w.e.f. 1-6-1950).

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 [s 2] Definitions.—

202 Subs. by Act 5 of 2015, sec. 3(iv), for clause (7A) (w.r.e.f. 26-12-2014). Earlier clause (7A)
was inserted by Act 41 of 1999, sec. 30 and Sch. I (w.e.f. 19-4-2000). Clause (7A), before substitution
by Act 5 of 2015, stood as under:

‘(7A) “Indian insurance company” means any insurer being a company—

(a) which is formed and registered under the Companies Act, 1956 (1 of 1956);

(b) (b) in which the aggregate holdings of equity shares by a foreign company, either by itself or
through its subsidiary companies or its nominees, do not exceed twenty-six per cent. paid-up
equity capital of such Indian insurance company;

(c) whose sole purpose is to carry on life insurance business or general insurance business or re-
insurance business.

Explanation.—For the purposes of this clause, the expression “foreign company” shall have the
meaning assigned to it under clause (23A) of section 2 of the Income-tax Act, 1961 (43 of 1961);’.

203 Subs. by Act 6 of 2021, sec. 2, for sub-clause (b) [w.e.f. 1-4-2021, vide S.O.1426(E), dated
31st March, 2021]. Sub-clause (b) before substitution, stood as under:

“(b) in which the aggregate holdings of equity shares by foreign investors, including portfolio
investors, do not exceed forty-nine per cent. of the paid up equity capital of such Indian
insurance company, which is Indian owned and controlled, in such manner as may be
prescribed.

Explanation.—For the purposes of this sub-clause, the expression “control” shall include the right to
appoint a majority of the directors or to control the management or policy decisions including by
virtue of their shareholding or management rights or shareholders agreements or voting
agreements;”.

204 Clause (8) omitted by Act 5 of 2015, sec. 3(v) (w.r.e.f. 26-12-2014). Earlier clause (8) was
amended by Act 11 of 2003, sec. 133 and Sch. Clause (8), before omission by Act 5 of 2015, stood as
under:

‘(8) “insurance company” means any insurer being a company, association or partnership which
may be wound up under the Companies Act, 1956 (1 of 1956), or to which the Indian Partnership
Act, 1932 (9 of 1932), applies;’.

205 Ins. by Act 42 of 2002, sec. 2 (w.e.f. 23-9-2002).

206 Subs. by Act 5 of 2015, sec. 3(vi)(I), for sub-clause (b) (w.r.e.f. 26-12-2014). Sub-clause (b),
before substitution, stood as under:

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 [s 2] Definitions.—

“(b) having a minimum paid-up capital, (excluding the deposits required to be made under section
7) of rupees one hundred crores;”

207 Ins. by Act 5 of 2015, sec. 3(vi)(II) (w.r.e.f. 26-12-2014).

208 Subs. by Act 5 of 2015, sec. 3(vii), for clause (9) (w.r.e.f. 26-12-2014). Earlier clause (9) was
amended by Act 11 of 1939, sec. 2, by Act 13 of 1941, sec. 2 (w.e.f. 8-4-1941), by A.O. 1950; by Act
47 of 1950, sec. 3 (w.e.f. 1-6-1950), by Act 62 of 1956, sec. 2 and Sch. (w.e.f. 1-11-1956). Clause (9),
before substitution by Act 5 of 2015, stood as under:

“(9) “insurer” means—

(a) any individual or unincorporated body of individuals or body corporate incorporated under
the law of any country other than India, carrying on insurance business not being a person
specified in sub-clause (c) of this clause which—

(i) carries on that business in India, or

(ii) has his or its principal place of business or is domiciled in India, or

(iii) with the object of obtaining insurance business, employs a representative, or maintains a
place of business, in India;
(b) any body corporate not being a person specified in sub-clause (c) of this clause carrying on the
business of insurance, which is a body corporate incorporated under any law for the time being
in force in India; or stands to any such body corporate in the relation of a subsidiary company
within the meaning of the Indian Companies Act, 1913 (7 of 1913), as defined by sub-section
(2) of section 2 of that Act, and
(c) any person who in India has a standing contract with underwriters who are members of the
Society of Lloyd’s whereby such person is authorised within the terms of such contract to issue
protection notes, cover notes, or other documents granting insurance cover to others on behalf
of the underwriters,

but does not include a principal agent, chief agent, special agent, or an insurance agent or
a provident society as defined in Part III;”.

209 The words “licensed under section 42” omitted by Act 5 of 2015, sec. 3(viii) (w.r.e.f. 26-12-
2014).
210 The words “being an individual” omitted by Act 35 of 1957, sec. 2 (w.r.e.f. 1-9-1957).
211 Ins. by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950).
212 Ins. by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950).
213 Ins. by Act 42 of 2002, sec. 2 (w.e.f. 23-9-2002).
214 Subs. by Act 47 of 1950, sec. 3, for clause (11) (w.e.f. 1-6-1950).

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 [s 2] Definitions.—

215 Subs. by Act 5 of 2015, sec. 3(ix), for “annuities payable out of any fund” (w.r.e.f. 26-12-
2014).

216 Ins. by Act 26 of 2010, sec. 3 (w.r.e.f. 9-4-2010).

217 Clause (12) omitted by Act 5 of 2015, sec. 3(x) (w.r.e.f. 26-12-2014). Clause (12), before
omission, stood as under:*

‘(12) “manager” and “officer” have the meanings assigned to those expressions in clauses (9) and
(11)respectively of section 2 of the Indian Companies Act, 1913 (7 of 1913) ;’.

218 Clause (13) omitted by Act 5 of 2015, sec. 3(x) (w.r.e.f. 26-12-2014). Clause (13), before
omission, stood as under:

‘(13) “managing agent” means a person, firm or company entitled to the management of the whole
affairs of a company by virtue of an agreement with the company, and under the control and
direction of the directors except to the extent, if any, otherwise provided for in the agreement, and
includes any person, firm or company occupying such position by whatever name called.

Explanation.—If a person occupying the position of managing agent calls himself manager or
managing director, he shall nevertheless be regarded as managing agent for the purposes of
section 32 of this Act;’.

219 Ins. by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950).

220 Ins. by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950).
221 Ins. by Act 11 of 2003, sec. 133 (w.e.f. 1-4-2003).
222 Subs. by Act 5 of 2015, sec. 2(b), for “the Companies Act, 1956 (1 of 1956)” (w.r.e.f. 26-12-
2014).
223 Ins. by Act 11 of 2003, sec. 133 (w.e.f. 1-4-2003).
224 Subs. by Act 5 of 2015, sec. 2(b), for “the Companies Act, 1956 (1 of 1956)” (w.r.e.f. 26-12-
2014).
225 Subs. by Act 41 of 1999, sec. 30 and Sch.I, for “section 114” (w.e.f. 19-4-2000).
226 Clause (14A) omitted by Act 62 of 1956, sec. 2 and Sch. (w.e.f. 1-11-1956). Earlier clause
(14A) was inserted by the A.O. 1950.
227 Clause (15), omitted by Act 5 of 2015, sec. 3(x) (w.r.e.f. 26-12-2014). Earlier clause (15) was
substituted by Act 47 of 1950, sec. 3 (w.e.f. 1-6-1950). Clause (15), before omission by Act 5 of 2015,
stood as under:

‘(15) “principal agent” means a person who, not being a salaried employee of an insurer, in
consideration of any commission,—

(i) performs any administrative and organising functions for the insurer, and

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 [s 2] Definitions.—

(ii) procures general insurance business whether wholly or in part by employing or causing to be
employed insurance agents on behalf of the insurer;’.

228 Subs. by Act 5 of 2015, sec. 3(xi), for “clauses (13) and (13A) of section 2 of the Indian
Companies Act, 1913 (7 of 1913)” (w.r.e.f. 26-12-2014).
229 Ins. by Act 5 of 2015, sec. 3(xii) (w.r.e.f. 26-12-2014).
230 Ins. by Act 5 of 2015, sec. 3(xii) (w.r.e.f. 26-12-2014).
231 Clause (17) omitted by Act 5 of 2015, sec. 3(xiii) (w.r.e.f. 26-12-2014). Clause (17), before
omission, stood as under:

‘(17) “special agent” means a person who, not being a salaried employee of an insurer, in
consideration of any commission, procures life insurance business for the insurer whether wholly or
in part by employing or causing to be employed insurance agents on behalf of the insurer, but does
not include a chief agent.’.

232 Hariprasad Shivshankar v A D Divelkar, 1957 SCJ 83 [LNIND 1956 SC 104] : 1957 SCA 57
[LNIND 1956 SC 104] : AIR 1957 SC 121 [LNIND 1956 SC 104] .

233 Nilema Textile Finishing Mills, Ltd v State of Punjab, 1957 SCJ 275 : 1957 SCA 640 : 1957 SC
329 .

234 State of Bombay v Hospital Mazdoor Sabha, (1960) 2 SCA 243 : 1960 SCJ 679 : AIR 1960 SC
610 [LNIND 1960 SC 19] .

235 Regional Director, Employees’ State Insurance Corporation v High Land Coffee Works of P.F.X.
Saldanha and Sons, AIR 1992 SC 129 [LNIND 1991 SC 326] : (1991) 3 SCC 617 [LNIND 1991 SC 326]
: 1991 AIR SCW 2821.

236 Ghanshyom Misra v State of West Bengal, 1959 SCJ 15 ; see also Calico Mills Ltd v State of
Madhya Pradesh, 1961 MPC 396 : 1961 MPLJ 474 : 1961 MP 257 ; S N James v Dr. Abdul Khair, 1961
BLJR 308 : 1961 Pat 242.

237 Jiwan Nath Razdan v State of Maharashtra, AIR 1991 Bom 196 [LNIND 1990 BOM 300] :
(1990) 3 Bom CR 306 [LNIND 1990 BOM 300] .

238 Mohan Kumar Singhania v UOI, AIR 1992 SC 1 : (1992) Supp (1) SCC 594 : 1991 Lab IC 2334
.

239 J C Saraswati v P N Bhatt, AIR 1991 HP 64 [LNIND 1989 HP 73] : 1990 (1) Ren CJ 124 : 1990
(1) Rent LR 6 .

240 Tribhovandas Haribhai Tamboli v Gujarat Revenue Tribunal, AIR 1991 SC 1538 [LNIND 1991 SC
282] : (1991) 3 SCC 442 [LNIND 1991 SC 282] : 1991 AIR SCW 1467.

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 [s 2] Definitions.—

241 A N Sehgal v Raje Ram Sheoram, AIR 1991 SC 1406 [LNIND 1991 SC 196] : 1991 AIR SCW
1246 : 1991 Lab IC 1227 .

242 Toguru Sudhakar Reddy v Govt. of Andhra Pradesh, AIR 1992 AP 19 [LNIND 1991 AP 317] :
1991 (3) ALT 173 : 1991 (2) APLJ 308 [LNIND 1991 AP 317] .

243 Mohan Kumar Singhania v UOI, AIR 1992 SC 1 : (1992) Supp (1) SCC 594 : 1991 Lab IC 2334
.

244 6 and 7 Eliz.2, c. 72.

245 See rule 15, Assurance Companies Rules, 1950 and section 33 of the Insurance Companies Act,
1958.

246 Vide rule 3 of the Insurance Rules, 1939.

247 Now Authority.

248 Now Authority.

249 Rule 3 of the Insurance Rules, 1939.

250 Regulation 3 of the Insurance Regulatory and Development Authority (Qualification of Actuary)
Regulations, 2004.

251 Regulation 2(b) of the Insurance Regulatory and Development Authority (Qualification of
Actuary) Regulations, 2004.

252 Section 2(1)(a), Actuaries Act, 2006.

253 Regulation 9 of the Insurance Regulatory and Development Authority (Appointed Actuary)
Regulations, 2000.

254 Sub-section 3(1) of the Insurance Regulatory and Development Authority Act, 1999.

255 Surajmull Nagoremull v Triton Insurance Co Ltd, AIR 1925 PC 83 : 52 IA 126 : 86 IC 545 : 27
Bom LR 770 : 29 CWN 893 : 49 MLJ 136 : 23 ALJ 105.

