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IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL  NO. 11885  OF 2018  (@ SPECIAL LEAVE PETITION (C) NO. 32577 OF 2016)

NEW INDIA ASSURANCE COMPANY LIMITED ..APPELLANT  

VERSUS

RAJESHWAR SHARMA AND ORS      ..RESPONDENTS  

WITH CIVIL APPEAL  NO.  11886  OF 2018

(@ SPECIAL LEAVE PETITION (C) NO. 32381/2018 @ CC NO. 5127 OF 2017)

RAJESHWAR SHARMA AND ANR ..APPELLANTS  

VERSUS

NEW INDIA ASSURANCE CO LTD AND ANR     ..RESPONDENTS

REPORTABLE

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J U D G M E N T

Dr Dhananjaya Y Chandrachud, J

1 Delay condoned in Civil Appeal @ SLP(C)@CC 5127 of 2017.

2 These appeals arise from a judgment of a Division Bench of the High

Court  of  Jammu  and  Kashmir  dated  28  July  2016.  The  High  Court  has

affirmed  the  decision  of  the  Jammu  and  Kashmir  Consumer  Disputes

Redressal  Commission1 by  which  an  insurance  claim  was  allowed  in  the

amount of Rs. 17.28 lacs. New India Assurance Company Limited, the insurer,

failed in its challenge to the decision of the State Commission before the High

Court. Cross-objections filed before the High Court by the insured for the grant

of  interest  were  also  rejected.  Hence,  there  are  two  appeals:  one  by  the

insurer and the second by the insured, against the judgment of the High Court.

 3 The claim of the insured before the State Commission was that it owns

a building known as Patel House which is situated at Akhnoor road, Jammu.

The  insured  claimed  that  the  building  was  constructed  in  1984  with  due

permission of the municipality. In 1993, additional construction was raised, it is

alleged, with the permission of the municipality. According to the insured, on a

notice  issued  under  Section  229  of  the  Jammu  and  Kashmir  Municipal

1 “The State Commission”

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Corporation Act 2000, he had approached the Jammu and Kashmir Special

Tribunal which compounded the infraction in 1996. The Municipal Corporation

initiated  a  demolition  drive.  Apprehending  action  against  his  property,  the

insured  instituted  a  suit  in  the  Court  of  the  First  Civil  Subordinate  Judge,

Municipal  Magistrate,  Jammu where  an  ad-interim  injunction  was  granted,

restraining the Corporation from proceeding, except in accordance with law.

The Municipal Corporation demolished the front portion of the building. The

insured was carrying on a business of sanitary ware in the premises. As a

result  of the demolition, the insured claimed that it  suffered damage in the

amount of           Rs.19.55 lacs.  

4 The claim before the State Commission was founded on a policy of

insurance which was obtained by the insured. The insurance policy contained

the following exclusion:  

“V.   Riot,  Strike,  Malicious and Terrorism Damage Loss of  or visible physical damage or destruction by external violent means  directly  caused  to  the  property  insured  but excluding those caused by:-

a) xxxx b) Permanent  or  temporary  dispossession  resulting  from

confiscation, commandeering, requisition or destruction by order  of  the  Government  or  any  lawfully  constituted Authority.”  

Relying on the aforesaid exclusion, the insurer repudiated the claim on the

ground  that  the  action  of  demolition  was  carried  out  by  the  municipal

authorities and was hence by order of a lawfully constituted authority.  

5. The State Commission allowed the claim under the insurance policy in

the amount of Rs.17.28 lacs. Litigation costs of Rs.10,000/- were awarded.

The State  Commission  opined that  the  order  of  demolition  passed  by  the

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Municipal Corporation had not been brought on the record and, in its absence,

the exclusion would not operate. In appeal, the High Court affirmed the view of

the  State  Commission,  holding  that  it  was  incumbent  on  the  insurer  to

establish that the exclusion contained in the policy of insurance was attracted

by placing on record the orders of a lawfully constituted authority by which

demolition was ordered. While affirming the view of the State Commission, the

High Court held that in the absence of such an order being produced on the

record, the insurer was liable to indemnify the loss sustained by the insured.  

