GENERAL ASSURANCE SOCIETY Ltd.

CHANDUMULL JAIN AND ANR.

February 7, 1966 [P. B. GAJENDRAGADKAR, C. J., K. N. WANCllOO, M.

HIDAYATULLAH, V. RAMASWAMI AND P. SATYANARAYANA

RAJU, JJ.]

lnsurcuzce-Accep1'111ct' and covers notes issued by insurer-J'olicy

1101 i.ssued--Conditions of policy whether applicable to contract-Condition ttllowing parties to cancel contrc1c1 whether reasonab/e--Cancel/ation by

insurer u•hen alid.

Letters of acceptance of the proposals and cover notes were isued by the appellant Society purporting to insure certain houses belonging to the respondents against damage from fire, flood etc.

According to the covernotes the insurance was subject to the 'usual conditions of the Society"s polices.' However, the Society had not issued the policies by the time the Ganges, near the banks of which the houses stood, began to got into flood.

Soon thereafter the society cancelled the risk. relying on condition ( 10) of its Fire policy.

The houses were washed away and the rc:, pondents filed a suit in the High Coun demanding payment under the policies.

The trial Judge dismissed it but the High Court decreed it.

The questions that fell for determination were, whether Condition (10)

of the Fire policy was applicable to tho facts of the case, whether the said condition wa<; reasonable, and v.1hether 1hc cancellation of the policy by the society was valid :

Hfil..D: (i) Looking at tho proposal, the letter of acceptance and the cover notes it was clear that a contract of insurance under the ;:; tandard policy of fire and extended to cover flood, cyclone, etc., had come into being.

The fact that the policy was not actually delivered made no difference becau<; e when a contract of insurance is complete, it is in1materi:!l whether tho policy is actually delivered after the loss, and for the same reason the rights of the parties arc governed by the policy lo be, between acceptance and delivery of the policy.

Even if no terms are spccifted the term~ contained in a policy cust-Omarf-ly issued in such a case, apply.

Jn the present caS"e the cover notes clearly said that the usual terms of the society's

policie~ would apply.

Condition (JO) was a usual condition of such policies and therefore 1t could be invoked by the Society.

[510 B: 51~

D-GJ

(ii- There i" nothin~ wrong in incJuding in a. contract or inurance a mutual condition for the cancellation of the contract.

Condition ( 10) of the Fire policy gave equal right< of cancellation to both panics and was not unreasonable.

[513 B-C)

(iii) A condition such a<; Condition (10) is intended lo cancel the risk but not to avoid liability for Joss which has taken place. or to avoid risk when it i<1 alrcadv turning into a loss.

Cancellation is rea'ionab1y possible before the liability under the policy has commenced or h.., become

inevitable, and it is a qtion of fact in each CMO whether the cancellation is legitimate or illegitimate.

On the facts of the case it could not tie said that the societv cancelled the policies after the loss had already commenced or had hecome inevitable.

The cancellation was therefore vaM.

[514 H-515 C: 515 GJ

' "' '

'7

Sun Fire Office v. Hart &: Ors. (1889) 14 A. C. 98 a d The Central Bank of India v. Hartford Fire Insurance Co. Ltd. n. I. R.

(1956) S. C. 1_288, relied on.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 886 of 1963.

Appeal from the judgment and decree dated 13th/14th July, 1961 of the Calcutta High Court in Appeal No. 44 of 1959.

C. B. Agarwala, B. M. Agarwala and I. N. Shroff, for tile appellant .

Niren De, Additional Solicitor General, G. L. Sanghi, Nirmal Kumar Ghosal, J.B. Dadachanji, 0. C. Mathur and Ravinder Narain, for the respondents.

The Judgment of the Court was delivered by

Hidayatullah J. This appeal is taken from a judgment of the High Court of Calcutta, July 13 and 14, 1961, by which a Divisional Bench of the High Court, reversing the judgment of a learned single Judge of the same Court, decreed the respondents' claim for damages. The circumstances were these. The appellant is a general insurance company. On June 2, 1950 the respondents submitti!d proposals to the company with a view to insuring certain houses in Dhullian bearing Holding Nos. 274, 274/-A-B-C-and D and 273, 273/A-B-C and D, for Rs. 51,000 and Rs. 65,000 respectively against fire and including loss or damage by cyclone, flood and/ or change of course of river or erosion of river, landslides and subsidence. The town of Dhulian is situated on the banks of the Ganges and for several years the river had been changing its course and in 1949 a part of the town was washed away. The insurance was obviously effected with this risk in sight. The period of insurance was to be from June 3, 1950 to June 2, 1951. The Company accepted the proposals by two letters (Ex. D.) on June 3, 1950 and the letters stated that in accordance with the proposal the assured was held covered under cover notes enclosed with the letters. At the back of these letters of acceptance, there was description of the houses and an endorsement which read:

"Including Cyclone, Flood and/or loss by change of course of river diluvium and/or Erosion of River Landslide and/or subsidence. It is further noted that there is a thatched building of residence within 50 ft. of the above premises." Two interim protection cover notes Nos.~18848 and 18850 in respect of the two proposals were filed by the insurance company along with the written statement and they were said to be copies of cover notes sent with the letters of acceptance, but they bore the date June 5, 1950. There is some dispute as to whether they were at all enclosed with the reply showing aceeptance of the proposals.

MIOSup. Cl/66 ·· 2

502 SUPREME COURT Rl!POllTS

[ 1966] 3 S.C.R.

Of the two cover notes, which are identical except for details we may read one only:

"Messrs. Chandmull Lal Chand, P.O.

Dhulian Murshidabad being desirous to effect an Insurance from loss by Fire, for Rs. 51,000 on the following Property viz.:

One Pucca built and roofed bldg. (C. J. Vizandah) holding No. 274, 274A, 274B and 274C occpd. as residence and/or shop for the storage of Hydrogenated G nut oil

(vanaspati) and safety matches also situate at Dhulian, Ward No. IV, District Murshidabad.

Incl. Loss or damage by cyclone flood and/or change c of course of river and/or Erosion of river, landslides and/or subsidence.

It is further noted that there is a thatched bldg. of residence within 50 ft. of the above premises.

for one year from 3rd June, 1950 to 3rd June, 1951.

The said property is hereby held insured against damage by Fire, subject to the terms of the Applicant's proposal and to the usual Conditions of the Society's policies. It is, however, expressly stipulated that this protection Note cannot, under any circumstances be applicable for a longer period than Thirty Days, and that it is also immediately terminated before that date by delivery of the policy, or ifthe Risk be declined by the notification of such declinature.

Prem : Rs. 892-8-0 Fire @. 28 as ~~

Prem : Rs. 382-8-0 Flood and other risks 12 as%

Premium : Rs. 1,275-0-0."

On June 7, the assured sent the premia by cheque. As no policy

was received by them, the assured wrote a letter on July I (Ex. A/g) G asking for the policy or for extension of the cover notes. This was not done.

On July 6, 1950 th~ Company wrole to the assured two identicallv worded letters (except for changes in amounts and numhers of ihc policis) which read• ..

Calcutta 6th July. 1950 . .......... .

1 '

' l

A To

M/s Chandmull Lal Chand, P.O. Dhulian, Murshidabad.

Dear Sir,

In accordance with the inspection report lodged with this Co. we cancel the risk from 6th July, 1950 as noted c below.

The relative Endorsement is under preparation and will be forwarded to you in due course.

Nature of Alteration:

Yours faithfully,

(Sd.)/- Illegible Ag.

Manager & Underwriter.

The above cover note is cancelled by the General Assurance Society Ltd. as from 6th July, 1950."

