1. This Judgment will dispose of nine Civil Revisions (Nos. 376. 382. 440. 443, 444, 489, 649 and 650 of 1968 and 34 of 1969), raising common question of law. Two parties in all the revisions are the same while the third party is different. Messrs Indian Mutual General Insurance Society Limited is the petitioner in all these cases and is hereinafter referred to as the insurer or the Insurance company. Messrs Himalaya Finance and Construction Company is the contesting respondent and is hereinafter referred to as the owners or as the finance company. The other respondents in the cases are various hirers.
2. The material facts of the case are that the finance company owned a number of motor vehicles which it let out on hire to hirers under hire-purchase agreements. These vehicles were insured by the hirers with the insurance company and an endorsement No. 10 relating to the payment of the insurance money to the owners was effected in all the cases and the construction and legal effect of the same calls for determination In these revisions. A detailed reference to the terms of the said endorsement would be made hereinafter.
3. It appears that some damage had been caused to various vehicles and claim in their respect has been preferred by the owners and not by the hirer. The claim was repudiated by the insurer and the arbitration clause in the insurance policy has been sought to be enforced by the owners. This has been opposed on behalf of the insurer on the ground that the owners were not parties to the arbitration agreement and so could not enforce it. In some cases the insurance company moved the Court below under a petition under Sections 32 and 33 of the Arbitration Act for determination of the question raised in the revision. Some other proceedings were initiated on applications under Section 8 of the Arbitration Act for appointment of an Arbitrator. All these cases have been decided by -two different Courts by two main judgments affirming the right of the owners to invoke the arbitration clauses. Aggrieved by these orders the insurance company has moved this court under Section 115 of the Code of Civil Procedure.
4. The question for determination is whether the owners, in view of endorsement No. 10. have become parties and so are entitled to enforce the arbitration agreement contained therein The petitioner submits that the owners are strangers to the arbitration agreement while the respondent Finance Company contends that it has a local standi to enforce the arbitration agreement. The insurance policy is Exhibit A/1 and the: endorsement No. 10 is Exhibit A/5 and the arbitration agreement is contained in condition No. 8 of Exhibit A/l. The documents are Common in all cases except for the variations in dates, figures and numbers and in this judgment I am taking them from the record of Civil Revision 440 of 1969. The insurance policy Exhibit A/1 reads as follows:
'Whereas the insured by a proposal and declaration dated as stated In the Schedule which shall be the basis of this contract and is deemed to be incorporated herein has applied, to the Society for the insurance hereinafter contained and has paid or agreed to Day the premium as consideration for such insurance in respect of accident, loss or damage occurring during the period of Insurance. Now This Policy WIT- NESSETH:
That subject to the Terms, Exceptions and Conditions contained herein or endorsed or otherwise express hereon. Section I- Loss Or DAMAGE.
1. The Society will indemnify the Insured against loss of or damage to the motor vehicle and/or its accessories whilst thereon.
xxx xxx xxx
The attached Schedule reads as follows:
The Company: Indian Mutual General Insurance Society Ltd., Madras.
The Insured: Names M/s Gobind Pass Mango Lal,
(owners: M/s. Himalaya Finance & Construction Company. Darya Ganj, Delhi.).
The policy declares the period of insurance and gives the description of the motor vehicle as a lorry, licensed carrying capacity 7 tons; year of manufacture 1959 and the insured's estimate of value including accessories to be Rs. 24,000/-. The limit of the company's liability under Section II-I (ii) in respect of any one claim or series of claims arising out declaration.
5. The arbitration clause contained in condition No. 8 reads as follows:-
'All differences arising out of this policy shall be referred to the decision of an Arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single Arbitrator, to the decision of two Arbitrators. one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties or in case the Arbitrators do not agree of an Umpire appointed in writing by the Arbitrators before entering upon the reference. The Umpire shall sit with the Arbitrators and preside at their meetings and the making of an award shall be a condition Precedent to any right of action against the Society- If the Society shall disclaim liability to the insured for any claim hereunder and such claims shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration under the provisions herein contained then the claim shall for all purposes be deemed to have, been abandoned and shall not thereafter be recoverable hereunder.'
Endorsement No. 10 (Exhibit A/5). which is material for consideration of the case. is reproduced in full:
'Endorsement No 10
Indian Mutual General Insurance Society Ltd., 35, Mount Road. Madras-2,
Endorsement Attached To and Forming Part of Policy No. Cvilh 125596.
