REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

Civil Appeal No 562  of 2020 (Arising out of SLP(C) No 4362 of 2016)

Shree Ambica Medical Stores & Ors                      …Appellants

Versus  

The Surat People’s Co-operative Bank Limited & Ors              …Respondents   

J U D G M E N T

Dr Dhananjaya Y Chandrachud, J

1  The  National  Consumer  Disputes  Redressal  Commission1 allowed  an

appeal instituted by the first respondent and set aside the decision of the State

Consumer Disputes Redressal Commission of Gujarat2. The State Commission

found substance in the consumer complaint of the appellants and decreed their

claim for compensation in the amount of Rs 53,66,877 with interest at 9 percent

per  annum.  In  addition,  the  State  Commission  awarded  Rs  25,000  towards

mental agony and Rs 5,000 towards litigation costs. The claim of the appellants

arose  under  an  insurance  cover  pertaining  to  goods  hypothecated  by  the

appellants with the first respondent under a cash credit facility. The insurer, New

India Assurance Company Limited, repudiated the claim of the appellants. As a

1 “National Commission” 2 “State Commission”

1

consequence of the order of the National Commission which is challenged in the

present appeal, the claim of the appellants stands rejected.

2 On 31 May 1998, the appellants and the first respondent entered into an

agreement for a cash credit facility. In terms of clause 15 of the agreement, the

appellants  were  under  an  obligation  to  insure  the  goods  which  were

hypothecated to the bank. Clause 15 also contained a stipulation that in the event

that the appellants failed to insure the goods, it was open to the bank to secure a

cover of insurance for the goods and to recover the expenses incurred along with

the premium from the appellants. The clause is extracted below:

“(15) We have to insure the goods given in hypothecation to the Bank against fire etc. at our own costs in favour of the Bank and if we fail to take insurance then the Bank can take the insurance and can recover all the expenses incurred  and  also  the  premium amount  borne by  them from us as the Bank has Right as per this Document.”   

3 The first  respondent  bank has stated that  it  was acting as a corporate

agent of the insurer and, as a matter of routine practice, obtained policies for all

its borrowers. As a practice, the first respondent upon receipt of an intimation,

would remit the premium payable on behalf of the borrowers. The same course of

action was followed by the first respondent under the lending facility granted to

the appellants.  The first  respondent  obtained the first  insurance policy for the

period 1998-99 in  the sum of  Rs 60 lakhs from the insurer,  who is  the third

respondent to the appeal. The insurance policy covered a specific location of the

borrower where the goods were stored, namely:

“12/1123-1124, Basement, Meghdoot Apartment, Surat”   

2

4 The policies of insurance for the succeeding years 1999-2000, 2000-2001

and 2001-02 covered the goods of the borrower stored at the above premises.

From 2001, the insurance policy was renamed as a ‘Standard Fire and Special

Perils Policy’. The perils insured included those occasioned by storm, tornado,

flood and inundation. These together are referred to as “STFI Perils”. In 2001-02

the value of the insurance cover was enhanced by an amount of Rs 25 lakhs so

as to increase the total sum insured to Rs 85 lakhs.  For 2002-03, the insurer

issued a policy covering a sum insured of Rs 25 lakhs in terms of the same

location  at  Meghdoot  Apartment,  Surat  noted  above.  However,  a  separate

insurance cover in the amount of Rs 60 lakhs was issued in respect of the goods

stored at following location:

“B-205, Plot No 17-B, Village Karnaj”

5 Similarly, for 2003-04 and 2004-05 there were two insurance covers; one in

the amount of Rs 25 lakhs in respect of  the location at  Meghdoot Apartment,

Surat and the second in the amount of Rs 60 lakhs covering the location at B-

205,  Plot  17-B,  Village Karnaj.  For  2005-06 and 2006-07,  the position  of  the

insurance  cover  is  reflected  in  an extract  from a tabulated  chart  filed  by  the

insurer:

