Holding

The insurer is not liable because the Rs 60 lakh policy for 2005‑06 expressly excluded STFI perils and the appellants had knowledge of this exclusion, so the contract must be applied as written.

Summary

The appellants hypothecated goods to The Surat People’s Co‑operative Bank and were required to insure them. The bank, acting as a corporate agent, obtained fire and special perils policies from New India Assurance, but for the 2005‑06 period the Rs 60 lakh policy expressly excluded storm, flood and inundation (STFI) perils and the premium for that cover was refunded to the bank and credited to the appellants. When floods damaged the goods, the insurer paid under the Rs 25 lakh policy but denied the claim under the Rs 60 lakh policy, prompting a consumer complaint. The State Commission held the bank liable, the National Commission reversed that decision, and the Supreme Court examined the contract terms, Section 64(VB) of the Insurance Act, and the parties’ knowledge, concluding that the exclusion was valid and the insurer was not liable. The appeal was therefore dismissed.

Issues considered

Whether the insurer is liable for loss due to flood when the policy expressly excludes STFI perils.
Whether the exclusion of STFI perils in the 2005‑06 policy constitutes a fresh contract and precludes liability.
Interpretation of Section 64(VB) of the Insurance Act, 1938 regarding premium refund and risk assumption.
Whether the bank, as corporate agent, can be held liable for the claimant’s loss.
Whether the appellants can invoke estoppel or claim unfair trade practice against the insurer.

Legislation cited

Insurance Act, 1938s. 64(VB)

Subjects

insurance contractexclusion clauseSTFI perilspremium refundSection 64 VBhypothecationconsumer disputeestoppelunfair trade practice

Judgment

[2020] 3 S.C.R. 359 359

SHREE AMBICA MEDICAL STORES & ORS. A
v.
THE SURAT PEOPLE’S CO-OPERATIVE BANK LIMITED &
ORS.
(Civil Appeal No. 562 of 2020) B
JANUARY 28, 2020
[DR. DHANANJAYAY Y CHANDRACHUD AND
AJAY RASTOGI, JJ.]
Insurance Act, 1938 – s.64(VB) – Appellants hypothecated
C
goods with first respondent-bank under an agreement for cash credit
facility – Appellants were obligated to insure the goods hypothecated
to the Bank – Bank, as a routine practice, obtained policies for all
its borrowers and upon receipt of intimation, would remit the premium
payable on behalf of the borrowers – Bank obtained first insurance
policy for 1998-99 in sum of Rs.60 lakhs, from insurer-third D
respondent, which covered specific location (“12/1123-1124,
Basement, Meghdoot Apartment, Surat”) of the borrower where
goods were stored – From 2001, the insurance policy was renamed
as ‘Standard Fire and Special Perils Policy’ – Perils insured included
those by storm, tornado, flood & inundation, together referred as
E
‘STFI Perils’ – Value of insurance was also enhanced by Rs.25 lakhs
– For 2002-03, the insurer issued policy in sum insured of Rs.25
lakhs in terms of the aforesaid location however, separate insurance
cover of Rs.60 lakhs was issued in respect of goods stored at another
location – Similar was the case for 2003-04, 2004-05 – However,
for 2005-06, location in the insurance cover of Rs.60 lakhs was F
changed back to the premises at Meghdoot Apartment, Surat – Same
position continued for 2006-07 – In Aug.2005, the bank while filling
up proposal form handed a cheque to the insurer for a cover also
extending to STFI perils – Premium of Rs.992 covering STFI perils
was refunded by insurer to the bank – In 2006, appellants claimed
G
loss of Rs.78,66,857/- due to floods – Insurer paid claim of Rs.23
lakhs under the policy cover of Rs.25 lakhs but repudiated entire
claim under the policy cover of Rs.60 lakhs – State Commission
allowed the complaint only against the bank and its manager –
Reversed by National Commission – Held: Address mentioned in the
policy for 2004-05 differs from that of 2005-06 – Insurer proceeded H
359
360 SUPREME COURT REPORTS [2020] 3 S.C.R.

