The Supreme Court of India has held that an insurer cannot be saddled with liability for risks where the turnover-based coverage limit under a policy has already been exhausted and no advance premium was paid in accordance with Section 64VB of the Insurance Act, 1938. A bench comprising Justice Sanjay Karol and Justice N. Kotiswar Singh allowed the appeals filed by The New India Assurance Company Limited, setting aside an order of the National Consumer Disputes Redressal Commission (NCDRC) that had directed the insurer to settle a fire loss claim. The apex court ruled that statutory provisions prohibit the assumption of insurance risk prior to the receipt of premium, and assurances by company officials cannot override statutory mandates or retrospectively regularize expired cover.
Background of the Case
The respondent, M/s Louis Dreyfus Commodities India Pvt. Ltd., engaged in commodity trading, secured a Marine Cargo Annual Turnover Policy from the appellants for an expected turnover of INR 1200 Crores covering the period from January 1, 2010 to December 31, 2010. The premium was payable in two equal half-yearly installments. Special Condition No. 4 of the policy specified that the premium was subject to annual turnover and would be charged as per actual turnover in the policy period.
In May 2010, the respondent inquired through its broker regarding policy enhancement if turnover crossed INR 600 Crores prior to six months. On May 17, 2010, a Divisional Manager of the insurer clarified via email that upon payment of the second installment in July 2010, transits would remain covered until policy expiry even if the turnover crossed INR 1200 Crores.
On November 7, 2010, a fire broke out at a Container Freight Station where the respondent had stored 41,481 cotton bales. A surveyor appointed by the insurer assessed damage at Rs. 22,01,29,271/-. On December 14, 2010, a Relationship Manager of the insurer requested additional premium to enhance coverage to INR 1500 Crores. The respondent paid Rs. 86,86,125/- on December 17, 2010, and an endorsement was issued making the additional cover effective from December 17, 2010.
However, on July 27, 2012, the insurer repudiated the claim. A financial audit revealed that the respondent’s turnover had crossed the initial INR 600 Crore cover in May 2010 and exceeded INR 1200 Crores on July 10, 2010 (reaching INR 1724.12 Crores by the date of the fire). The insurer asserted that since no advance premium was paid for the excess turnover prior to the fire, no active coverage existed on the date of the loss. The NCDRC subsequently allowed the respondent’s complaint based on the Divisional Manager’s May 17, 2010 email assurance.
Arguments of the Parties
The appellants argued that under Section 64VB of the Insurance Act, there is a strict statutory embargo against assuming risk without advance premium payment. By October 2010, the sum insured and corresponding premium had been completely exhausted, leaving no coverage on the date of the fire. They contended that the Divisional Manager lacked authority to issue assurances contrary to internal company guidelines dated October 16, 2006, which limited premium adjustments strictly to downward adjustments under Section 64VB. Further, the additional premium paid on December 17, 2010 could not retrospectively cover a prior loss.
The respondent contended that under Special Condition No. 4, the policy was adjustable based on actual turnover recorded at the end of the policy period. They argued that coverage continued based on the explicit email representation of the Divisional Manager. Additionally, the respondent claimed that since the insurer accepted the additional premium without objection, it was estopped from denying coverage.
Court’s Analysis
Examining Section 64VB of the Insurance Act, 1938, Justice Sanjay Karol noted the mandatory nature of advance premium payment, stating:
“A perusal of the above reveals that there is a statutory embargo on an insurer assuming risk if the premium has not been paid to them, either prior to such assumption or within the stipulated time period in which it is guaranteed to be paid. Sub-section (2) also makes this clear that the risk cannot be assumed earlier than the date on which the premium has been paid.”
The Court, citing Deokar Exports (P) Ltd. v. New India Assurance Co. Ltd., observed that the turnover was central to the insurance cover and was surpassed on July 10, 2010. It was incumbent upon the respondent to extend coverage by paying advance premium or guaranteeing payment within a prescribed period.
Regarding the Divisional Manager’s email, the Court referred to Harshad J. Shah v. LIC of India, State of Orissa v. United India Insurance Co. Ltd., and State Bank of India v. Shyama Devi, holding that an agent’s authority must be exercised in accordance with the principal’s directives. Given the Head Office’s 2006 directives prohibiting upward retrospective adjustments, no authority existed to assure extended coverage.
On the issue of estoppel and acceptance of additional premium, the Court cited Shyam Telelink Ltd. v. Union of India, Electronics Corpn. of India Ltd. v. Secy., Revenue Deptt., Govt. of A.P., and State of W.B. v. Gitashree Dutta, ruling that estoppel cannot apply against a statute:
“As such, since the Section clearly enjoins the assumption of risk by insurance companies such as the appellants before the amount is paid, the statement by the employee of the appellants would not have any value. Furthermore, the additional endorsement issued by the appellants accepting the additional premium paid by the respondent on 17.12.2010 clearly states that the effect of such acceptance would accrue from the said date.”
In a concurring judgment, Justice Nongmeikapam Kotiswar Singh analyzed the law of agency under Sections 182, 186, 187, 188, 196, 226, 227, and 237 of the Indian Contract Act, 1872. Distinguishing Delhi Electric Supply Undertaking v. Basanti Devi and relying on Dilawari Exporters v. Alitalia Cargo and State of Orissa v. United India Insurance Co. Ltd., Justice Singh highlighted:
“Authority to administer or explain an existing policy is not equivalent to authority to rewrite it. Section 188 of the Contract Act deliberately confines incidental and usual authority to every ‘lawful’ thing necessary or usually done in conducting the authorised business. An agent cannot acquire, by implication, authority to do that which the principal has not authorised, or to undertake a liability which the governing statute does not permit the principal to assume in that manner.”
Justice Singh added that the maxim qui facit per alium facit per se applies only to acts within an agent’s authority and cannot grant an agent power to impose liabilities that the principal cannot lawfully assume.
Decision
The Supreme Court allowed both appeals, set aside the judgment and order of the NCDRC, and disposed of all pending applications.
Case Title: The New India Assurance Company Limited & Ors. v. M/s Louis Dreyfus Commodities India Pvt. Ltd.
Case No.: Civil Appeal Nos. 7687-7688 of 2025
Bench: Justice Sanjay Karol and Justice N. Kotiswar Singh
Date: August 18, 2026
