SHREE AMBICA MEDICAL STORES & ORS. versus THE SURAT PEOPLE’S CO-OPERATIVE BANK LIMITED & ORS.

Citation: [2020] 3 S.C.R. 359 · Decided: 28-01-2020 · Supreme Court of India · Bench: D.Y. CHANDRACHUD · Disposal: Dismissed

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Judgment (excerpt)

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SHREE AMBICA MEDICAL STORES & ORS.
v.
THE SURAT PEOPLE’S CO-OPERATIVE BANK LIMITED &
ORS.
(Civil Appeal No. 562 of 2020)
JANUARY 28, 2020
[DR. DHANANJAYAY Y CHANDRACHUD AND
AJAY RASTOGI, JJ.]
Insurance Act, 1938 – s.64(VB) – Appellants hypothecated
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
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
‘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
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
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
[2020] 3 S.C.R. 359
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SUPREME COURT REPORTS
[2020] 3 S.C.R.
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 –
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
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
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
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
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
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 f

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