It is hereby understood and agreed that M/s. Himalaya Finance and Construction Company, Darya Gant Delhi (hereinafter referred to as the owners) are the owners of the vehicle described, in the schedule to this policy and that the motor vehicle is the subject of a Hire-Purchase Agreement made between the owners of the one part and the insured of the other part and it is further understood and agreed that the said owners are interested in any moneys which but for this endorsement would be payable to the insured under this policy in respect of loss of or damage to the said vehicle and/or accessories whilst thereon (which loss or damage is not made good by repair. reinstatement or replacement) and such moneys shall be paid to the said owners as long as they are owners of the vehicle and their receipt shall be a full and final discharge to the Society in respect of such loss or damage,
Save as by the endorsement expressly agreed nothing herein shall modify or affect the right or liabilities of the insured or the Society respectively under or in connection with this policy or any term, exception, condition or limitation hereof.
Dated at Madras this 6th day of December , 1962.
For Indian Mutual General Insurance
The learned counsel for the parties submitted that there was no direct authority, bearing on the subject and they have invited me to decide the matter on first principles. It appears to me that the name of the owners has been given in the schedule to the insurance Policy under the heading 'Insured' and the insurable interest in the vehicle covers the value of the interest of the owners. Endorsement No. 10 is attached to and forms part of the insurance Policy and it records the understanding and agreement with the owners of the vehicle which is subject to hire-purchase agreement between the owners and the insured and that the owners have interest in any moneys which, but for the endorsement, would be payable to the insured * * * and that such moneys shall be paid to the said owners as long as they are the owners of the vehicle and their receipt shall be a full and final discharge to the Society In respect of such loss or damage. From this stipulation. It follows that it had been mutually agreed amongst all the three Parties that is to say the insurer the insured and the owners that the moneys due under the insurance Policy shall be payable to the said owners only and It was their receipt which was to operate as a full and final discharge to the insurance company.'
There is no doubt that the owners had consented to the endorsement No. 10 (Exhibit A/5 and since in terms it refers to other terms. conditions and rights and liabilities arising in the insurance policy they would be deemed to have consented to an the terms and conditions contained in the same. The endorsement expressly declares the owners to be interested in the moneys and casts an absolute (and not optional) duty on the insurance company to pay the said moneys to the owners so long as they are the owners. This obligation of the insurer cannot be discharged by the insurer unless and until satisfaction is accorded by the owners. In my opinion, the legal position that flows is that on the consideration (in respect of payment of premium and etc..) moving from the insured, the insurance company has agreed to indemnify the owner in respect of the motor vehicle of which the finance company is legally the owner and the insurance company has agreed to pay the amount due under the policy only to the owners. The pro-position thus stated would make the owners parties to the insurance policy.
6. We may examine the matter a little further. (1) The endorsement undoubtedly forms part of the insurance policy and has the effect of modifying its terms to the extent specified; (2) the risk covered by the policy includes the insurable interest of the owners of the vehicle; (3) the interest in the moneys payable under the policy has been created in favor of the owners and they alone have been given the right to give a full and final discharge to the insurance company, (4) the owners will, thereforee, be fully entitled to claim and show that the moneys due under the policy and which they are interested in and entitled to receive have either been not paid by the insurance company or have wrongly been paid to the insured or lesser amount has been Paid or offered than what is due; (5) the obligation on the part of the insurance company would certainly create a corresponding right in the owners to enforce the same and (6) even in the case of assignment the assignor does not lose all the rights and interest and the assignor and the assignee may. under certain circumstances be both enabled to enforce the same. See Union of India v. Sri Sarada Mills Ltd- Civil Appeal No. 1045 of 1967 decided by the Supreme Court on 28-9-1972 - : 2SCR464 . From this it would appear that there is nothing incongruous with the owners and hirers both enforcing their claims in the policy against the insurer.
7. Another aspect of the matter may not be ignored. The motor vehicle legally belonged to the owners who had a valuable insurable interest in it. They had let it out to the hirer for use in terms of the hire-purchase agreement. Should a loss or damage occur to the vehicle, the interest of the owners is legally and vitally affected. In such a case, should it be held that the hirer alone can recover the compensation for the damage from the insurance company. It would open up a vista for frauds as the hirer may not only otherwise defraud the finance company but also recover compensation from the insurance company and disappear, leaving the owners suffering practically an irreparable loss. To Put the matter differently. supposing the hirer alone initiates proceedings to enforce the contract of insurance and to recover compensation from the Insurer In terms of the contract of insurance, the legal proceedings thus instituted would perhaps not be maintainable in the absence of impleading of the owners, since It would be a plausible defense on the part of the insurance company to urge that in terms of the contract of insurance. it is debarred from paying the amount of compensation to the hirer and in fact nobody excepting the owners (so long as they remain the owners) can claim it from the insurer and so both the hirer and owners must be made parties to the Proceedings to realise the amount from the insurance company in order that the finding may conclusively Wind all the parties to the transaction and all the matters in controversy between the parties be finally determined.