Year Policy No Policy Period Location Sum Insured Rs

2005-06 2293

2298

4.8.2005 to 3.8.2006

1.8.2005  to

(A)  12/1123- 1124; Basement, Meghdoot Apartment, Surat

(A)  12/1123-

25 lakhs

60 lakhs

3

31.7.2006 1124; Basement, Meghdoot Apartment, Surat

(Changed  to Location A)

2006-07 2537

1884

4.8.2006  to 3.8.2007

1.8.2006  to 31.7.2007

(A)  12/1123- 1124; Basement, Meghdoot Apartment, Surat

(A)  12/1123- 1124; Basement, Meghdoot Apartment, Surat

25 lakhs

60 lakhs

6 For 2005-06, the location contained in the policy with a sum insured of Rs

60 lakhs was changed from B-295, Plot 17-B, Village Karnaj to 12/1123-1124,

Basement,  Meghdoot  Apartment,  Surat.  Thus,  both  the  policies  for  2005-06

covered the same location. For 2006-07, the same position continued for both the

insurance covers.  

7 On 3 August 2005, the first respondent while filling up the proposal form

handed over a cheque of Rs 29,038 to the insurer for a cover which would also

extend to STFI perils. On 26 September 2005, the premium of Rs 992 covering

STFI perils  was refunded by the insurer to the bank by a cheque which was

deposited by the bank in the appellants’ account. Hence for 2005-06, the policy

cover of Rs 60 lakhs extended to fire and allied perils but specifically excluded

STFI perils.   

4

8 On 7 August 2006, the city of Surat was hit by floods. The appellants claim

that as a result of the floods the goods which were stored in their premises were

destroyed. The appellants made a claim to the insurer for an alleged loss of Rs

78,66,857.  A surveyor  was  appointed  by  the  insurer  to  inspect  the  extent  of

damage. The insurer accepted and paid the claim of Rs 23 lakhs under the policy

cover of Rs 25 lakhs but repudiated the entire claim under the policy cover of Rs

60 lakhs. There was an exchange of correspondence between the bank and the

insurer. The bank, by its letter dated 11 November 2006, submitted that it was

surprised as to how the policy cover of Rs 60 lakhs had contained an exclusion of

STFI perils despite the fact  that both the policies had been renewed under a

common  proposal  form  and  through  a  single  cheque.  An  affidavit  dated  6

September 2007 of the Manager of the bank was filed stating that the bank was a

corporate agent and was working on behalf of the insurer. The insurer repudiated

the claim of the appellants on 24 June 2008.  

9 A consumer complaint was instituted by the appellants on 26 July 2008

before the State Commission, Gujarat alleging that the insurer had committed an

unfair trade practice by repudiating the claim under the insurance cover of Rs 60

lakhs.

10 In its written statement before the State Commission, the bank stated that

according to the terms of the agreement governing the grant of credit facilities,

the primary duty of obtaining a cover of insurance for the hypothecated goods

was that of the appellants as borrowers. For 2005-06, the bank had renewed the

policies of Rs 60 lakhs and Rs 25 lakhs. However, the insurer had excluded STFI

5

perils while issuing a policy cover of Rs 60 lakhs. According to the bank, a copy

of the policy was given to the appellants from which the exclusion of STFI perils

would have been evident. Moreover, a part of the premium which was returned by

the insurer was deposited by the bank in appellant’s account, which should have

been in the knowledge of the appellants. The bank therefore denied that it was

guilty of any deficiency of service. The bank, however, stated that it had not been

served  with  any  notice  by  the  insurer  explaining  why  the  STFI  perils  were

excluded from the policy of Rs 60 lakhs. The bank denied that its officers or staff

had mistakenly indicated the location of the place of business in the proposal

form associated with the policy cover where STFI perils had been excluded.  