E On July 15, 1950 the assured wrote to say that they held the Company bound because although there was no erosion by the river when the proposals were submitted and accepted, the Company was trying to get out of the contract when the river was eroding the banks. They ended this letter by saying:

"Now when the erosion and/or change of course of F river and/or subsidence have commenced, it is quite impossible to take any precautionary measure or to reinsurc the same with any other office of Insurance at this stage."

On July 17, 1950 the Company prepared an endorsement for the policies cancelling the risk and sent the endorsements to the assured.

The endorsement read: ..

In the name of :-Messrs. Chandmull Lal Chand, P.O.

H Dhulian, Murshidabad.

It is hereby declared and agreed that as from 6th July 1950 the insurance by this policy is cancelled by The General

584 SUPl.BMB COVRT l.BPOaTS

(1966) 3 S.C.R.

Assurance Society Ltd., Calcutta, and a refund premium of Rs. . . . . . . . . . is hereby allowed to the assured on a pro rata basis.

(St!)/- Illegible.

Ag. Manager &: Underwriter.

Calcutta,

In reply the latter said that as the risk had already "commenced"

and "taken place", there could be no cancellation as there wa~ no time left for the assured to take precautionary measures by reinsuring. In reply the Company referred to condition JO of the P'ire c policy under which the Company claimed to cancel the policy at any time.

Conditic.n JO of the fire Policy read:

"10. This insurance may be terminated at any time at the request of the Insured, in which case the Society will retain the customary short period rate for the time the policy has been in force.

This insurance may also D at any time be tt:rminated at the option of the Society, on notice to that effect being given to the Insured, in which case the Society shall be liable to repay on demand a ratable proportion of the premium for the unexpired terme from the date of the cancclment."

In reply the assured wrote on August 2 .that the condition did not apply to any risk except that of fire and could not, in any event, protect the Company after the risk had commncced. On 13th and 15th August the houses were washed away.

After unsuccessfully demanding payment under the policies, the assured filed the present suit on the Original Side of the Calcutta High Court. It was dismissed with costs by G. K. Mitter J. but on appeal the claim was decreed to the extent of Rs. 1,10,000 with costs, the decretal amount to carry interest at 3 % per annum. The High Court certified the case as fit for appeal and the present appeal has 1-n filed by the Company.

Before we deal with the question in dispute we may say a ftvr words about the position of the Gange-; river in relation to ae

Dhulian town in general and the insured houses in particalar.

The town of Dhulian is situated on the bank of the river vrhich, for several years, has been changing its course and eroding the bank on the side of Dhulian. In 1949 there was much erosion and the river had come as close as Ii to 2 furlongs from the town and a few of the godowns lying close to the hank had been washed away.

There is ample material to show what the condition of the river in relation to the insured houses was between June 2, 1950 when the proposal for insurance was made and August 13/15 when the houses

were washed away, with particular reference to the 18th June, 1950 when one P. K. Ghose (D.W. 2) visited Dhulian to make local iaquiries on behalf of the Company and the 6th July when the Company cancelled the riil' and withdrew the cover. The evidence comes from both sides but is mostly consistent. Lalchand Jain (P.W. 1) for the assured stated that on the 2nd of June the houses were 400/450 feet away from the bank of the river (Q. 73) and on tliat date there was no erosion because the river was quite calm (Q. 132). This continued to the second week of June (Q. 136).

The river began to rise in the 3rd week of June but there was no eroliion (Q. 137). Erosion began by the end of June (Q. 142) aad the current was then swift (Q. 144) and the right bank started to be washed away. Houses within 10-50 feet of the bank were first alfccted in the last week of June (Q. 180). At that time the insured hou11ei; were 400/450 feet away. Even on July 15, 1950 the distance between these houses and the river was 250 feet (Q. 179). Surendranath Bhattacharjee (P.W. 2), Overseer and Inspector, Dhulia Municipality 11tated that the erosion started four or five days afte1 Rathajatra which took place on or about June 20, 1950. Bijoy Kumar (P.W. 4), Retired Superintending Engineer is an important witne11s.

He submitted three reports Exs. F, G and H to Government on May 27, 1949, November 4, 1949 and September 11, 1950.

In these reports he gives a description of the scouring of Dhulian town on August 5, 1950. He said nothing about the state of affairs in the first week of July which he would undoubtedly have said if er<>iion had already begun then. With his report submitted on September 11, 1950, he sent a letter of 9th August, in which he said tb.at he had visited Dhulian Bazar on August 5, 1950 and found that tile iCOUring of the compound of the Police Station at the junction of the Ganges and Bagmari rivers had begun a fortnight earlier and that scouring must have been at the rate of 20-25 feet per day.

From this evidence it is possible to form an opinion about state of the river on or about July 6, 1950. To that we shall come later.

The learned single Judge at the trial held that condition 10 of the policy applied to all the risks covered by the policy and not the risk from fire only. Although the policy was not ready, the proposal not having been declined during the period of the cover note, the learned Judge held, the policy was bound to issue and the extent of the protection would thus be according to the company's usual terms and subject to the conditions in the policy. Relying, therefore, upon the dicta of the Judicial Committee in the Sun Fire Office v. Hart & Ors.(1), the learned Judge gave a wide meaning to condition 10 and held that the Company was within its rights in cancelling the policy as and when it did. The learned Judge pointed out that the condition was a usual provision in a policy of fire insurance and an assurer cancelling the policy under that

(I) (1889) 14 A. C. 98.

SUPREME COURT REPORTS

[1966] 3 S.C.R.

condition, need give no reasons and every defence was open to him and the reasons, if given, could not be examined in a court of law. Finally, the fact that no reasons were given or that the report of Ghose was not produced or that Ghose did not support Dangnli, the Manager, was held to be immaterial because reasons like motives_, were held to be immaterial. The suit was accordingly dismissed with costs. An appeal under the letters patent was filed against the judgment of the learned single Judge.

The appeal was heard by P. B. Mukharji and S. K. Dalla JJ.

The judgment on appeal was delivered by Mukharji J.

In dealing with the cancellation of the policy the learned Judge considered the matter with and without condition 10. He first considered whether condition JO of the policy at all applied. The learned Judge gave eight reasons why it did not. To those reasons we will come presently. The conclusion of the learned Judge was that the policy had not come into existence and did not govern this contract of insurance. As the cover note was only for a month and on its terms had ceased to be operative, a contract of insurance absolute for one year W'lS spelled out from the letter of acceptance which was said to govern the relations of the parties between July 3, 1950 (the date of the expiry of the cover note) and July 6, 1950 (when the policy was cancelled) and till 13/15th August, 1950 when the houses were washed away.

Condition 10 was thus held to be not applicable. However, assuming that it did, the learned Judge held that it was unreasonable and the concellation having been done when the loss had already commenced or became so proximate that it could be said to have almost commenced, the Company could not be allowed to invoke it. In reaching this conclusion the decision 0f the Judicial Committee was not accepted and the width of the condition was cut down. In the result the claim of the assured was decreed in the sum of Rs. I, 10,000 with costs in the appeal and the suit.

There is a preliminary question of fact to which the courts below have addressed themselves. It is whether the cover notes accompanied the letters of acceptance of the proposals. The learned single Judge seems to imply that they did and the Division Bench holds that they did not. This has led to a divergence of opinion on whether condition 10 of the Fire Policy which enables determination of the policy at will on both sides, at all operated. How this finding leads to a discussion on the applicability of condition 10, is a very important circumstance and we shall now attempt to do, what we have not done yet, namely, analyse the reasons given in the two decisions of the High C'our.t.