256 Sulphite Pulp Co v Faber, (1895) 1 Com Cas 146 .

257 DuraiswamiIyengar v United India Life Assurance Co Ltd, ILR (1956) Mad 1014 : (1956) 1 MLJ
344 [LNIND 1955 MAD 258] : 69 MLW 37 : (1956) 26 Com Cas (Ins) 12 : 1956 Mad 316; see also
Alderbert v Kearns, (1864) 1 Hem and M 681.

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 [s 2] Definitions.—

258 Hindusthan Co-operative Insurance Society Ltd v Nathu, 1946 Nag LJ 128 .

259 See Greeff v Equitable Life Assurance Co, 160 NY 19; Re National Bank of Wales, (1899) 2 Ch
629 .

260 Sun Life Assurance Co of Canada v Jervis, (1943) 113 LJKB 174 .

261 Mac Gillivray : Insurance Law, pp 92-93; see also Re, British Equitable Bond and Mortgage
Corporation, (1910) Ch 574 , for policy-holders right to present a petition for winding-up; see also
section 224 of the English Companies Act, 1948.

262 (1979) 2 WLR 686 ; Commissioner of Income-tax, Madras v Kasturi and Sons Ltd, AIR 1999
SC 1275 : 1999 AIR SCW 960 : (1999) 3 SCC 346 [LNIND 1999 SC 261] .

263 See R B Basu v P K Mukherji, AIR 1957 Cal 449 [LNIND 1956 CAL 121] : (1957) 27 Com Cas
528 .

264 Council of the Institute of Chartered Accountants v B Mukherjee, 1958 SCR 371 [LNIND 1957 SC
82] : 1958 SCJ 312 [LNIND 1957 SC 82] : AIR 1958 SC 72 [LNIND 1957 SC 82] .

265 Subs. by Act 20 of 1950, sec. 3, for “in any State” (w.e.f. 18-3-1950).

266 Section 4(c) of the Banking Regulation Act, 1949.

267 See section 5 clauses (a) and (b) of the Banking Regulation Act, 1949.

268 Mahaluxmi Bank Ltd v Registrar of Companies, WB, 65 CWN 99 : AIR 1981 Cal 666 : (1961) 31
Com Cas 287 .

269 Kalipada Sinha v Mahaluxmi Bank Ltd, AIR 1961 Cal 188 [LNIND 1960 CAL 67] : (1962) 32
Com Cas 503 .

270 S Samajam v O Kalyani, 1953 Ker LT 335 [LNIND 1952 KER 43] : AIR 1954 Trav-Co. 50.

271 KVS Vassan Bros v Official Liquidator, ILR (1951) TC 398 : 1952 Ker LT 633 [LNIND 1951 KER
88] : AIR 1952 TC 170 ; see also Jwala Bank Ltd v Shitla Parshad Singh, AIR 1950 All 309 [LNIND 1949
ALL 212] : 1950 ALJ 845 : ILR (1951) 2 All 135 .

272 In section 2(20) of the Companies Act, 2013.

273 The Law Lexicon Encyclopaedia Law Dictionary, 2nd Edn, 2001.

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 [s 2] Definitions.—

274 7th Edn, 1999.

275 The Law Lexicon Encyclopaedia Law Dictionary, 2nd Edn, 2001.

276 1993 Edn.

277 Vol 1, 1993 Edn.

278 Sub-section (1) of section 2B of the Insurance Act, 1938.

279 Sub-section (5B) of section 2.

280 Rahisuddin v Gambit Leasing and Finance Pvt Ltd, CRP No. 73/2008, decided on 15 January
2010 (Del HC) per Justice Rajiv Sahai End law; see also Kinetic Capital Finance Ltd v Anil Kumar Misra,
2000 (3) RAJ 272 : (2000) 87 DLT 405 ; Bakshi Lochan Singh v Jathedar Santokh Singh, AIR 1971 Del
277 [LNIND 1971 DEL 61] : ILR (1971) 1 Del 615 ; Fountain Head Developers v Maria Arcangela
Sequeira, AIR 2007 Bom 149 [LNIND 2007 BOM 484] : 2007 CLC 1347 : 2007 AIHC 2956 (FB); State
of Tamil Nadu v R Sundaram, 2006 (3) Arb LR 447 (Mad) (DB); Surat Singh v State of Himachal
Pradesh, 2003 (3) Arb LR 606 (HP) (DB); Sulekha Clay Mines v UOI, 2000 (1) KLT 691 [LNIND 1999
KER 538] ; ICDS Ltd v Mangala Builders Pvt Ltd, AIR 2001 Kant 364 [LNIND 2001 KANT 145] : 2001
(3) Arbi LR 334 : 2001 (3) Civ LJ 677 ; ITI Ltd, Allahabad v District Judge, Allahabad, AIR 1998 All 313
[LNIND 1998 ALL 445] : 1998 All LJ 2115 : 1998 (2) Arbi LR 670.

281 Bengal Insurance and Real Property Co Ltd v Velayammal, ILR 1937 Mad 990 : 45 MLW 616 :
170 IC 279 : AIR 1937 Mad 571 [LNIND 1936 MAD 395] .

282 Hasi v Industrial and Prudential Assurance Co, 167 IC 669 : AIR 1937 Sind 17 .

283 United India Insurance Company v Parmeshwari Sawhney, AIR 2010 J&K 138 : 2012 ACJ 370 :
2010 (4) JKJ 898 : 2012 (1) An WR 714 (J&K) (DB).

284 (1880) 18 Ch D 1 .

285 Commissioner of Income-tax, Madras v Kasturi and Sons Ltd, AIR 1999 SC 1275 : (1999) 3
SCC 346 [LNIND 1999 SC 261] : (1999) 2 Scale 75 : JT 1999 (2) SC 272 : (1999) 1 SCR 1207 .
286 (1979) 2 WLR 686 : (1979) 2 All ER 421 : (1980) 1 Ch 82 .

287 United India Insurance Company v Parmeshwari Sawhney, AIR 2010 J&K 138 : 2012 ACJ 370 :
2010 (4) JKJ 898 : 2012 (1) An WR 714 (J&K) (DB).

288 Halsbury’s Laws of England, 4th Edn, vol 25, para 617, at p 321.

289 New India Assurance Co Ltd v Protection Manufacturers Pvt Ltd, AIR 2010 SC 3035 [LNIND
2010 SC 599] : 2010 ACJ 2580 : (2010) 7 SCC 386 [LNIND 2010 SC 599] : 2011 AIR SCW 4816 : 2010
(5) Law Herald (SC) 3465 : 2010 (8) MLJ 793 [LNIND 2010 SC 599] : 2010 (4) WB LR 707 : 2010 (4)

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 [s 2] Definitions.—

RCR (Civil) 281 : 2010 (5) RAJ 447 : 2010 (2) DNJ [SC] 723 : 2010 (2) WLC (SC) Civil 539 : (2010) 6
Scale 682 [LNIND 2010 SC 599] : (2010) 3 SCC (Civil) 75 : 2010 (3) CPJ 40 .

290 (1941) 69 LL Rep 35 KB.

291 (1941) 69 LL Rep 35 KB.

292 T Appu v Divisional Manager, National Insurance Co Ltd, Coimbatore, AIR 2011 Ker 180 [LNIND
2011 KER 473] : 2012 (7) RCR (Civil) 2726 (Ker) (DB).

293 S Bhattacharjee v Sentinel Assurance Co Ltd, AIR 1955 Cal 594 [LNIND 1955 CAL 21] : (1956)
26 Com Cas 1 : ILR (1957) 1 Cal 7 .

294 Vijayakumar Motilal v New Zealand Insurance Co Ltd, 56 Bom LR 341 : (1954) 24 Com Cas 49 :
AIR 1954 Bom 347 [LNIND 1953 BOM 14] .

295 T G Rajan v Asiatic Government Security Life Assurance Co Ltd, (1938) 2 MLJ 1020 [LNIND
1938 MAD 102] : 48 MLW 746 : 180 IC 156 : AIR 1939 Mad 159 .

296 Brindarani Debi v Co-operative Assurance Co Ltd, ILR (1944) 1 Cal 101 : 211 IC 450 : AIR
1944 Cal 1 ; Chandmull Jain v General Assurance Society Ltd, 67 CWN 69.

297 Samuel L Levy v Assicurazioni General, 190 IC 843 : AIR 1940 PC 199 : 1940 AC 791 .

298 Rogers v Whittaker, (1917) 1 KB 942 .

299 International Airports Authority Employees Union v International Airports Authority of India,
(2001) 1 SCC 205 [LNIND 2000 SC 1812] : AIR 2001 SC 276 [LNIND 2000 SC 1812] .
300 United Engineering Co Raipur v Oriental Insurance Company Ltd Raipur, (Chhat) AIR 2011
Chhat 47 .

301 Jai Narain Parasrampuria (Dead) v Pushpa Devi Saraf, (2006) 7 SCC 756 [LNIND 2006 SC 644]
.

302 See T Lakshmipathi v P Nithyananda Reddy, (2003) 5 SCC 150 [LNIND 2003 SC 372] : AIR
2003 SC 2427 [LNIND 2003 SC 372] paras 19 to 24.

303 United Engineering Co Raipur v Oriental Insurance Company Ltd Raipur, AIR 2011 Chhat 47 .
304 United Engineering Co Raipur v Oriental Insurance Company Ltd Raipur, AIR 2011 Chhat 47 .

305 Shaw v Robberds, (1837) 6 Ad & Ad & El 75 (84), per Lord Denman, CJ.

306 T Appu v Divisional Manager, National Insurance Co Ltd, Coimbatore, AIR 2011 Ker 180 [LNIND
2011 KER 473] : 2012 (7) RCR (Civil) 2726 .

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 [s 2] Definitions.—

307 Cornish v Accident Insurance Co, (1889) 23 QBD 453 .

308 Ghoki Mal Hukum Chand v Great American Insurance Co Ltd, 62 Punj LR 241 : 1960 Punj 523;
see Planters’ Airways Co Ltd v New India Assurance Ltd, 68 CWN 568 where the implications of the
indemnity were explained.

309 National Insurance Co Ltd v Ashok Kumar Bararoo, AIR 2003 J&K 9 : 2010 (4) JKJ 474 (J&K)
(DB).

310 Chandmull Jain v General Assurance Society Ltd, 63 CWN 367 : AIR 1959 Cal 558 [LNIND 1958
CAL 112] : (1959) 29 Com Cas 27 ; see also Chandumull v General Assurance Society Ltd, 67 CWN 69.

311 T T Maurice v Goldsbrough Mart and Co, (1939) AC 452 : AIR 1939 PC 195 ; see also
Chandumull v General Assurance Society Ltd, 67 CWN 69.

312 T T Maurice v Goldsbrough Mart and Co, (1939) AC 452 : AIR 1939 PC 195 . See also
Planters’ Airways Co Ltd v New India Assurance Ltd, 68 CWN 568, the case of a bailee assured suffering
no loss from destruction of bailed goods by fire.

313 Azimuddin v Hercules Insurance Co, 54 Bom LR 773 : AIR 1953 Bom 61 .

314 Major B A Chopra v New Zealand Insurance Co, AIR 1967 Cal 35 [LNIND 1966 CAL 79] (38) :
1967 ACJ 53 : ILR (1967) 2 Cal 639 [LNIND 1966 CAL 79] , where the price of motor car to be insured
was held a material fact to be disclosed.

315 Vijayakumar Motilal v New Zealand Insurance Co Ltd, 56 Bom LR 341 : (1954) 24 Com Cas 49
: AIR 1954 Bom 347 [LNIND 1953 BOM 14] .

316 Rohini Nandan Goswami v Ocean Accident and Guarantee Corporation Ltd, AIR 1960 Cal 696
[LNIND 1960 CAL 73] : (1961) 31 Com Cas 17 . See Chopra, Major B A Chopra v New Zealand
Insurance Co, AIR 1967 Cal 35 [LNIND 1966 CAL 79] (38) : 1967 ACJ 53 : ILR (1967) 2 Cal 639
[LNIND 1966 CAL 79] , a case of motor insurance.

317 Lakshmi Insurance Co Ltd v Bibi Padmawati, AIR 1961 Punj 253 : 63 Pun LR 251 : ILR (1961) 1
Punj 553 .

318 Major B A Chopra v New Zealand Insurance Co, AIR 1967 Cal 35 [LNIND 1966 CAL 79] (38) :
1967 ACJ 53 : ILR (1967) 2 Cal 639 [LNIND 1966 CAL 79] .

