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Authorization to present suits can only be given after a decision to institute a suit is taken by the board of directors of the company

Esheta Lunkad ,
  14 September 2020       Share Bookmark

Court :

Brief :
The cover-notes remained in the office of the defendant and are not proved to have been given to the plaintiff, the contract between the parties cannot be held to be concluded.
Citation :
Petitioner:Nibro Ltd Respondent:National Insurance Co. Ltd. Citation:AIR 1991 Delhi 25


S Bhandare


Whether the defendant insurance company is liable to pay for the loss of the plaintiff company?


  • Recovery of Rs 7lakhs along with the interest suit has been filed by the petitioner against the respondent, which is an insurance company.
  • The plaintiff is also a nationalised company, who’s director has filed the complaint.
  • The plaintiff, to reinsure his factory called defendant to inspect his premises.
  • The respondent inspected and agreed to insure the factory building goods and raw material against theft, fire, damages, etc and issue a cover note on the following day.
  • Then, the next day, the respondent collected a cheque of Rs 12 thousand.
  • Plaintiff’s cheque was accepted through the respondent by the Development Officer of the same, and the cover notes were issued to convey the acceptance.
  • The next day, a fire broke out in the factory, it was controlled but caused damage to the main building, its installation, raw materials, goods, etc.
  • The plaintiff asked the defendant to conduct a survey, who did so, & the damages came out to be 2 lakhs, but without the goods in the custom warehouse.
  • The plaintiff assessed the total damages with the custom goods and interest to come to more than 6 lakhs.

Appellant's contentions:

TThe plaintiff has a factory in Haryana, which he claims is insured by the respondent since 1973 against theft, fire, damages, etc. from time to time by policies taken.

  • The petitioner stated in the plaint that the respondent signed the cover note in the presence of him, but took the note with him saying that he will issue the insurance very soon.
  • As per the plaintiff, the issued cover notes were for a sum of Rs 40 lakhs.

Respondent's contentions:

  • The plaintiff company’s director is not competent to file the suit nor have they passed a resolution in their company stating that they would file the suit, hence this unauthorized suit is not maintainable.
  • The contract of insurance only matures when a proposal submitted by the insured is finally accepted by the company and documents evidencing the contract of insurance are issued by the company.
  • The contract is not completed by mere tender of proposal for insurance or by tendering money.

Final judgement:

  • The cover-notes remained in the office of the defendant and are not proved to have been given to the plaintiff, the contract between the parties cannot be held to be concluded.
  • There is a proposal to the insurance but no acceptance by the insurance company.
  • There is no binding contract of insurance between the parties andthe defendant company is not liable to pay for the loss suffered by the defendant in the fire.

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Published in Corporate Law
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