The letters of acceptance stale that the "relative cover" in each case was enclosed. These letters were dated June 3, 1950 and stated that the assured was covered against risk from June 3, 1950

, •

to June 3, 1951 and the endorsement at the back of the letters has been reproduced by us earlier. That endorsement did not state any terms and it did not refer to the terms or conditions of any policy. The cover notes, of which one has also been reproduced in full, held the property insured for a period of 30 days only "subject to the terms of the applicants' proposal and to the usual conditions of the Societies Policies". The learned single Judge held that the letters of acceptance incorporated and attracted by reference the terms and conditions of the cover notes and through them the terms and conditions of the policy and further held that the relationship could be declined within 30 days under the terms of the cover note but if not so declined, the relationship would be governed by the terms and conditions of the policy for the whole of the period of insurance. In reaching this conclusion the learned single Judge held that the cover notes must have accompanied the letters of acceptance and in this way condition 10 was allowed to play its part.

The Divisional Bench took a different view of the matter. The learned Judges noted that the letters of acceptance spoke of risk for a whole year and stated that the "relative covers" were enclosed.

The cover notes, it was pointed out, bore the date 5th June and must have been sent later than June 3rd, the date of the acceptance of the proposals. The learned Judges observed that the "relative cover" ought to have been a cover for a whole year and if it was for a month only it could not be a "relative cover" because the letter of acceptance undertook the risk for the whole year. Next they held that as the cover notes did not accompany the letters of acceptance, there was no notice to the assured that the terms and conditions of any policy would govern the contract'. They found fault with the word 'policies' in the phrase 'usual conditions of the Societies policies' because the word indicated a plurality of policies and not a standard policy. They commented that the standard fire policy applied condition 10 to fire risk and not to risk by flood, cyclone etc. They found the expression 'the said properties are hereunder held insured for damage by fire' insufficient to cover other risks although they admitted that the cover notes spoke of loss or damage by flood, cyclone etc. They next pointed out that the words of the cover note were not "all the conditions of the policy" but only "usual conditions" and by referring to books on the law of insurance they concluded that condition 10 which gave a right to either party to terminate the policy at will, could not be considered a 'usual' condition. They observed that this was not a condition usually included in English policies and appeared to be in vogue in colonial and underdeveloped countries. They felt that if the fire policy was extended to cover risk of flood, etc., the new risks should have been made expressly subject to condition 10 just as fire risk was made subject to it and that by merely extending a

508 SUPllBMB COOR r llBPOll rs

(1966) 3 S.C.ll.

fire policy to cover other risks, the assured was made to amend A and construe each separate clause.

Holding condition 10 to be l!DICUOnable they held that the company could not cancel the policy on the 6th July because till then there was no policy in existence and the cover note which referred to the policy had automatically worked itself out. They finally held that the cancellation, in any event, was after the risk bad commenced and could not be upheld.

B For these reasons the claim was decreed. The Trial Judge had found that there was no attempt to fix the amount of damages but the Divisional Bench reconsidered the matter and gave its own find ings.

Although the DiTisional Bench went i1:1to a detailed discussion (some of which was perhaps not altogether necessary) the problem C of liability in thi1> case was well-scanned by counsel appearing for the p11rties. They argued the case under three distinct heads which arc:

(a) Did condition 10 apply to the facts;

(b) If it did, how ii it •o be construed; and

(c) Was the cancellation of the policy valid in law?

We ahall consider the matter under these three broad heads.

The application of condition 10 depends on how far the terms of Ille policy can be 1>aid to be incorporated in this contract of insurance bctwten the parties. The facts relating to the formation of the contract arc clear except on the one point relating to the cover notes,

ud that, in our opinion, has been given undue prominence by the Diviaional Bench. It makca no essential difference whether th~ cover notei accompanied the letters of acceptance or were sent two days later. It is poSiible that the letters of acceptance themselves wc.:e sent on June 5. It often happens that two letters delivered at the 1>1me time bear different dates. The letters of acceptance referred to 'relative covers', but the word 'relative' is not to be stretched too far. Ill use here is an instance of unnecessary legalese and it docs not add to the purport of the communication that a coTCt note was being 1>Cnt. It is obvious that if in the period durins

which the cover note was operative there was refusal to insure, the Ullurcd could not have demanded a policy or insisted that there was ianrancc without a policy, standard or otherwise, and not subject to any conditions by reason of the acceptance. The cover notes could have been sent later without imp: iring the effect of the reference to them in the letters of acceptance. By the fortuitous chance of omission to enclose the cover notes the assured did not get any additional rights under the letters of acceptance. Insurance of property is not a bet but a well-known commercial deal. Acceptance of tile proposal read with the cover notes clothed the assured with a right to demand a policy in relation to the kind of insurance he

.....

ASSURANCE soc. v. CHANDUMULL (Hidayatu/lah, !.) 509had bought and he could only claim to be covered against risk in the manner laid down in the policy. To avoid this consequence the learned Additional Solicitor-General, arguing on behalf of the the assured, faintly suggested that the endorsement at the back of the letter of acceptance was the cover note and it did not refer to any policy. This position was clearly unsustainable. The cover notes were an integral part of the acceptance of the proposals and the two had to be read together.

A contract of insurance is a species of commercial transaction! and there is a well-established commercial practice to send cover notes even prior to the completion of a proper proposal or while the proposal is being considered or a policy is in preparation for delivery. A cover note is a temporary and limited agreement.

It may be self-contained or it may incorporate by reference the terms and conditions of the future policy. When the cover note incorporateil the policy in this manner, it does not have to recite the torms and conditions, but merely to refer to a particular standard policy. If the proposal is for a standard policy and the cover note rc:Cers to it, the assured is taken to have accepted the terms of that policy. The reference to the policy and its terms and conditions aay be expressed in the proposal or the cover note or even in the letter of acceptance including the cover note. The incorporation of the terms and conditions of the policy may also arise from a combination of references in two or more documents passing between the parties. Documents like the proposal, cover note and the policy are commercial documents and to interpret them commercial habits and practice cannot altogether be ignored. During the time tile cover note operates, the relations of the parties are governed by its terms and conditions, if any. but more usually by the terms and conditions of the policy bargained for and to be issued. When tl!is happens the terms of the policy arc incipient but after the period of temporary cover, the relations are governed only by the terma and conditions of the policy unless insurance is declined in the meanti111e.

Delay in issuing the policy makes no difference. The relations even then are governed by the future policy if the cover notes give sufficient indication that it would be so. In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there ia a requirement of uberrima fides i.e., good faith on the part of the asaurcd and the contract is likely to be construed contra proferentem that is apinst the company in case of ambiguity or doubt. A contract is fonned when there is an unqualified acceptance of the proposal.

Acceptance may be expressed in writing or it may even be implied if the inaurer accepts the premium and retains it. In the case of the assured, a positive act on his part by which he recognises or seeks to enforce the policy amounts to an affirmation of it. This position was clearly recognised by the assured himself, because he wrote,

close upon the expiry of the time of the cover notes, that either a policy should be issued to him before that period had expired or the cover note extended in time.

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.

Looking at the proposal, the letter of acceptance and the cover notes, it is clear that a contract of insurance under the standard policy for fire and extended to cover flood, cyclone etc. had come into heing.

The letters of acceptance clearly mentioned that cover notes were being sent. The contract of imurance was based upon the cover notes for the period covered by the cover notes.

Nothing happened in the 30 days during which the cover notes operated. It is true that the letters of acceptance showed that the risk was covered for the whole year and not for 30 days. This was an unfortunate way of expressing that the acceptance of the proposal would operate in the first instance for 30 days only during which the company would be free to decline the policy. The four essentials of a contract of insurance are, (i) the definition of the risk, (ii) the duration of the risk, (iii) the premium, and (iv) the amount of insurance. See Macgillivray on Insurance Law (5th Edn.) Vol. I, paragraph 656, page 316.

But the policy which is issued contains more than these essentials because it lays down and measures the rights of the parties and each side has obligations which are also defined.