A on the basis that this was a ‘fresh contract of insurance’– Proposal
does not conclude the contract – Terms of the policy will govern the
contract between parties – Insurance policy for 01.08.05 to 31.07.06
was issued with exclusion of STFI perils– Sub-sec.(3) of s.64(VB)
provides for refund of premium amount to the insured in case of
cancellation or alteration of the terms & conditions of the policy –
B
Insurer while issuing the new policy specifically excluded STFI perils
and refunded the premium of Rs.992 to the bank which deposited it
in appellants’ account – Insured at the time when the loss occurred
was covered by a policy that excluded STFI perils – Thus, insurer
cannot be held liable – Appellants had knowledge of this exclusion
C as they were provided a copy of the policy and received refund of
the premium– No merit in appeal.
Insurance – Contract of Insurance – Interpretation of – Held:
Court while interpreting the contract of insurance must interpret
the words of the contract by giving effect to the meaning and intent
D which emerges from the terms of the agreement – Court through its
interpretative process cannot rewrite or create a new contract
between the parties – Court has to simply apply the terms and
conditions of the agreement as agreed between the parties.
Dismissing the appeal, the Court
E HELD: 1.1 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. The court through its interpretative process cannot
rewrite or create a new contract between the parties. The court
F has to simply apply the terms and conditions of the agreement as
agreed between the parties. 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
G 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 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
H “Warranted that STFI risk is excluded from the risk” in the above
SHREE AMBICA MEDICAL STORES & ORS. v. THE SURAT PEOPLE’S 361
CO-OPERATIVE BANK

insurance policy. The terms of the policy will govern the contract A
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. [Paras 20, 21][369-D, F-H;
370-A-B]
B
1.2. Section 64(VB), Insurance Act, 1938 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 C
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 D
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.
The appellants in their rejoinder did not specifically deny the E
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 F
STFI perils in the insurance cover of Rs 60 lakhs which was issued
for 2005-06 and renewed for 2006-07. [Paras 23, 24][371-B-D,
G-H]
1.3. The terms and conditions of the new policy specifically
excluded STFI perils and evidently there was a change in the G
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
H
362 SUPREME COURT REPORTS [2020] 3 S.C.R.

A 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
cover. Nothing prevented the appellants from either approaching
B
the insurer or any other insurance company for obtaining a policy
that covered STFI perils. [Para 26][373-B-D]
Biman Krishna Bose v. United India Insurance Co Ltd.
(2001) 6 SCC 477 : [2001] 1 Suppl. SCR 255 –
distinguished.
C
General Assurance Society Ltd. v. Chandumull Jain,
AIR 1966 SC 1644 : [1966] SCR 500 – followed.
Case Law Reference
[2001] 1 Suppl. SCR 255 distinguished Para 16
D
[1966] SCR 500 followed Para 21
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 562 of
2020.
From the Judgment and Order dated 31.07.2015 of the National
E Consumer Disputes Redressal Commission, New Delhi in First Appeal
No. 364 of 2014.
Mehul Sharad Shah, Aniruddha P. Mayee, A. Rajarajan, Advs.
for the Appellants.
Sukumar Pattjoshi, Sr. Adv., Sandeep Mahapatra, Abhishek
F Praharay, J.K. Bodha, Ms. Mrinmayee Sahu, K.K. Bhat, Ranjan Kumar
Pandey, Advs. for the Respondents.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
G 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
1
“National Commission”
H 2
“State Commission”
SHREE AMBICA MEDICAL STORES & ORS. v. THE SURAT PEOPLE’S 363
CO-OPERATIVE BANK [DR. DHANANJAYAY CHANDRACHUD, J.]

complaint of the appellants and decreed their claim for compensation in A
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
B
insurer, New India Assurance Company Limited, repudiated the claim
of the appellants. As a 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 C
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 D
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 E
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 F
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 G
borrower where the goods were stored, namely:
“12/1123-1124, Basement, Meghdoot Apartment, Surat”
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
H
364 SUPREME COURT REPORTS [2020] 3 S.C.R.