319 New India Assurance Company Limited, Trivandrum v Syed Mohammed, Anjalipura, AIR 1991
Ker 368 [LNIND 1991 KER 445] : 1992 (1) Civ LJ 495 : 1992 (1) TAC 506 .

320 Vijayakumar Motilal v New Zealand Insurance Co Ltd, 56 Bom LR 341 : (1954) 24 Com Cas 49 :
AIR 1954 Bom 347 [LNIND 1953 BOM 14] .

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 [s 2] Definitions.—

321 (1849) 6 M and W 224.

322 Corpus Juris Secundum, vol 44, p 870.

323 Halsbury’s Laws of England, 4th Edn, vol 25, para 633, p 628.

324 Mac Glllivray: Insurance Law, vol I, 5th Edn, pp 380-381.

325 Guana Sundaram v Vulcan Insurance Co Ltd, 9 Rang 452 : 134 1C 221 : 1931 Rang 210.

326 TT Maurice v Goldsbrough Mart and Co, 1939 AC 452 : AIR 1939 PC 195 .

327 Vijayakumar Motilal v New Zealand Insurance Co Ltd, 56 Bom LR 341 : (1954) 24 Com Cas 49 :
AIR 1954 Bom 347 [LNIND 1953 BOM 14] . See Planters Airways v New India Assurance Ltd, 68 CWN
368, where a bailee was held to have an insurable interest.

328 Goulstone v Royal Insurance Co, (1858) 1 F & F 276; Griffiths v Fleming, (1909) 1 KB 805
(CA) (815).

329 Macaura v Northern Assurance Co, 1925 AC 619 : 133 LT 152 : 94 LJ PC 154.

330 Castellain v Preston, 49 LT 29 : 52 LJQB 366 : (1883) 11 QBD 380 (CA) (398).

331 Trotter v Watson, (1869) LR 4 CP 434 (444).

332 Westminster Free Office v Glasgow Providing Investment Society, (1888) 13 App Cas 699
(708) (HL).

333 North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co, 35 LT
231 : 45 LJ Ch 548 : (1877) 5 Ch D 569 (CA) (583).

334 Marks v Hamilton, (1852) 7 Ex 323 .

335 Pullar v Glover, (1810) 12 East 124.

336 Snowwhite Food Product (Private) Ltd v Sohanlal Bagla, AIR 1964 Cal 209 .

337 Macaura v Northern Assurance Co, 1925 AC 619 : 133 LT 152 : 94 LJ PC 154.

338 Mac Gillivray : Insurance Law, vol I, 5th Edn, p 389. See also Halsbury’s Laws of England, 4th
Edn, vol 25, pp 328.

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 [s 2] Definitions.—

339 Corpus Juris Secundum, vol 44, pp 879-883.

340 See Colinvaux’s Law of Insurance, 7th Edn, para 2-01.

341 Radiant Overseas Pvt Ltd v Insurance Regulatory and Development Authority of India, 2012 AIR
CC 3041 (Del) (DB).

342 General Assurance Society Ltd v Chandmull Jain, (1966) 36 Com Cas 468 : (1966) 2 Com LJ 1 :
(1966) 2 SCJ 101 [LNIND 1966 SC 42] : (1966) 2 SCA 219 [LNIND 1966 SC 42] : AIR 1966 SC 1644
[LNIND 1966 SC 42] (1648-1652); Oriental Insurance Co Ltd v Sony Cheriyan, (1999) 6 SCC 451
[LNIND 1999 SC 715] : AIR 1999 SC 3252 [LNIND 1999 SC 715] : 1999 AIR SCW 3226 and United
India Insurance Co Ltd v Harchand Rai Chandan Lal, (2004) 8 SCC 644 [LNIND 2004 SC 970] : AIR
2004 SC 4794 [LNIND 2004 SC 970] : 2004 AIR SCW 5481 and Vikram Greentech (I) Ltd v New India
Assurance Co Ltd, 2009 (2) RCR (Civil) 817 : 2009 (3) RAJ 131 : (2009) 5 SCC 599 [LNINDORD 2009
SC 432] : AIR 2009 SC 2493 [LNINDORD 2009 SC 432] : (2009) 5 Scale 183 [LNINDORD 2009 SC
432] : 2009 (1) WLC (SC) Civil 703 : 2009 DNJ [SC] 578.

343 1989 ACC CJ 816 : (1989) 1 ACC 451 (Del).

344 (1992) 2 ACC CJ 650.

345 Oriental Insurance Co Ltd v Rukminibai, 1994 (2) ACJ 811 : AIR 1995 Kant 18 [LNIND 1994
KANT 47] : 1994 (1) TAC 555 : 1995 (1) ACC 31 : 1994 (2) Civil LJ 236 : 1994 (2) Kant LJ 138 (Kant)
(DB).

346 Vikram Greentech (I) Ltd v New India Assurance Co Ltd, 2009 (2) RCR (Civil) 817 : 2009 (3)
Recent Apex Judgments (RAJ) 131 : (2009) 5 SCC 599 [LNINDORD 2009 SC 432] : AIR 2009 SC 2493
[LNINDORD 2009 SC 432] : (2009) 5 Scale 183 [LNINDORD 2009 SC 432] : 2009 (1) WLC (SC) Civil
703 : 2009 DNJ [SC] 578.

347 Life Insurance Corporation of India v Raja Vasireddy Komalavalli Kamba, AIR 1984 SC 1014
[LNIND 1984 SC 94] : (1984) 2 SCC 719 [LNIND 1984 SC 94] : (1984) 2 SCWR 130 .

348 Life Insurance Corporation of India v Raja Vasireddy Komalavalli Kamba, AIR 1984 SC 1014
[LNIND 1984 SC 94] : (1984) 2 SCC 719 : (1984) 2 SCWR 130 .

349 S R Kharidia v Max New York Life Insurance Co Ltd, 2010 (83) ACJ 919 : AIR 2009 Guj 57
[LNIND 2008 GUJ 358] : 2010 (2) TAC 880 : 2009 (4) ACC 643 (Guj) (DB).

350 Life Insurance Corporation of India v Raja Vasireddy Komalavalli Kamba, (1984) 2 SCC 719
[LNIND 1984 SC 94] : AIR 1984 SC 1014 [LNIND 1984 SC 94] : (1984) 2 SCWR 130 .
351 S R Kharidia v Max. New York Life Insurance Co Ltd, 2010 (83) ACJ 919 : AIR 2009 Guj 57
[LNIND 2008 GUJ 358] : 2010 (2) TAC 880 : 2009 (4) ACC 643 (Guj) (DB) and Elsa Tody Phillip,
Kelachandra v Manager (PS of Claims), LIC of India, Kottayam (NCDRC), 2009 (1) All LJ 279.

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 [s 2] Definitions.—

352 Insure Policy Plus Services (India) Pvt Ltd v Life Insurance Corpn of India, 2008 AIHC 863 :
2007 (3) BCR 98 : 2007 (3) All MR 462 : 2008 (1) AIR Bom R 575 : 2007 (79) SCL 583 (Bom) (DB).

353 Prasanna Kumar Acharya v Divisional Manager, Oriental Insurance Co Ltd, (Orissa), SA No. 420
of 2001, decided on 10 April 2019.

354 Indian Trade and General Insurance Co v Bhailal, 55 Bom LR 874 : AIR 1954 Bom 148 [LNIND
1953 BOM 57] .

355 Ram Singh v Century Insurance Co Ltd, 36 CWN 1101 : 60 Cal 332 : 142 IC 505 : AIR 1933 Cal
170 .

356 Rogers v Equitable Mutual, (1897) 103 Iowa 337.

357 City Bank N A v Standard Chartered Bank, AIR 2003 SC 4630 [LNIND 2003 SC 857] : 2003 AIR
SCW 5434 : (2004) 1 SCC 12 [LNIND 2003 SC 857] .

358 Allahabad Jal Sansthan v State of Uttar Pradesh, 2004 (4) RCR (Civil) 847 : AIR 2004 All 366 :
2004 All LJ 3272 : 2004 All LJ 3272 : 2004 (3) All WC 2327 (All) (DB).

359 Allahabad Jal Sansthan v State of Uttar Pradesh, 2004 (4) RCR (Civil) 847 : AIR 2004 All 366 :
2004 All LJ 3272 : 2004 All LJ 3272 : 2004 (3) All WC 2327 (All) (DB).

360 Hari Kishan Das v Guardian Assurance Co Ltd, ILR 56 All 237 : 1934 ALJ 59 : 147 IC 301 : 1933
All 900 .

361 U San Dun v New Zealand Insurance Co Ltd, 153 IC 387 : 1934 Rang 343.

362 Ocean Accident and Guarantee Corporation Co v D K Patkar, 37 Bom LR 304 : 156 IC 634 : AIR
1935 Bom 236 .

363 Fames v Home Insurance, (1876) 94 US 621; Winne v Niagra Fire Insurance Co, (1883) 91 NY
185.

364 Chandmull Jain v General Assurance Society Ltd, 63 CWN 367 : AIR 1959 Cal 558 [LNIND 1958
CAL 112] : (1959) 29 Com Cas 27 .

365 SunFire Office v Hart, (1889) 14 App Cas 98 ; see also MacGillivray: Insurance Law, vol 2,
5th Edn, pp 963-964.

366 General Assurance Society Ltd v Chandmull Jain, AIR 1964 SC 1644 : (1966) 2 SCJ 101 [LNIND
1966 SC 42] : (1966) 2 Com LJ 1.

367 Mayadas Bhagat v Commercial Union Assurance Co Ltd, ILR (1937) 1 Cal 541 : 41 CWN 193 :
169 IC 788.

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 [s 2] Definitions.—

368 Vulcan Insurance Co v Maharaj Singh, AIR 1976 SC 287 [LNIND 1975 SC 380] : 46 Com Cas
110 : ILR (1976) Kant 193 [LNIND 1975 SC 380] : (1976) 1 SCC 943 [LNIND 1975 SC 380] : (1976) 2
SCR 62 [LNIND 1975 SC 380] .

369 (1856) 25 LJ Ex 308 : 5 HLC 811.

370 18th Edn, pp 57-53.

371 Eagle State and British Dominions Insurance Co v Dinanath, ILR 47 Bom 509 : AIR 1923 Bom
249 .

372 AIR 1976 SC 287 [LNIND 1975 SC 380] (293-294) : 46 Com Cas 110 : ILR (1976) Kant 193
[LNIND 1975 SC 380] : (1976) 1 SCC 943 : (1976) 2 SCR 62 [LNIND 1975 SC 380] .

373 Vide Baroda Spinning and Weaving Co Ltd v Satya Narayan Marine and Fire Insurance Co Ltd,
ILR 38 Bom 344 : AIR 1914 Bom 225 (2); Dawood T Mohd. Bros v Queensland Insurance Co Ltd, AIR
1949 Cal 390 : ILR (1945) 1 Cal 638 ; Ruby General Insurance Co Ltd v Bharat Bank Ltd, AIR 1950 EP
352 .
374 Wazir Chand Mahajan v Union of India, (1967) 1 SCR 303 [LNIND 1966 SC 178] (308) : AIR
1967 SC 990 [LNIND 1966 SC 178] (993).
375 Jagadhatri Bhandar and Jagadhatri Oil Mills v Commercial Union Assurance Co Ltd, AIR 1979 Cal
56 [LNIND 1978 CAL 458] (62) : 83 Cal WN 162 : 1979 Cal HN 36.

376 Bejay Lal Mukherjee v New India Assurance Co Ltd, 41 CWN 339 : 168 IC 224 : AIR 1936 Cal
550 .

377 See Scott v Avery, (1856) 5 HLC 811; Spurrier v La Cloche, (1902) AC 446 : 71 LJPC 101;
Atlantic Shipping Co v Dreyfus, (1922) 2 AC 255 ; Joseph Crosfield and Sons v Manchester Ship
Canal, (1905) AC 421 ; and also MacGillivray: Insurance Law, vol 2, 5th Edn, pp 964-975.