8. It has not been suggested that in order to become parties to the insurance policy. it was necessary for the owners to either sign the form of Proposal or pay any consideration. In fact the signatures are except as otherwise specified by the statutory provisions, not a necessary ingredient of consent to a contract See Jugal Kishore Rameshwardas v. Mrs. Goolbai Hormusji, : 2SCR857 .
9. So far as consideration is concerned the same could and has in fact been supplied by the hirer and this is according to law in India, sufficient as consideration for a contract can move at the desire of the promisefrom the third party. It is unlike English law where consideration cannot move from a third party and must move from the promisehimself. On the finding that the finance company. the owners, are parties to the contract of insurance. it would follow that they are parties to the arbitration agreement contained in the insurance policy. As such I hold that the owners can enforce the arbitration agreement.
10. In Alice Marie Vandepitte v. Preferred Accident Insurance Co. of New York Air 1933 Pc 11, it was laid down that a stranger to an arbitration agreement cannot enforce the same unless he be a beneficiary. The Privy Council observed as follows.
'On equitable principles only a person who is a party to a contract can sue on it. The law knows nothing of jus quaesitum arising by way of contract. Such a right may be conferred by way, of property as for example. under a trust. but it cannot be conferred on a stranger to a contract as a right to enforce the contract in personal, But a party to a contract can constitute himself a trustee for a third Party of a right under the contract and thus confer such rights enforceable In equity on the third party. The trustee then can take steps to enforce performance to the beneficiary by the other contracting Party as in the case of other equitable rights. The action should be in the name of the trustee; if, however, he refuses to sue, the benefi- ciary can sue, joining the trustee as a defendant.
'In such, cases again the intention to constitute the trust must be affirmatively proved: the Intention cannot necessarily be inferred from the mere general words contained in a contract such as an insurance policy'.
On the finding that the owners are parties to the contract of insurance, It is not necessary for me to consider the applicability of the aforesaid dictum of the Judicial Committee, but if it were necessary. I would be inclined to hold that the owners of the vehicles who really have a legal interest in the property could very easily come within the definition of beneficiaries under the insurance policy and. thereforee, entitled to claim their rights under it.
11. Mr. Chadha, the learned counsel for the petitioner-insurer, has relied upon a passage on pages 633 to 635 under the heading 'Hire-Purchase Agreement' in Shawcross on Motor Insurance. Second Edition. Under the sub-heading 'the hire-owners', the learned author observer ad as follows:,
'The position of the hire-owners In regard to a hire-purchase endorsement In a Policy issued to the hire-purchaser is more complicated. Their rights as determined by the general principles of the law of contract are as follows:
(1) No person who is not a party to a contract can himself directly enforce rights in his favor there under.
(2) Consideration must move from the plaintiff.
'In most cases the hire-owners are In no sense a party to the policy, unless it can be said that the assured is their agent. But even in this case there would, as a rule, be no consideration moving from the hire-owner. When consideration is given by an agent it cannot be relied upon by the principal unless it was given on his behalf. Where the premium is paid by the assured, it is. it is submitted, paid by him on his own behalf, unless there is something in the hire-purchase agreement which requires him to pay it on behalf of the owners as well.
'Where, as sometimes is the case the premium is paid by the owners, it would seem that it is paid by them as agents for the assured if the policy is issued to him and recites the payment by him of the premium. It might be however that in certain cases it would be held that a premium paid by the owners was paid by them on their own behalf as well as on behalf of the assured.
'It should be noticed that in practice where a policy is issued to cover a vehicle being bought by hire-purchase, the Insurers issue a duplicate copy of the policy-including the endorsement- to the owners. It is possible that in such cases, if the decision in Re National Benefit Assurance Co., (1932) 2 Ch 184, Is followed, the owners might be held to have rights by estoppel against the insurers.
'Moreover it must not be forgotten that In any case there may be some collateral agreement between the owners and the insurers which entitled the owners to take advantage of the endorsement.
'With the above general considerations in mind, the effect of each hire-purchase endorsement as between owners and insurers must be decided by-the particular circumstances of the case. But it may be said that the owners will be affected by any misconduct or breach of condition on the part of the assured. Thus if he fraudulently destroys the vehicle they although quite innocent, may be unable to recover.'