11 The defence of the insurer was that for the period between 1 August 2005

and 31 July 2006 the policy cover of Rs 60 lakhs specifically excluded STFI perils

from  the  coverage.  The  insurer  stated  that  upon  receiving  the  claim,  it  had

appointed a surveyor and the claim on account of damage due to flooding had

been accepted in respect of the policy cover of Rs 25 lakhs. However, the policy

cover of Rs 60 lakhs specifically excluded the STFI perils and the insurer had

refunded the premium of Rs 992 paid for an STFI cover by a cheque dated 26

September 2005 which had been accepted and deposited by the bank in the

appellant’s  account  without  any protest.  The insurer  denied its  liability  on the

ground that the policy cover of Rs 60 lakhs excluded STFI perils.

12 The State Commission, by its order dated 14 February 2019, allowed the

complaint only against the bank and its manager, who were directed to pay an

amount  of  Rs  55,66,877  together  with  interest  of  9  percent  per  annum and

6

damages on account of mental agony of Rs 25,000. The State Commission held

that the insurer could not be held liable since STFI perils had been excluded from

the policy cover of Rs 60 lakhs and the excess premium of Rs 992 had been

refunded to the bank on 26 September 2005. The bank was however, held liable

on  the  ground that  it  had  deposited  the  cheque of  Rs  992  for  return  of  the

premium  amount  without  making  enquiries  from  the  insurer.  The  State

Commission  further  held  that  the  bank  had  made  an  error  in  filling  up  the

proposal form sent to the insurer and as a consequence the bank was liable to

compensate the appellant.   

13 The National Commission reversed the judgment of the State Commission.

It observed that the bank had sought an insurance cover to the extent of Rs 85

lakhs which covered STFI perils and had also deposited a cheque of Rs 29,038

towards  the  premium  of  the  policy.  The  National  Commission  observed  that

though it had been argued by the bank as well as the complainant that the insurer

could not have excluded the STFI cover while renewing the policy, no rule or

regulation mandating the insurer to accept the entire proposal had been brought

to its notice. Before the National Commission, reliance was sought to be placed

on the general rules and regulations framed by the Tariff  Advisory Committee

which came into force on 31 March 2001. The regulations, in so far as is material,

provided that it is permissible to exclude STFI perils at the inception of the policy.

The  National  Commission  noted  that  even  according  to  these  regulations,

deletion of  STFI  perils from a policy was permissible when a new policy was

issued. The National Commission held that since a new address of the location

7

was contained in the proposal form submitted for 2004-05, a fresh policy was

issued, and the insurance company was entitled to exclude the STFI cover. The

National Commission also noted that the policy of Rs 25 lakhs which at the time

of renewal contained the same location, the STFI perils had specifically not been

excluded.  

14 The National Commission noted that there was no protest either from the

bank or the borrower to the exclusion of STFI perils by the insurer. It noted that

no loss was sustained in the first year of the exclusion of STFI perils and it was

only  in  the  subsequent  year  that  the  loss  was  sustained.  Consequently,  the

National  Commission  held  that  having  accepted  the  policy  without  the  STFI

cover, both the bank and the borrower were estopped from questioning the terms

of the policy. The National Commission held that the bank had specifically stated

in its reply before the State Commission that a copy of the insurance policy was

given to the borrowers and that the premium amount which was returned back by

the  insurance  company had been credited to  their  account.  It  noted that  the

receipt of the insurance policy had not been specifically denied in the rejoinder

filed by the complainants before the State Commission though there was a vague

denial  of  the  averments  in  the  corresponding  paragraph  of  the  reply.  In  this

background, the National Commission observed that the appellants did not take

up the issue of the exclusion of the STFI perils with the insurer nor did they call

upon the bank to do so. It  was noted that though the appellants received the

premium amount in their account, they did not seek any explanation in regard to

8

the refund of the premium. In this view of the matter, the National Commission

allowed the appeal filed by the bank and set aside the State Commission’s order.