378 Vijayakumar Motilal v New Zealand Insurance Co Ltd, 56 Bom LR 341 : (1954) 24 Com Cas 49 :
AIR 1954 Bom 347 [LNIND 1953 BOM 14] .

379 Hercules Insurance Co v Hunter, (1835) 14 S 147 : (1836) 14 S 1137.

380 See Kameshwar Rao’s Law of Insurance, p 258, where the question was thoroughly discussed.

381 Abasand Oils Ltd v Boiler Inspection and Insurance Co, AIR 1950 PC 39 .

382 General Assurance Society v Md. Salim, AIR 1965 All 561 .

383 Halsbury’s Laws of England, 4th Edn, vol 25, pp 337, 338. See also Kameshwar Rao’s Law of
Insurance, pp 234, 235 for further particulars.

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 [s 2] Definitions.—

384 Kanahya Lal Lohia v Assicurazioni General, ILR (1938) 2 Cal 400 : 182 IC 873 : AIR 1939 Cal
105 .

385 Abdul Majid v Motor Union Insurance Co Ltd, 40 PLR 549 : 178 IC 35 : AIR 1938 Lah 168 .

386 National Indian Life Insurance Co Ltd v Mahadevan, ILR 56 Mad 980 : 65 MLJ 324 : 38 MLW 327
: (1938) MWN 968 : 147 IC 458 : AIR 1933 Mad 680 [LNIND 1933 MAD 27] .

387 Annapurnabai Ghate v Hindusthan Co-operative Insurance Society Ltd, ILR (1943) Nag 253 :
1942 NLJ 380 : 203 IC 193 : 1943 Nag 9; see also Sun Life Assurance Co Ltd v Nilratan Mookherjee,
ILR (1938) 2 Cal 608 : 42 CWN 1197 : 68 CLJ 131 : 180 IC 560 : AIR 1938 Cal 693 .

388 Mildway v Folgham, (1797) 3 Ves 471.

389 Steel v Phoenix Insurance, (1892) 51 Fed Rep 715.

390 See Pitt v Laming, (1814) 4 Camp 73. See Sterling General Insurance Co Ltd, New Delhi v Lala
Bahali Rampuri, AIR 1966 All 385 [LNIND 1965 ALL 120] : 37 Com Cas 369, for a case where the
insured and the Bank to which the insured goods were pledged were both entitled to policy money.

391 Central Bank of India Ltd v Guardian Assurance Co Ltd, 64 CLJ 90 : 44 MLW 78 : 1936 MLW 812
: 162 IC 539 : AIR 1936 PC 179 .

392 Dowsons Bank Ltd v Vulcan Insurance Co Ltd, 39 CWN 270 : 60 CLJ 551 : 37 Bom LR 141 :
1935 ALJ 51 : 68 MLJ 99 : 41 MLW 160 : 153 IC 311 : 37 PLR 217 : 13 Rang 63 : AIR 1935 PC 1 ; see
also General Assurance Society Ltd v Met Sabir, AIR 1965 All 561 .

393 Guardian Assurance Co Ltd v Rustamji Co, 162 IC 443.

394 Ram Singh v Century Insurance Co Ltd, ILR 60 Cal 332 : 36 CWN 1101 : AIR 1933 Cal 170 .

395 Universal Fire and General Insurance Co Ltd v Shup Shin Htai, ILR 12 Rang 312 : 154 IC 53 :
1934 Rang 261; New India Rubber Works (P) Ltd v Oriental Fire and General Insurance Co, (1969) 1
Comp LJ 153 .

396 Commissioner of Income-tax, Bombay City, Bombay v Bipinchandra Maganlal and Co Ltd,
Bombay, AIR 1961 SC 1040 [LNIND 1960 SC 274] : (1961) 2 SCR 493 [LNIND 1960 SC 274] : 1961
(2) SCJ 649 .

397 (1959) 1 E and E 853 : 28 LJ QB 275 : 120 ER 1131.

398 Commissioner of Income-tax, Madras v Kasturi and Sons Ltd, AIR 1999 SC 1275 : 1999 AIR
SCW 960 : (1999) 3 SCC 346 [LNIND 1999 SC 261] .

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 [s 2] Definitions.—

399 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653] : JT 1995 (4) SC 366 [LNIND 1995 SC 653] : 1995 AIR SCW 2834.

400 (1963) 2 All ER 1078 .

401 (1967) 1 All ER 527 .

402 (1965) 1 All ER 596 .

403 New India Assurance Co v Radhey Shyam Moti Lal Khandelwal, 1974 Mah LJ 319 [LNIND 1973
BOM 71] : AIR 1974 Bom 228 [LNIND 1973 BOM 71] (236).

404 See 44 CJS 474-481.

405 (1880) 18 Ch D 1 .

406 Commissioner of Income-tax, Madras v Kasturi and Sons Ltd, AIR 1999 SC 1275 : 1999 AIR
SCW 960 : (1999) 3 SCC 346 [LNIND 1999 SC 261] .
407 United India Insurance Company v Manubhai Dharmasinhbhai Gajera, 2008 (5) All MR 928 :
(2008) 10 SCC 404 [LNIND 2008 SC 1253] : JT 2008 (5) SC 457 [LNIND 2008 SC 1253] : (2008) 7
Scale 377 [LNIND 2008 SC 1253] : (2008) 9 SCR 778 : AIR 2009 SC 446 [LNIND 2008 SC 1253] :
2008 ACJ 2399 : 2009 (1) TAC 25 .
408 Purnima Prasad v Oriental Insurance Co Ltd, AIR 2006 Pat 158 : 2007 ACJ 2213 : 2007 (1) AIR
Jhar R. 490 : 2007 (4) ACJ 2213 : 2006 (2) PLJR 659 : 2006 (44) AIC 792 .

409 Section 2(f) of the Insurance Regulatory and Development Authority (Registration of Indian
Insurance Companies) Regulations, 2000.

410 See Chitty on Contracts, 24th Edn, para 3491 at p 707.

411 United India Insurance Company Ltd v Mohanlal Aggarwal, AIR 2004 Guj 191 : 2004 (3) TAC
634 : 2004 (3) ACJ 1657 : 2004 (1) GLR 637 : 2004 (53) SCL 330 .

412 Purnima Prasad v Oriental Insurance Co Ltd, AIR 2006 Pat 158 : 2007 ACJ 2213 : 2007 (1) AIR
Jhar R. 490 : 2007 (4) ACJ 2213 : 2006 (2) PLJR 659 : 2006 (44) AIC 792 .

413 United India Insurance Company v Manubhai Dharmasinhbhai Gajera, 2008 (5) All MR 928 :
(2008) 10 SCC 404 [LNIND 2008 SC 1253] : JT 2008 (5) SC 457 [LNIND 2008 SC 1253] : (2008) 7
Scale 377 [LNIND 2008 SC 1253] : (2008) 9 SCR 778 : AIR 2009 SC 446 [LNIND 2008 SC 1253] :
2008 ACJ 2399 : 2009 (1) TAC 25 .
414 Skandia Insurance Co Ltd v Kokilaben Chandravadan, 1987 (2) SCC 654 [LNIND 1987 SC 359] :
AIR 1987 SC 1184 [LNIND 1987 SC 359] : AIR 1996 SC 2054 [LNIND 1996 SC 997] .

415 Halsbury, LC in Glynn v Margeston and Co, 1893 AC 351 .

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 [s 2] Definitions.—

416 Hari Om Agarwal v Oriental Insurance Co Ltd, AIR 2008 Del 29 [LNIND 2007 DEL 689] : 2009
ACJ 891 : 2007 (98) DRJ 246 .
417 United India Insurance Company v Manubhai Dharmasinhbhai Gajera, 2008 (5) All MR 928 :
(2008) 10 SCC 404 [LNIND 2008 SC 1253] : JT 2008 (5) SC 457 [LNIND 2008 SC 1253] : (2008) 7
Scale 377 [LNIND 2008 SC 1253] : (2008) 9 SCR 778 : AIR 2009 SC 446 [LNIND 2008 SC 1253] :
2008 ACJ 2399 : 2009 (1) TAC 25 .

418 V N Shrikhande v Anita Sena Fernandes, AIR 2011 SC 212 [LNINDU 2010 SC 1] : 2010 AIR
SCW 6630 : (2011) 1 SCC 53 [LNINDU 2010 SC 1] (63).

419 397 Pa 282 : 154 A 2d 788 (1959).

420 149 W Va 783 : 144 SE 2d 156 (1965).

421 86 Idaho 485 : 389 P 2d 224 (1964).

422 304 F 2d 234 (5th Cir 1962).

423 LEXSEE 24 NY 2d 427.

424 See V N Shrikhande v Anita Sena Fernandes, AIR 2011 SC 212 [LNINDU 2010 SC 1] : 2010 AIR
SCW 6630 : (2011) 1 SCC 53 [LNINDU 2010 SC 1] (63-66).

425 Sub-section (b) of section 2 of the Securities Contracts (Regulation) Act, 1956.

426 United India Insurance Company v Manubhai Dharmasinhbhai Gajera, (SC) 2008 (5) ALL MR
928 : (2008) 10 SCC 404 [LNIND 2008 SC 1253] : JT 2008 (5) SC 457 [LNIND 2008 SC 1253] : (2008)
7 Scale 377 [LNIND 2008 SC 1253] : (2008) 9 SCR 778 : AIR 2009 SC 446 [LNIND 2008 SC 1253] :
2008 ACJ 2399 : 2009 (1) TAC 25 .
427 Corpus Juris Secundum, vol 44, pp 498 and 499.

428 (1933) 47) LI LR 356-358.

429 See section 4(1)(3) and (2) and Illustration. Companies Act, 1956, as amended by the
Amendment Act LXV of 1960.

430 11 and 12 Geo. 6, C. 38.

431 Section 154 of the Act and Palmer’s Company Law, 20th Edn, p 609. See also Iyengar’s
Companies Act, 2nd Edn, vol I, p 73.
432 Childs v Firemen’s Insurance Co, 69 NW 141 : 66 Mina 393 : 35 LRA 99.
433 Webster’s New International Dictionary.
434 34 and 35, Vict., c. XXI.
435 122 Geo. 5, c. LXII.

