The Supreme Court has held that an insurer cannot assume or retrospectively extend an additional insurance risk when the corresponding premium has not been received in advance, holding that the statutory mandate under Section 64VB of the Insurance Act, 1938 cannot be overridden by an assurance given by an insurance company employee or by subsequent acceptance of additional premium.

The bench of Justice Sanjay Karol and Justice Nongmeikapam Kotiswar Singh allowed appeals filed by The New India Assurance Company Limited and others against the National Consumer Disputes Redressal Commission (NCDRC), which had directed the insurer to honour a marine cargo insurance claim made by Louis Dreyfus Commodities India Pvt. Ltd. The judgment was delivered on August 18, 2026, in Civil Appeal Nos. 7687-7688 of 2025.

The dispute arose from a Marine Cargo Annual Turnover Policy obtained by Louis Dreyfus Commodities from New India Assurance for the period from January 1, 2010 to December 31, 2010. The policy carried an annual turnover limit of ₹1,200 crore, with the premium payable in two equal instalments. The policy expressly provided that the premium would be subject to the annual turnover and would be charged according to the actual turnover during the policy period.

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During the policy period, the company’s turnover increased substantially. According to the insurer, the turnover had already crossed the ₹1,200 crore coverage threshold by July 10, 2010. The insurer consequently contended that the insurance coverage had been exhausted well before the incident giving rise to the claim.

The crucial incident occurred on November 7, 2010, when a fire broke out at a Container Freight Station where 41,481 cotton bales belonging to the respondent had been stored. The insurer’s surveyor assessed the damage at approximately ₹22.01 crore.

The insurer subsequently sought an additional premium of ₹86,86,125 for enhancement of the coverage. The payment was made on December 17, 2010, more than a month after the fire.

The insurer later issued an endorsement recording that the enhanced coverage would take effect from December 17, 2010. The endorsement itself therefore did not purport to provide retrospective coverage for the November 7 loss.
The insurance company eventually repudiated the claim in July 2012. Among other grounds, it pointed out that the company’s total sales turnover for 2010 was approximately ₹2,734.30 crore, substantially exceeding the declared annual turnover of ₹1,200 crore. The insurer further stated that the turnover had already exceeded the initial half-yearly limit and that the enhanced coverage itself had been exhausted before the date of the fire.

The NCDRC had ruled in favour of Louis Dreyfus Commodities. It relied significantly upon correspondence between the insurance broker and the insurer’s Divisional Manager.

In particular, an email dated May 17, 2010 stated that after payment of the second instalment, all transits would remain covered until the expiry of the policy even if the turnover crossed ₹1,200 crore. The NCDRC treated this clarification as establishing that the insurance coverage would continue despite the turnover exceeding the stated amount.
The Supreme Court, however, disagreed with that approach.

The central legal issue before the Supreme Court was the effect of Section 64VB of the Insurance Act, 1938.

The provision states, in substance, that an insurer cannot assume an insurance risk in India unless and until the premium payable has been received, guaranteed in the prescribed manner and within the prescribed time, or the prescribed deposit has been made in advance. Where the premium can be ascertained in advance, the risk cannot be assumed before the date on which the premium has been paid.

Justice Sanjay Karol held that the provision imposes a statutory embargo on an insurer assuming risk without the requisite premium.

The Court found that Section 64VB was directly attracted because turnover was a central component of the policy. Once the turnover exceeded the insured amount on July 10, 2010, the insured was required either to extend the coverage by paying the requisite additional premium or to provide a valid guarantee for payment within the permitted period.

A significant aspect of the ruling concerns the legal effect of the additional premium paid after the loss.

The respondent argued that the insurer had accepted the additional premium and was therefore estopped from denying coverage. The Supreme Court rejected the argument.

The Court held that accepting additional premium after the incident could not retrospectively validate insurance coverage that had not lawfully attached on the date of the loss. Section 64VB, according to the Court, leaves no scope for post facto regularisation of the additional risk in circumstances such as these.