In a policy against fire the puroose is not so much to insure the pwperty but to insure the owner of the property against los>.

The policy not only defines the risk and iis duration but also la~, down th; 'pccial terms and conditions under which the policy may he enforced on either side.

Even if the letter of acceptance went beyond the cover notes in the matter of duration, the terms and conditi0ns of the proposed policy would govern the case because when a contract of insuring property is complete, it is immaterial whether the policy is actually delivered after the loss and for the same reason the rights of the parties are governed by the policy to be, between acceptance and delivery of the policy.

Even if no terms are specified the terms contained in a policy customarily issued in such ca=, would apply.

There is ample authority for the proposition. In Corpu' Juris Secundum lYol. 44, p. 953) the following occurs:

"Where the contract to insure or issue a policy of fire insurance does not specify the terms and conditions of the policy, it is a general rule that the parties will be presumed to have contemplated a form of policy containing such conditions and limitations as are usual in 5uch cases ...... "

See also Richards on Insurance (5th fdn.) Vol. 3, p. 1296,

• '

;.. •

paragraph 390. In Eames v. Home Insurance Co. (1) the Supreme Court of the United States observed:

"If no preliminary contract would be valid unless it specified minutely the terms to be contained in the policy to be issued, no such contract could ever be made or would ever be of any use. The very reason for sustaining such contracts is, that the parties may have the benefit of them during that incipient period when the papers are being perfected and transmitted. It is sufficient if one party proposes to be insured, and the other party agrees to insure, and the subject, the period, the amount and the rate of insurance is ascertained or understood, and the premium paid if demanded. It will be presumed that they contemplated such form of policy, containing such conditions and limitations as are usual in such cases, or have been used before between the parties. This is the sense and reason of the thing, and any contrary requirement should be expressly notified to the party to be affected by it.

Jn General Accident Insurance Corporation v. Cronk(2), it was also ruled that a person making a proposal must be taken to have applied for the ordinary form of policy issued by the company.

It is only when there is a condition precedent that the policy must be delivered that the assurer is not on the risk otherwise he is. See Macgillivray (Vol. I, p. 325, paragraph 675). In such a case acceptance is merely an intimation that the assurer is willing to issue a policy but there will be no binding contract (ibid paragraph 679, p. 328). In the present case, there was no such condition prtcedent and the company was on risk throughout. As insurance was asked for on the policy of the company the usual policy would have issued and as the insurance was from June 3, 1950 the policy would have related back to that date. The insurance of the policy does not add to the contract. The incipient terms and conditions of the contract , later merge in the policy and the terms and conditions then become express.

The attempt of the assured in this case, therefore, has been to establish that the cover notes having expired, did not bind the parties and the reference to the policy being in the cover notes and not in the letters of acceptance, the terms and conditions of the policy were not attracted. We are satisfied that this is not the true position.

The letters of acceptance expressly mentioned the cover notes and the cover notes expressly mentioned the policy. Therefore both during the period of 30 days when the cover notes operated and also thereafter, the terms and conditions of the policy governed the relationship between the parties. We have already held that as there

-- (!) 24 Led. 298.

(2) [1901] 17 T.LR. 233.

St2 SUPR.BME COURT RiPORTS

(1966] 3 S.C.R.

was only oPe standard fire-policy, the use of the plural word 'policies' made no difference and the delay in sending the cover notes, if any, was also immaterial. The terms and conditions of the usual poli"y accordingly governed the relations of the parties, and made condition IO applicable.

It was, however, contended that the policy itself never came into existence, because it was cancelled before it was issued and the endorsement of cancellation was engrossed and incorporated with the making of the policy. It was argued that condition 10 would not come into operation at all, because the policy itself was cancelled before it was engrossed. In other words, the contention is that condition ( 10) could not operate between the parties till the policy was signed and delivered to the as.5ured and as this never happened the cancellation was improper. This argument is scarcely open, because, the assured is ob•10usly basing his suit on the policy.

In his plaint he invoked the policy. The assured cannot austain tho suit except by basing it upon the policy, because unless one reads tho policy and the terms on which it was effective, mere reading of the proposals and the letters of acceptance would not give any terma. Further when a contract of insuring property is complete, it Ii immaterial whether the policy is delivered or not for the rights of the parties are regulated by the policy which ought to be delivered. fn this way also the terms and conditions of the standard fire-policy would apply even though the policy was not issued.

It was next contended that the expression "usual conditions of the Society'' policies" could not be read to include condition 10

which was not a usual condition where it gives a right to tenninate the policy at will to tho company. Thia j., not correct. Such a condition is mentioned in almost all the books on the law of Insurance. See Halsbury's Laws of England (3rd Edn.) Vol. 22, PlllC 245 paragraph "474; Macgillivray on Insurance Law (5th &In.) Vol. 2, page 963, paragraph 1981; Welford & Otter-Barry's Fire Insurance (4th Edn.) pp. 178, 179; and Richard~ on Insurance (5th Edn.) Vol. 3, p. 1759, paragraph 531. In TM Sun Fire Office

v. Hart and Othersf..1) such a condition is not only mentioned but also discussed. An identical condition in a fire policy was also mentioned and discussed in a decision of this court reported in The Centr•I Bank oflndia Ltd. v. Hartford Fire Insurance Co. Ltd.(2). There was thus nothing unusual in the inclusion of such a condition in the policy and the reference to the usual conditions would, therefore, include a reference to condition (10).

This condition gives mutual rights to the parties to cancel the policy at any time. To the assurer it gives a right to cancel the policy at will. It was contended that such a condition was so unreasonable that it could not be allowed to stand. It was argued

(I) [18891 t4 A.C. 98.

(2) A.1.R. (19S6) S.C. 1288.

D •

H •

' ... ,

.-,

on the authority of Sze Hai Tong Bank Ltd. v. Rambler Cycle Co.

Ltd.(') that the extreme width of the condition must be cut down~ an implied limitation which was that the main object and intent of the contract should not be allowed to be defeated and that object and intent was the insuring of the property against floods and cancellation of the policy when floods llad started would defeat the main object and intent of the contract. This argument mixes up two situations. The first is a question of pure principle. There is nothing wrong in including such a mutual condition for the cucellation of the insurance. An assured may like to invoke such a condition when the policy is found to differ from the policy he agreed to accept or it contained a term or condition to which lie did not agree. He may not accept the same policy from another company to which he did not make a proposal. He may invoke this

condition if the company transfers its assets and business to another.

Just as the assured may like to terminate the policy without assigning any reasons and at his will, the assurer may also do likewise.

Such a clause was considered by the Privy Council in Sun Fire Office v. Hart(2). That was a case of a policy of insurance against lire. Certain fields of sugar cane were insured against fire.

After insurance 3 fires happened and an anonymous letter was received that more fires would take place.

The policy contained a condition that the insurers might terminate the policy by notice 'by reason of such change, or from any other cause whatever' and the insurers cancelled the policy under that condition. The object of such a condition was stated by Lord Watson to be-

" .... to enable the insurers to release themselves from their contract during its currency, leaving it in full vigour down to the time of notice. The words in which the power of determination is expressed, taken by themselves, are very wide and comprehensive. According to their primary and natural meaning, they import that, in order to justify the exercise of the power, nothing is required except the existence of a desire, on the part of the insurers, to get rid of future liability, whether such desire be prompted by causes which prevent the policy attaching, or by any other cause whatever."

IR dealing with the further question whether any reasons should be assigned and if so assigned whether they should be such as must satisfy a court of law, it was further observed:

"The question remains whether the clause gives the insurers the right to act upon their own judgment, or whether they are bound, if so required, to allege and prove to the satisfaction of a Judge or Jury, not only that a

(!) [1959] A.C. 576.

(2) [1889] 14 A.C. 98.