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 [s 2] Definitions.—

436 Halsbury’s Laws of England, vol 25, 4th Edn, para 19, at p 22 and Wilson v Salamandra
Assurance Co, (1903) 88 LT 96 .
437 Mackie v European Assurance Society, (1869) 21 LT 102 ; Thompson v Adams, (1889) 23 QBD
361 , per Mathew, J.; Re: Yager and Guardian, (1912) 108 LT 38 ; Murfitt v Royal, (1922) 38 TLR
334 ; see especially General Assurance Society Ltd v Chandmull Jain, (1966) 36 Com Cas 468 : (1966)
2 Com LJ 1 : (1966) 2 SCJ 101 [LNIND 1966 SC 42] : (1966) 2 SCA 219 [LNIND 1966 SC 42] : AIR
1966 SC 1644 [LNIND 1966 SC 42] (1648-1652), where the effect, implications and use of a cover
note are fully explained.
438 Thompson v Adams, (1889) 23 QBD 361 ; Haase v Evans, (1934) 48 LI LR 131; Grover v
Mathews, (1910) 2 KB 401 .
439 Thompson v Adamss, (1889) 23 QBD 361 .
440 Lishman v Northern Maritime, (1875) LR 10 CP 179; Re, Yager and Guardian, (1912) 108 LT 38
.
441 State Distributing Corporation v Travellers’ Indemnity Co, 30 SE 2d 377; Fort Valley Coca-Cola
Bottling Co v Lumbermen’s Mutual Casualty Co, App 24 SE 2d 846 quoted in Corpus Juris Secundum,
vol 44, p 497.
442 Halsbury’s Laws of England, 4th Edn, vol 8, para 421, p 318.
443 Bell v Kennedy, (1868) LR 1 HL (SC) 307 (319).
444 American Reinstatement, para 9, quoted in Basu’s Constitution, 4th Edn, vol, p 83.
445 Jopp v Wood, (1865) 4 De GJ and S 616; Udny v Udny, (1869) LR 1 SC and Div 441.
446 Bowie (or Ramsay) v Liverpool Royal Infirmary, (1930) AC 588; Bell v Kennedy, (1868) LR 1
SC & Div 307; Cheshire: Private International Law, 1947 pp 166-167; Moorhouse v Lord, (1863) 10 HLC
272; May v May, (1943) 2 All ER 146 .
447 (1954) 1 SCR 697 : 1954 SCA 1305 : 1955 SCJ 4 [LNIND 1954 SC 126] : AIR 1955 SC 36
[LNIND 1954 SC 126] (39).
448 Gasque v IRC, (1940) 2 KB 80 .
449 See Dicey: Conflict of Laws, 5th Edn, p 136.
450 New York Life Insurance Co v Public Trustee, (1924) 2 Ch 101 ; but see Udny v Udny,
(1869) LR 1 SC and Div 441, where it has been said that a person cannot have two domiciles at the
same time.
451 Vanguard Fire and General Insurance Co Ltd v Fraser and Ross, Chartered Accountants, ILR
1959 Mad 681 [LNIND 1959 MAD 4] : 72 MLW 302 : (1959) 2 MLJ 104 [LNIND 1959 MAD 4] : 1959 Mad
336; see also AIR I960 SC 971 post.
452 Smith v Anderson, (1880) 50 LJ Ch 39 : 15 Ch D 247.
453 Central Indian Mining Co v Society Colontale Anverscise, (1920) 1 KB 753 : 89 LJKB 760.
454 Liquidators of Pursa Ltd v CIT, AIR 1954 SC 253 [LNIND 1954 SC 20] : 1954 SCJ 294 [LNIND
1954 SC 20] : 1954 SCR 767 [LNIND 1954 SC 20] .
455 Narain Swadeshi Weaving Mills v Commissioner of E.P.T., AIR 1955 SC 176 [LNIND 1954 SC
144] : 1955 SCJ 30 : 1955 SCA 722 .
456 Executors of the Estate of Lala Shankar Sah v CIT, (1945) 13 ITR 500 (Lab). See Habib
Insurance Company v Commissioner of Income-tax, Bombay, (1968) 38 Com Cas 475 : (1968) 2 Com
LJ 82, where the test to determine whether one Insurance Company was carrying on a business other
than insurance business was laid down.
457 Isaq Mohammed Habibji v The United India Fire and General Insurance Ltd, AIR 1978 Guj 46
(47).
458 Narchinva V Kamat v Alfredo Antonio Deo Martins, AIR 1985 SC 1281 [LNIND 1985 SC 148] :
(1985) 2 SCC 574 [LNIND 1985 SC 148] : 1985 ACJ 397 .

459 Section 182 of the Indian Contract Act, 1872.

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 [s 2] Definitions.—

460 Section 183 of the Indian Contract Act, 1872.

461 Section 184 of the Indian Contract Act, 1872.

462 Section 185 of the Indian Contract Act, 1872.

463 See, however, the Registration Act, 1908 (16 of 1908), section 33; See also the Code of Civil
Procedure, 1908 (5 of 1908), Schedule I, Order III, rule 4; section 186 of the Indian Contract Act, 1872.

464 Leake, p 323, 6th Edn.

465 Story on Agency, p 16.

466 AmritLal v Ram Kunwar, AIR 1962 Punj 325 : ILR (1962) 2 Punj 201 (SB).

467 Vardaji v Chandrappa, 41 Bom 40 (45, 46) : 36 IC 805.

468 Venkataramana v Narasinga, 38 Mad 134; Moitra’s Contract Act, 1872.

469 Gopal Das Agarwal v Serampur Belting Work Ltd, 1970 UJ (SC) 101.

470 Preston and Colinvaux: Law of Insurance, 2nd Edn, 1961, pp 243-44.

471 Strand v Bankers’ Life Insurance Co of Lincoln, 213 NW 349; Picek v Modern Brotherhood of
America, 177 III App 113; Weisguth v Supreme Tribe B H, 194 III App 17; Shernaman v Metropolitan
Life Insurance Co, 62 NE 763 quoted in Corpus Juris Secundum, vol 44 at p 806.

472 Empress Assurance Corporation, v C T Bowring and Co, (1905) 11 Com Cas 107 ; Glasgow
Assurance Corporation v William Symondson and Co, (1911) 104 LT 254 .

473 Ruby S S Corporation Ltd v Commercial Union Assurance Co Ltd, (1933) 150 LT 38 (CA).

474 Hambro v Burnaud, (1904) 2 KB 10 .

475 Corpus Juris Secundum, vol 44, p 802 and cases cited therein.

476 Section 191, Indian Contract Act, IX of 1872.

477 Section 190, Indian Contract Act.

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 [s 2] Definitions.—

478 De Bussche v Alt, (1878) 8 Ch D 286 : 47 LJ Ch 381; Lyon v Jerome, (1841) 37 Am Dec 271;
Hole v Sittingbourne Co, (1861) 158 ER 201 ; see also Dadi Bhogalingam v Indo-Commercial Bank Ltd,
AIR 1961 AP 346 [LNIND 1960 AP 231] ; Purushottom Haridas v Amruth Ghee Co Ltd, (1960) 2 Andh
WR 115 : 1960 Andh LT 524; Amritlal v Bhagwandas, ILR 1937 Bom 454 : AIR 1939 Bom 435 ;
Maninder Das v Mohan Lal, 1939 ALJ 37 : AIR 1939 All 188 ; Punjab National Bank v Hukam Chand,
1938 Pesh 63.

479 Aetna Insurance Co v Lester, 154 SO 706 : 170 Miss 353.

480 Bansch v West Virginia Insurance Co, 185 SE 201 : 117 W Va 110.

481 Bozich v Metropolitan Life Insurance Co, 127 P 2d 499 in case of a soliciting agent.

482 American Life Insurance Co of Alabama v Aladdin Temple Ben. Assn., 191 SO 903; McDonald v
Equitable’s Life Assurance Society, 169 NW 352.

483 Inland Revenue Commissioner v Desoutter Bros. Ltd, 1946 (1) All ER 58 (81).
484 Re, Wrogg, (1919) 2 Ch 58 .
485 See Wamanlal Chhotalal v Scindia Steam Navigation Co Ltd, AIR 1944 Bom 131 : ILR 1944
Bom 247 .
486 Section 2(46) of the Companies Act, 1956.
487 See Palmer’s Company Law, 20th Edn, p 271.

488 See section 2(12) of the Companies Act, 1956.

489 See Pearl Assurance Co Ltd v West Midland Gas Board, (1950) 2 All ER 844.

490 Levy v Abercorrts Co, (1888) 37 Ch D 260 ; British India Steam Navigation Co v Commr. of
Inland Revenue, (1881) 7 QBD 165 : M 44 LT 378 : 50 LJ QB 517.
491 (1887) 36 Ch D 219 .
492 Palmer’s Company Law, 20th Edn, pp 367-368.

493 Chetumal v Noorbhoy, 107 IC 213 : 1928 Sind 89.

494 Chetumal v Noorbhoy, 107 IC 213 : 1928 Sind 89.
495 See Re: Rayner, (1904) 1 Ch 176 .
496 Section 2(2) of the Public Debt Act, 1944.
497 Section 2(4) of the Public Debt Act, 1944.
498 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653] : JT 1995 (4) SC 366 [LNIND 1995 SC 653] : 1995 AIR SCW 2834.
499 See section 2(f) of The Insurance Regulatory and Development Authority Act, 1999.

500 Chandulal Harjivandas v CIT, Gujarat, AIR 1967 SC 816 [LNIND 1966 SC 260] : 1967 (1) SCJ
292 [LNIND 1966 SC 260] : (1967) 1 SCWR 678 [LNIND 1966 SC 260] .

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 [s 2] Definitions.—

501 G F Pension Fund v CIT, West Bengal, (1955) 1 SCR 822 [LNIND 1954 SC 152] : 1955 SCJ 174
[LNIND 1954 SC 152] : AIR 1955 SC 50 [LNIND 1954 SC 152] .

502 See Vijayakumar Motilal v New Zealand Insurance Co Ltd, 56 Bom LR 341 : (1954) 24 Com Cas
49 : AIR 1954 Bom 347 [LNIND 1953 BOM 14] . For reference to English law and precedents, see V R
Mohanakrishnan v Chimanlal Desai and Co, AIR 1960 Mad 452 [LNIND 1959 MAD 189] ; Binapani Raja v
Rabindranath Sarkar, AIR 1959 Cal 213 [LNIND 1958 CAL 199] ; Nirmal Kumar Jain v Satya Prakash
Jain, AIR 1961 All 109 [LNIND 1960 ALL 122] . For reference to decisions of the United States and
Australian Courts; see Roshan Lal v Emperor, ILR 1945 All 782 : AIR 1946 All 161 ; Tan Bug Jain v
Collector of Bombay, ILR 1946 Bom 517 : AIR 1946 Bom 216 ; Champakaram Dorairajan v State of
Madras, ILR 1951 Mad 149 : AIR 1951 Mad 120 [LNIND 1950 MAD 92] (FB); Sheoshankar v State
Government of Madhya Pradesh, 1952 Cr LJ 1140 : ILR 1951 Nag 646 : AIR 1951 Nag 58 (FB).

503 Shobha Sharma v Keshav Narain, 1978 All WC 554 (556) (All).
504 Ellison v Straw, 97 NW 168.
505 Moreau v Massachusetts Mutual Life Insurance Co, DCNY 7 F Supp 102.
506 Ritter v Mutual Life Insurance Co of New York, 18 St 800.
507 Life Insurance Corporation of India v United Bank of India Ltd, AIR 1970 Cal 513 [LNIND 1970
CAL 67] : 41 Com Cas 603 : ILR (1970) 2 Cal 85 [LNIND 1970 CAL 67] .
508 State v Citizens Benevolent Association, 6 Mo App 163 : 44 CJS 484-485.
509 State v Merchants’ Exchange Mutual Benevolent Society, 72 Mo App 146.
510 44 CJS 486.
511 See Re, Webb, Barclays Bank, Ltd v Webb, 1941 Ch 225 : (1941) 1 All ER 321 ; Halsbury’s
Laws of England, 4th Edn, vol 25, para 587, p 307. Webb’s case has been followed in Re: Foster’s
Policy, Mennor v Foster, (1966) 1 All ER 432 , where the existence of a trust in favour of life assured
was upheld.

512 See McDougall v Provident Sav. Life Assurance Society, 32 NE 251 : 135 NY 551.

513 See State v Beardsley, 92 NW 472.

514 Parvathy Antherjanam v LIC of India, AIR 1982 Ker 366 [LNIND 1982 KER 166] : 1982 Ker LT
680 [LNIND 1982 KER 166] (DB).

515 Life Insurance Corporation of India v United Bank of India Ltd, AIR 1970 Cal 513 [LNIND 1970
CAL 67] : 41 Com Cas 603 : ILR (1970) 2 Cal 85 [LNIND 1970 CAL 67] .
516 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653] : JT 1995 (4) SC 366 [LNIND 1995 SC 653] : 1995 AIR SCW 2834.
517 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653] : JT 1995 (4) SC 366 [LNIND 1995 SC 653] : 1995 AIR SCW 2834.
518 Corpus Juris Secundum, vol 44, pp 903-904.

519 Insurance Law, vol I, 5th Edn, p 187.

520 Mani Shankar Someshwar Pandya v Allianza Und Stuttgarter Life Insurance Bank Ltd, 42 PLR
801 : 1931 IC 155 : 1941 Lah 33.

