NEW INDIA ASSURANCE COMPANY LIMITEDversusRAJESHWAR SHARMA AND ORS.

                        [2018] 14 S.C.R. 1181                             1181


        NEW INDIA ASSURANCE COMPANY LIMITED                               A
                                  v.
               RAJESHWAR SHARMA AND ORS.
                  (Civil Appeal No. 11885 of 2018)
                       DECEMBER 07, 2018                                  B
        [DR. DHANANJAYA Y CHANDRACHUD AND
                   M. R. SHAH, JJ.]
       Consumer Protection – Insurance Policy – Exclusion clause
exempting the insurer from liability – When attracted – Municipal         C
Corporation demolished the front portion of the building owned by
the insured – Claim of the insured that it was carrying on the business
of sanitaryware in the premises and as a result of the demolition, it
suffered damage of Rs.19.55 lacs – Insurer contested the claim on
a policy of insurance obtained by the insured which contained
exclusion exempting the insurer from liability for loss arising from      D
the destruction of property caused “by order of the government or
any lawful authority” – Claim allowed by the State Commission –
Affirmed by the High Court – On appeal, held: 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           E
lawfully constituted authority” – Expression “by order of” means
under the authority of government or of a lawfully constituted
authority – Municipal Corporation is indeed a lawfully constituted
authority, being a statutory authority under the 2000 Act – There is
no dispute that the demolition was carried out by the Municipal
Corporation – Hence the basis on which the claim was allowed was          F
fundamentally flawed – Since, the destruction was by order of
lawfully constituted authority, thus, exclusion under the policy of
insurance was attracted – Impugned judgment of the High Court
set aside – Complaint filed by the insured before the State Commission
stands dismissed – Jammu and Kashmir Municipal Corporation Act            G
2000 – s.229.
      Disposing of the appeals, the Court
     HELD: 1.1 There was no dispute about the fact that the
demolition was carried out under the authority of the Municipal
                                                                          H
                                 1181
1182               SUPREME COURT REPORTS                  [2018] 14 S.C.R.


 A     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 instituted a suit for diverse reliefs including a
       challenge to the action of the Municipal Corporation. Hence the
 B
       basis on which the claim was allowed is fundamentally flawed.
       [Para 11][1187-E-F]
             1.2 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
 C     expression “by order 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.
 D     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
 E     attracted. [Paras 14][1188-E-G]
              1.3 Both the State Commission and the High Court were
       in error in allowing the claim under the policy of insurance. The
       impugned judgment of the High Court which has affirmed the
       decision of the State Consumer Disputes Redressal Commission
 F     is set aside. The complaint filed by the insured before the State
       Commission stands dismissed. [Para 16][1191-B-D]
             National Insurance Company v. Irshad (2007) 4 SCC
             105 : [2007] 2 SCR 1014 – referred to.

 G           Cornish v. Accident Insurance Co Ltd (1889) 23 Q.B.D.
             453, 456 ; Impact Funding Solutions Ltd v. Barrington
             Support Services Ltd [2016] UKSC 57 ; Crowden and
             Crowden v. QBE Insurance (Europe) Ltd QC : [2017]
             EWHC 2597 (Comm) – referred to.

 H
             NEW INDIA ASSURANCE COMPANY LIMITED v.                          1183
                        RAJESHWAR SHARMA

          AW Baker Welford : The Law Relating to Accidental                  A
          Insurance (Butterworth & Co., 1923) at page 126 –
          referred to.
                             Case Law Reference
[2007] 2 SCR1014                   referred to             Para 10
                                                                             B
      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 11885
of 2018.
      From the Judgment and Order dated 28.07.2016 of the High Court
of J & K at Jammu in CIMA No. 249 of 2015.
                                    With                                     C
          Civil Appeal No. 11886 of 2018.
     Manoj K. Mishra, Ms. Awantika Manohar, Prashant Kumar and
Ms. Parul Pradhan, Advs. for the Appellant.
      Jayant Bhushan, Sr. Adv., Jagdev Singh, Manoj K. Mishra,               D
Jyoti Mishra, Sukumar, Umesh Dubey, Sachin Saini, Manoj K. Mishra,
M. Shoeb Alam, Ujjwal Singh and Mojahid Karim Khan, Advs. for the
Respondent.
          The Judgment of the Court was delivered by
          DR. DHANANJAYA Y CHANDRACHUD, J.                                   E

          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            F
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       G
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
1
    “The State Commission”                                                   H
1184                 SUPREME COURT REPORTS                       [2018] 14 S.C.R.