The aforesaid passage establishes the two well known principles of English law that no person who is not a party to a contract can himself directly enforce the rights in his favor and that consideration must move from the plaintiff, So far as the second proposition is concerned, the definition of consideration in Indian law contained in Section 2(d) of the Contract Act is different and reads as follows: -
'When at the desire of the promisor, the promiseor any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing something, such act or abstinence or promise is called a consideration for the promise.''
The distinction between Indian law and the English law on the subject has been clearly brought out by Mulla on Contract thereforee, the English authorities turning on the question of emanation of consideration from the plaintiff are not of much assistance in deciding the controversy in these case.
12. So far as the first proposition is concerned, there is hardly any doubt that a person who is not a party to the con-tract cannot enforce it, but the learned author has taken care to observe that it must not be forgotten that in any case there may be some collateral agreement between the owners and insurers which entitles the owners to take advantage of the endorsement. For example, if the Insurers agree to give the owners the benefit of the hire-purchase endorsement in consideration of the owners procuring the Policy to be effected with them. The author has further observed that the effect of each hire-purchase endorsement as between the owners and insurers must be decided by the particular circumstances of each case. The observations are, in my opinion, thereforee. not helpful in the case in hand.
13. Mr. Chadha has also cited Des Rai Pahwa v. Concord of India Insurance Co. Ltd., Air 1951 P&H; 114, where Falshaw, J. following the authority of the Privy Council in Alice Marie Vandepitte's case, Air 1933 Pc 11 (supra) observed that a stranger to a contract could not enforse the same. He has also cited Patanjal v. M/s. Rawalpindi Theatres (P.) Ltd., Delhi. : AIR1970Delhi19 . Where it is observed that only a Person who is a Party to a contract can sue on it and the existence of statutory or equitable exceptions to this rule do not impugn upon its general fundamental character and of course if the subject-matter of the arbitration agreement is capable of assignment. then the assignee would step into the shoes of his assignor and be both bound by it and entitled to enforce it but for this purpose, Court should look to the law relating to assignment of contractual rights and obligations and also to see whether in a given case the assignee has exercised his right as such. There can be no doubt about the proposition of law laid down in Des Raj Pahwa's case, Air 1951 P&H; 114 and in Patanjal's case, : AIR1970Delhi19 . They however do not apply to the facts of this case as in my opinion the owners are parties to the contract of insurance and also to the arbitration agreement.
14. Mr. Chadha has again relied on Hire-Purchase Law and Practice by Good. 1962 Edition on page 331 under the subheading 'Hire-purchase Endorsement' which reads as follows.
'(b) Hire-purchase endorsements.- In the case of motor vehicles comprised in hire-purchase agreements and insured in the name of the hirer the owner's interest is customarily protected by a hire-purchase endorsement which declares that the person designated in the endorsement Is the owner of the goods and Provides that no payment is to be made to the hirer under the Policy until the owners interest in the goods has been satisfied. The extent to which the hirer, as between himself and the insurance company, is bound by this endorsement if he has not expressly assented to it is a matter of some doubt. If the endorsement appears on the face of the Policy it forms part of its terms and is binding on the hirer. If, on the other hand, it appears on the back of the policy it is binding only if Incorporated in the policy, under the terms of the policy Itself which will normally be the case-or by a separate agreement between the insurers and the hirer.
'There remains to consider the question whether the endorsement gives the owner a right of action against the Insurers. The better view would seem to be that in normal circumstances it does not first because the owner is a stranger to the contract of which the endorsement forms Part and secondly because, even though the owner is a promisee, the consideration necessary to support a claim has moved not from him but from the hirer. On the other hand, the endorsement may. if it was assented to by the hirer constitute evidence of the hirer's Intention to insure for the owner's Interest as well as for his own so as to entitle the owner to make a claim in his own name direct against the insurers.'
Here again, the observations founded on the English law that the consideration necessary to support the claim of the owner has moved not from the owner, but from the hirer, is not helpful.
15. As a result of the discussion, my conclusion is that the owners' finance company is a consenting Party to the contract of insurance and is entitled to enforce its claim to recover the compensation for the loss and damage to the motor vehicle in terms of the insurance policy as modified by Endorsement No. 10. As such it is also a party to the arbitration agreement and is entitled to enforce the same by a petition under Section 20 of the Arbitration Act or otherwise. The findings of the Courts below are thereforee maintained and the revision petitions are dismissed, but in the circumstances of the case, the parties are left to bear their respective costs.
16. Petition dismissed.