Ahinsa Medicos vs NEW INDIA ASSURANCE CO. LTD.

COMPLAINT was filed, inter alia, alleging that the complainant, a partnership firm has been doing business of trading and distribution of medicines, etc. at shop No. 1520/9, Bhagirath Place, Chandni Chowk, Delhi. It purchased insurance policy of Rs. 25.00 lakhs for the period from 11.11.2000 to 10.11.2001 also covering the peril of fire from the opposite party Insurance Co. It was alleged that fire broke out in the shop on the night of 27.10.2001 and was extinguished by fire tenders. Police was intimated of the fire. Opposite party was informed of the fire. Insurance Co. appointed M/s. S. Soni & Co. -Surveyor to assess the loss. Complainant provided the demanded information and books of accounts etc. to the Surveyor. However, ignoring those books of accounts etc. the Surveyor assessed the loss at Rs. 7.27 lakhs. Insurance Co. offered this amount towards full and final settlement of the claim which the complainant declined to accept. Attributing deficiency in service, direction was sought to be made to the opposite party Co. to pay Rs. 25.00 lakhs being the amount of loss along with interest of Rs. 7.00 lakhs @ 24% p.a. from 27.10.2001, Rs. 4.50 lakhs towards interest charged by J& K Bank and Rs. 50.00 lakhs as compensation towards mental agony etc., to the complainant.

OPPOSITE party contested the complaint by filing written version. Issuance of policy of Rs. 25.00 lakhs for a period of one year commencing from 10.11.2001, fire having taken place in the shop of the complainant in the night of 27.10.2001 and appointing M/s. S. Soni and Co. as Surveyor were not disputed. However, it was alleged that in the shop at the ground floor, stocks were kept in 42 racks out of which stocks in 35 racks were physically verified by the Surveyor. Books of accounts, etc. supplied by the complainant was not sufficient to substantiate the loss of stocks to the tune of Rs. 17,72,263 in remaining 7 racks which were totally gutted by fire. Total value of the stocks physically verified (other than in 7 racks) was Rs. 7,27,737.30. Total loss claimed by the complainant was Rs. 25.00 lakhs. The total damaged stocks in 7 racks could not be of Rs. 17,72,263 (Rs. 25,00,000 7,27,737). Despite letters dated 17.1.2002, 14.3.2002 and 9.5.2002, the complainant did not explain this discrepancy. Assessment of loss of Rs. 7.27 lakhs made by the Surveyor is not unilateral or arbitrary as alleged.

WE have heard Mr. S.M. Suri for the complainant and Mr. S.K. Pattjoshi for the opposite party and have been taken through the record. Controversy in this complaint mainly centers around the quantum of loss payable. Copy of the report of M/s. S. Soni and Co. Surveyor filed along with the written version by the opposite party Insurance Co. is at pages 141 to 162 on the paper book. Paras 10.1, 10.4, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 11, 14 and 15 of this report which are material for deciding the controversy on hand, are re -produced below: "10.1 NATURE AND EXTENT OF DAMAGE: During the course of our physical verification of the affected premises we found that stock of medicines, which laid in the ground floor was damaged by heat and water and partially fire. The shop had rack along with its walls. The stock of seven racks was totally gutted by fire. We also found that stock of medicine had fallen out of the racks into the floor because of operations of the fire fighters. The stock of the mezzanine floor was water heat and fire affected. Even though this stock was slightly damaged it won''t have any market value as these medicines are meant for human consumption and their consumption in present state would be hazardous.

10.4 PHYSICAL VERIFICATION OF REMAINING STOCK AFTER LOSS ON 29.10.2001: On 29.10.2001 we visited M/s. Ahinsa Medicos and verified the complete left over stock after the fire incident at the shop premises and prepared a list of the same. All the stock which was physically verified by us was water and heat affected and partially burnt, etc. The value of stock on the basis of physical verification comes to Rs. 7,27,737.30 (Annexure -II). Other than the stock which could be physically verified by us there was totally burnt stock which could not be recognized and hence we weighed it in nine boxes and the weight of totally damaged stock comes to sixty -one kilograms (61 kgs). This stock was placed in the ground floor on the racks, the ground floor of the shop had forty -two (42) racks and material of seven rack was totally damaged by fire.

