BRIEF:

The case (The New India Assurance Company Limited & Ors. v. M/s Louis Dreyfus Commodities India Pvt. Ltd.) arise from two civil appeals concerning two separate incidents involving the same parties, arising out of CC Nos. 259 of 2012 and 396 of 2014 before the Hon’ble National Consumer Disputes Redressal Commission (“NCDRC”). For convenience, the Hon’ble Supreme Court (“SC”) addressed the facts of CC No. 259 of 2012 only, since both complaints raised an identical issue.

The dispute concerns a Marine Cargo Annual Turnover Policy issued by the Appellant (Insurer) to the Respondent (Insured) for an annual turnover of Rs. 1200 crores. After the Respondent’s turnover exceeded the sum insured and a fire loss occurred before any additional premium was paid, the Appellant rejected the claim citing Section 64VB of the Insurance Act, 1938. The NCDRC ruled in favour of the Respondent, relying on an email from the Appellant’s Divisional Manager assuring continued coverage irrespective of turnover. The SC disagreed, holding that such an assurance cannot override the statutory requirement under Section 64VB of the Insurance Act, 1938. The lead judgment is authored by Justice Sanjay Karol; Justice N Kotiswar Singh delivered a separate, concurring judgment undertaking a detailed analysis of the principal-agent relationship, actual authority, and apparent/ostensible authority under the Indian Contract Act, 1872.

FACTS:

The factual matrix of the case is set out in the following table:

01.01.2010 – 31.12.2010	The Respondent obtained a Marine Cargo Annual Turnover Policy from the Appellant for an expected turnover of Rs. 1200 crores, premium payable in two half-yearly instalments.
15.05.2010	The Respondent raised queries regarding the requirement of enhancement if turnover crossed Rs. 600 crores and whether transits would continue to remain covered.
17.05.2010	Divisional Manager of the Appellant replied that after payment of the second instalment, all transits would be covered till expiry of the policy even if turnover crossed Rs. 1,200 crores.
01.07.2010	The second instalment was paid by the Respondent.
10.07.2010	Respondent’s turnover had crossed Rs. 1200 crores.
07.11.2010	Fire broke out at the Container Freight Station where 41,481 cotton bales were stored. Turnover on this date stood at Rs. 1724.12 crores. The surveyor appointed by the Appellant assessed the fire damage at Rs. 22,01,29,271/-.
14.12.2010	Relationship Manager of the Appellant requested release of an additional instalment based on the current turnover to “regularise” the turnover.
17.12.2010	Respondent paid additional premium of Rs. 86,86,125/- and the endorsement enhancing the coverage was made effective from this date.
27.07.2012	The Appellant repudiated the claim. Aggrieved by this repudiation, the Respondent approached the NCDRC.
21.05.2025	The NCDRC ruled in Respondent’s favour in two matters arising out of two separate incidents involving the same parties. The Appellant preferred appeals before the SC.

RELEVANT PROVISIONS:

• Insurance Act, 1938

Section 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 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. …”

• Indian Contract Act, 1872

Section 182: Agent and Principal

“An ‘agent’ is a person employed to do any act for another, or to represent another in dealings with third persons. The person for whom such act is done, or who is so represented, is called the ‘principal’.”

Section 186: Agent’s authority may be expressed or implied.

“The authority of an agent may be expressed or implied.”

Section 187: Definitions of express and implied authority.    

“An authority is said to be express when it is given by words spoken or  written. An authority is said to be implied when it is to be inferred from the  circumstances of the case; and things spoken or written, or the ordinary course of dealing, may be accounted circumstances of the case.

Section 188: Extent of Agent’s Authority

“An agent, having an authority to do an act, has authority to do every lawful thing which is necessary in order to do such act. An agent having an authority to carry on a business, has authority to do every lawful thing necessary for the purpose, or usually done in the course, of conducting such business.”

Section 226: Enforcement and Consequences of Contracts Entered into through an Agent

“Contracts entered into through an agent, and obligations arising from acts done by an agent, may be enforced in the same manner, and will have the same legal consequences, as if the contracts had been entered into and the acts done by the principal in person.”

