Holding

The exclusion clause is not attracted as there was no entrustment of the jewellery to the customer, so the loss is covered by the policy.

Summary

The respondent, a jeweller, insured his jewellery against theft with National Insurance Co. Ltd. The policy contained an exclusion clause that denied cover for theft by a "customer" of property "entrusted" to them. An unknown customer entered the shop and stole jewellery. The insurer denied the claim invoking the exclusion, but the State Consumer Commission upheld the claim, a decision affirmed by the High Court. On appeal, the Supreme Court held that the exclusion clause did not apply because there was no entrustment of the jewellery to the customer and the term "customer" must be read ejusdem generis to mean a trusted person. The Court emphasized that where an exclusion is ambiguous, the contract must be construed in favour of the insured and the insurer bears the burden of proving the clause applies. Consequently, the loss was covered and the appeal was dismissed.

Issues considered

Whether the exclusion clause covering theft by a "customer" of property "entrusted" to them applies to the present theft by an unknown customer.
How the terms "entrustment" and "customer" should be interpreted in the context of the insurance policy.
Whether the insurer bears the burden of proving that the exclusion clause is triggered.
Whether ambiguity in an insurance contract must be resolved in favour of the insured.

Legislation cited

Indian Penal Code, 1860s. 378, s. 405

Subjects

insuranceexclusion clauseentrustmenttheftcontract interpretationburden of proofconsumer protectionjewellery business

Judgment

A NATIONAL INSURANCE CO.LTD.
_.\ -
v.
MIS. ISHAR DAS MADAN LAL

FEBRUARY 20, 2007

B [S.B. SINHA AND MARKANDEY KA TJU, JJ.]

Insurance:
-f. ~

::..
Contract of Insurance-Exclusion clause-Interpretation a-nd
c applicability of-Held: Wherever an exclusionary clause is contained in a
policy, it is for the insurer to show that the case falls within the purview
thereof---In case of ambiguity, the contract shall be construed in favour of the
insured,

Insurance policy-Covering risk of loss by theft-Obtained by insured-
D jeweller in respect of jewellery-Policy contained express clause excluding
applicability of insurance cover to theft by customer ofjewellery "entrusted"
to him by insured-Unknown customer stole jewellery from business premises
of insured-Applicability of exclusion clause contained in the policy-Held,
not applicable since there was no "entrustment" of jewellery by insured to
E thP. customer who committed theft-Hence, loss in question covered by the
policy--Penal Code, I860--ss. 378 & 405.

Words and Phrases-"entrustment" and "customer"-Meaning of-
Discussed.

F Respondent carries on business in jewellery. He obtained insurance
policy from Appellant-insurer inter alia covering the risk of loss by theft in
respect of jewellery. The policy contained an express clause excluding the ·
applicability of insurance cover in case of loss by theft, inter alia, by a
customer in respect of the property (jewellery) entrusted to him by Respondent-
insurer. An unknown customer entered the business premises of Respondent
G and stole 140 gms of jewellery. Respondent lodged claim in respect of the
said loss. State Commission dismissed the claim holding that it was not covered
..
by the insurance policy. High Court however held that the loss was covered ,...
by the policy.

H 1014 .....
NA TI ON AL INSURANCE CO. LTD."· ISHAR DAS MADAN LAL 1QJ5

The question which arose for consideration in the present appeal is A
whether the said loss in question attracted the exclusion clause contained in
insurance policy and hence was not covered by the policy.

Dismissing the appeal, the Court

HELD: 1. The view taken by the High Court is correct. (Para 23) B
2.1. There may be an express clause excluding the applicability of
insurance cover. Wherever such exclusionary clause is contained in a policy,
it would be for the insurer to show that the case falls within the purview
thereof. In a case of ambiguity, the contract of insurance shall be construed
in favour of the insured. (Para 8) (1018-D) C

2.2. Exclusion clause in the contract of insurance would be attracted
only where the offences specified therein are committed by any of the persons
mentioned therein. For defeating the claim of the respondent, it was, thus,
obligatory on the part of the appellant to establish that the conditions D
prescribed therein were satisfied. (Para 9) (1018-E)

United India Insurance Co. Ltd. v. Pushpalaya Printers, [2004) 3 SCC
694;, Mis Peacock Plywood Pvt. Ltd. v. The Oriental Insurance Co. Ltd.,
(2006) 14 SCALE 300 and United India Insurance Co. Ltd. v. Kiran Combers
& Spinners [2007) 1 sec 368, relied on. E
3.1. The word 'entrust' would imply giving responsibility to a person
upon whom the owner has confidence. It envisages establishment of a
relati&nship. When a custoiner enters into a jewellery shop, as of necessity,
the owner or his agent must allow him to inspect the merchandise, the
customer intends to purchase. For the said purpose possession in the legal F
sense is not handed over. The owner or his agent does not lose complete cmitrol
thereover. [Para 12) (1019-E)

3.2. The word 'customer' contained in said exclusion clause of the
Insurance Policy must be read ejusdem generis. A customer contemplated
thereunder must have to be one who would be a man of trust. If a customer is G
n11t a man of trust or the property had not been entrusted to him, the exclusion
clause would not apply. The customer who committed theft of jewellery was
an unknown person. It was so categorically stated in the First Information
Report. There was, thus, no occasion for the respondent to entrust the jewellery
to him. [Para 13) [1019-F-G) H
1016 SUPREME COURT REPORTS [2007] 2 S.C.R.