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 [s 2] Definitions.—

521 Corpus Juris Secundum, vol 44, pp 906-910; see also Halsbury’s Laws of England, vol 25, 4th
Edn, pp 294-297. See Re, Foster’s Policy, Mennor v Foster, (1966) All ER 432 , a case of father insuring
the life of daughter; Chandmull Harjiwan Das v CIT, Gujarat, AIR 1967 SC 816 [LNIND 1966 SC 260] ,
father insuring his minor sons.
522 See Lemaitre v National Casualty Co, 186 SW 964; Standard Life Accident and Insurance Co v
Carroll, Pa 86 F 567.
523 Tropical Insurance Co Ltd v Zenith Life Assurance Co Ltd, 196 IC 198 : 1941 Lah 68.
524 Shiv Kumar Radhakrishindas v North British & Mercantile Insurance Co Ltd, 166 IC 16 : 1936
Sind 222.
525 See Levy v Scottish Employers’ Insurance Co, (1910) 17 TLR 229 , Statement as to weight and
height; Hemmings v Scepire Life Association, (1905) 1 Ch 365 , Mis-statement of age, Fidelity and
Casualty Co of N Y v Mitchell, (1917) AC 592 (PC), Latent disease; Australian Widows’ Fund Life
Assurance Society v National Mutual Life Association of Australasia, (1914) AC 634 (PC), habits or
pursuits; Yorke v Yorkshire Insurance Co, (1928) 1 KB 662 , Drug habits; Looker v Law Union and
Rock Insurance Co, (1928) 1 KB 554 , Change in health after the proposal and before its acceptance.
526 Great Eastern Life Assurance Co Ltd v Bai Hari, 55 Bom 124 : 32 Bom LR 1671 : 129 IC 744 :
AIR 1931 Bom 146 .
527 Haridasi Debi v Manufacturers’ Life Assurance Co Ltd, ILR (1937) 2 Cal 67 : 41 CWN 941 : 172
IC 310 : AIR 1937 Cal 510 .
528 Allanz Und Stuttgarter Life Insurance Bank Ltd v Hemanta Kumar Das, ILR (1938) 2 Cal 457 :
42 CWN 855 : 178 IC 554 : AIR 1938 Cal 641 .
529 Light of Asia Insurance Co Ltd v Karatoya Debi, 40 CWN 1016 : 67 CLJ 506 : 166 IC 707 : 1936
Cal 437 .
530 Haridasi Debi v Manufacturers’ Life Assurance Co Ltd, ILR (1937) 2 Cal 67 : 41 CWN 941 :
1937 Cal 510 : 172 IC 310.
531 Maung Myat Maung v New India Assurance Co Ltd, 171 IC 631 : 1937 Rang 262.
532 Light of Asia Insurance Co Ltd v Karatoya Debi, AIR 1936 Cal 437 : 166 Ind Cas 707 : (1936)
40 Cal WN 1016.
533 Laksmi Shankar v Gresham Life Assurance Society Ltd, 34 Bom LR 1295 : 140 IC 575 : AIR
1932 Bom 582 .
534 Shiv Kumar Radhakrishindas v North British and Mercantile Insurance Co Ltd, 166 IC 16 : 1936
Sind 222.
535 Life Insurance Corporation of India v Bibi Padmawati, (1967) 2 Com LJ 292.
536 Dhruba Chandra Behera v National Insurance Co Ltd, AIR 2011 Ori 139 : 2012 ACJ 1434 :
2012 (6) RCR (Civil) 941 (Ori) (DB).
537 Vide infra under the provisions of section 45 and Notes thereunder.
538 Allianz Und Stuttgartar Life Insurance Bank Ltd v Hemanta Kumar Das, AIR 1938 Cal 641 : ILR
(1938) 2 Cal 457 .
539 Maneklal Kalidas Shah v Yorkshire Insurance Co Ltd, 41 Bom LR 353 : 182 IC 127 : AIR 1939
Bom 161 .
540 Umarani Bose v Modern India Life Insurance Co Ltd, 171 IC 193 : AIR 1937 Cal 243 .
541 Co-operative Assurance Co Ltd v Sahdev, 38 PLR 405 : 162 IC 150 : AIR 1936 Lah 685 .
542 Abhiramavali Ammal v Official Trustee of Madras, ILR 55 Mad 171 : 62 MLJ 111 : 35 MLW 338 :
141 IC 680 : AIR 1932 Mad 220 [LNIND 1931 MAD 120] ; see also V E R M K Krishnan Chettiar v
Velayee Ammal, ILR (1938) Mad 909 : (1938 ) 2 MLJ 22 [LNIND 1938 MAD 44] : 48 MLW 25 : 177 IC
119 : AIR 1938 Mad 604 [LNIND 1938 MAD 44] (FB).
543 Gresham Life Insurance Society Ltd v Collector of Etawah, ILR 54 All 1026 : 1932 ALJ 1015 :
143 IC 343 : AIR 1933 All 1 [LNIND 1932 ALL 3] .
544 Gresham Life Insurance Society Ltd v Collector of Etawah, ILR 54 All 1026 : 1932 ALJ 1015 :
143 IC 343 : AIR 1933 All 1 [LNIND 1932 ALL 3] .

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 [s 2] Definitions.—

545 Lakshmi Ammal v SunLife Assurance Co, ILR 57 Mad 536 : 66 MLJ 667 : 39 MLW 379 : 1934
MWN 653 : 151 IC 112 : AIR 1934 Mad 264 .
546 National India Life Insurance Co Ltd v Mahadevan, ILR 56 Mad 980 : 65 MLJ 324 : AIR 1933
Mad 680 [LNIND 1933 MAD 27] .
547 Saukunni Menon v Empire of India Life Assurance Co Ltd, 61 MLJ 388 : 34 MLW 643 : 1931
MWN 624 : 134 IC 977 : AIR 1932 Mad 211 .
548 Western India Life Insurance Co Ltd v Asima Sirkar, ILR (1942) 1 Cal 100 : 46 CWN 759 : 203
IC 548 : AIR 1942 Cal 412 . [As to acquisition of surrender value and the claim for a paid-up policy, see
section 113 and Notes thereon, infra].
549 Kiran Sinha v Life Assurance Corporation of India, 1983 Pat 142 (DB), relying on Life Assurance
Corporation, Bombay v Ramdas Agarwal, AIR 1979 Pat 124 : 1979 Pat LJR 232 ; Farquharson v Pearl
Assurance Co Ltd, (1937) 3 All ER 124 .
550 Hiroon Bibi v United India Life Insurance Co, (1946) 2 MLJ 253 [LNIND 1946 MAD 11] : 59 MLW
542 : 1946 MWN 641 : AIR 1947 Mad 122 .
551 Life Insurance Corporation of India v Bibl Padmawati, (1967) 2 Com LJ 292.
552 Hindustan Ideal Insurance Co Ltd v B Joyalakshmamma, AIR1959 AP 562 [LNIND 1958 AP 125]
.
553 Life Insurance Corporation of India v Pushpa P Mansukhani, 1991 ACJ 686 .
554 Hindustan Ideal Insurance Co Ltd v B Joyalakshmamma, AIR 1959 AP 562 [LNIND 1958 AP
125] ; Kiran Sinha v Life Insurance Corporation of India, 1983 ACJ 669 ; see also plea of lapse of policy
after premium not allowed.
555 Benarasi Devi v New India Assurance Co Ltd, 1959 BLJR 425 : 1959 Pat LR 198 : AIR 1959 Pat
540 .
556 T G Rajan v Asiatic Government Security Life Assurance Co Ltd, (1938) 2 MLJ 1020 [LNIND
1938 MAD 102] : 48 MLW 746 : 1938 MWN 1148 : 180 IC 156 : AIR 1939 Mad 159 .
557 Brindarani Debi v Co-operative Assurance Co Ltd, ILR(1944) 1 Cal 101 : 211 IC 450 : AIR
1944 Cal 1 .
558 Hundraj Tolomal v Luxmi Insurance Co Ltd, (1941) Kar 409 : 197 IC 93 : 1941 Sind 209.
559 Daman Anand v Life Insurance Corporation of India, AIR 1983 P&H 238 : ILR (1983) 2 P&H 148
: 1983 ACJ 705 (P&H).
560 4th Edn, vol 25, p 13.
561 Rawle’s Third Revision, vol 2, at p 1619.
562 Commissioner of Wealth-tax, Punjab, Jammu and Kashmir, Chandigarh, Patiala v Yuvraj
Amrinder Singh, AIR 1986 SC 959 [LNIND 1985 SC 387]: 1986 Tax LR 23 : (1985) 4 SCC 608 [LNIND
1985 SC 387].

563 Lakshmi Insurance Co Ltd v Bibi Padmawati, AIR 1961 Punj 253 : 63 Pun LR 251 : ILR (1961)
1 Punj 553 .
564 Central Bank of India, Ltd v Hartford Fire Insurance Co Ltd, (1965) 35 Com Cas 378 : 1965 (1)
SCJ 498 : AIR 1965 SC 1288 ; General Assurance Society Ltd v Chandmull Jain, (1966) 36 Com Cas 468
: (1966) 2 Com LJ 1 : (1966) 2 SCJ 101 [LNIND 1966 SC 42] : (1966) 2 SCA 219 [LNIND 1966 SC 42] :
AIR 1966 SC 1644 [LNIND 1966 SC 42] (1648-1652).
565 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653] : JT 1995 (4) SC 366 [LNIND 1995 SC 653] : 1995 AIR SCW 2834.
566 Gillespie Brothers and Co Ltd v Roy Bowles Transport Ltd, (1973) 1 QB 400 : (1972) 3 WLR
1003 : (1973) 1 All ER 193 .
567 Gillespie Brothers and Co Ltd v Roy Bowles Transport Ltd, (1973) 1 QB 400 : (1972) 3 WLR
1003 : (1973) 1 All ER 193 .

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 [s 2] Definitions.—

568 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653]: JT 1995 (4) SC 366 [LNIND 1995 SC 653]: 1995 AIR SCW 2834.

569 V Raghunadha Rao v State of Andhra Pradesh, (1988) 1 ALT 461 .

570 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653] : JT 1995 (4) SC 366 [LNIND 1995 SC 653] : 1995 AIR SCW 2834.
571 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653] : JT 1995 (4) SC 366 [LNIND 1995 SC 653] : 1995 AIR SCW 2834.
572 Lakshmi Insurance Co Ltd v Bibi Padmawati, AIR 1961 Punj 253 : 63 Pun LR 251 : ILR (1961)
1 Punj 553 .
573 New India Assurance Co Ltd v Tambireddi Subba Raghavareddi, AIR 1961 AP 295 [LNIND 1960
AP 195] : (1961) 31 Com Cas (Ins) 90 .
574 Lakshmi Insurance Co Ltd v Bibi Padmawati, AIR 1961 Punj 253 : 63 Pun LR 251 : ILR (1961)
1 Punj 553 .
575 New India Assurance Co Ltd v Sulochana Chowdhurani, AIR 1962 Assam 65 : (1962) 32 Com
Cas 1029 .
576 S Misra v Mangala Kumari Debi, ILR 25 Pat 253 : 27 Pat LT 263 : 223 IC 609 : AIR 1946 Pat
415 .
577 Shamdas v Savitribai, AIR 1937 Sind 181 : (1937) 7 Com Cas 267 : 170 Ind Cas 225.
578 Northern India Insurance Co v Kanhaya Lal, ILR (1938) Lah 542 : 40 PLR 735 : 178 IC 210 :
AIR 1938 Lah 561 .
579 Lalithambal Ammal v Guardian of India Insurance Co Ltd, (1937) 1 MLJ 735 [LNIND 1936 MAD
294] : 45 MLW 480 : 1937 MWN 301 : 169 IC 481 : AIR 1937 Mad 645 .
580 UOI v Pappu Datter Sarma, AIR 1961 AP 67 [LNIND 1960 AP 113] .
581 V Srinivasan Pillai v Life Insurance Corporation of India, AIR 1977 Mad 381 [LNIND 1976 MAD
211] (383) : (1977) 2 Mad LJ 276 : 47 Com Cas 760.
582 D M Ekanathaprasanna v Life Insurance Corporation of India, 2014 (1) AIR Kar R 701 (Kant).

583 Bhanumati Dayaram Mhatre v Life Insurance Corporation of India, 2009 (1) All MR 81 : 2008
(6) BCR 311 : AIR 2008 Bom 196 [LNIND 2008 BOM 561] : 2010 ACJ 479 : 2008 (72) AIC 393 : 2008
(5) Mh LJ 757 : 2008 (5) AIR Bom R 623 (Bom) (DB).

584 Air India Employees Self Contributory Superannuation Pension Scheme v Kuriakose V Cherian,
AIR 2006 SC 3716 [LNIND 2005 SC 762] : 2006 Lab IC 340 : 2005 AIR SCW 6390.

585 Commissioner of Wealth Tax v P K Banerjee, AIR 1981 SC 401 [LNIND 1980 SC 371] : (1981)
1 SCC 63 [LNIND 1980 SC 371] : 1980 Tax LR 1474 .