15 Mr Mehul  Shah,  learned counsel  appearing on behalf  of  the appellants

submitted that clauses 3(2) and 4(1) of the notification issued by the Insurance

Regulatory and Development Authority on 16 October 2002 provides as follows:

“3(2) An insurer or its agents or other intermediatory shall provide all material information in respect of a proposed cover to the prospect to enable the prospect to decide on the best cover that would be in his or her interest.”

“4(1) Except in cases of a marine Insurance cover, where current  market  practices  do  not  insist  on  a  written proposal form in all cases, a proposal for grant of a cover, either for life business or for general business, must be evident by a written document. It is the duty of an insure to furnish to the insured free of charge, within 30 days of the  acceptance  of  a  proposal,  a  copy  of  the  proposal form.”

16 Learned counsel submitted that the insurer did not intimate the exclusion

of STFI perils at the time of the renewal of the policy either in 2005-06 or 2006-

07.  Moreover, the proposal form was not remitted either to the bank or to the

appellants within a period of 30 days, or at any time. It was urged on behalf of the

appellants that the policy issued in 2005-06 was in the nature of a renewal and

though the proposal form indicated that the risk would commence on 3 August

2005 and not on 2 August 2006, the policy of Rs 60 lakhs was issued on 1 August

2005. The grievance of the appellants is that the proposal form for 2005-06 had

been signed by the Manager of the bank and the appellants were not aware of

the proposal  by the bank which was acting as the corporate agent of the insurer.

It  was  urged  that  the  cheque  of  Rs  29,038  dated  1  August  2005  was  duly

encashed by the insurer and it was only on 26 September 2005 that an amount of

9

Rs 992 was returned to the bank without a written intimation about the exclusion

of STFI perils by the insurer.  Learned counsel submitted that the policies for

2005-06 and 2006-07 were not new policies but renewals and hence the insurer

could not have excluded the STFI perils. In this context, reliance was placed on

the judgment of this Court in Biman Krishna Bose v United India Insurance Co

Ltd3.

17 On  the  other  hand,  Mr  Sukumar  Pattjoshi,  learned  Senior  Counsel

appearing on behalf  of  the first  respondent bank submitted that there was no

deficiency of service on the part of the bank. It was argued that under the terms

of the hypothecation agreement, the duty of obtaining an insurance cover was

primarily  that  of  the  appellants  as  borrowers.  Supporting  the  findings  of  the

National Commission, it was urged that the bank had specifically denied having

entered  an incorrect  address or  a  different  address in  the  proposal  form.  Mr

Pattjoshi urged that the bank had specifically stated that a copy of the policy had

been  furnished  to  the  insured.  The  appellants  could  not,  hence,  disavow

knowledge of the fact that STFI perils stood excluded from the insurance cover.   

18 Mr K K Bhat, learned counsel appearing on behalf of the third respondent

urged that the insurance cover of Rs 60 lakhs did not cover STFI perils. Though

the bank had remitted the entire premium, the insurer had returned a part of the

premium covering STFI perils. The cheque returning the premium amount of Rs

992  was  deposited  by  the  bank  in  the  account  of  the  appellants.  Mr  Bhat

submitted that it was a commercial decision of the insurer to exclude STFI perils

3 (2001) 6 SCC 477

10

from the insurance cover of Rs 60 lakhs and therefore, the insurer could not be

made liable. It was urged that since the appellants received the policy from the

bank, it was not open to them to disclaim knowledge of the exclusion or of the

deposit of the premium into their account.  

19 The rival submissions fall for consideration.  

20 This Court, while interpreting the contract of insurance must interpret the

words of the contract by giving effect to the meaning and intent which emerges

from the terms of the agreement. In a Constitution Bench decision of this Court in

General Assurance Society Ltd v Chandumull Jain4, it was observed thus:

“11. ...In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is  not  for  the  court  to  make  a  new  contract,  however reasonable, if the parties have not made it themselves...”

The  court  through  its  interpretative  process  cannot  rewrite  or  create  a  new

contract  between  the  parties.  The  court  has  to  simply  apply  the  terms  and

conditions of the agreement as agreed between the parties.  

