NEW INDIA ASSURANCE COMPANY LIMITED versus RAJESHWAR SHARMA AND ORS. on 7 December 2018

1. Delay condoned in Civil Appeal @ SLP(C)@CC 5127 of 2017.

2. These appeals arise from a judgment of a Division Bench ofthe High Court of Jammu and Kashmir dated 28 July 2016. The HighCourt has affirmed the decision of the Jammu and Kashmir ConsumerDisputes Redressal Commission[1] by which an insurance claim wasallowed in the amount of Rs. 17.28 lacs. New India Assurance CompanyLimited, the insurer, failed in its challenge to the decision of the StateCommission before the High Court. Cross-objections filed before theHigh Court by the insured for the grant of interest were also rejected.Hence, there are two appeals: one by the insurer and the second by theinsured, against the judgment of the High Court.

3. The claim of the insured before the State Commission wasthat it owns a building known as Patel House which is situated at Akhnoorroad, Jammu. The insured claimed that the building was constructed in 1“The State Commission”

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1184 SUPREME COURT REPORTS [2018] 14 S.C.R.

A1984 with due permission of the municipality. In 1993, additionalconstruction was raised, it is alleged, with the permission of themunicipality. According to the insured, on a notice issued under Section229 of the Jammu and Kashmir Municipal Corporation Act 2000, he hadapproached the Jammu and Kashmir Special Tribunal which compoundedthe infraction in 1996. The Municipal Corporation initiated a demolitionBdrive. Apprehending action against his property, the insured instituted asuit in the Court of the First Civil Subordinate Judge, Municipal Magistrate,Jammu where an ad-interim injunction was granted, restraining theCorporation from proceeding, except in accordance with law. TheMunicipal Corporation demolished the front portion of the building. TheCinsured was carrying on a business of sanitary ware in the premises. Asa result of the demolition, the insured claimed that it suffered damage inthe amount of Rs.19.55 lacs.

4. The claim before the State Commission was founded on a policyof insurance which was obtained by the insured. The insurance policyDcontained the following exclusion:

“V. Riot, Strike, Malicious and Terrorism Damage Loss of orvisible physical damage or destruction by external violentmeans directly caused to the property insured but excludingthose caused by:- E

a)xxxx

b)Permanent or temporary dispossession resulting fromconfiscation, commandeering, requisition or destruction byorder of the Government or any lawfully constitutedAuthority.”

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Relying on the aforesaid exclusion, the insurer repudiated the claimon the ground that the action of demolition was carried out by themunicipal authorities and was hence by order of a lawfully constitutedauthority.5. The State Commission allowed the claim under the insuranceGpolicy in the amount of Rs.17.28 lacs. Litigation costs of Rs.10,000/-were awarded. The State Commission opined that the order of demolitionpassed by the Municipal Corporation had not been brought on the recordand, in its absence, the exclusion would not operate. In appeal, the HighCourt affirmed the view of the State Commission, holding that it was H

incumbent on the insurer to establish that the exclusion contained in thepolicy of insurance was attracted by placing on record the orders of alawfully constituted authority by which demolition was ordered. Whileaffirming the view of the State Commission, the High Court held that inthe absence of such an order being produced on the record, the insurerwas liable to indemnify the loss sustained by the insured.

6. The principal basis on which the complaint was allowed by theState Commission has been called into question in these proceedings.The insurer has submitted that it was not in dispute that the demolitionwas caused by the Municipal Corporation. To substantiate this submission,the insurer relies upon the averments contained in the consumer complaintwhich are extracted below:

“5) That after the constitution of the Municipal Corporation,Municipal Corporation had started demolition drive to remove theencroachment and illegal constructions.

6) …..

7) That the Municipal Corporation in spite of the injunction issuedby the Court, demolished the front portion of the building whichwas duly compounded by the Appellate Court, on 18.04.2003, inviolation of the Court order and also in violation of the order alreadypassed compounding the constructions.

8) …..

9) …..