A 3J. Transfer of possession of goods Is a sine qua non for entrustment.
The person must be handed over the possession of the property. Illustration
(d) appended to Section 378 IPC envisages a situation of this nature. It by no
stretch of imagination would have contemplated a situation where an unknown
customer would have committed theft. The word 'entrustment', moreover, must
B be read in the context in which it has been used. [Paras 17 & 18) (1020-D-E]

The State of Gujarat v. Jaswant Lal Natha Lal, (1968] 2 SCR 408;
Superintendent and Remembrancer of Legal Affairs, W.B. v. S.K. Roy, AIR
(1974) SC 794 and Ram Narayan Popli etc. v. Central Bureau ofInvestigation
etc., (2003] 3 sec 641, relied on.
c Advanced Law Lexicon by P. Ramanatha Aiyar 3rd Edn., Book 2,
page1613; Black's Law Dictionary, 8th Edn.; Webster's Universal Dictionary
and Co/invaux's Law of Insurance, by Robert Merkin, 7th Edn., page 50,
referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 6113 of2000.
D
From the final Judgment and order dated 10.9.1999 of the High Court of
Jammu and Kashmir at Jammu/Srinagar in CIMA No. 21/1998. -t

Vishnu Mehra and B.K. Satija for the Appellant.
E M.L. Bhat, Pumima Bhat for the Respondent.

The Judgment of the Court was delivered by

S.B. SINHA, J. I. Appellant insurer is before us questioning the
F correctness or otherwise of a judgment and order dated 10.09.1999 passed by
a Division Bench of the High Court of Jam mu & Kashmir in CIMA 21 of 1998
allowing the appeal preferred by the respondent herein from a judgment and
order dated 16.12.1997 p~ssed by the Jammu & Kashmir Consumers Protection
Commission.

G 2. Respondent herein carries on business in jewellery It obtained. a
policy known as 'Jeweller Block Policy'. A theft of 140 gms of jewellery worth
of Rs.63,000/- occurred in his business premises. A First Information Report
was lodged therefor. Respondent also lodged a claim with the appellant
herein. The same having not been settled for a long time, an application was
filed before the State Consumers Protection Commission constituted under
H the J & K Consumers Protection Act, 1987.
" ----+

NATIONALINSURANCECO. LTD. v. ISHAR DAS MADAN LA~ [S.B. SINHA,].] 1017
3. The question raised before the Commission was as to whether the A
-~ loss in question was covered by the insurance policy. Appellant contended
that the claim of the respondent is covered by an exclusion clause contained
in the policy, which reads as under :

"8. Loss or damage occasioned by theft or dishonesty or any attempt
there at committed by or where such loss or damage has been expedited B
or in any way sustained or brought about by :

(a) any of the insured's family members;
• (b) any servant or traveler or messenger in the exclusive employment
of the insured; c
(c) any customer or broker or their customer or angadias or cutters or
goldsmiths in respect of the property hereby insured entrusted to
them by the insured his or their servants or agents."

4. The Commission by reason of its order dated 16.12.1997, inter alia,
D
found the said claim to be not sustainable on the ground that the loss was
not covered by the said policy, stating :

" .. .It appears to us tl::at while preparing the insurance agreement the
insurer was aware of the fact that this could be the easiest way for
any Jeweller to raise claims against the insurance companies and that E
is why this clause has been deliberately introduced and theft by
customer if any has been put in exclusive clause of the policy ... "

5. The High Court, as indicated herein before, by reason of its judgment
,..,,
and order dated 10.09.1.999, did not agree therewith. It was held :
~ F
"What is meant by the tenn 'entrustment' does handing over of
jewellery to a custo.mer amounts to entrustment. The dictionary
meaning of the word 'entrust' would be to give to another for care,
protection or to commit something trustfully or plays trust upon a
person'. If a customer enters the premises of a shopkeeper and
examines some movable property and takes away the same, then there G
hardly arises any occasion for entrustment to such a customer. In the .
-,. present case a customer entered the business premises and removed
140 gms. of Jewellery. There was no entrustment on the part of the
owner to the custo111er. The act of removal of the goods by the
customer is nothing but a plain theft. This is a dishonest taking and
H
1018 SUPREME COURT REPORTS [2007] 2 S.C.R.