6. The principal basis on which the complaint was allowed by the State

Commission has been called into question in these proceedings. The insurer

has submitted that it was not in dispute that the demolition was caused by the

Municipal  Corporation.  To  substantiate  this  submission,  the  insurer   relies

upon the averments contained in the consumer complaint which are extracted

below:  

“5) That after the constitution of the Municipal Corporation, Municipal  Corporation  had  started  demolition  drive  to remove the encroachment and illegal constructions. 6) ….. 7) That  the  Municipal  Corporation  in  spite  of  the injunction  issued  by  the  Court,  demolished  the  front portion of the building which was duly compounded by the Appellate Court, on 18.04.2003, in violation of the Court order  and also  in  violation of  the order  already passed compounding the constructions. 8) ….. 9) ….. 10) That the Municipal Commissioner, Jammu without any authority and taking law into his own hands in violation of the  Court  order  dated  10.04.2003  demolished  the  front portion  of  the  building  and  totally  damaged  the  Cabin fitting,  display  items  electric  systems  etc  without  any notice to the complainants thereby causing a loss of Rs. 19,55,946/-  which  estimate  was  prepared  after  due inspection  by  Sh.  K  R  Sharma,  Retired  Executive Engineer  and  valuator.  The  building  and  the  material including Furniture and Fixture etc. were insured by the

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respondent for an amount of Rs. 1,23,50,000/- for which insurance  covers  were  issued  by  the  respondent  vide policy no. 350700/11/02/00119 for the period 03.05.2002 to midnight 02.05.2003. Copy of the estimate is enclosed.  11)  That  the  Commissioner,  Municipality  and  Executive Officer  to show their  loyalty  towards the Government in violation  of  Court  order  and fully  well  knowing that  the complainants are owners of the land demolished the front portion of the building causing total loss of Rs. 19,55,846/- on 18.04.2003.  Besides this,  due to the damage to the building,  the  basement  has  been rendered useless  and has to be dismantled which is going to cause a further loss of  Rs.  6,15,422/-  to  the  complainants  and  the complainants reserve their right to claim the said amount as and when the basement is dismantled.”          

7 In his counter affidavit filed in these proceedings, the Commissioner of

the  Jammu  Municipal  Corporation  has  stated  that  in  order  to  remove

encroachments/projections  over  public  premises  including  over  footpaths,

streets and drains,  the Municipal  Corporation issued a public  notice on 25

January 2003 in the daily editions of ‘Kashmir Times’ and ‘Daily Excelsior’. The

notice  made  an  appeal  for  the  removal  of  projections,  platforms  and

encroachments which were not in conformity with the building line provided by

the Jammu Master  Plan and Prevention of  Ribbon Development Act  1953.

After  the period stipulated in the public  notice ended on 31 January  2013

demarcations were carried out in areas where there were encroachments and

the encroachers including the private respondents were directed to remove the

encroachment. In the meantime, a suit was filed by the insured, Rajeshwar

Sharma,  before  the  First  Civil  Subordinate  Judge,  Jammu  in  which  the

following ad interim order was passed on 11 March 2003:  “…Issue notice to the defendants to file objections to this application on or before next date of hearing and in the meanwhile  subject  to  objections  and  till  next  date  of hearing  the  parties  shall  maintain  status  quo  on  spot. However, in case any violation has been committed by the Plaintiff  in  the  said  building  the  defendants  shall  take action in accordance with the provisions of law…”            

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8 The above order permitted the municipal  authorities to take action in

accordance with the provisions of law.  The Municipal Corporation claims that

it removed the new construction raised in the present case on 18 April 2003

which  was  found  to  encroach  on  public  land  and  was  causing  an

inconvenience to the free flow of traffic on Akhnoor road.  According to the

Municipal Corporation, it had not razed any part of the construction which was

carried  out  in  1985  and  1993  but  only  “the  new illegal  construction”.  The

Municipal  Corporation has also submitted that the building which has been

constructed  still  exists  in  violation  of  the  Master  Plan  1974-1994  and  the

Master Plan 2021.   

9 We  must  make  it  clear  at  the  outset,  that  we  are  not  in  these

proceedings entering upon the validity of the action which was adopted by the

municipal authorities.  A suit is pending before the civil court questioning the

legality  of  the  action  whereas  the  counter  affidavit  indicates,  relief  for  the

restoration of the work which was removed has been sought.  The issue in the

present  case  is  confined  to  whether  the  exclusion  under  the  policy  of

insurance was attracted.

10 Both the State Commission as well as the High Court were of the view

that the exclusion was not attracted having due regard to the judgment of this

Court in  National Insurance Company v  Irshad2.  This Court has held that

2 (2007) 4 SCC 105

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where there is an exclusionary clause in an insurance policy, the burden lies

on the insurer to establish that the exclusion is attracted. Any ambiguity must

be construed in favour of the insured. Purporting to apply this principle, the

State  Commission  and  the  High  Court  held  that  the  insurer  had  failed  to

establish that there was an order of the Municipal Corporation for carrying out

demolition and hence the exclusion was not attracted.   

