Bar on Extension of Insurance Cover Without Premium: Supreme Court on the Statutory Embargo Under Section 64VB

1. INTRODUCTION 

The Supreme Court, in the case of New India Assurance Co. Ltd. & Ors. vs. M/s Louis Dreyfus Commodities India Pvt. Ltd. (2026 INSC 876) (‘New India Assurance vs. Louis Dreyfus‘), has held that where an insurance policy covers turnover on a running annual basis, the insurer cannot be held liable for a loss that occurs after the insured’s actual turnover has exceeded the turnover for which premium has already been paid, even where the policy itself is expressed as an annual turnover based cover. 

The Court reasoned that Section 64VB of the Insurance Act, 1938 (‘Insurance Act‘) places a statutory embargo on an insurer assuming any enhanced risk until the corresponding premium is received, and that this embargo cannot be diluted either by an assurance given by a company official contrary to the insurer’s own internal guidelines, or by the doctrine of estoppel. The Court further emphasised that an endorsement recording receipt of additional premium takes effect only from the date it is issued, and cannot be read back to cover a loss that occurred before that date. 

2. FACTUAL BACKGROUND OF THE DISPUTE: 

The dispute reached the Supreme Court by way of two civil appeals filed under Section 23 of the Consumer Protection Act, 1986, against a common judgment and order dated 21.05.2025 passed by the National Consumer Disputes Redressal Commission (‘NCDRC‘) in Complaint Nos. 259 of 2012 and 396 of 2014. The two complaints arose out of two separate incidents involving the same parties, and since both appeals turned on the same facts and issues, the Court proceeded on the basis of the facts in Complaint No. 259 of 2012 alone. 

The respondent, an ongoing business concern engaged in the trade of commodities, held a Marine Cargo Annual Turnover Policy from the appellant insurer, extending to an expected annual turnover of INR 1200 Crores for the policy period from 01.01.2010 to 31.12.2010. The premium under the policy was payable in two equal instalments, and the sum insured itself was tied to actual performance, since Special Condition No. 4 of the policy provided that premium was subject to the annual turnover and would be charged as per the actual turnover achieved during the policy period. 

About halfway through the policy period, the respondent’s expected turnover increased, and it began corresponding with the appellants regarding enhancement of the insurance coverage. On 07.11.2010, a fire broke out at the Container Freight Station where the respondent had received and stored 41,481 cotton bales. The appellants were informed of the fire the same day. The surveyor appointed by the appellants assessed the loss at Rs. 22,01,29,271/- though a second surveyor was later appointed, whose appointment the respondent alleges lacked the approval of the Insurance Regulatory and Development Authority (‘IRDA‘) and whose report was never furnished to it. 

On 14.12.2010, more than a month after the fire, the appellants sought payment of additional premium of Rs. 86,86,125/- to enhance the coverage to INR 1500 Crores. The respondent paid this amount on 17.12.2010. The claim itself was eventually repudiated by a letter dated 27.07.2012, prompting the respondent to approach the NCDRC. 

3. RIVAL CONTENTIONS AND THE DECISION OF THE NCDRC: 

Before the NCDRC, the appellants contended that the respondent’s turnover as on 30.06.2010 already stood at INR 1016.35 Crores, exceeding the INR 600 Crores of cover applicable for the first half of the policy year. Although the second instalment of premium was paid on 1.07.2010, taking the total cover to INR 1200 Crores, the appellants pointed out that the respondent’s turnover crossed even this enhanced figure by 10.07.2010, and stood at INR 1724.12 Crores on the date of the fire. Since no additional premium had been paid for this excess turnover, the appellants argued that there was no active coverage on the date of the loss, relying on Section 64VB of the Insurance Act. The appellants further contended that the premium paid on 17.12.2010 was an attempt to retrospectively regularise the policy six weeks after the fire, and that the email of 14.12.2010 on the strength of which it was paid had been sent by an officer without the requisite approval and did not bind the appellants. 