10) That the Municipal Commissioner, Jammu without anyauthority and taking law into his own hands in violation of theCourt order dated 10.04.2003 demolished the front portion of thebuilding and totally damaged the Cabin fitting, display items electricsystems etc without any notice to the complainants thereby causinga loss of Rs. 19,55,946/- which estimate was prepared after dueinspection by Sh. K R Sharma, Retired Executive Engineer andvaluator. The building and the material including Furniture andFixture etc. were insured by the respondent for an amount of Rs.1,23,50,000/- for which insurance covers were issued by therespondent vide policy no. 350700/11/02/00119 for the period03.05.2002 to midnight 02.05.2003. Copy of the estimate isenclosed.

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A11) That the Commissioner, Municipality and Executive Officerto show their loyalty towards the Government in violation of Courtorder and fully well knowing that the complainants are owners ofthe land demolished the front portion of the building causing totalloss of Rs. 19,55,846/- on 18.04.2003. Besides this, due to thedamage to the building, the basement has been rendered uselessBand has to be dismantled which is going to cause a further loss ofRs. 6,15,422/- to the complainants and the complainants reservetheir right to claim the said amount as and when the basement isdismantled.”

7. In his counter affidavit filed in these proceedings, theCCommissioner of the Jammu Municipal Corporation has stated that inorder to remove encroachments/projections over public premises includingover footpaths, streets and drains, the Municipal Corporation issued apublic notice on 25 January 2003 in the daily editions of ‘Kashmir Times’and ‘Daily Excelsior’. The notice made an appeal for the removal ofDprojections, platforms and encroachments which were not in conformitywith the building line provided by the Jammu Master Plan and Preventionof Ribbon Development Act 1953. After the period stipulated in the publicnotice ended on 31 January 2013 demarcations were carried out in areaswhere there were encroachments and the encroachers including theprivate respondents were directed to remove the encroachment. In theEmeantime, a suit was filed by the insured, Rajeshwar Sharma, beforethe First Civil Subordinate Judge, Jammu in which the following ad interimorder was passed on 11 March 2003:

“…Issue notice to the defendants to file objections to thisapplication on or before next date of hearing and in the meanwhileFsubject to objections and till next date of hearing the parties shallmaintain status quo on spot. However, in case any violation hasbeen committed by the Plaintiff in the said building the defendantsshall take action in accordance with the provisions of law…”

8. The above order permitted the municipal authorities to takeGaction in accordance with the provisions of law. The MunicipalCorporation claims that it removed the new construction raised in thepresent case on 18 April 2003 which was found to encroach on publicland and was causing an inconvenience to the free flow of traffic onAkhnoor road. According to the Municipal Corporation, it had not razedany part of the construction which was carried out in 1985 and 1993 butH

only “the new illegal construction”. The Municipal Corporation has alsosubmitted that the building which has been constructed still exists inviolation of the Master Plan 1974-1994 and the Master Plan 2021.

9. We must make it clear at the outset, that we are not in theseproceedings entering upon the validity of the action which was adoptedby the municipal authorities. A suit is pending before the civil courtquestioning the legality of the action whereas the counter affidavitindicates, relief for the restoration of the work which was removed hasbeen sought. The issue in the present case is confined to whether theexclusion under the policy of insurance was attracted.

10. Both the State Commission as well as the High Court were ofthe view that the exclusion was not attracted having due regard to thejudgment of this Court in National Insurance Company v Irshad[2].This Court has held that where there is an exclusionary clause in aninsurance policy, the burden lies on the insurer to establish that theexclusion is attracted. Any ambiguity must be construed in favour of theinsured. Purporting to apply this principle, the State Commission and theHigh Court held that the insurer had failed to establish that there was anorder of the Municipal Corporation for carrying out demolition and hencethe exclusion was not attracted.

11. On this aspect, we find merit in the submission of the insurerthat there was no dispute about the fact that the demolition was carriedout under the authority of the Municipal Corporation. As the avermentsin the consumer complaint indicate, the insured proceeded on the basisthat the Municipal Corporation had carried out the work of demolition.There could be no dispute about the factual position since, as a matter offact, the insured has instituted a suit for diverse reliefs including achallenge to the action of the Municipal Corporation. Hence the basison which the claim was allowed is fundamentally flawed.