21 In the present case, the policy of insurance with a cover of Rs 60 lakhs for

the period 2004-05 was issued for the location at B 205, Plot No 17-B, Village

Karnaj.  The  insurance  policy  for  2005-06  was  sought  for  different  premises

situated at 12/1123-1124, Basement, Meghdoot Apartment, Surat. The address

mentioned in  the policy for  2004-05 differs from that  of  2005-06.  The insurer

proceeded  on  the  basis  that  this  was  a  ‘fresh  contract  of  insurance’.  The

4 AIR 1966 SC 1644

11

insurance policy for 1 August 2005 to 31 July 2006 was issued with the exclusion

of STFI perils. This is clear from the use of words “Warranted that STFI risk is

excluded from the risk” in the above insurance policy. The terms of the policy will

govern  the  contract  between  the  parties.  The  STFI  risks  were  specifically

excluded from the coverage of the policy.  The extra premium of Rs 992 was

refunded  by  the  insurer  to  bank  and  the  bank  deposited  the  amount  in  the

appellants’ account.  

22 Section 64(VB) of the Insurance Act 1938 provides as follows:

“64VB. No risk to be assumed unless premium is received in advance.—(1) No insurer shall assume any risk in India in respect of any insurance business on which premium is not ordinarily payable outside India unless and until  the premium payable is received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until deposit of such amount as may be prescribed, is made in advance in the prescribed manner.  

(2) For the purposes of this section, in the case of risks for which premium can be ascertained in advance, the risk may be assumed not earlier than the date on which the premium  has  been  paid  in  cash  or  by  cheque  to  the insurer.  

Explanation.  —Where the premium is tendered by postal money  order  or  cheque sent  by  post,  the  risk  may  be assumed on the date on which the money order is booked or the cheque is posted, as the case may be.  

(3) Any refund of premium which may become due to an insured  on  account  of  the  cancellation  of  a  policy  or alteration in its terms and conditions or otherwise shall be paid by the insurer directly to the insured by a crossed or order  cheque  or  by  postal  money  order  and  a  proper receipt shall be obtained by the insurer from the insured, and  such  refund  shall  in  no  case  be  credited  to  the account of the agent.  

12

(4)  Where an insurance agent collects a premium on a policy  of  insurance  on  behalf  of  an  insurer,  he  shall deposit  with,  or  dispatch  by  post  to,  the  insurer,  the premium  so  collected  in  full  without  deduction  of  his commission  within  twenty-four  hours  of  the  collection excluding bank and postal holidays.  

(5)  The  Central  Government  may,  by  rules,  relax  the requirements  of  sub-section  (1)  in  respect  of  particular categories in insurance policies.  

(6) The Authority may, from time to time, specify, by the regulations made by it, the manner of receipt of premium by the insurer.”

23 The above provision states that no risk can be assumed by the insurer

unless the premium payable is received in advance. Sub-Section (3) of Section

64 (VB) provides for refund of the premium amount to the insured in case of

cancellation or alteration of the terms and conditions of the policy. In the present

case, the premium of Rs 992 to cover STFI perils was refunded by the insurer to

the bank and the amount was deposited in the insured’s account. The proposal

does not conclude the contract. A contract postulates an agreement between the

parties. In the present case, the insurer while issuing the new policy at a fresh

location specifically excluded STFI perils and refunded the premium. The insured

at the time when the loss occurred was covered by a policy that excluded STFI

perils. Therefore, the insurer cannot be held to be liable. To hold to the contrary

would  be  rewriting  the  agreement  between  the  parties  and  creating  a  fresh

contract to which the parties had not agreed.  

24 The  bank  in  its  written  statement  filed  before  the  State  Commission,

specifically averred in paragraph 2 that:

“..The real fact is that one copy of the Policy is given to the Complainant and from this the Complainant can know

13

the fact. One copy of the said Policy was given to them. Moreover, the Premium Amount which was returned back was debited in  their  Account.  They could have inquired from this that what this Premium Amount was returned by the Insurance Company.”