A removing the property by the customer with the intent of permanently
depriving the owner."

6. A short question which, thus, arises for our consideration is as to
whether clause 8 of the policy is applicable to the facts and circumstances
of the present case.
B
7. It is not in dispute that an insurance cover against theft was granted
by the appellant. The insurance policy, thus, covered the risk of theft also.
An insurer determines the extent of its risk. It floats the policy knowing fully
well the risk it seeks to cover. Having regard to the determination of the risk
only he fixes the quantum of premium. The insured while entering into a
C contract of insurance must precisely know the extent of his cover so that he
may take out additional insurance if it is so required.

8. However, there may be an express clause excluding the applicability
of insurance cover. Wherever such exclusionary clause is contained in a
D policy, it would be for the insurer to show ihat the case falls within the
purview thereof. In a case of ambiguity, it is trite, the contract of insurance
shall be construed in favour of the insured. [See United India Insurance Co.
Ltd v. Pushpalaya Printers, (2004) 3 SCC 694, Mis Peacock Plywood Pvt.
Ltd v. The Oriental Insurance Co. Ltd, (2006) 14 SCALE 300 and United
India Insurance Co. Ltd. v. Kiran Combers & Spinners, [2007] I SCC 368].
E
9. Clause 8 of the contract of insurance would be attracted only where
the offences specified therein are committed by any of the persons mentioned
therein. For defeating the claim of the respondent, it was, thus, obligatory on
the part of the appellant to establish that the conditions prescribed therein _,
were satisfied.
F
10. Keeping in view the aforementioned legal aspect of the matter, we
may advert to.the meaning of the word 'entrust'. Its ordinary meaning, would
mean "to charge or invest with a trust; to commit to another with a certain
confidence regarding his care" (See Advanced Law Lexicon by P. Ramanatha
G Aiyar 3rd Edn. Book 2 page1613].

11. It requires no elaboration that offences of 'breach of trust' and
'theft' contain different ingredients. Whereas theft has been defined in Section ,_
378 of the Indian Penal Code; breach of trust has been defined in Section 405
thereof, which read as under :
H
NATIONAL!NSURANCECO. LTD. v. ISHARDAS MADAN LAL[S.B. SINHA,J.] J019

"378. Theft.- Whoever, intending to take dishonestly any moveable A
property out' of the possession of any person without that person's
consent, moves that property in order to such taking, is said to
commit theft."

Illustration (d) appended thereto reads as under :
B
"(d) A, being Z's servant, and entrusted by Z with the care of Z's
plate, dishonestly runs away with the plate, without Z' s consent. A
has committed theft."

"405. Criminal breach of trust.-Whoever, being in any manner
entrusted with property, or with any dominion over property, C
dishonestly misappropriates or converts to his own use that property,
or dishonestly uses or disposes of that property in violation of any
direction of Jaw prescribing the mode in which such trust is to be
discharged, or of any legal contract, express or implied, which he has
made touching the discharge of such trust, or willfully suffers any
other person so to do, commits "criminal breach of trust"" D
12. The word 'entrust' would imply giving responsibility to a person
upon whom the owner has confidence. It envisages establishment of a
relationship. When a fUStomer enters into a jewellery shop, as of necessity,
the owner or his agent must allow him to inspect the merchandise, the
customer intends to purchase. For the said purpose possession in the legal E
sense is not handed over. The owner or his agent does not loose complete
control thereover.

13. For the purpose of arriving at a conclusion as to whether the
exclusion clause is attracted or not, loss or damage must be occasioned, inter F
alia, by a customer in respect of the property entrusted to him. The word
'customer' contained in clause 8 (c) of the Insurance Policy must be read
ejusdem generis. A customer contemplated thereunder must have to be one
who would be a man of trust. If a customer is not a man of trust or the
property had not been entrusted to him, the exclusion clause would not apply.
The customer who committed theft of jewellery was an unknown person. It G
was so categorically stated in the First Information Report. There was, thus,
no occasion for the respondent to entrust the jewellery to him.

14. Mr. Vishnu Mehra, the learned counsel appearing for the appellant
has relied upon the meaning of the word 'entrust' as contained in Black's Law
Dictionary, 8th Edn. and Webster's Universal Dictionary. H
t/
1020 SUPREME COURT REPORTS [2007] 2 S.C.R.

A 15. In Black's Law Dictionary, the word 'entrust' has been defined as -+~
under :

"To give (a person) the responsibility for something after establishing
a confidential relationship."