11 On this aspect, we find merit in the submission of the insurer that there

was no dispute about the fact that the demolition was carried out under the

authority of  the Municipal  Corporation.   As the averments in the consumer

complaint  indicate,  the  insured  proceeded  on  the  basis  that  the  Municipal

Corporation had carried out the work of demolition.  There could be no dispute

about the factual position since, as a matter of fact, the insured has instituted a

suit  for  diverse reliefs  including a challenge to  the action of  the Municipal

Corporation.   Hence  the  basis  on  which  the  claim  was  allowed  is

fundamentally flawed.

12 The  essential  aspect  which  needs  to  be  considered  is  whether  the

exclusion  was  attracted.  Mr  Jayant  Bhushan,  learned  senior  counsel

appearing on behalf of the insured submits that Clause V postulates that there

must be a “destruction by order of the government or any lawfully constituted

authority”.  Learned counsel submits that the exclusion postulates that there

must be an action in accordance with law.  Action according to law, in the

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submission of counsel, requires that the action of the municipal authority or

governmental authority (in the present case) should conform to the Jammu

and Kashmir Municipal Corporation Act 2000.  In this submission, an act of

illegal demolition by the Municipal Corporation will not fall within the purview of

the  exclusion.  Hence,  it  has  been  urged,  that  the  judgment  of  the  State

Commission, as affirmed by the High Court, is correct.   

13 On the other hand, Ms.Awantika Manohar, learned counsel appearing

on behalf of the insurer has submitted that the demolition was carried out by

the Municipal  Corporation.   This  action clearly  falls  within the ambit  of  the

expression “destruction by order of any lawfully constituted authority”. Learned

counsel submitted that the validity of the action of the municipal authority is the

subject matter of a pending suit.  In determining as to whether the exclusion is

attracted, what the Court must assess is whether the demolition was carried

out by order of any lawfully constituted authority. The grounds of challenge in

the suit are distinct from the claim under the insurance policy. Hence, once it is

found that the demolition was by the order of the Municipal Corporation which

is a lawfully constituted authority  under the Jammu and Kashmir Municipal

Corporation Act 2000, the exclusion is attracted.

14 We find considerable merit in the submission which has been urged on

behalf of the insurer.  Clause V of the insurance policy contains an exclusion,

where  the  destruction  of  the  property  has  been  caused  “by  order  of  the

government or any lawfully constituted authority”.  The expression “by order

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of”  means  under  the  authority  of  government  or  of  a  lawfully  constituted

authority.   There  can  be  no  dispute  about  the  position  that  the  Municipal

Corporation  is  indeed  a  lawfully  constituted  authority,  being  a  statutory

authority  under  the  Jammu  and  Kashmir  Municipal  Corporation  Act  2000.

From the records as well as from the pleadings before the State Commission,

there is no dispute about the fundamental  position that the demolition was

carried out by the Municipal Corporation. The destruction was hence by order

of a lawfully constituted authority. Once this be the position, there can be no

manner  of  doubt  that  the  exclusion  under  the  policy  of  insurance  was

attracted.   

15 The position of  the common law with  respect  to  the interpretation of

exclusionary  clauses  in  insurance  policies  is  no  different.  In  Cornish v

Accident Insurance Co Ltd3, the Court of Appeal emphasized the duty of the

insurer to except their liability in clear and unambiguous terms. The Court of

Appeal held that:

“… 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.”

According  to  The Law  Relating  to  Accidental  Insurance4,   insurers  are

exempt from any liability where the loss is attributable to an excepted cause

3 Queen’s Division Bench as per Lord Lindley L.J. (1889) 23 Q.B.D. 453, 456 4 AW Baker Welford : The Law Relating to Accidental Insurance (Butterworth & Co., 1923) at page 126

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which is inserted ex abundanti cautela to make it quite clear to the assured that

the policy  is  not  intended to  cover  such losses.  The position  is  elucidated

below:  

“The  object  of  the  exceptions  is  to  define  with  greater precision  the  scope  of  the  policy  by  making  clear  what  is intended  to  be  excluded  and  contrasting  it  with  what  is intended to be included.

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  and it  is  the duty  of  the insurers  to  except  their liability in clear and unambiguous terms. The onus of proving that the loss falls within an exception lies upon the insurers, unless by proving the language of the exception the assured is expressly required to prove that, in the circumstances, the exception does not apply.”