Section 237: Liability of Principal Inducing Belief in Agent’s Authority

“When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of the agent’s authority.”

CONTENTIONS:

ON BEHALF OF APPELLANT – 

• The Respondent’s turnover had exceeded the insured limit of Rs. 1,200 crores before the incident and no additional premium was paid for the excess at that stage; hence no active coverage existed on the date of loss.
• Section 64VB creates a statutory bar on assumption of risk without advance payment of premium; the premium paid on 17.12.2010, six weeks post-incident, could not retrospectively regularise the policy. 
• The Divisional Manager vide email dated 17.05.2010 had no authority to enlarge the risk undertaken under the policy.
• The email dated 14.12.2010 seeking release of the additional instalment was sent by an officer without requisite approval and did not bind the Appellant.

ON BEHALF OF RESPONDENT – 

• The email dated 17.05.2010 from the Divisional Manager assured that, after payment of the second instalment, coverage would continue till expiry of the policy even if turnover exceeded Rs. 1200 crores.
• Special Condition No. 4 permitted adjustment of premium on the basis of the actual annual turnover during the policy period. Section 64VB did not displace this contractual mechanism.
• The Appellant accepted the additional premium without objection and is estopped from denying coverage.

FINDINGS:

JUSTICE SANJAY KAROL (LEAD JUDGMENT) –

• Section 64VB creates a statutory embargo on an insurer assuming risk unless the requisite premium has been received or guaranteed in the manner contemplated by the provision. The risk cannot be assumed by the insurer earlier than the date on which the premium is actually paid [Reliance placed upon Deokar Exports (P) Ltd. v. New India Assurance Co. Ltd., (2008) 14 SCC 598].
• The Respondent’s turnover exceeded the total sum insured  (Rs. 1200 crores) on 10.07.2010, and it was incumbent upon the Respondent to either extend coverage by paying the enhanced premium or guarantee payment within a stipulated time, which was not done before the incident on 07.11.2010.
• The email dated 17.05.2010 could not override the Appellant’s internal guideline dated 16.10.2006, restricting premium adjustment to downward revision only, in view of Section 64VB. The Divisional Manager could not, by such communication, enlarge the risk undertaken by the insurer beyond the policy terms and the authority available to him, since no occasion arose for such assurance to be given [Reliance placed upon Harshad J. Shah v. LIC of India, (1997) 5 SCC 64; State of Orissa v. United India Insurance Co. Ltd., (1997) 5 SCC 512; and State Bank of India v. Shyama Devi, (1978) 3 SCC 399].
• The plea of estoppel based on acceptance of additional premium fails, since estoppel cannot operate against or in contravention of a statute [Reliance placed on Shyam Telelink Ltd. v. Union of India, (2010) 10 SCC 165; Electronics Corpn. of India Ltd. v. Secy., Revenue Deptt., Govt. of A.P., (1999) 4 SCC 458; and State of W.B. v. Gitashree Dutta, (2022) 19 SCC 388]
• The subsequent payment of Rs. 86,86,125/- and issuance of the endorsement on 17.12.2010 could not retrospectively extend coverage to the date of the incident. The endorsement was effective only from 17.12.2010; the Appellant’s liability accrues only from then, post-dating the loss.
• Both the appeals were allowed and NCDRC’s orders were set aside.

JUSTICE N KOTISWAR SINGH (CONCURRING JUDGMENT) –

Justice Kotiswar Singh concurred with the conclusions and reasoning of Justice Karol but wrote separately to examine, in detail, whether the Divisional Manager’s email could bind the insurer under the general law of agency contained in the Indian Contract Act, 1872. The analysis proceeds as follows:

• An agent is one employed to act for or represent another (the principal) in dealings with third persons. Authority may be express or implied, and implied authority may be inferred from circumstances, conduct, or the ordinary course of dealing. However, such authority, whether incidental, usual, or customary, extends only to lawful acts necessary or usual in conducting the authorised business (Sections 182, 186, 187, 188 – Indian Contract Act).
• The above provisions make two principles clear:

1. An officer may simultaneously be an employee of the company and its agent for representing the company in dealings with policyholders.
2. An agent’s authority extends only to acts that are necessary, usual and lawful in conducting the authorised business; merely because an act relates to the employer’s business does not mean that the agent has authority to undertake it.