(1966] 3 S.C.R.

desire exists on their part, but that they have reasonable grounds for entertaining it. If the determination of the policy would be for the advantage of its business, that would obviously be a reasonable ground for the office desiring to put an end to it; and a priori, one would suppose that the insurers themselves must be the best if not the only capable judges of what will benefit their business.

An insurance office may deem it prudent, and resolve to limit its outstanding engagements, and, unless the words of the clause clearly imply the contrary, it cannot be presumed that the parties meant to make such a question of prudent administration the subject of inquiry in a court of law."

The learned Judges of the Divisional Bench did not follow the decision of the Judicial Committee because they found it unacceptable. But a similar view of an identical condition was taken by this Court in the Hartford Fire Insurance Co. case {I). Sarkar J. there pointed out that a clause in this form was a common term in policies and must therefore be accepted as reasonable and that the right to terminate at will cannot, by reason of the circumstances, be read as a right to terminate for a reasonable cause. In that case the Hartford Office insured certain goods against fire between March 20, 1947 and March 1948 in the town of Amritsar. The policy was extended to loss by riot or civil commotion. Riots occurring in July 1947 in the Punjab, a godown in Bakarwana Bazar in Amritsar where insured goods were stored was looted and some goods were lost. The Hartford Otlicc was informed and on August 7, 1947 they wrote saying that the goods be removed to a safe place or the policy would stand cancelled after August 10, 1947, under condition 10 which was similar to condition 10 here. On August 15, 1947, the goods were lost by fire.

The Hartford Office was held to be protected by the said condition. The reason of the rule appears to be that where parties agree upon certain terms which are to regulate their relationship, it is not for the court to make a new contract, however reasonable, if the parties have not made it for themselves. The contract here gave equal rights to tk parties to cancel the policy at any time and the assurers could therefore invoke the condition to cancel the policy.

G It was contended (and it has been so held by the Divisional Bench) that this cancellation was ineffective, because risk had already commenced and the policy could not be cancelled after the liability of the company began.

As a general proposition, this i< perfectly right. Condition JO is intended to cancel th~ risk but 1wt to avoid liability for loss which has taken place or to avoid II risk which is :<.!ready turning into lo$S.

It is ohl'ious that

(I) A.l.R. 1956 S.C. 1288.

IJ; • '

J. •• ~.

ASSURANCE soc. v. CHANDUMULL (Hidayatul/ah, /.) 515

a fire policy cannot be cancelled after the house has caught fire.

But it is equally clear that unless the risk has already commenced or hrui become so imminent that it must inevitably take place, such a clause can be invoked. If property is insured against flood, it is not open to the insurance company to send couriers on motor cycles ahead of the floods to cancel the policy. But if it is thought that a particular dam was not quite safe, the insurance company will be entitled to cancel the policy against flood before the dam has actually started to crumble or has crumbled. Cancellation is reasonably po11sible before the liability under the policy has commenced or has become inevitable and it is a question of fact in each case whether the cancellation is legitimate or illegitimate.

In the present case, it was always clear that the Ganges would get into the floods in the rainy season, but it was not clear that it would begin to erode the bank in such a way that these houses, which were at a distance of 400/500 feet from the bank would inevitably be washed away. The question thus is whether the cancellation was done after liability of the assurer under the policy had commenced or the loss had become inevitable. Here we must look at the evidence which was summarized earlier.

We are concerned with two dates in particular and they are June 18, 1950 when Ghose visited Dhulianand July6 when the policy was cancelled. The houses according to Lalchand Jain (P.W. 1) were 400/500 feet away when the proposal was made. The river remained calm till the second week of June. It only began to rise in the third week of June. Thus on June 18, when Ghose visited the place, there was no flood and no erosion. Ghose's report has not been produced but he could have only estimated the possibility ofloss and no more. Even in the third week of June there was no erosion and it began by the end of June. Even on July 15 the distance between the river and the houses was 250 feet (see Q. 179).

As the rate of erosion was about 20/25 feet per day (vide Bijoy Kumar P.W. 4) the houses were 400/500 feet away even on July 6.

In these circumstances, it cannot be said that the loss had commenced or that it had become so certain as to be inevitable or that the cancellation was done in anticipation and with knowledge of inevitable loss. The cancellation was done at a time when no one could say with any degree of certainty that the houses were in such danger that the loss had commenced or became inevitable. There is no evidence to establish this. This case, therefore, falls within the rule of the Sun Fire Office(!) and the Hartford Fire Insurance Company( 2) cases. The assurers were, therefore, within their rights under condition JO of the policy to cancel it. As the policy was not ready they were justified in executing it and cancelling it. The right of the plaintiff to the policy and to enforce it was lost by the legal sction of cancellations.

(1) [1889] 14 A.C. 98.

(2) A.LR. 1956 S.C. 1288.

516 SUPJlllMll C8tJllT JlllPOJlTS

[ 1966] 3 S.C.R.

In the result the appeal must succeed. It is allowed. The decree passed by the Divisional Bench is set aside and the judgmeat -of G. K. Mitter, J. dismissing the suit is restored. Althou&h com

most follow the event, we thinlc in the special circumstanoes of this case we should make no order about costs.

Appeal allowed.

MIOSup.Cl/6' 25,00- 28·1-67- GIPf.

GENERAL ASSURANCE SOCIETY Ltd

CHANDUMULL JAIN AND ANR

February 7, 1966

P. B. GAJENDRAGADKAR

HIDAYATULLAH

V. RAMASWAMI

RAJU, JJ.

CIVIL APPELLATE JURISDICTION

Calcutta High Court

C. B. Agarwala

B. M. Agarwala

I. N. Shroff

Niren De

G. L. Sanghi

Nirmal Kumar Ghosal

J.B. Dadachanji

0. C. Mathur

Ravinder Narain

Hidayatullah

High Court of Calcutta

June 2, 1950

Dhullian

Dhulian

June 3, 1950

June 2, 1951

June 5, 1950

Chandmull Lal Chand

3rd June, 1950

3rd June, 1951

Calcutta

Chandmull Lal Chand

Murshidabad

July 17, 1950

6th July 1950

13th and 15th August

G. K. Mitter

August 13/15

18th June, 1950

P. K. Ghose

Lalchand Jain

2nd of June

July 15, 1950

Surendranath Bhattacharjee

Dhulia Municipality

June 20, 1950

Bijoy Kumar

May 27, 1949

November 4, 1949

September 11, 1950

Dhulian town

August 5, 1950

July 6, 1950

Ghose

Dangnli

P. B. Mukharji

S. K. Dalla

Mukharji

July 3, 1950

13/15th August, 1950

Supreme Court of the United States

SUPR.BME COURT RiPORTS

(1966] 3 S.C.R.

Macgillivray

Watson

Hartford Fire Insurance Co.

Sarkar

March 20, 1947

Amritsar

Punjab

August 7, 1947

August 10, 1947

August 15, 1947

Hartford Office

June 18, 1950

Dhulianand

Sun Fire Office

Hartford Fire Insurance Company


B •

F •

RAM CHANDER PRASAD SHARMA

STATE OF BIHAR & ANR.

February 8, 1966

[A. K. SARKAR AND J. R. MUDHOLKAR, JJ] Indian Electricity Act (9 of 1910), ss. 39 and 50-Existence of artificial means for abstraction of e/ectriclty-Whm evidence of dishontlt abstraction-Complaint to police on behalf of Company-If prosecutiort at the Instance of person aggrieved.