586 Commissioner of Wealth Tax v P K Banerjee, AIR 1981 SC 401 [LNIND 1980 SC 371] : (1981)
1 SCC 63 [LNIND 1980 SC 371] : 1980 Tax LR 1474 .

587 Re, Duke of Norfolk Public Trustee v Inland Revenue Commissioner, (1950) 1 Ch 487 .

588 Section 2(e) of the Insurance Regulatory and Development Authority (Registration of Indian
Insurance Companies) Regulations, 2000.

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 [s 2] Definitions.—

589 Air India Employees Self Contributory Superannuation Pension Scheme v Kuriakose V Cherian,
AIR 2006 SC 3716 [LNIND 2005 SC 762] : 2006 Lab IC 340 : 2005 AIR SCW 6390.

590 Sasadhar Chakravarty v UOI, (1996) 11 SCC 1 [LNIND 1996 SC 1815] .

591 Air India Employees Self Contributory Superannuation Pension Scheme v Kuriakose V Cherian,
AIR 2006 SC 3716 [LNIND 2005 SC 762] : 2006 Lab IC 340 : 2005 AIR SCW 6390.

592 Air India Employees Self Contributory Superannuation Pension Scheme V Kuriakose v Cherian,
AIR 2006 SC 3716 [LNIND 2005 SC 762] : 2006 Lab IC 340 : 2005 AIR SCW 6390.

593 CIT v General Family Pension Fund, 22 Com Cas (Ins) 89 : AIR 1953 Cal 299 [LNIND 1951 CAL
245] .

594 Chandulal Harjiwandas v CIT, Gujarat, AIR 1967 SC 816 [LNIND 1966 SC 260] : 1967 (1) SCJ
292 [LNIND 1966 SC 260] : (1967) 1 SCWR 678 [LNIND 1966 SC 260] .

595 Commissioner of Wealth-tax, Punjab, Jammu and Kashmir, Chandigarh, Patiala v Yuvraj
Amrinder Singh, AIR 1986 SC 959 [LNIND 1985 SC 387] : 1986 Tax LR 23 : (1985) 4 SCC 608 [LNIND
1985 SC 387] .
596 Chandulal Harjivandas v CIT, Gujarat, AIR 1967 SC 816 [LNIND 1966 SC 260] : 1967 (1) SCJ
292 [LNIND 1966 SC 260] : (1967) 1 SCWR 678 [LNIND 1966 SC 260] .

597 Air India Employees Self Contributory Superannuation Pension Scheme v Kuriakose V Cherian,
AIR 2006 SC 3716 [LNIND 2005 SC 762] : 2006 Lab IC 340 : 2005 AIR SCW 6390.

598 Commissioner of Wealth Tax, Punjab, Jammu and Kashmir, Chandigarh, Patiala v Yuvraj
Amrinder Singh, AIR 1986 SC 959 [LNIND 1985 SC 387] : 1986 Tax LR 23 : (1985) 4 SCC 608 [LNIND
1985 SC 387] .

599 Durgawati Devi v Life Insurance Corporation of India, Bombay, AIR 1997 All 257 [LNIND 1996
ALL 1147] : 1997 All LJ 1261 : 1998 (1) ACJ 675 .

600 Indian Trade and General Insurance Co Ltd v UOI, 98 CLJ 106 : AIR 1957 Cal 190 [LNIND 1955
CAL 195] .

601 Alliance Assurance Co Ltd v UOI, (1958) 62 CWN 539 : (1958) 1 Cal LJ 58 : ILR (1958) 1 Cal
544 . For a detailed consideration of the topic of Marine Insurance, see Part III, infra, where the
provisions of the (Indian) Marine Insurance Act, 1963 are set forth with Notes.

602 Indian Dyestuff Industries Ltd v Mehta Transport Co, 1994 (4) BCR 297 : 1995 (2) Mh LJ 127 :
AIR 1994 Bom 209 [LNIND 1994 BOM 50] (Bom).

603 Indian Dyestuff Industries Ltd v Mehta Transport Co, 1994 (4) BCR 297 : 1995 (2) Mh LJ 127 :
AIR 1994 Bom 209 [LNIND 1994 BOM 50] .

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 [s 2] Definitions.—

604 M Mohan Lal Kalia v Wood Trading Co, AIR 1961 Punj 234 : ILR (1960) 2 Punj 105 : (1962)
32 Com Cas 454 .
605 Marine Insurance Act , 1906, 6th Edn, W 7, C 41.
606 Section 2, Marine Insurance Act, 1906. Cf. the definition stated in section 3 of the Marine
Insurance Act, 1963, Act XI of 1963.
607 Holman and Sons Ltd v Merchants’ Marine Insurance Co Ltd, (1919) 1 KB 383 .
608 Ahmad Shah Fazal Rahim v Grindlay and Co Ltd, ILR (1943) Kar 491 : 213 IC 151 : AIR 1944
Sind 98 .
609 Indian Dyestuff Industries Limited v Mehta Transport Company, AIR 1994 Bom 209 [LNIND
1994 BOM 50] : 1995 (1) Bom CJ 177 : 1994 (4) Bom CR 297 [LNIND 1994 BOM 50] .
610 Vide sections 27 to 31 of Marine Insurance Act, 1963 and Notes thereon in Vol 2.
611 See Halsbury’s Laws of England, 4th Edn, vol 25, paras 40, 41, at pp 34 and 35.
612 Royal Exchange Assurance Corporation v Sijforsakrings Akt. Vega, (1901) 2 KB 567 ;
Halsbury’s Laws of England, 4th Edn, vol 25, para 43, page 38.
613 See G H Reulon and Co Ltd v Palmyra Trading Corporation, (1956) 1 QB 462 (CA) : (1956) 1
All ER 209 ; affirmed in (1957) AC 149 (HL) : (1956) 3 All ER 957 .
614 Bank of New Zealand v Simpson, (1900) AC 182 (PC); Houlder Brothers and Co Ltd v Public
Works Commissioner; Public Works Commissioner v Houlder Brothers and Co Ltd, (1908) AC 276
(PC).
615 Hunter v Northern Marine Insurance Co, (1888) 13 App Cas 717 (HL); Constable v Noble,
(1810) 2 Taunt 403; Uhde v Walters, (1811) 3 Comp 16.
616 Re: Etherington and Lancashire and Yorkshire Accident Insurance Co, (1909) 1 KB 591 (CA).
617 See Halsbury’s Laws of England, 4th Edn, vol 25, para 49 at p 39 and Vallance v Dewar, (1808)
1 Comp 503 : Provincial Insurance Co Ltd v Crowder, (1927) 27 LIL Rep 28; see also Arnould: Marine
Insurance, 14th Edn, section 57.
618 Canada Rice Mills v Union Marine and General Insurance Co Ltd, 197 IC 267 : AIR 1941 PC 68
: 1941 AC 55 (PC) : (1940) 4 All ER 169 .
619 See Schloss Brothers v Shevens, (1906) 2 KB 665 (CP); P Samuel and Co Ltd v Dumas,
1924 AC 431 ; Cohen Sons and Co v National Benefit Assurance Co Ltd, (1924) 40 TLR 347 ; and
Halsbury’s Laws of England, 4th Edn, vol. 25, para 153, p 93.
620 Rikards v Forestal Law Timber and Railway Co, (1941) 3 All ER 62 (76-77); vide section 32 of
Marine Insurance Act, 1963 where the rule is stated.
621 Nishina Trading Co v Chiyoda Fire and Marine Insurance Co, (1969) 2 All ER 776 .
622 M Mohan LalKalia v Wood Trading Co, AIR 1961 Punj 234 : ILR (1960) 2 Punj 105 : (1962) 32
Com Cas 454 .
623 Home Insurance Co Ltd v Ramnathand Co, (1955) 2 MLJ 125 : AIR 1955 Mad 602 [LNIND 1954
MAD 258] ; see also Indian Trade and General Insurance Co Ltd v Bhailal Maneklal Desai, 55 Bom LR
874 : (1953) 23 Com Cas (Ins) 21 ; fire insurance policy.
624 Hajee Habeeb v Commercial Union Assurance Co Ltd, AIR 1952 Trav-Co 58. See infra sections
56 to 63 of Marine Insurance Act, 1963 and Notes thereunder where classification of loss and their
effects discussed.
625 Saifuddin Mohammad Ibrahim v New India Assurance Co Ltd, 51 PLR 184 : AIR 1949 EP 185 .

626 Canada Rice Mills v Union Marine and General Insurance Co Ltd, AIR 1941 PC 68 ; see also
Boiler Inspection and Insurance Co v Sherwin-Williams Co, (1951) AC 319 (PC); Ocean S S Co Ltd v
Liverpool and London War Risks Insurance Association Ltd, (1946) KB 561 (CA) : (1946) 2 All ER 355
; P Samuel and Co Ltd v Dumas, (1924) AC 431 .

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627 Rickards v Forestal Land, Timber and Railways Co Ltd, (1942) AC 50 (HL) : (1941) 3 All ER
62 ; see also Saifuddin Mohammad Ibrahim v New India Assurance Co Ltd, AIR 1949 EP 185 ;
Rickards’s case was applied in Nishina Trading Co v Chiyoda Fire and Marine Insurance Co, (1969) 2 All
ER 776 . [For the rule of proximate cause as applicable to Marine Insurance, see section 55 of the
Marine Insurance Act, 1963 and Notes thereunder, infra].
628 Indian Dyestuff Industries Limited v Mehta Transport Company, AIR 1994 Bom 209 [LNIND
1994 BOM 50] : 1995 (1) Bom CJ 177 : 1994 (4) Bom CR 297 [LNIND 1994 BOM 50] .
629 United India Insurance Co Ltd v Great Eastern Shipping Co Ltd, 2007 (5) All LJ 237 : AIR 2007
SC 2556 [LNIND 2007 SC 863] : (2007) 7 SCC 101 [LNIND 2007 SC 863] : JT 2007 (9) SC 264
[LNIND 2007 SC 863] : (2007) 9 Scale 248 [LNIND 2007 SC 863] : (2007) 8 SCR 350 : 2007 (4) TAC 5
: 2007 (6) Comp LJ 298 : 2007 (2) WLC (SC) Civil 664.

630 General Commerce Ltd v National Insurance Co Ltd, AIR 2003 Del 419 [LNIND 2003 DEL 450] :
2003 (105) DLT 855 [LNIND 2003 DEL 450] : 2003 (71) DRJ 722 [LNIND 2003 DEL 450] .

631 44 CJS p 492.

632 See section 147(1), Motor Vehicles Act, 1988. In interpreting the expression ‘use of the
vehicles in a public place’ it is enough if any major part of the vehicle is in a public place; Rendall v
Motor Insurance Bureau, (1969) 1 All ER 21 .

633 Rendall v Motor Insurance Bureau, (1969) 1 All ER 21 .

634 Hardy v Motor Insurance Bureau, (1964) 2 All ER 742 .
635 Wyatt v Guildhall Insurance Co, (1937) 1 All ER 792 . See also Bonhon v Zurich Central
Accident and Liability Insurance Co, (1945) 1 All ER 427 ; Coward v Motor Insurance Bureau, (1962) 1
All ER 531 ; Covell v Motor Insurance Bureau, (1969) 1 All ER 572 and other cases referred to in Albert
v Motor Insurance Bureau, (infra).
636 Albert v Motor Insurance Bureau, (1971) 2 All ER 1345 .
637 Albert v Motor Insurance Bureau, (1971) 2 All ER 1345 (1352, 1353, 1354).
638 Gopalakrishnan v Sankara Narayanan, AIR 1968 Mad 436 [LNIND 1967 MAD 185] : (1969) 1
MLJ 49 [LNIND 1967 MAD 185] : ILR (1969) 1 Mad 16 .
639 Izzard Universal Insurance Co, (1937) 3 All ER 79 (HL).
640 Oriental Fire and General Insurance Co v Gurudas Kour, AIR 1967 Punj 486 (FB) : ILR (1969)
2 Punj 395 .
641 Venguard Insurance Co Ltd, Madras v Chinnammal, AIR 1970 Mad 236 [LNIND 1968 MAD 199]
: 1969 ACJ 226 : (1970) 1 Mad LJ 542, the hiring of a goods truck as a contract of employment.
642 Corporation of Madras v Jayammal, (1970) 2 MLJ 189 [LNIND 1969 MAD 223] : 83 LW 272.
643 Halsbury’s Laws of England, 4th Edn, vol 25, para 734.
644 Brown v Roberts, (1965) 1 QB 1 : (1963) 2 All ER 263 : (1963) 3 WLR 75 .
645 See Halsbury’s Laws of England, 4th Edn, vol 25, paras 3 and 4.
646 Royal London Mutual Insurance Society v Dayyett, (1928) Ch 412 (414).
647 Kelly v Cornhill Insurance Co Ltd, (1964) 1 All ER 321 : (1964) 1 WLR 158 .
648 New Asiatic Insurance Co Ltd v Pessumal Dhanamal Aswani, AIR 1964 SC 1736 [LNIND 1964
SC 152] : 1964 (2) SCJ 428 : (1964) 7 SCR 867 [LNIND 1964 SC 152] .
649 Alice Marie Vandepitte v Preferred Accident Insurance Co of New York, 64 MLJ 133 : 37 MLW
279 : 1933 ALJ 373 : 143 IC 79 : AIR 1933 PC 11 .