• Therefore, a Divisional Manager administering a policy may ordinarily correspond with the insured, explain the policy, and call for premium, but this does not, in itself, confer authority to create a new risk, enlarge the sum insured, or dispense with a statutory precondition for attachment of risk.
• Acts done by an agent within authority bind the principal exactly as if done by the principal in person (Section 226 – Indian Contract Act). Where an agent acts without authority, the principal is bound only if the principal’s own words or conduct induced the third party to believe the act was within the agent’s authority (Section 237 – Indian Contract Act).
• There may either be actual authority or apparent (ostensible authority). Actual authority flows from the principal’s manifestation to the agent, while apparent (or ostensible) authority flows from the principal’s manifestation to the third party. An agent cannot create apparent authority merely by his own assertion; the representation must be traceable to the principal’s own words, conduct, course of dealing, or the organisational position conferred by the principal [Reliance placed on Harshad J. Shah v. LIC of India, (1997) 5 SCC 64].
• In Harshad J. Shah (supra), the LIC agent was prohibited by the statutory regulations from collecting premium. Therefore, he could not claim authority to collect premium merely because he was an LIC agent. In Delhi Electric Supply Undertaking v. Basanti Devi, (1999) 8 SCC 229, DESU deducted premium from the employee’s salary and paid it to LIC. LIC’s Salary Savings Scheme provided for deduction of premium from the employee’s salary and its remittance to LIC. Under the arrangement, DESU was the agent of the employee for this purpose. Thus, Harshad J. Shah involved a regulatory prohibition, whereas Basanti Devi involved authority arising from LIC’s own arrangement and conduct.
• As far as the present case is concerned, the email dated 17.05.2010 was relied on not just to explain the policy, but to claim that risk continued even without complying with Section 64VB, a statutory restriction on the insurer that no agent can get around by claiming actual or apparent authority.
• Where a party seeks to bind the principal under Section 237 of the Contract Act on the basis of an agent’s act, the burden lies upon that party to establish that the act was within the agent’s actual authority or within the ostensible or apparent authority which the principal had held out the agent as possessing. Mere proof that the person was an employee or agent of the principal is, by itself, insufficient [Reliance placed on Dilawari Exporters v. Alitalia Cargo & Ors., (2010) 5 SCC 754].
• In the present case, the burden of proof lay on the Respondent to establish that the Divisional Manager’s assurance fell within his actual or apparent authority; mere proof of his employment or agency status was insufficient. The Court found that the Divisional Manager was acting in the course of the insurer’s business and had authority in relation to the administration of the policy, but there was no basis to hold that he had authority to enlarge the insured risk or dispense with Section 64VB.
• A managerial designation does not, by itself, confer authority to add an undertaking lying outside both the policy and the authority held out by the principal; a Branch Manager’s incorporation of a guarantee outside the policy’s scope did not bind the insurer [Reliance placed on State of Orissa v. United India Insurance Co. Ltd., (1997) 5 SCC 512].
• Where an agent does more than authorised, and the authorised part is severable, only the authorised part may bind the principal (Section 227 – Indian Contract Act). The email was accordingly recognised as a valid clarification insofar as it concerned payment of scheduled instalments and operation of the policy within the sum lawfully insured but could not be treated as an independent undertaking of unlimited or retrospectively enlarged cover.
• Ratifying an unauthorised act gives it the same effect as if it had been authorised from the start, but this requires the principal to consciously adopt that very act. Here, the endorsement enhancing the sum insured was made effective only from 17.12.2010, not before, showing there was no intention to treat the earlier assurance as valid retrospectively. In any case, ratification cannot be used to get around a mandatory statutory requirement governing insurance risk.
• Concluding the discussion above, it was held that the maxim qui facit per alium facit per se applies only to acts within an agent’s authority; it does not enable an agent to confer upon the principal a liability which the agent was neither authorised nor legally competent to assume on its behalf.

Written by: Saksham Singh