12. The essential aspect which needs to be considered is whetherthe exclusion was attracted. Mr Jayant Bhushan, learned senior counselappearing on behalf of the insured submits that Clause V postulates thatthere must be a “destruction by order of the government or any lawfullyconstituted authority”. Learned counsel submits that the exclusionpostulates that there must be an action in accordance with law. Actionaccording to law, in the submission of counsel, requires that the action ofthe municipal authority or governmental authority (in the present case)

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Ashould conform to the Jammu and Kashmir Municipal Corporation Act2000. In this submission, an act of illegal demolition by the MunicipalCorporation will not fall within the purview of the exclusion. Hence, ithas been urged, that the judgment of the State Commission, as affirmedby the High Court, is correct.B13. On the other hand, Ms.Awantika Manohar, learned counsel B13. On the other hand, Ms.Awantika Manohar, learned counselappearing on behalf of the insurer has submitted that the demolition wascarried out by the Municipal Corporation. This action clearly falls withinthe ambit of the expression “destruction by order of any lawfullyconstituted authority”. Learned counsel submitted that the validity of theaction of the municipal authority is the subject matter of a pending suit.CIn determining as to whether the exclusion is attracted, what the Courtmust assess is whether the demolition was carried out by order of anylawfully constituted authority. The grounds of challenge in the suit aredistinct from the claim under the insurance policy. Hence, once it isfound that the demolition was by the order of the Municipal Corporation Dwhich is a lawfully constituted authority under the Jammu and KashmirMunicipal Corporation Act 2000, the exclusion is attracted.

14. We find considerable merit in the submission which has beenurged on behalf of the insurer. Clause V of the insurance policy containsan exclusion, where the destruction of the property has been caused “byorder of the government or any lawfully constituted authority”. TheEexpression “by order of” means under the authority of government or ofa lawfully constituted authority. There can be no dispute about the positionthat the Municipal Corporation is indeed a lawfully constituted authority,being a statutory authority under the Jammu and Kashmir MunicipalCorporation Act 2000. From the records as well as from the pleadings Fbefore the State Commission, there is no dispute about the fundamentalposition that the demolition was carried out by the Municipal Corporation.The destruction was hence by order of a lawfully constituted authority.Once this be the position, there can be no manner of doubt that theexclusion under the policy of insurance was attracted.

15. The position of the common law with respect to theGinterpretation of exclusionary clauses in insurance policies is no different.In Cornish v Accident Insurance Co Ltd[3], the Court of Appealemphasized the duty of the insurer to except their liability in clear andunambiguous terms. The Court of Appeal held that:

H3Queen’s Division Bench as per Lord Lindley L.J. (1889) 23 Q.B.D. 453, 456

“… in a case of real doubt, the policy ought to be construed moststrongly against the insurers; they frame the policy and insert theexceptions. But this principle ought only to be applied for thepurpose of removing a doubt, not for the purpose of creating adoubt, or magnifying an ambiguity, when the circumstances of thecase raise no real difficulty.”

According to The Law Relating to Accidental Insurance[4],insurers are exempt from any liability where the loss is attributable to anexcepted cause which is inserted ex abundanti cautela to make it quiteclear to the assured that the policy is not intended to cover such losses.The position is elucidated below:

“The object of the exceptions is to define with greater precisionthe scope of the policy by making clear what is intended to beexcluded and contrasting it with what is intended to be included.

Since exceptions are inserted in the policy mainly for the purposeof exempting the insurers from liability for a loss which, but forthe exception, would be covered by the policy, they are construedagainst the insurers with the utmost strictness and it is the duty ofthe insurers to except their liability in clear and unambiguous terms.The onus of proving that the loss falls within an exception liesupon the insurers, unless by proving the language of the exceptionthe assured is expressly required to prove that, in the circumstances,the exception does not apply.”

