Insurance cheque sent by post: Which date matters?

Should the premium be deemed received when the insurer receives the cheque, or when the cheque clears and the proceeds reach its account?

In my previous column, I had advised sending the cheque by registered or speed post for payment of premium. When a cheque is sent in this manner, what would be the date of receipt of premium under the law? Would it be the date when the cheque was dispatched, or the date when the cheque was received by the insurer, or the date when the cheque is encashed and the proceeds credited to the account of the insurer?

 

 There have been several instances, when the insurer takes time to deposit the cheque promptly before the expiry of the existing policy. If an accident occurs during the window period between the time when the cheque is received and the date on which it is deposited, would the renewed insurance policy be considered to be valid?

 

The insurer always relies on Section 64VB of the Insurance Act which mandates that no insurance company can assume any risk unless the premium has been received in advance. On the basis of this clause, the insurer takes the stand that in the absence of the premium being credited to its account, it would not be liable for any claim occurring during this window period. So the claim is rejected due to non-compliance with the statutory requirement under Section 64VB of the Insurance Act. Even courts have upheld such rejection by interpreting this provision of Section 64VB in isolation. Is such an interpretation correct, or is there a way out?

 

The crux of the dispute is the date on which the premium should be considered as having been received. Should the date of its receipt be considered to be the date, or should it be the date when the amount was realised by the insurer? If the date of receipt is considered to be the date of receipt of the cheque by the insurer regardless of the date when it is presented for encashment, what would happen if the cheque gets dishonoured later? How is the date of receipt to be interpreted?

 

This issue about which date should be considered as the date of payment when a cheque is issued has been decided in a landmark but seldom used ruling of the Supreme Court in the case of The Commissioner of Income Tax, South Bombay v/s Ogale Glass Works.

 

While deciding the matter, the Supreme Court noted the judgment delivered by Lord Maugham in Bhokana Corporation v/s Inland Revenue Commissioner that common law considers that when payment is made by cheque which is subject to realisation, the date when it was posted would be considered as the date of payment, except in the case of subsequent dishonour.

 

The Supreme Court also observed that in Byles on Bills, 20th Edition, the legal position had been summarised pithily as: “A cheque, unless dishonoured, is payment.”

 

The Supreme Court, therefore, concluded that when a cheque is not dishonoured, but has been encashed and payment realised, the date of payment would relate back to the date of receipt of the cheque.

 

Hence, when submitting a cheque, it is necessary to retain a photocopy 

 

of the signed cheque to ensure that the insurer does not tamper with or alter it 

 

later to wilfully get it dishonoured. Delivery of the cheque in time is sufficient to make the insurer liable for renewal of the policy with continuity and without break.

 

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The writer is a consumer activist