The respondent, for its part, argued that Section 64VB had no application because Special Condition No. 4 of the policy expressly made the premium adjustable to the actual turnover achieved during the policy period, and that the appellants had accepted the additional premium without any objection. 

The NCDRC accepted the respondent’s case and allowed the complaint, directing the appellants to pay the amount assessed by their own first surveyor. It relied principally on an email dated 17.05.2010, sent by the appellants’ Divisional Manager in response to a query raised by the respondent’s insurance broker on 15.05.2010, which stated that once the second instalment of premium was paid, all transits would remain covered till the expiry of the policy even if the turnover crossed INR 1200 Crores. The NCDRC held that this assurance meant the coverage continued till the end of the policy period regardless of the turnover exceeding the insured amount. 

IV. ANALYSIS BY THE SUPREME COURT 

(a) Section 64VB places a statutory embargo on the assumption of risk without prior premium 

The Supreme Court, held that Section 64VB of the Insurance Act squarely applied to the present dispute. The provision creates a statutory embargo on an insurer assuming risk unless the premium has been paid, or guaranteed to be paid, and makes clear that the risk cannot be assumed earlier than the date on which the premium is actually received. Since the respondent’s policy was a turnover based cover, and the insured turnover of INR 1200 Crores stood exceeded by 10.07.2010, well before the fire on 07.11.2010, the Court held that it was incumbent on the respondent to have either paid additional premium based on its estimated turnover or guaranteed such payment within a defined time, failing which no enhanced coverage could be said to exist on the date of the loss. 

(b) The Divisional Manager’s assurance could not extend the insurer’s liability 

The Court declined to accept that the email dated 17.05.2010 could bind the appellants to an open ended coverage regardless of turnover. It noted that the appellants had placed on record their own internal guidelines dated 16.10.2006, directing all regional offices that premium adjustment was to be done only downwards in view of Section 64VB. Since an agent’s authority is ordinarily expected to be exercised in accordance with the directives of its principal, the Court held that no occasion arose for the Divisional Manager to assure the respondent of an extension of coverage that ran contrary to those guidelines. Relying on Harshad J. Shah vs. LIC of India (1997) 5 SCC 64, and referring further to State of Orissa vs. United India Insurance Co. Ltd. (1997) 5 SCC 512 and State Bank of India vs. Shyama Devi (1978) 3 SCC 399, the Court held that an agent’s authority, whether express or implied, does not extend to representations that conflict with the principal’s own express directions. 

(c) Estoppel could not be invoked to defeat a statutory bar 

The respondent’s argument that the appellants were estopped from denying coverage, having accepted the additional premium without objection, was also rejected. The Court accepted that an insurer who accepts premium in instalments purely for its own administrative convenience cannot later invoke Section 64VB to disown the risk. It held, however, that this principle applied only to payments forming part of the originally agreed INR 1200 Crores cover, and not to the additional premium paid in this case, which was directly linked to a turnover that had already exceeded the sum insured before the loss occurred. Since the statute contemplates no scope for post facto regularisation, the Court held that the rule of estoppel discussed in Shyam Telelink Ltd. vs. Union of India (2010) 10 SCC 165 cannot operate against or in contravention of a statute, citing Electronics Corpn. of India Ltd. vs. Secy., Revenue Deptt., Govt. of A.P. (1999) 4 SCC 458 and State of W.B. vs. Gitashree Dutta (2022) 19 SCC 388. 

(d) The endorsement of 17.12.2010 operated only prospectively 

Finally, the Court held that the endorsement dated 17.12.2010, by which the appellants accepted the additional premium, expressly recorded that its effect would accrue only from that date. The appellants’ assumption of the enhanced risk therefore could not be read back to cover the fire that had occurred more than a month earlier, on 07.11.2010. On this basis, the Court allowed both appeals filed by the appellant insurer. 

5. THE CONCURRING OPINION ON THE SCOPE OF AN AGENT’S AUTHORITY 

In a separate but concurring opinion, Justice N. Kotiswar Singh examined, at greater length, the principles of agency under the Indian Contract Act, 1872 (‘Contract Act‘) that governed the effect of the Divisional Manager’s email. 