In 2016, the UK Supreme Court dealt with the interpretation of an exclusion

clause  in  a  solicitors’  professional  indemnity  insurance  policy  in  Impact

Funding Solutions Ltd v Barrington Support Services Ltd5.  

Dealing  with  the  construction  of  insurance  exclusions,  Lord  Toulson  JSC

observed thus:  

“35. The fact that a provision in a contract is expressed as an exception  does  not  necessarily  mean  that  it  should  be approached with a pre-disposition to construe it narrowly. Like any  other  provision  in  a  contract,  words  of  exception  or exemption must be read in the context of the contract as a whole and with  due regard for  its  purpose.  As a matter  of general  principle,  it  is  well  established  that  if  one  party, otherwise liable, wishes to exclude or limit his liability to the other  party,  he  must  do  so  in  clear  words;  and  that  the contract should be given the meaning it  would convey to a reasonable  person  having  all  the  background  knowledge

5 Supreme Court as per Lord Toulson JSC (with whom Lord Mance, Lord Sumption and Lord Hodge JJSC  agreed) [2016] UKSC 57

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which  is  reasonably  available  to  the  person  or  class  of persons to whom the document is addressed… This applies not only where the words of exception remove a remedy for breach, but where they seek to prevent a liability from arising by  removing,  through  a  subsidiary  provision,  part  of  the benefit  which  it  appears  to  have  been  the  purpose  of  the contract to provide. The vice of a clause of that kind is that it can  have  a  propensity  to  mislead,  unless  its  language  is sufficiently  plain.  All  that  said,  words  of  exception  may  be simply  a  way  of  delineating  the  scope  of  the  primary obligation.”

The principles  for  construing  insurance  exclusions  as  laid  down in  Impact

Funding Solutions Ltd  v Barrington Support Services Ltd  6  were relied

upon by the England and Wales High Court (Commercial Court) in the case of

Crowden and Crowden v QBE Insurance (Europe) Ltd 7.  

While dealing with the question of construction of insurance exclusions, Judge

Peter MacDonald Eggers QC observed:

“65. … the Court must adopt an approach to the interpretation of  insurance exclusions  which  is  sensitive  to  their  purpose and place in  the  insurance contract.  The Court  should  not adopt  principles  of  construction  which  are  appropriate  to exemption  clauses  - i.e. provisions  which  are  designed  to relieve a party otherwise liable for breach of contract or in tort of that liability - to the interpretation of insurance exclusions, because  insurance  exclusions  are  designed  to  define  the scope  of  cover  which  the  insurance  policy  is  intended  to afford. To this end, the Court should not automatically apply a contra  proferentem approach  to  construction.  That  said, there may be occasions, where there is a genuine ambiguity in the meaning of the provision, and the effect of one of those constructions is to exclude all or most of the insurance cover which was intended to be provided. In that event, the Court would be entitled to opt for the narrower construction…”

6 Supreme Court as per Lord Toulson JSC (with whom Lord Mance, Lord Sumption and Lord Hodge JJSC  agreed) [2016] UKSC 57 7 England and Wales High Court (Commercial Court) as per Peter MacDonald Eggers QC :[2017] EWHC 2597  (Comm)

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In the present case, there is no ambiguity in Clause V of the insurance policy.

The exclusion was clear in exempting the insurer from liability for a loss arising

from the destruction of property caused “by order of the government or any

lawful authority.”  

16 For  the  above  reasons,  we  are  of  the  view  that  both  the  State

Commission and the High Court were in error in allowing the claim under the

policy of insurance.  We would, accordingly, have to allow the appeal filed by

the insurer, which we do by setting aside the impugned judgment of the High

Court  which  has  affirmed  the  decision  of  the  State  Consumer  Disputes

Redressal  Commission. In consequence, the complaint  filed by the insured

before the State Commission (CC 2628/2004) shall stand dismissed.   

17 Before concluding, we clarify that since these proceedings are confined

to the claim of the insured under the insurance policy, nothing contained in this

judgment shall affect the merits of the suit which has been instituted by the

insured against the Municipal Corporation.  The appeal filed by the insurer is

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allowed. The appeal filed by the insured shall stand dismissed. There shall be

no order as to costs.                            

                                                  .....................................................J               [Dr Dhananjaya Y Chandrachud]

.....................................................J       [MR Shah]

New Delhi; December 07, 2018

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