In 2016, the UK Supreme Court dealt with the interpretation ofan exclusion clause in a solicitors’ professional indemnity insurance policyin Impact Funding Solutions Ltd v Barrington Support ServicesLtd[5].

Dealing with the construction of insurance exclusions, LordToulson JSC observed thus:

“35. The fact that a provision in a contract is expressed as anexception does not necessarily mean that it should be approachedwith a pre-disposition to construe it narrowly. Like any otherprovision in a contract, words of exception or exemption must be 4AW Baker Welford : The Law Relating to Accidental Insurance (Butterworth & Co.,1923) at page 126

5Supreme Court as per Lord Toulson JSC (with whom Lord Mance, Lord Sumptionand Lord Hodge JJSC agreed) [2016] UKSC 57

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Aread in the context of the contract as a whole and with due regardfor its purpose. As a matter of general principle, it is well establishedthat if one party, otherwise liable, wishes to exclude or limit hisliability to the other party, he must do so in clear words; and thatthe contract should be given the meaning it would convey to areasonable person having all the background knowledge which isBreasonably available to the person or class of persons to whomthe document is addressed… This applies not only where the wordsof exception remove a remedy for breach, but where they seek toprevent a liability from arising by removing, through a subsidiaryprovision, part of the benefit which it appears to have been theCpurpose of the contract to provide. The vice of a clause of thatkind is that it can have a propensity to mislead, unless its languageis sufficiently plain. All that said, words of exception may be simplya way of delineating the scope of the primary obligation.”

The principles for construing insurance exclusions as laid down inDImpact Funding Solutions Ltd v Barrington Support ServicesLtd[6] were relied upon by the England and Wales High Court (CommercialCourt) in the case of Crowden and Crowden v QBE Insurance(Europe) Ltd[7].

While dealing with the question of construction of insuranceEexclusions, Judge Peter MacDonald Eggers QC observed:

“65. … the Court must adopt an approach to the interpretation ofinsurance exclusions which is sensitive to their purpose and placein the insurance contract. The Court should not adopt principlesof construction which are appropriate to exemption clauses -F i.e. provisions which are designed to relieve a party otherwiseliable for breach of contract or in tort of that liability - to theinterpretation of insurance exclusions, because insuranceexclusions are designed to define the scope of cover which theinsurance policy is intended to afford. To this end, the Court shouldnot automatically apply a contra proferentem approach toGconstruction. That said, there may be occasions, where there is agenuine ambiguity in the meaning of the provision, and the effect

6Supreme Court as per Lord Toulson JSC (with whom Lord Mance, Lord Sumptionand Lord Hodge JJSC agreed) [2016] UKSC 57

7 England and Wales High Court (Commercial Court) as per Peter MacDonald EggersHQC :[2017] EWHC 2597 (Comm)

NEW INDIA ASSURANCE COMPANY LIMITED v. RAJESHWARSHARMA [DR. DHANANJAYA Y CHANDRACHUD, J.]

of one of those constructions is to exclude all or most of theinsurance cover which was intended to be provided. In that event,the Court would be entitled to opt for the narrower construction…”

In the present case, there is no ambiguity in Clause V of theinsurance policy. The exclusion was clear in exempting the insurer fromliability for a loss arising from the destruction of property caused “byorder of the government or any lawful authority.”

16. For the above reasons, we are of the view that both the StateCommission and the High Court were in error in allowing the claimunder the policy of insurance. We would, accordingly, have to allow theappeal filed by the insurer, which we do by setting aside the impugnedjudgment of the High Court which has affirmed the decision of the StateConsumer Disputes Redressal Commission. In consequence, thecomplaint filed by the insured before the State Commission (CC 2628/2004) shall stand dismissed.

17. Before concluding, we clarify that since these proceedingsare confined to the claim of the insured under the insurance policy, nothingcontained in this judgment shall affect the merits of the suit which hasbeen instituted by the insured against the Municipal Corporation. Theappeal filed by the insurer is allowed. The appeal filed by the insuredshall stand dismissed. There shall be no order as to costs.

Divya Pandey

Appeals disposed of.

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