The appellant's mill was supplied with electric energy by the Patna Electricity Supply Company. The electric meter was tampered With by breaking its seals, opening its stud and inserting a wire which prevented Iba rotation of the disc, so that, the consumption of electricity waa DOI registered. There was thus a perfected artificial means for abstraction of electric energy. At the instance of the Chief Engineer of the Electricity Supply Company, who had been specifically empowered to act on behalf of the company, a report was madle by the Assistant Engineer against the appellant to the police and the appellant was prosecuted for an offence under s. 39 of the Indian Electricity Act, 1910. The trial Court acquitted him but the High Court, on appeal, convicted him.

In appeal to this Court, HELD : (i) The appellant was guilty.

For a convicNon under s. 39, it must be established that there was a perfected artificial means for abstraction of electrical ener¥Y and that the dishonest abstraction was by the accused person. In the mstant case the tampering was so blatant and so effective that it could not have been done without the appellant's knowledge or connivance. (524 B-C] lagannath Singh alias /ainath Singh and Soharl Lal v. B. S. Ramarwamy, (1966) 1 S.C.R. 885, explained. ·

(ii) Since the Electricity Supply Company was a body corporate, it must act only through its officers, and therefore it would follow that the law was set in motion hv the "person aggrieved" within the meaning of s. 50 of the Act. (523 CJ

CRIMINAL .APPELATE JURISDICTION : Criminal Appeals Nos. 48 to 51 of 1963.

Appeals from the Judgment and Order dated the 23rd January 1963 of the Patna High Court in Government Appeals Nos. I of 1960, 39 and 19 of 1959, and Criminal Appeal No. 42 of 1959 respectively.

M/s. Nuruddin Ahmad and U. P. Singh, for the Appellants (Ir Cr. As. Nos 48 to 50 of 1963, and Appellant No. 2 (In Cr. A No. 51 of 1963) : M/s. D. P. Singh and U. P. Singh, for Appellant No. I {It\ Cr. A. No. 51 of 1963) : M/s. A. N. Sahay, N. K. Prasad Rukhaiyer and D. Goburdhan, for Respondent No. I.

M/s. A. N. Sahay and S. P. Varma, for Respondent No. 2.

SIS SUPllEME COURT REPORTS

[ 1966] 3 S.C.R.

The following judgment of the court was delivered by : Mudholkar J.-By a common judgment delivered on January 23, 1963 the High Court at Patna decided four appeals preferred by the State of Bihar and two criminal revision petitions, one on behalf of the complainant and another on behalf of an accused person.

These appeals arose out of four prosecutions launched against certain persons running mills or factories which were supplied with energy by the Patna Electricity Supply Company (hereafter referred to as P. E. S. Co. for the sake of brevity). The offences with which they were charged were under ss. 39 and 44 (c) of the Indian Electricity Act, 19!0 (9 of 19!0) and r. 138 read with r. 56 made under the Act. The trying magistrate acquitted all those persons who are aprcllants before us in respect of each of these offences, except Ram Chander Prasad, appellant in Crl. A .. 48 of 1963.

He was convicted of all the three offences and sentenced variously. In appeal he was acquitted of the offence under s. 39 by the Additional s,, ssions Judge, Patna while his conviction and sentences under the other two provisions were upheld. The State thereupon preferred an appeal against his acquittal under s. 417, Code of Criminal Procedure before the High Court. The State likewise preferred appeals against the acquittal of the accused persons in the other three cases. All the appeals were heard together and were substantially allowed. The complainant Ram Chandar Parsad Sharma's petition was allowed and that of an accused person dismissed. The accused persons have, therefore, preferred four appeals before us and though we will deal with them in this judgment we will take them separately one after the other.

Criminal Appeal No. 48 of 1963 : According to the prosecution, on June II, 1958 the Assistant Engineer (Mains) of the P. E. S. Co. by name Chatterjee visited the Ramji Mills situated at Dinapur. The mill is run with a 15 horse power motor which is supplied with electric energy by P. E. S. Co.

It is provided with a three phase meter. Chatterjee found the mill working but noticed that the disc of the meter was not rotating with the result that the consumption of electrical energy was not being regi, tered at all. Upon inspection of the meter Chatterjee noticed that a piece of wire had been inserted into the meter through the top stud hole on the right hand side of the meter cover. This had been done by unscrewing the nut and thus exposing the stud hole. Eventually a report was made to the police by Chatterjee at the instance of Ramaswami the then Chief Engineer and General Manager of P. E. S. Co. After investigation the appellant was placed for trial before the Judicial Magistrate, First Class, Dinapur. He framed charges against him in respect of all the three offences. The appellant pleaded not guilty and denied having inserted the wire inside the meter <>r to have tampered with it in any way.

His main defence, however,

B •

D •

• F

H ..

R. P. SHARMA v. BIHAR (Mudholkar, !.) 519

A was that the mill belonged to the joint family and its managemet was in the hands of his father Nathuni Thakur. He further said that he was practising medicine and was running a homoeopathic dispensary in Dinapur. He did not deny that the meter had been tampered with but according to him this was done by Chatterjee himself because he was not given illegal gratification which he B had demanded from Lohari Pandit, who was the munshi of the mill.

All the courts are concurrent in holding that the appellant was running the mills and that he was a consumer as defined in s. 2(c) of the Act.

Moreover, his convictions under s. 44(c) and under r. 138 read with r. 56 are not challenged before us. In the cir- C cumstances it is not open to him now to say that he had no concern with the mills. The only question then is whether the offence under s. 39 has been brought home to him. Section 39 of the Act reads thus :

"Whoever dishonestly abstracts, consumes or uses any energy shall be deemed to have committed theft within the meaning of the Indian Penal Code and the existence of artificial means for such abstraction shall be prima facie evidence of such dishonest abstraction." It has been concurrently found by the courts below that at the time of the inspection the mill was working but the meter was not registering the consumption. It has also been found concurrently that the meter had been tampered with, that its seals were broken, that its stud was open and a wire had actually been inserted in it which prevented the disc from rotating. These findings were not challenged before us and in our opinion quite rightly. What was, however, said was that in view of our recent decision in Jagannath Singh alias Jainath Singh and Sohari Lal v. B. S. Ramaswami(') these facts by themselves would not justify the inference that the appellant has committed an offence under s. 39. That was a case in which, though the meter seal was broken and the sealing nut was loosened which exposed the stud hole of the meter there was no evidence to show that a wire or any other foreign matter had been introduced in the meter which would have the effect of stopping or retarding the rotation of the disc. The meter was actually registering consumption of energy and the prosecution had not established by using a check meter or otherwise that what was being registered was less than the current actually consumed by the mill. It is in the background of these facts that this Court observed :

"The effect of the last part of s. 39 is that the existence of the unauthorised means for abstraction is prima facie

(I) (1966] l S.C.R. 885.

520 SUPRBMB comT lll!POR.TS

[1966] 3 S.C.R.

evidence of dishonest abstraction by some person. The special rule of evidence goes no further. The prosecution must prove a/iunde that the accused made the abstraction.

The fact that the accused is in possession and control of the artificial means for abstraction coupled with other circumstances showing that he alone is responsible for the abstraction may lead to the inference that he is guilty of the dishonest abstraction."

This Court also held that an exposed stud hole cannot by itself be regarded as a perfected artificial means for abstraction of electrical energy. In the present case, however, the artificial means was 'perfected' because a wire had actually been introduced through the stud hole and kad the effoct of preventing the rotation of the disc. The High Court has held that the appellant was not merely a consumer but was the person who supervised over the working of the mill and the custody of and control over the meter could not be with anyone else but him. Tampering was so blatant and so effective that it could not have been done without his knowledge or connivance. Further there is evidence on record to the effect that it takes a considerable time and requires certain amount of skill to do what has been found to have been done to this meter. Clearly, therefore, it could not be the work of any one other than an interested person. Indeed, looking to the effectiveness of the tampering it must follow that its object was to prevent the recording of electrical energy consumed by the mill.