The appellants in their rejoinder did not specifically deny the averment that they

were furnished with a copy of the policy. The appellants have also not denied the

fact  that  the  premium on account  of  STFI  perils  which  was  refunded by  the

insurer was credited to their account. This being the position, it is not open to the

appellants  to  disavow  knowledge  of  the  exclusion  of  the  STFI  perils  in  the

insurance cover of Rs 60 lakhs which was issued for 2005-06 and renewed for

2006-07.  

25 The appellants have placed reliance on the decision of this Court in Biman

Krishna Bose v United India Insurance Co Ltd5, where this court while dealing

with a mediclaim policy, observed:

“5. A renewal of an insurance policy means repetition of  the  original  policy.  When  renewed,  the  policy  is extended  and  the  renewed  policy  in  the  identical terms from a different  date  of  its  expiration comes into force. In common parlance, by renewal, the old policy  is  revived  and  it  is  sort  of  a  substitution  of obligations under the old policy unless such policy provides otherwise. It may be that on renewal, a new contract comes into being, but the said contract is on the same terms and conditions as that of the original policy. Where an insurance company which has exclusive privilege to carry on insurance business has refused to renew the mediclaim policy of an insured on extraneous and  irrelevant  consideration,  any  disease  which  an insured had contacted during the period when the policy was not renewed, such decease cannot be covered under a fresh insurance policy in view of the exclusion clause. The  exclusion  clause  provides  that  the  pre-existing diseases would not be covered under the fresh insurance policy. If we take the view that the mediclaim policy cannot be renewed with retrospective effect, it would give handle to the insurance company to  refuse the renewal  of  the

5 (2001) 6 SCC 477

14

policy  on  extraneous  consideration  thereby  deprive  the claim  of  insured  for  treatment  of  diseases  which  have appeared during the relevant time and further deprive the insured for all time to come to cover those diseases under an insurance policy by virtue of the exclusion clause. This being the disastrous effect of wrongful refusal of renewal of the insurance policy, the mischief and harm done to the insured must be remedied. We are, therefore, of the view that once it is found that the act of an insurance company was arbitrary in refusing to renew the policy, the policy is required to be renewed with effect from the date when it fell due for its renewal.”

          (Emphasis supplied)

26 The above case, as the extract indicates, dealt with a situation where the

act  of  the  insurer  in  refusing  to  renew the  mediclaim policy  was  held  to  be

arbitrary. This Court noted the serious consequence flowing out of the arbitrary

refusal to renew the contract since it would result in the exclusion of the cover

and the rejection of  the claim in respect  of  a disease which the insured had

contracted during the period when the policy was not renewed. The situation in

the present case is clearly distinguishable. The terms and conditions of the new

policy specifically excluded STFI perils and evidently there was a change in the

obligations of the insurer. There was no renewal but the issuance of a new policy.

The  change  in  the  location  of  the  premises  in  the  present  case  led  to  the

issuance of a new policy. It was open to the insurer to specifically exclude STFI

perils as a commercial decision. The appellants had knowledge of the exclusion

of  the  STFI  perils  as  they were  provided with  a  copy of  the  policy  and also

received the refund of the premium. Having lodged no protest with the insurer

during 2005-06 or in the renewed term of 2006-07, the insured cannot lay a claim

that they had no knowledge that the STFI cover was excluded from the insurance

15

cover. Nothing prevented the appellants from either approaching the insurer or

any other insurance company for obtaining a policy that covered STFI perils.

27 For the above reasons, we are of the view that there is no merit in the

present appeal.  The appeal shall, accordingly, stand dismissed but with no order

as to costs.               

   …….……..…...…...….......………………........J.                                                    [DR DHANANJAYA Y CHANDRACHUD]

……....…..…....…........……………….…........J.             [AJAY RASTOGI]

New Delhi;  January 28, 2020

16