TMI Blog2001 (2) TMI 917X X X X Extracts X X X X X X X X Extracts X X X X ..... case the insurance company is legally justified in refusing to pay the amount claimed by the respondents. - C.A. NO. 1350 OF 2001 - - - Dated:- 20-2-2001 - K.T. THOMAS AND R.P. SETHI, JJ. P.P. Malhotra, Shailendra Sharma and Rajiv Nanda for the Appellant. Ms. Shabnam and M.N. Shroff for the Respondent. JUDGMENT Thomas, J. - Leave granted. Under a contract of insurance the insured gave a cheque to the insurer towards the first premium amount, but the cheque was dishonoured by the drawee bank due to insufficiency of funds in the account of the drawer. Is the insurer liable in such a situation to honour the contract of insurance ? There is no dispute that the insurer is liable as against third parties because it is covered by the statutory provisions contained in Chapter X of the Motor Vehicles Act, 1988. But the insurer vehemently disputed the liability when the claim is made by the insured himself or his legal heirs, without any third party being involved. To avoid confusion we may point out that the insurance company has no dispute that the claims, if any, made by the kith and kin of the insured for the injuries sustained by them in the accident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. In the absence of any consideration there can be no contract and that is all what is recognised by section 64VB of the Insurance Act, 1938. The insurer was justified in repudiating the contract and it has done it in time and soon after the cheque bounced. In this view of the matter there is no need for us to go to any other point that may arise in this case." 6. When the respondents (legal heirs of the insured) moved the High Court of Jammu and Kashmir, the Division Bench which heard the matter reversed the order passed by the State Consumer Commission and held the insurance company liable to honour the claim. The Division Bench directed the State Commission to assess the compensation in accordance with law and pay the same after deducting the amount of premium (as the cheque was dishonoured). The following reasoning was mainly adopted by the learned judge of the Division Bench for holding that the insurance company is liable on the fact situation : "While ordering the cancellation of the policy in question, respondent insurance company instead of cancelling the same due to dishonour of cheque for the premium from the date it was issued i.e., 21-12-1993, chose to canc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company, the three-judge Bench held thus : "We have, therefore, this position. Despite the bar created by section 64VB of the Insurance Act, the appellant, an authorised insurer, issued a policy of insurance to cover the bus without receiving the premium therefor. By reason of the provisions of sections 147(5) and 149(1) of the Motor Vehicles Act, the appellant became liable to indemnify third parties in respect of the liability which that policy covered and to satisfy awards of compensation in respect thereof notwithstanding its entitlement (upon which we do not express any opinion) to avoid or cancel the policy for the reason that the cheque issued in payment of the premium thereon had not been honoured." (p. 311) Thus, the three-judge Bench refrained from expressing any opinion on the question of the insurer s entitlement to avoid or cancel the policy as against the insured when the cheque issued for payment of the premium was dishonoured. 9. Subsequently the same question was mooted before a two-judge Bench of this Court in New India Assurance Co. Ltd. v. Rula [2000] 100 Comp. Cas. 711, but the question of the insurer s right to repudiate the claim as against the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred to for the purpose of deciding the point. They are subsumed under the sub-title Performance of reciprocal promises in the said Act. Section 51 deals with a contract concerning reciprocal promises to be simultaneously performed and in such a contract the promisor is absolved from performing his promise unless the promisee is ready or willing to perform his part of the promise. Section 52 says that where the order in which reciprocal promises are to be performed has not been expressly provided in the contract such promise shall be performed in that order which the nature of the transaction warrants. Illustration ( b ) given to section 52 highlights the utility of the provisions. That illustration is as follows : A and B contract that A shall make over his stock-in-trade to B at a fixed price, and B promises to give security for the payment of the money. A s promise need not be performed until the security is given, for the nature of the transaction requires that A should have security before he delivers up his stock. 11. Section 54 of the Contract Act is to be read in that background. It is extracted below : " Effect of default as to that promise which should be first ..... X X X X Extracts X X X X X X X X Extracts X X X X
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