The person interested in this would naturally be the consumer.

The learned Additional Sessions Judge no doubt said that the possibility of the appellant's father or some other member of the family tampering with the meter cannot be ruled out. In our view such a speculative possibility is not enough to create reasonable doubt, the benefit of which could be given to the appellant.

In our opinion, therefore, the High Court was right and accordingly we dismiss this appeal.

Criminal Appeal No. 49 o/1963 :

This case deals with Onkar Mills which, according to the prosecution, is run by the appellant Jainarain Lal. When Chatterjee inspected this mill along with Kamla Prasad, Government inspector, on June 13, 1958 he found that two sealing wires of the meter were broken. He drew up a report of this on August 2, 1958 and submitted it to Ramaswami. Before this date, however, that is, on July I, 1958 Ramaswami had visited the place along with Chatterjee and Srinivasan, the then Mains Superintendent. Both the appellants took these persons to the room in which the meter had been installed.

Ramaswami found the sealing wires cut near the seals and also found that both the seals had been tampered with.

According to the prosecution, therefore, the appellants were guilty

- ·r . "---

A ..

' B

• D

R. p. SHARMA y. BlliAR ( M udholkar. I.) 5 21

of offences not only under r. 138 read with r. 56 framed under that Act but also of offences under s. 44(c) and s. 39 of the Act. In so far as the offence under s. 39 is concerned what is mainly relied upon by the prosecution is that while between June 28 and July l,

1958 the meter reading showed a daily consumption of electric energy at about 300 units, for the period prior to that it showed an average daily consumption of only 100 units.

In so far as the offence under s. 44(c) is concerned the facts to be borne in mind are these : On July 1, 1958 the meter was bound with wires at the instance of the P. E. S. Co. officials. It is, however, a fact that the meter stopped registering the current used all of a sudden within 24 hours: Indeed, on this score the appellants themselves made a complaint to the P. E. S. Co. by telegram. When the meter was examined it was found _that nitric acid had been poured on it and thus the meter had been tampered with. This evidence was not accepted by the trying magistrate who felt that things looked rather suspicious. On the other hand the High Court upon a consideration of the evidence has come to the conclusion that the meter had been deliberately tampered with .

The appellants have been found by the High Court to be consumers and in our opinion rightly and, therefore, with respect to the offence of tampering which is punishable under s. 44(c) they must be held to be guilty. It is not for . us to re-assess the evidence ori the point because it is the High Court which as the final court of facts, has to assess evidence. In the circumstances we see no ground to interfere with the convictions and sentences passed on the appellants by the High Court for the offence under s. 44(c) of the Act.

In so far as the offence under r. 138 read with r. 56 is concerned it is clear that the offence has been established.

Indeed, it is not even the appellants' case that the meter was not tampered with.

But according to them all this was done by Chatterjee. This explanation has been rejected by the High Court and in our opinion rightly. We, therefore, dismiss their appeal in respect of their conviction and sentences for this offence. .

In our opinion, the conviction of the offences under s. 39 is unsustainable. It is no doubt true that the meter had been tampered with. But there is nothing to Ghow that there was any perfected artificial means in existence so as to raise the presumption of dishonest abstraction under s. 39 prior to the stopping of the meter.

The mere fact that the consumption of energy between June 28 and July 1, 1958 was about 300 units per day whereas it was much less prior to that date does not necessarily lead to the inference that in the past there was dishonest abstraction of electric energy.

The rise in consumption between June 28 and July 1, could be accounted for by circumstances such as longer working hours, user of current in a wasteful manner, user of current for more

522 SUPREME COUllT REPORTS

(1966] 3 S.C.R.

appliances and so on. In the circumstances, therefore, we do not A think that the High Court was right in convicting the appellants under 39 of the Act. We, therefore, set aside their convictions and sentences in respect of the offence under s. 39.

Criminal Appeal No. 50 of 1963 : This appeal concerns the tampering of seals of three power meters installed in the mill belonging to the appellant Krishna Prasad

Sao. Accepting the evidence of N. N. Ghosh, a meter inspector, the High Court has held the prosecution cae to be established.

While assessing the evidence of Ghosh the prosecution has referred to the evidence of Ramaswami who had inspected the meters ill question three days after Ghosh had inspected them and also to the evidence of the Mains Superintendent Bhattacharya and meter reader Sen who accompanied him. The High Court has also accepted the prosecution case that at the inspection by Ramaswami it was found that the terminal covers of two of the meters were dislodged from their normal positions and were actually hanging by the wires. It was also found that the cover seals of all the meters had been tampered with. Indeed, according to Ramaswami the seals had been so cut and placed that despite what had been done they gave a deceptive appearance of being in tact. It was further found that there were no seals on two of the cut-outs that the seals on the terminal covers of all the three meters were not genuine and that one of the meters had registered no advance whatsoever subsequent to Ghosh's visit on the 19th while the other two had registered only 49 and 50 units respectively between that date and the 22nd July.

It may be mentioned that Krishan Prasad actually made an e11:tra-judicial confession when he was questioned by Ramaswami regarding the tampering. He no doubt retracted the confession but the High Court has relied upon it.

Acting on the evidence F the High Court set aside the acquittal of Krishan Prasad in respect of all the offences including the one under s. 39 of the Act.

Before we come to the merits we will deal with an objection to the effect that the prosecution was incompetent as it was not launched by a person competent to do so. It is based upon s. 50 of the Act which runs thus :

"No prosecution shall he instituted against any person for any offence against this Act or any rule, licence or order thereunder, except at the instance of the Government or an Electric Inspector, or of a person aggrieved by the same." The prosecution here was commenced with a chargesheet submitted by the police to the Judicial Magistrate. The offences were investigated into by the police after the first information report was launched

,,...

D )' )

• F

G '

R. P. SHARMA v. BIHAR (Mudholkar, /.) 523

with them by Bhattacharya. What is contended is that information given by him could not entitle the police to submit the chaqe

sheet. It is also said that submission of a chargesheet by t11; e pohce is not the same thing as institution of prosecution at the mstance of the State. It is, however, not disputed that if the !aw was .set in motion by a person aggrieved by making a first mformt10n report to the police a chargesheet could properly be subnutted by the police. It is true that Bhattacharya was not himself a "person. aggrieved" and that the "person aggrieved" was the P. E. S. Co.

The P. E .S. Co. however, is a body corporate and must a ct only through its directors or officers. Here we have the evidence of Ramaswami to the effect that he held a general power of attorney from the P. E. S. Co., and that he was specifically empowered thereunder to act on behalf of P. E. S. Co., in all legal proceedings.

The evidence shows that it was at his instance that Bhattacharya launched the first information report and, therefore, it would follow that the law was set in motion by the "person aggrieved".

The objection based on s. 50 must, therefore, be held to be untenable.

Now as to the merits. In so far as convictions for the offences under s. 44(c) of the Act and r. 138 read with r. 56 are concerned there is ample evidence. In addition to the evidence of Ramaswami and Bhattacharya there is the evidence of Kamla Prasad, Assistant Electrical Inspector who is an independent person. The evidence of these witnesses has been believed by the High Court and it shows clearly that the meters were tampered with and the seals cut. The finding of the High Court that Krishna Prasad Sao was a consumer and that the meters were in his custody and • under his control is also based upon adequate material. The High Court was, therefore, justified in convicting the appellants for offences under those provisions. The High Court has also relied upon the extra-judicial confession of Krishna Pradsad which, it may be mentioned, was retracted by him later in the sense that he denied having made any such confession. Mr. Nur-ud-din Ahmed on behalf of the appellant contended that no conviction can be based upon a retracted extra-judicial confession. The respondent contended that this was not a case of retracted confession to which the rule of prudence requiring corroboration applies. It would not be profitable to discuss the merits of the rival contentions and we will proceed on the assumption that this is a case of retracted confession. It seems to us that in any event Mr. Nur-ud-din's contention cannot be accepted. In Pyarelal v. State(') this Court, while pointing out that ordinarily corroboration is required it is not a rule of law but only a rule of prudence. It is also said

that it is not an inflexible rule of practice or prudence that in no circumstances such a conviction can be based without corrobo-

(1) (1963] Supp. I S.C.R. 689.

