BANKING AND INSURANCE- CLASS PARTICIPATION

Krishna

A011 (TY BBA.LLB)

1. Ms. M, the plaintiff took a comprehensive policy insuring her jewels interalia against loss by
fire. During the summer she kept the jewels and the currency notes in a newspaper and placed
them for safety in the fire-place to prevent burglars from noticing them. Later without
removing the jewels and currency as she forgot about them she lighted a fire and they were
burned and damaged. The insurers repudiated their liability, contending that the loss was not
covered since it did not fall within the terms of the policy as the damage had been done to the
insured property by fire in a place where it was intended to be i.e. in the grate.

Decide whether Ms. M would get the claim in the above case for her own negligence?

1. Mr. A, the director of ABZ Ltd Co. issued an Account Payee crossed cheque drawn on
Bank of India of Rs. 20,00,000 in favour of Shroff Enterprise on 11 th January 2020
for the delivery of certain goods. Shroff Enterprise endorsed the cheque to K.M
enterprise on 18th Janurary 2020 for consideration. K.M Enterprise presented the
cheque for payment on 22nd January 2020 to PNB Bank where they maintain the
account. PNB Bank denied the clearance of the amount in favour of K.M Enterprise.
K.M Enterprise filed a suit against the Bank arguing that bank has a fiduciary duty and
obligation to honour the cheques.

In light of the above situation discuss the following issues and support it with relevant
cases:

a. What is Endorsement of Cheques? Can crossed cheques be endorsed by the

Payee?

b. Whether the Bank is justified in holding the clearance of the cheque in favour of
K.M Enterprise? Discuss the same with the help of relevant RBI circulars and cases.

2. Mr A insured his life with NIC Insurance Co. and in letters of contract it was provided that
the policy was to become unenforceable if the assured would cause his own death before the
policy has been in existence for one year. The assured after one year assigned the policy in
favor of his son and 10 months thereafter he committed suicide out of disgust. Mr. A was in
his complete senses and sound state of mind while committing suicide. The son filed a suit, as
assignee to claim the amount of the policy. Decide whether the Insurer Co. is liable to pay
the amount in case of suicide by the assured?
 BANKING AND INSURANCE- CLASS PARTICIPATION

ANSWERS

1) In the present case, the actions of the insured is against the basic ground of Insurance. An
insurance claim is not payable for gross negligence. However, a Comprehensive Policy
covers more than one perils and the damage may be claimed. The insured jewellery which
has been destroyed by fire must have only changed the design and cuts of jewellery and the
gold must be left in distraught form. Hence, the insurer has not incurred total loss just an
alteration in the form of jewellery. Therefore, the insured may claim damages to restore the
form of the jewellery but cannot claim the complete insurance amount because the fire
occurred due to her negligence.

2) The instrument of cheque is governed under the Negotiable Instruments Act and is defined
under Section 6 of the Act. The cheque amount is paid by the drawee to the payee, the drawee
being the bank.

a. The cheques being a negotiable instrument can be endorsed by the payee to a third person.
The term ‘endorsement’ is defined by Section 15 of the Act. It means that when the holder
of the negotiable instrument signs his name on the back or annexes a slip and gives it to
another person, the cheque is said to be endorsed. The person to whom the instrument is
endorsed is called the endorsee. A cheque is said to be crossed when it bears across its
face an addition of words ‘account payee’ between two transverse lines. A cheque can be
crossed in three ways- general crossing, special crossing and not negotiable crossing
under sections 123, 124 and 130 respectively. The given set of facts talks about general
crossed cheque. A generally crossed cheque can be endorsed by the payee by signing his
name on the back or annexing an allonge. However, an account payee cheque cannot be
endorsed and the amount can be credited only to payee’s account.
b. The Bank is justified in holding the clearance of the cheque in favour of K.M Enterprise.
As per the RBI Circular (RBI./2005-06/282) of January 23, 2006 with respect to banks
being burdened with liabilities arising out of unauthorised transactions, has notifies that
banks are prohibited from crediting “A/C Payee” cheque to any account other than the
Payee named therein. The same was upheld in the case of Rajmoti Industries v. Assistant
Commissioner of Income Tax that crossed cheques can be endorsed but not account payee
cheques. The sub-sections (3) and (4) of Section 40 were amended for the same. An
account payee cheque can be encashed only in the account of the payee named in the
cheque.
 BANKING AND INSURANCE- CLASS PARTICIPATION

3) A life insurance policy generally contains the clause that if policyholder or person whose
life is insured commits suicide within 12 months from the date of issue of the policy or from
date of any major revivals, the insurance claim is not payable by the insurer. Hence, the
suicide exclusion is applicable for the first one year and thereafter such deaths are covered
under the policy. In the present case, suicide has been committed after one year and ten
months. Therefore, the nominee, the son in instant case, is entitled to receive the benefit of
life insurance even though the policy holder committed suicide.