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650 Nadirshaw v Times of India Employees’ Death Benefit Fund, 33 Bom LR 270 : 139 IC 558 : AIR
1931 Bom 300 .
651 Clarke v National Insurance etc., Corporation, (1963) 3 All ER 375 .
652 Marjorie L’estrange Trickett v Queensland Insurance Co Ltd, 70 MLJ 437 : 43 MLW 276 : 160 IC
844 : AIR 1931 PC 74 .
653 British India General Insurance Co Ltd v Janardhan Vishwanath Naik, 40 Bom LR 155 : 175 IC
104 : AIR 1938 Bom 217 .
654 Liverpool Corporation v I T and M R Roberts, (1964) 3 All ER 56 .
655 Union Motor & General Insurance Co Ltd v Kannappa Naiker, (1966) 2 MLJ 608 : 79 MLW 340;
Gopal Dass v Andala Ammal, (1970) 1 Com LJ 200.
656 Sibtai Hassan v Guardian Assurance Co Ltd, 13 Luck 474 : 170 IC 451 : 1937 Oudh 476.
657 Gopal Singh v Mutual Indemnity and Finance Corporation (India) Ltd, 1937 ALJ 442 : 170 IC
983 : AIR 1937 All 535 .
658 Des Raj Pahwa v Concord of India Insurance Co Ltd, AIR 1951 Punj 114 .
659 Bir Singh v Hashi Rashi Banerjee, AIR 1956 Cal 555 [LNIND 1956 CAL 35] .
660 Madras Motor Insurance Co Ltd v Mohammed Mustafa Badsha, (1960) 2 MLJ 202 [LNIND 1960
MAD 43] : 73 MLW 486 : (1960) 3 Com Cas (Ins) 25 .
661 V P Desa v UOI, 1958 MPC 155 : 1958 MPLJ 192 : 1958 Jab LJ 235 : (1958) 28 Com Cas (Ins)
19 : AIR 1958 MP 297 [LNIND 1957 MP 42] .
662 Indian Mutual General Insurance Society Ltd v R Raman Nair, AIR 1967 Mad 56 [LNIND 1966
MAD 51] (57) : (1966) 2 Mad LJ 239 : (1966) 2 Com LJ 149.
663 Lickiso v Milestone Motor Policies of Lloyds, (1966) 2 All ER 472 .
664 Eisinger v General Accident, Fire and Life Assurance Corporation Ltd, (1955) 2 All ER 897 .
665 British India General Insurance Co Ltd v Itbar Singh, AIR 1959 SC 1331 [LNIND 1959 SC 112]
: 1960 SCJ 44 : 1960 SCR 168 .
666 Hindustan General Insurance Co Ltd v Saramma, AIR 1969 AP 390 [LNIND 1968 AP 21] :
(1969) 1 Andh WR 280; Hindustan Ideal Insurance Co Ltd v Pekanti Ankiah, (1968) 2 Andh WR 506.
667 See Morley v Moore, (1936) 2 All ER 79 .
668 See Beacon Insurance Co Ltd v Longdale, (1939) 4 All ER 204 (CD); Morley v Moore, (1969) 2
All ER 79 .

669 Sohan Lal Surinder Prakash v National Insurance Co, 1972 ACJ 324 .
670 Oriental Fire and General Insurance Co Ltd v Vimal Roy, 1972 ACJ 314 : AIR 1973 Del 115
[LNIND 1972 DEL 142] : ILR (1972) 2 Del 949 .
671 Brjlal Khera v Raksha Devi, 1972 ACJ 69 ; see also Mukho Devi v Syed Hasan Zaheer, 1972 ACJ
63 .
672 Narchinva V Kamat v Alfredo Antonio Deo Martins, AIR 1985 SC 1281 [LNIND 1985 SC 148] :
(1985) 2 SCC 574 [LNIND 1985 SC 148] : 1985 ACJ 397 .
673 Halsbury’s Laws of England, 4th Edn, 2003 Reissue. Insurance, 569 and 570; Kamlawati Devi v
State of Bihar, 2002 (3) BLJ 26 , and Branch Manager, United India Insurance Company Ltd,
Biharshariff at Nalanda with National Insurance Company v State of Bihar, 2003 (2) BLJ 407 and Rita
Devi @ Rita Gupta v National Insurance Co Ltd (NCDRC), 2008 (1) All LJ 112.
674 Manager, United India Insurance Co Ltd v U Shakunthala, AIR 2005 AP 336 : 2004 (24) AIC
233 : 2006 ACJ 2606 : 2004 (5) Andh LD 692.

675 National Insurance Co Ltd v Seema Malhotra, (2001) 3 SCC 151 [LNIND 2001 SC 481] : AIR
2001 SC 1197 [LNIND 2001 SC 481] .

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676 National Insurance Co Ltd v Jijubhai Nathuji Dabhi, AIR 1997 SC 2147 [LNIND 1996 SC 1918] :
1997 AIR SCW 2001 : (1997) 1 SCC 66 [LNIND 1996 SC 1918] .

677 Krishna Subbarao Naik v Palani Swamy, AIR 1998 Kant 214 [LNIND 1997 KANT 407] : 1998 (2)
ACJ 841 : 1998 (2) Civ LJ 445 .

678 New India Assurance Co Ltd v Sita Bai, AIR 1999 SC 3577 [LNIND 1999 SC 794] : 1999 AIR
SCW 3586 : (1999) 7 SCC 575 [LNIND 1999 SC 794] .

679 Rajesh Kumar v State of Uttar Pradesh, 2009 (5) All LJ 581 : 2009 (7) ADJ 312 .

680 Gollavilli Primary Agrl. Co-op. Credit Socy. Ltd v Oriental Ins. Co Ltd, AIR 2005 AP 519 [LNIND
2005 AP 164] : 2007 ACJ 329 .

681 Padma Ramanathan v National Insurance Co Ltd, 2008 (4) All LJ 113 : 2009 (1) WBLR 549 .

682 Narchinva V Kamat v Alfredo Antonio Deo Martins, AIR 1985 SC 1281 [LNIND 1985 SC 148] :
(1985) 2 SCC 574 [LNIND 1985 SC 148] : 1985 ACJ 397 .

683 See 44 CJS 475.

684 4th Edn, vol 25.

685 Jagadhatri Bhandar and Jagadhatri Oil Mills v Commercial Union Assurance Co Ltd, AIR 1979 Gal
56 (61) : 83 CWN 162.

686 Re: Calf and Sun Insurance Office, (1920) 2 KB 366 (CA); Lake v Simmons, (1927) AC 487
(HL); See Wong KonPoh v New India Assurance Co, (1971) ACJ 82 .

687 See Re: George and Goldsmiths and General Burglary Insurance Association Ltd, (1899) 1 QB
595 (CA).

688 Wong KonPoh v New India Assurance Co Ltd, 1971 ACJ 82 .

689 Jagadhatri Bhandar and Jagadhatri Oil Mills v Commercial Union Assurance Co Ltd, AIR 1979 Cal
56 [LNIND 1978 CAL 458] : 83 Cal WN 162 : 1979 Cal HN 36.

690 Rohini Nandan Goswami v Ocean Accident and Guarantee Corporation Ltd, AIR 1960 Cal 696
[LNIND 1960 CAL 73] : (1961) 31 Com Cas 17 .

691 West v National Motor and Accident Insurance Union Ltd, (1955) 1 All ER 800 .

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692 Hasmukhrai Chandrakant v Oriental Fire and General Insurance Co Ltd, 2005 (4) All MR 630 :
2007 ACJ 401.

693 Hanuman Industries v New India Assurance Co Ltd, 1997 (2) ACJ 1228 : AIR 1997 Del 160
[LNIND 1996 DEL 598] : 1997 (1) Bank CLR 264 .

694 Ratul Das v Oriental Insurance Co Ltd, AIR 2008 Gau 180 : 2009 (1) TAC 101 : 2010 ACJ 482 :
2008 (70) AIC 837 : 2008 (3) Gau LT 874.

695 IFFCO Tokio General Insurance Company v Chairman, Permanent Lok Adalat, Public Utility
Services, AIR 2010 Punj 191 : 2011 (1) AICJ 5.

696 Vol 25, 4th Edn.

697 Food Corporation of India v New India Assurance Co Ltd, 1995 (84) Comp Cas 214 : AIR 1994
SC 1889 [LNIND 1994 SC 1235] : (1994) 1 SCR 939 : (1994) 3 SCC 324 : JT 1994 (1) SC 703 [LNIND
1994 SC 1235] : (1994) 1 Scale 591 : 1994 DNJ (SC) 90.

698 National Insurance Company v Sanjay Chowdhury, 2014 (134) AIC 674 : AIR 2014 Cal 38
[LNIND 2013 CAL 708] .

699 See 44 CJS 480.

700 Prudential Insurance Co v Hill, 49 P 2d 1067; Prudential Insurance Co v Howell, 289 Pac Rep
734.

701 Kreemphoren v John Hancock Mutual Life Insurance Co, 114 SW 2d Series 1125; see also
Phenemer v Metropolitan Life Insurance Co, 229 Mo App 638.

702 13 and 14 Geo 5, c. 8.

703 See The Industrial Assurance Acts, 1923 to 1948.

704 See Halsbury’s Laws of England, 4th Edn, vol 25, para 9.

705 See section 46 of the Act. See C I Kantian v Employees’ State Insurance Corporation, AIR 1968
Mad 280 [LNIND 1967 MAD 47] : 1968 Lab IC 945 : (1968) 1 Lab LJ 770 ; and Solar Works, Madras 1
v Employees’ State Insurance Corporation, Madras, AIR 1964 Mad 376 [LNIND 1963 MAD 220] :
(1963) 2 Lab LJ 597 [LNIND 1963 MAD 220] : (1964) 2 Mad LJ 223, as to the scope, application and
validity of the rules framed under Act 34 of 1948.

706 Regional Director, Employees’ State Insurance Corporation, New Delhi v Dyer Meakin Breweries
Ltd, AIR 1958 Punj 136 : ILR 1958 Punj 430 . See also section 16 of the Act.

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707 Andhra Pradesh Rythu Sangham v UOI, AIR 2002 AP 476 [LNINDORD 2002 AP 64] : 2003
(114) Comp Cas 554 : 2002 (2) ALT 696 : 2002 (2) Andh LD 486.

708 Section 10FB of the Companies Act, 1956.

709 Section 10FR of the Companies Act, 1956.

710 Section 2(35) of the Companies Act, 1956.

711 Subs. by Act 53 of 2000, sec. 3, for “means a company which, by its articles,” (w.e.f. 13-12-
2000).
712 Ins. by Act 53 of 2000, sec. 3 (w.e.f. 13-12-2000).

713 Section 3(iii) of the Companies Act, 1956.

714 Section 2(37) of the Companies Act, 1956.

715 Section 3(4) of the Companies Act, 1956.

716 Life Insurance Corporation of India v Consumer Education and Research Centre, AIR 1995 SC
1811 [LNIND 1995 SC 653] : JT 1995 (4) SC 366 [LNIND 1995 SC 653] : 1995 AIR SCW 2834.

End of Document

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