524 SUPllBMB COUllT REPOllTB

ration, on a retracted confession. We are satisfied that the High A Court had before it adequate material apart from the retracted confession for holding that the meters had been tampered with and the 'eals broken.

In so far as the conviction under s. 39 is concerned the matter stands on a different footing.

It is not sufficient to say that a B meter had been tampered with and that it was under the control of tke accused per, on. It is further necessary to show that there was dishonest abstraction, consumption or use of electrical energy by the ac.:used person. Before raising a presumption thereunder that there was dishonest ab8traction the presence of an artificial means which would render abstraction of energy possible has to be established. Here we have three-phase meters and, therefore, C unless an arc tampered with abstraction of energy without fear of detection is not possible. It is difficult to presume that the appellant would have knowingly done something to the meter which would not have escaped detection of a meter reader and facilitated . the abstraction of electric energy. In fact what he had said in his confession was that Jai Narain, a meter reader of the company D had done something to the meter. That may or may not be so.

Jai Narain who was co-accused with the appellant was acquitted by the trial court and his acquittal was not challenged by the State.

There is no material on the basis of which it could be held that there was either a perfected artificial means of abstraction or there WllS in fact any abstraction of electrical energy. In the circumstances the presumption permissible under s. 39 can E not be raised in favour of the prosecution. It follow, therefore, that the appellant's conviction under s. 39 is unsustainable. We accordingly set it aside as also the sentences passed upon him in •

respect of that offence.

Criminal Appeal No. 51 of 1963 : F

The appellant here is Durga Prasad. The mains which were alleged by the prosecution to have tampered with were installed in Shankarji Mills. According to the prosecution the appellant Durga Prasad and Chandra Mohan Prasad are the proprietors of the mill, having purchased it from one Musanlal. It is not disputed that the sale deed is in their names. According to the appel- G lants, however, it was purchased by Sarju Prasad father of Durga Prasad and maternal grandfather of Chandra Mohan. On June 18, 1958, Chatterjee inspected the installation. Further, according to him the normal consumption of the mill would be 70 units per day of eight hours working while the meter showed 700 lo 750

units per month. He also found that both the seals provided on H the top cover of the meter had been tampered wit.h and the op right scaling nut on the stud to be loosened and raised up leav10g stud hole on the meter exposed. He also found lot of dust in the

• (,

, I.

r ..

R. P. SHARMA V. BIHAR (Mudho/kar, !.) 52 s;

A meter. The company's seals on one of the cut-outs were also found missing. He, therefore, reported the matter to Ramaswami and also on June 19, 1958 there was a joint inspection by Ramaswami and Chatterjee. Eventually a prosecution was launched against the appellants for offences under s. 39 and s. 44(c) of the Act and r. 138 read with r. 56. As already stated, the appellants B were acquitted by the trying magistrate but were convicted by the High Court.

The main contention raised on the appellant's behalf by Mr. Nur-ud-din is that the appellants cannot be regarded as consumers and, therefore, they could not be convicted of any of the offences.

It is no doubt true that in the company's books it is Musanlal, the original owner who is shown as proprietor of the mill. But it is not denied that he sold the mill to the appellants. It may be that the consideration came from Sarju Prasad but the evidencewhich has been accepted by the courts below shows that the mill was actually run by both the appellants. According to the prosecution the appellants are partners. Though it is true that the partnership deed has not been placed before us there is other material which would justify the conclusion that they are partners.

The fact that the sale deed stands in the names of both these persons shows prima facie that both of them have interest in the mill. Then there is a statement of Ramaswami to the effect that they were partners. Then there is the evidence to the effect that both of them were taking part in running the mill. In the circumstance-s they could both be held to be the co-owners of the mill. Before its amendment in the year 1959 the definition of consumer in s. 2(c) was as follows :

"Consumer means any person who is supplied with energy F by a licensee, or whose premises are for the time being connected for the purposes of a supply of energy with the works of a licensee."

It is an admitted fact that the mill was connected with wor.ke of P. E. S. Co. If, therefore, the appellants became co-owners by reason of the purchase of the mill from Musanlal they must be regarded as consumers even though Musanlal's name still continues to be borne on the records of P. E. S. Co.

The High Court has found as a fact, after consideration of the evidence, that the meters had been tampered with and the company's seals broken. The appellants who are consumers are thus liable to be convicted under s. 44(c) and r. 138 read with r. 56.

In so far .as the offence under s. 39 is concerned the position is, however, different. There is no material on the basis of which it could be said that what was done to the meter was a perfected

MllSup/Cl66-2

526 SUPREME COUl.T REPORTS

(1966] 3 S.C.R.

artificial means by reason of which dishonest abstraction, consump- A tion or use of electrical energy was possible. Nor again, is there evidence to show that electrical energy was being consumed by the mill over and above what was recorded by the meters. In these ;... circumstances the conviction of the appellants under s. 39 cannot be maintained. We, therefore, allow his appeal to this extent and set aside the conviction and sentence in respect of the offence B under s. 39 of the Act. • Whatwe have said above is sufficient to dispose of all the appeals.

Appeal 48163 dismissed.

Appeal Nos. 49, 50 and 51 of '63 allowed in part. c

. '

RAM CHANDER PRASAD SHARMA

STATE OF BIHAR & ANR

February 8, 1966

A. K. SARKAR

R. MUDHOLKAR, JJ

Indian Electricity Act

ss. 39 and 50

Patna Electricity Supply Company

s. 39

Indian Electricity Act, 1910

s. 39

(1966) 1 S.C.R. 885

s. 50

Nuruddin Ahmad

U. P. Singh

D. P. Singh

A. N. Sahay

N. K. Prasad Rukhaiyer

D. Goburdhan

S. P. Varma

SIS SUPllEME COURT

Mudholkar

High Court at Patna

State of Bihar

P. E. S. Co.

ss. 39 and 44

Electricity Act

Ram Chander Prasad

s. 39

s. 417

Code of Criminal Procedure

Ram Chandar Parsad Sharma

June II, 1958

Dinapur

Chatterjee

Ramaswami

Nathuni Thakur

Lohari Pandit

s. 2(c)

s. 44(c)

s. 39

Section 39

Indian Penal Code

s. 39

s. 39

Onkar Mills

Jainarain Lal

Kamla Prasad

June 13, 1958

August 2, 1958

July I, 1958

Srinivasan

s. 44(c)

s. 39

s. 39

s. 44(c)

July 1, 1958

s. 44(c)

s. 44(c)

s. 39

s. 39

June 28 and July 1, 1958

s. 39

Krishna Prasad

N. N. Ghosh

Ghosh

Bhattacharya

Sen

Krishan Prasad

s. 39

s. 50

P. E .S. Co.

s. 50

s. 44(c)

Ramaswami

Bhattacharya

Kamla Prasad

Krishna Prasad Sao

Krishna Pradsad

Nur-ud-din Ahmed

Nur-ud-din

s. 39

Jai Narain

s. 39

s. 39

Durga Prasad

Shankarji Mills

Chandra Mohan Prasad

Musanlal

Sarju Prasad

Durga Prasad

Chandra Mohan

June 18, 1958

R. P. SHARMA V. BIHAR

June 19, 1958

s. 39

s. 44(c)

s. 2(c)

s. 44(c)

s. 39

s. 39

s. 39