The Supreme Court set aside the National Consumer Disputes Redressal Commission’s award, holding that an insurer cannot be bound by an agent’s unauthorised assurance of coverage when the statutory premium-payment condition of Section 64VB, Insurance Act, 1938, is not satisfied. The decision delineates the limits of actual and apparent authority in insurance contracts.
Background & Facts
The Dispute
The appellant, The New India Assurance Company Limited, issued a Marine Cargo Annual Turnover Policy (Policy No. 350200/21/09/14/00000369) to the respondent, M/s Louis Dreyfus Commodities India Pvt. Ltd., covering a turnover of INR 1,200 crores for the period 01.01.2010 to 31.12.2010. The policy required premium payment in two equal instalments. During 2010 the respondent’s turnover rose sharply, exceeding the insured amount. A fire broke out on 07.11.2010 at a Container Freight Station where the respondent had stored 41,481 cotton bales.
Key Facts
- 01.01.2010 - Policy inception; sum insured INR 1,200 crores.
- 15.05.2010 - Respondent emailed queries on turnover; insurer replied that premium would be adjusted after policy expiry and coverage would continue even if turnover exceeded INR 600 crores.
- 17.05.2010 - Divisional Manager of the insurer assured that after payment of the second instalment all transits would remain covered until policy expiry, even if turnover crossed INR 1,200 crores.
- 01.07.2010 - Second instalment of premium paid.
- 10.07.2010 - Respondent’s turnover reached INR 1,200 crores, the maximum covered amount.
- 07.11.2010 - Fire incident causing loss of cotton bales.
- 14.12.2010 - Insurer’s Relationship Manager requested additional premium to regularise turnover.
- 17.12.2010 - Endorsement issued, accepting additional premium of INR 8,686,125; endorsement effective from 17.12.2010.
- 27.07.2012 - Insurer repudiated liability, citing non-payment of premium for turnover exceeding the insured amount and invoking Section 64VB.
- 21.05.2025 - NCDRC allowed the respondent’s claim and ordered the insurer to pay the loss assessed at Rs 22,01,29,271.
- 18.08.2026 - Supreme Court delivered the judgment.
Procedural History
- 2012 - Complaint No. 259 of 2012 filed before NCDRC.
- 2014 - Complaint No. 396 of 2014 filed before NCDRC.
- 21.05.2025 - NCDRC issued its award in favour of the respondent.
- Civil Appeal Nos. 7687-7688 of 2025 - Appeals filed by the insurer before the Supreme Court.
- 18.08.2026 - Supreme Court delivered the judgment.
The Parties' Positions
- Appellant (Insurer) argued that Section 64VB prohibits assumption of risk unless premium is received in advance; the agent’s email did not create a legally binding extension of coverage; the endorsement dated 17.12.2010 could not retrospectively ratify coverage for the November loss.
- Respondent (Insured) relied on the email assurances, the acceptance of additional premium, and the doctrine of apparent authority to claim that coverage continued despite turnover exceeding the insured limit.
Relief Sought
The insurer sought setting aside the NCDRC award and dismissal of the respondent’s claim for loss.
The Legal Issue
The central question was whether the insurer is bound by the Divisional Manager’s email assurance that coverage would continue despite turnover exceeding the insured amount, in view of Section 64VB of the Insurance Act, 1938 and the principles of actual, implied and apparent authority under the Indian Contract Act.
Arguments Presented
For the Appellant
- Relied on Section 64VB to contend that risk cannot be assumed without premium receipt in advance.
- Cited the endorsement dated 17.12.2010, which expressly made the additional premium effective only from that date, showing no retrospective coverage.
- Submitted that the Divisional Manager lacked authority to enlarge the sum insured; any such act was beyond the scope of actual or apparent authority.
- Invoked Harshad J. Shah v. Life Insurance Corporation of India and State of Orissa v. United India Insurance Co. to demonstrate that an agent cannot bind the principal to obligations prohibited by statute.
For the Respondent
- Relied on the email dated 17.05.2010 as a contemporaneous representation that coverage would continue irrespective of turnover.
- Argued that acceptance of the additional premium on 14.12.2010 amounted to ratification of the insurer’s liability.
- Invoked the doctrine of apparent authority under Section 237 of the Contract Act, asserting that the insurer’s conduct held out the Divisional Manager as authorised to assure continued coverage.
- Cited Dilawari Exporters v. Alitalia Cargo to argue that the burden of proving lack of authority rests on the insurer.
The Court's Analysis
The Court began by interpreting Section 64VB, emphasizing that the statutory embargo on risk assumption is directed at the insurer as principal and cannot be waived by an agent’s conduct. It noted that sub-section (2) expressly requires premium to be paid before risk can be assumed.
"The principle qui facit per alium facit per se applies to acts within the agent’s authority, however, it does not enable an agent to confer upon the Principal a liability which the principal has neither authorised nor legally competent to assume on its behalf."
The Court then examined agency law. Sections 182, 186, 187, 188, 226 and 237 of the Indian Contract Act were applied to distinguish actual, implied and apparent authority. It held that while the Divisional Manager possessed ordinary authority to explain policy terms and collect premiums, this did not extend to creating a new risk or altering the statutory conditions of coverage.
Reference was made to Harshad J. Shah where the Court held that apparent authority cannot be inferred where statutory regulations expressly prohibit the agent’s act. Similarly, State of Orissa v. United India Insurance was cited to demonstrate that a managerial designation alone does not confer power to add undertakings beyond the policy.
The Court rejected the respondent’s reliance on the 17.05.2010 email, observing that the communication concerned premium payment and policy administration, not an amendment of the insured sum. The endorsement dated 17.12.2010, which the insurer accepted, expressly made the additional premium effective from that later date, confirming that no coverage existed for the November loss.
Regarding ratification, the Court applied Section 196 of the Contract Act, stating that ratification must be a conscious adoption of the specific unauthorised act. Here, the insurer’s later acceptance of additional premium did not ratify the earlier unauthorised assurance of coverage, especially because the statutory requirement of Section 64VB remained unsatisfied at the time of loss.
Consequently, the Court concluded that the insurer could not be held liable for the loss, and the NCDRC’s award was set aside.
The Verdict
Both appeals were allowed. The Supreme Court set aside the NCDRC award dated 21.05.2025, held that the insurer was not bound by the Divisional Manager’s email assurance, and dismissed the respondent’s claim for loss. No monetary compensation was awarded; the matter stands disposed.
What This Means For Similar Cases
Agency Authority Cannot Override Statutory Conditions
- An insurer must ensure that any extension of coverage complies with statutory premium-payment requirements; an agent’s promise cannot create liability where the law prohibits it.
- Courts will scrutinise the scope of actual and implied authority before accepting apparent authority as a basis to bind the principal.
Apparent Authority Is Limited By Section 64VB
- Even where an agent appears to have authority, the principal is not bound if the act contravenes a mandatory statutory provision such as Section 64VB.
- Insurance companies should document internal restrictions and communicate them clearly to avoid the appearance of ostensible authority.
Ratification Does Not Cure Statutory Non-Compliance
- Acceptance of additional premium after a loss does not retrospectively validate coverage that was unavailable at the time of loss.
- Ratification under Section 196 can only validate acts that are within the legal framework; it cannot override a statutory embargo on risk assumption.
Practical takeaways
- Verify the agent’s authority in writing before relying on any representation that alters risk.
- Maintain records of premium receipts and ensure they precede any risk-bearing date.
- Advise clients that an insurer’s internal guidelines, when not disclosed, cannot be used to infer authority to breach statutory conditions.