A 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
B
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”
C
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
D extract from a tabulated chart filed by the insurer:
Year Policy No Policy Period Location Sum Insured
Rs
2005-06 2293 4.8.2005 to 3.8.2006 (A) 12/1123-1124; Basement, 25 lakhs
Meghdoot Apartment, Surat

2298 1.8.2005 to 31.7.2006 (A) 12/1123-1124; Basement, 60 lakhs
Meghdoot Apartment, Surat (Changed to
E Location A)

2006-07 2537 4.8.2006 to 3.8.2007 (A) 12/1123-1124; Basement, 25 lakhs
Meghdoot Apartment, Surat

1884 1.8.2006 to 31.7.2007 (A) 12/1123-1124; Basement, 60 lakhs
Meghdoot Apartment, Surat

F
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.
G
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’
H
SHREE AMBICA MEDICAL STORES & ORS. v. THE SURAT PEOPLE’S 365
CO-OPERATIVE BANK [DR. DHANANJAYAY CHANDRACHUD, J.]

account. Hence for 2005-06, the policy cover of Rs 60 lakhs extended A
to fire and allied perils but specifically excluded STFI perils.
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 B
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 C
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 D
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. E
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 F
lakhs. However, the insurer had excluded STFI 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 G
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
H
366 SUPREME COURT REPORTS [2020] 3 S.C.R.

A 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
B 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
C 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
D percent per annum and 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
E 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.

F 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
G 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
H material, provided that it is permissible to exclude STFI perils at the
SHREE AMBICA MEDICAL STORES & ORS. v. THE SURAT PEOPLE’S 367
CO-OPERATIVE BANK [DR. DHANANJAYAY CHANDRACHUD, J.]

inception of the policy. The National Commission noted that even A
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 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
B
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 C
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 D
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 E
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 F
regard to 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 G
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
H
368 SUPREME COURT REPORTS [2020] 3 S.C.R.

A 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
B 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
C 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
D 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
E 29,038 dated 1 August 2005 was duly encashed by the insurer and it was
only on 26 September 2005 that an amount of 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
F 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
G 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

3
H (2001) 6 SCC 477
SHREE AMBICA MEDICAL STORES & ORS. v. THE SURAT PEOPLE’S 369
CO-OPERATIVE BANK [DR. DHANANJAYAY CHANDRACHUD, J.]

a different address in the proposal form. Mr Pattjoshi urged that the A
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 B
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 from the
insurance cover of Rs 60 lakhs and therefore, the insurer could not be C
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.
D
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:
E
“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...”
F
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
G
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

4
AIR 1966 SC 1644 H
370 SUPREME COURT REPORTS [2020] 3 S.C.R.

A from that of 2005-06. The insurer proceeded on the basis that this was a
‘fresh contract of insurance’. The 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
B
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:
C “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
D 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
E 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.
F
(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
G the insured, and such refund shall in no case be credited to the
account of the agent.
(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
H
SHREE AMBICA MEDICAL STORES & ORS. v. THE SURAT PEOPLE’S 371
CO-OPERATIVE BANK [DR. DHANANJAYAY CHANDRACHUD, J.]

deduction of his commission within twenty-four hours of the A
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 B
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 C
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 D
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. E

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 the fact. F
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
G
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. H
372 SUPREME COURT REPORTS [2020] 3 S.C.R.

A 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
B 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
C 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
D 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
E to refuse the renewal of the 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
F 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.”
G
(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

5
H (2001) 6 SCC 477
SHREE AMBICA MEDICAL STORES & ORS. v. THE SURAT PEOPLE’S 373
CO-OPERATIVE BANK [DR. DHANANJAYAY CHANDRACHUD, J.]

was held to be arbitrary. This Court noted the serious consequence flowing A
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
B
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 C
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 cover. Nothing
prevented the appellants from either approaching the insurer or any other
D
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.
E
Divya Pandey Appeal dismissed.

F

G

H