(a) Actual and apparent authority under the Contract Act 

It was noted that Sections 186 and 187 of the Contract Act permit an agent’s authority to be express or implied, while Section 188 confines such implied authority to what is lawful and necessary, or usual, in the conduct of the business the agent has been authorised to carry on. Where actual authority is absent, Section 237 of the Contract Act embodies the doctrine of holding out, under which a principal is bound by an agent’s unauthorised acts only if the principal’s own words or conduct led the third party to believe those acts fell within the agent’s authority. 

(b) Harshad J. Shah and the limits of apparent authority 

Drawing on Harshad J. Shah vs. LIC of India (1997) 5 SCC 64, it was reiterated that apparent authority flows from a representation made by the principal to the third party, and not from the agent’s own assertion, and that where a governing regulation expressly restricts an agent’s authority, neither implied nor apparent authority can be inferred merely from the agent’s conduct. 

(c) Basanti Devi distinguished 

The judgment in Delhi Electric Supply Undertaking v. Basanti Devi (1999) 8 SCC 229 was distinguished. In Basanti Devi, an employer collecting premium under a salary savings scheme was held to have ostensible authority because the insurer’s own scheme had placed it in that position vis-a-vis the insured employee. The present case, it was held, was different, since the disputed email was relied upon not as an act of routine policy administration but as authority to continue the insurance risk beyond what could lawfully attach without compliance with Section 64VB of the Insurance Act, a statutory restriction directed at the insurer itself, which an agent cannot circumvent by invoking actual or apparent authority. 

(d) Applying the principles to the Divisional Manager’s email 

On facts, it was held that the Divisional Manager possessed the usual authority to correspond about and administer the policy, and that the email was accordingly relevant as a contemporaneous representation of the issuing office. However, applying the burden recognised in Dilawari Exporters vs. Alitalia Cargo & Ors. (2010) 5 SCC 754, it was held that the respondent had not established that the appellants had held out the Divisional Manager as possessing authority to enlarge the turnover based risk or dispense with a statutory precondition, and relied on State of Orissa vs. United India Insurance Co. Ltd. (1997) 5 SCC 512, where a Branch Manager’s unauthorised underwriting of a guarantee was similarly held not to bind the insurer. 

(e) Severability and ratification 

It was further held that Section 227 of the Contract Act allowed the authorised part of the Divisional Manager’s email, namely its clarification on the scheduled instalments, to be separated from the unauthorised assurance of unlimited cover. On the question of ratification under Section 196 of the Contract Act, it was held that the endorsement’s express prospective effect from 17.12.2010 was inconsistent with any intention to ratify, retrospectively, an assurance of cover that predated the loss, and that ratification could not in any event be used to defeat a mandatory statutory requirement.. 

6. CONCLUSION 

Both appeals were accordingly allowed, and the appellants were held not liable for the fire loss of 07.11.2010, since the enhanced turnover based risk had never validly attached in the absence of premium paid or guaranteed in advance. 

The judgment reaffirms the settled position, recognised earlier in Deokar Exports (P) Ltd. vs. New India Assurance Co. Ltd. (2008) 14 SCC 598, that Section 64VB of the Insurance Act is a mandatory precondition to the assumption of risk, and that neither an assurance by a company official nor the equitable doctrine of estoppel can be used to circumvent it. Read alongside the concurring opinion, the decision equally reaffirms that the ordinary principles of agency under the Contract Act, including the distinction between actual and apparent authority, apply with full force in the insurance context, and that a company official’s representation binds the insurer only to the extent the official was actually or apparently authorised to make it. 

For businesses that rely on turnover linked or otherwise adjustable insurance covers, the judgment is a reminder that the extent of cover follows the premium actually paid, and not the expectation of a company official, however senior, that cover will continue. Correspondence assuring continuity of coverage, however well intentioned, cannot substitute for timely payment of premium once the insured turnover exceeds the sum already covered, and an insurer’s own internal guidelines restricting an agent’s authority will be given full effect once placed on record. 

Last Updated on 7 September, 2026