 A     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 Corporation Act 2000, he had
       approached the Jammu and Kashmir Special Tribunal which compounded
       the infraction in 1996. The Municipal Corporation initiated a demolition
 B
       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
 C     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
 D     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:-
 E           a)    xxxx
             b)    Permanent or temporary dispossession resulting from
                   confiscation, commandeering, requisition or destruction by
                   order of the Government or any lawfully constituted
                   Authority.”
 F
             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
 G
       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 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
 H
  NEW INDIA ASSURANCE COMPANY LIMITED v. RAJESHWAR                              1185
     SHARMA [DR. DHANANJAYAY CHANDRACHUD, J.]

incumbent on the insurer to establish that the exclusion contained in the       A
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.
                                                                                B
       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:                                                      C

      “5) That after the constitution of the Municipal Corporation,
      Municipal Corporation had started demolition drive to remove the
      encroachment and illegal constructions.
      6) …..                                                                    D
      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.                                     E
      8) …..
      9) …..
      10) That the Municipal Commissioner, Jammu without any
      authority and taking law into his own hands in violation of the
                                                                                F
      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           G
      Fixture etc. were insured by the 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.
                                                                                H
1186                 SUPREME COURT REPORTS                     [2018] 14 S.C.R.


 A           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
 B
             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
 C     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
 D     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
 E     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
 F           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…”
             8. The above order permitted the municipal authorities to take
 G     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
 H
      NEW INDIA ASSURANCE COMPANY LIMITED v. RAJESHWAR                        1187
         SHARMA [DR. DHANANJAYAY CHANDRACHUD, J.]

only “the new illegal construction”. The Municipal Corporation has also       A
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        B
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        C
judgment of this Court in National Insurance Company v Irshad2.
This Court has held that 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     D
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      E
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         F
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       G
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 submission of counsel, requires that the action of
the municipal authority or governmental authority (in the present case)
2
    (2007) 4 SCC 105                                                          H
1188                     SUPREME COURT REPORTS                         [2018] 14 S.C.R.


 A     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.
 B            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.
 C     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
 D     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
 E     expression “by order 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
 F     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
 G
       interpretation of exclusionary clauses in insurance policies is no different.
       In Cornish v Accident Insurance Co Ltd 3, 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:
       3
 H         Queen’s Division Bench as per Lord Lindley L.J. (1889) 23 Q.B.D. 453, 456
    NEW INDIA ASSURANCE COMPANY LIMITED v. RAJESHWAR                                1189
       SHARMA [DR. DHANANJAYAY CHANDRACHUD, J.]

       “… in a case of real doubt, the policy ought to be construed most            A
       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.”
                                                                                    B
       According to The Law Relating to Accidental Insurance4,
insurers are exempt from any liability where the loss is attributable to an
excepted cause 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:
                                                                                    C
       “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           D
       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,       E
       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.                                                                               F
      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
                                                                                    G
       with a pre-disposition to construe it narrowly. Like any other
       provision in a contract, words of exception or exemption must be
4
  AW Baker Welford : The Law Relating to Accidental Insurance (Butterworth & Co.,
1923) at page 126
5
  Supreme Court as per Lord Toulson JSC (with whom Lord Mance, Lord Sumption
and Lord Hodge JJSC agreed) [2016] UKSC 57                                          H
1190                 SUPREME COURT REPORTS                         [2018] 14 S.C.R.


 A            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 which is
 B
              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
 C            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
 D     Impact Funding Solutions Ltd v Barrington Support Services
       Ltd6 were relied upon by the England and Wales High Court (Commercial
       Court) in the case of Crowden and Crowden v QBE Insurance
       (Europe) Ltd7.
             While dealing with the question of construction of insurance
 E     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 -
 F             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
 G            construction. That said, there may be occasions, where there is a
              genuine ambiguity in the meaning of the provision, and the effect
       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
 H     QC :[2017] EWHC 2597 (Comm)
  NEW INDIA ASSURANCE COMPANY LIMITED v. RAJESHWAR                               1191
     SHARMA [DR. DHANANJAYAY CHANDRACHUD, J.]

      of one of those constructions is to exclude all or most of the             A
      insurance cover which was intended to be provided. In that event,
      the Court would be entitled to opt for the narrower construction…”
        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         B
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           C
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            D
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 allowed. The appeal filed by the insured
shall stand dismissed. There shall be no order as to costs.
                                                                                 E
Divya Pandey                                              Appeals disposed of.




                                                                                 F




                                                                                 G




                                                                                 H