The Court also noted that the endorsement issued upon acceptance of the additional premium expressly made the enhanced coverage effective from December 17, 2010, rather than from the date of the fire. Consequently, the endorsement itself could not establish coverage for the earlier loss.

The respondent had heavily relied upon the May 17, 2010 email from the insurer’s Divisional Manager, arguing that it constituted an assurance that coverage would continue even if turnover exceeded ₹1,200 crore.

The Supreme Court held that the employee’s communication could not override the statutory requirement contained in Section 64VB.

The insurer had placed before the Court internal guidelines issued by its Head Office in 2006, which directed that premium adjustment was to be carried out only downwards in view of Section 64VB. In light of this directive, the Court held that the Divisional Manager could not be treated as having authority to enlarge the insurance risk contrary to the governing statutory framework.

The bench in a separate but concurring judgment, elaborately examined the principles of principal-agent relationship under the Indian Contract Act, 1872.

The Court recognised that an employee may simultaneously function as an agent of a company in dealings with third parties. Under Sections 186 and 187 of the Contract Act, an agent’s authority may be express or implied, while Section 188 defines the extent of that authority.

However, the Court emphasised that an agent’s authority to administer or explain an insurance policy does not automatically include authority to create a new risk, enlarge the sum insured, expand the insurer’s liability or dispense with a statutory condition governing the attachment of risk.

The Court also examined Section 237 of the Contract Act, which embodies the principle of apparent or ostensible authority.

Ordinarily, a principal may be bound by an unauthorised act of an agent where the principal’s own words or conduct induced a third party to believe that the agent possessed the relevant authority. However, the Supreme Court clarified that the doctrine cannot be used to confer upon an agent a power that the principal itself does not legally possess.

Justice Kotiswar Singh observed that while the Divisional Manager had authority to correspond with the insured and explain the operation of the existing policy, that did not establish authority to independently enlarge the turnover-based risk or dispense with Section 64VB.

The Court drew a distinction between authority to administer a contract and authority to rewrite the contract.

The judgment also considered the distinction between actual authority and ostensible authority.

The Court noted that an internal restriction on an employee’s authority may ordinarily be relevant only between the principal and the agent if that restriction has not been communicated to the third party. However, the principle of ostensible authority cannot be stretched to permit an agent to undertake an act which the principal itself could not lawfully undertake.

The Court explained that the present case was materially different from situations where the principal’s own business arrangement or conduct had held out an employee or intermediary as possessing authority to perform the particular act in question.

Another important question was whether the insurer’s subsequent conduct amounted to ratification under Section 196 of the Contract Act.

The Court held that ratification requires conscious adoption of the very act that was originally undertaken without authority. Here, the additional endorsement expressly became effective only on December 17, 2010.

Since the fire had occurred on November 7, 2010, the prospective endorsement was inconsistent with any intention to retrospectively ratify an earlier promise of additional coverage. More importantly, the Court stressed that ratification cannot be employed to defeat a mandatory statutory requirement governing assumption of insurance risk.

The judgment establishes several important principles concerning insurance contracts and agency law:

First, where the amount of insurance risk is linked to turnover, crossing the insured turnover limit has legal consequences for the continuation of coverage.

Second, Section 64VB of the Insurance Act operates as a statutory restriction on the assumption of risk where the corresponding premium has not been received or validly guaranteed.

Third, a subsequent payment of additional premium cannot retrospectively attach insurance risk to an event that occurred before the payment.

Fourth, an employee’s authority to administer or explain a policy does not, by itself, confer authority to enlarge the contractual risk or waive a statutory requirement.

Fifth, the doctrines of apparent authority, estoppel and ratification cannot be invoked to create liability in contravention of a mandatory statutory provision.

Sixth, the acceptance of additional premium does not necessarily establish coverage for an earlier loss, particularly where the endorsement expressly specifies a prospective effective date.

The Supreme Court allowed both appeals filed by New India Assurance and set aside the contrary conclusion reached by the NCDRC.

The Court concluded that the insurer’s responsibility for the enhanced coverage arose only from the date specified in the endorsement—December 17, 2010—and could not extend backwards.

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