B 16. In Webster's Universal Dictionary meaning of the word 'entrust'
reads as under:
' '
"To confer as a responsibility, duty etc. to place, something in another's
care." -t ~

c goes against
17. Apart from the fact that the said meaning of the term 'entrustment'
the submission Mr. Mehra, we may notice that in Black's Law
Dictionary the word 'entrusting' in commercial law has been described as
"The transfer of possession of goods to a merchant who deals in goods of
that type and who may in turn transfer the goods and all rights to them to
a purchaser in the ordinary course of business." Transfer of possession of
D goods, therefore, is a sine qua non for entrustment. The person must be
handed over the possession of the property. Illustration (d) appended to
l
Section 378 IPC envisages a situation of this nature. It by no stretch of
imagination would have contemplated a situation where an unknown customer
would have committed theft.
E 18. The word 'entrustment', moreover, must be read in the context in
which it has been used.

19. Jn Colinvaux's Law of Insurance, 7th Edn., by Robert Merkin at page
50, it is stated :
..\-
F "Words in context

The above generality is not applicable when it is clear from the
context that the words are not used in a colloquial popular sense.
Thus the word "flood" in the phrase "strom, tempest or floor" does
not cover a case where a house-holder's bathroom is affected by
G upward seepage of water to a depth of three inches, as the context ...
of the word requires an event violent, sudden or abnormal. Similarly,
.....
heavy rain is not in itself likely to constitute a storm. It has also been
held tha! the phrase "sum actually paid" in a reinsurance agreement
referred to a sum which the reinsured is merely liable to pay, as the
H agreement read as a whole was against liability rather than actual
~·
(

NATIONAL INSURANCE CO. LTD.'" ISHAR DAS MADAN LAL [S.B. SINHA J.] 102 J
payment." A
20. In The State ofGujarat v. Jaswant Lal Natha Lal, (1968] 2 SCR 408,
this Court held :

" ...The expression 'entrustment' carries with it the implication that the
person handing over any property or on whose behalf that property B
is handed over to another, continues to be its owner. Further the
person handing over the property must have confidence in the person
taking the property so as to create a fiduciary relationship between
them. A mere transaction of sale cannot amount to an entrustment..."

21. In Superintendent and Remembrancer of Legal Affairs, W.B. v. S.K. C
Roy, AIR(1974) SC 794, this Court held:

"12. To constitute an offence under Section 409 IPC, it is not required
that misappropriation must necessarily take place after the creation of
a legally correct entrustment or dominion over property. The
entrustment may arise in any manner whatsoever. That manner may D
or may not involve fraudulent conduct of the accused. Section 409
+ IPC, covers dishonest misappropriation in both types of cases; that
is to say, those where the receipt of property is itself fraudulent or
improper and those where the public servant misappropriates what
may have been quite properly and innocently received. All that is E
required is what may be described as entrustment or acquisition of
dominion over property in the capacity of a public, servant who, as
a result of it, becomes charged with a duty to act in a particular way,
or, atleast honestly."

22. Yet again in Ram Narayan Popli etc. v. Central Bureau of F
Investigation etc., (2003] 3 SCC 641, it was held :

"361. To constitute an offence of criminal breach of trust, there must
be an entrustment, there must be misappropriation or conversion to
one's own use, or use in violation of a legal direction or of any legal
contract; and the misappropriation or conversion or disposal must be G
with a dishonest intention. When a person allows others to
misappropriate the money entrusted to him, that amounts to a criminal
breach of trust as defined by Section 405. The section is relatable to
property in a positive part and a negative part. The positive part deals
with criminal misappropriation or conversion of the property and the
H
1022 SUPREME COURT REPORTS [2007] 2 S.C.R.

A negative part consists of dishonestly using or disposing of the
property in violation of any direction and of law or any contract
touching the discharge of trust.

362. In Jaswantrai Manila! Akhaney v. State of Bombay, it was held
that if the Managing Director of the Bank entrusted with securities
B owned by the pledgor disposes of their securities against the stipulated
terms of the contract entered into by the parties with an intent to
cause wrongful loss to the pledgor and wrongful gain to the Bank,
there can be no question but that the Managing Director has
necessarily mens rea required by Section 405. f -

C 363. The term entrustment is not necessarily a term of Jaw. It may have
different implications in different contexts. In its most general
signification all it imports is the handing over possession for some
purpose which may not imply the conferring of any proprietary right
at all.

D 364. When a person misappropriates to his own use the property that
does not belong to him, the misappropriation is dishonest even though
there was an intention to restore it at some future point of time."

23. We, therefore, are clearly of the opinion that the view taken by the
High Court was correct. The High Court's judgment is upheld. The appeal is
E dismissed. We, in the facts and circumstances of this case, also direct the
appellant to pay and bear the cost of the respondent throughout. Counsel's
fee in this appeal is assessed at Rs.50,000/-.

B.B.B. Appeal dismissed.