10.5 VERIFICATION OF STOCK STATEMENTS SENT TO BANK: The Insured has a cash credit limit with the Jammu and Kashmir Bank Ltd., against hypothecation of stock and submits monthly stock statements to the same. The particulars of stock statements submitted during the last few months are as follows: Period Amount (Rs.) April, 2001 25,62,470 May, 2001 25,85,884 June, 2001 26,36,381 July, 2001 26,15,309 August, 2001 26,10,121 September, 2001 25,50,081 The total value of the stock as on the date of loss on the basis of last stock statement submitted near to the date of loss i.e. 30.9.2001 has been computed as follows: Value of Stock as per Stock Statement dated 30.9.2001 Rs. 25,50,081.00 Add: Purchases during the period 1.10.2001 to 27.10.2001 Rs. 9,19,760.00 Less: Cost of Sales during the period 1.10.2001 to 27.10.2001 (Sales of Rs. 11,58,709 Less G.P. Ratio of 4.79%): Rs. 11,03,207.00 Total value of stock as on 27.10.01 Rs. 23,66,634.00

10.6 VERIFICATION OF PAST RECORDS: The Insured provided us Audited Financial Statements for the years 1998 -99, 1999 -2000 and 2000 -01 from which we analysed the Trading Account for the past three years and this analysis is presented in Annexure -I. Details are as below:

10.7 ANALYSIS OF GROSS PROFIT RATIO: The gross profit ratio of the company during the past three financial years are as under: Year Sales Gross G.P. Ratio A'' Profit ''B'' ''A''/''B''x100 1998 -99 11214515 401665 3.58% 1999 -00 11487121 539562 4.70% 2000 -01 11697927 560602 4.79% The sales during the period 1998 -99 to 2000 -01 has shown an increasing trend and so has the amount of gross profit and gross profit ratio. Since there is a clear trend of increase in gross profit ratio from 3.58 % in 1998 -99 to 4.7% in 1999 -2000 to 4.79% in 2000 -01 and there are adverse circumstances, in our opinion at least the last gross profit ratio of 4.79% should be maintained during the current year. Hence, the amount of stock as on the date of loss has been computed using gross profit ratio of 4.79%.

10.8 ANALYSIS OF CLOSING STOCK: The closing stock at the end of year during the last three financial years has shown an increasing trend. It has increased from Rs. 17,55,613 in 1998 -99 to Rs. 23,87,814 in 1999 -00 to Rs. 26,60,083 in 2000 -01. The increase in figure of closing stock is because of increase in figures of purchases in 1999 -00 and 2000 -01 compared with 1998 -99 along with increase in gross profit ratio.

10.9 VERIFICATION OF OPENING STOCK: We have verified the opening stock of Rs. 26,60,083 from audited balance sheet as on 31.3.2001 given by the Insured and found it to be true and correct.

10.10 VERIFICATION OF PUR -CHASES: We have verified purchase account with purchase invoices and found that all purchases were duly accounted for. Purchases during the period 1.4.2001 to 27.10.2001 amounted to Rs. 82,84,641.

10.11 VERIFICATION OF SALES: We have verified sales during the period 1.4.2001 to 27.10.2001, which amounted to Rs. 88,47,350 and found them to be true and correct.

11.0 PREPARATION OF TRADING ACCOUNT FOR THE PERIOD 1.4.2001 TO 27.10.2001: On the basis of above verifications, we now prepare the trading account as under: Particulars Amount Particulars Amount To Opening stock 26,60,083 By Sales 88,47,350 To Purchase 82,84,641 By Closing Stock (Balancing figure) 25,21,162 To Gross Profit (@ 4.79% of sales) 4,23,788 Total 1,13,68,512 1,13,68,512 As per the above Trading A/c, the stock before fire as on 27.10.2001 was Rs. 25,21,162. Stock worth Rs. 7,27,737.30 was found during the course of our physical verification and balance computed as per Note -I amounting to Rs. 54,925 was fully burnt. Details of total damaged items are as under: Particulars Amount (Rs.) Physically verified damaged Stock (Annexure -II) 7,27,737.30 Add: Value of totally damaged stock computed 54,925.00 As below: (See Note -I) Total value of stock damaged 7,82,662.30 NOTE -I Total value of stock in ground floor in 35 racks 5,49,250.06 Out of total 42 racks (Annexure -II Proportionate value of totally burnt stock in 7 racks 5,49,250.06/35x7=1,09,850.00 Less 50% Deduction on account of variation factor 54,925.00 Value of totally burnt stock 54,925.00

In computation of value of physically verified stock, the value of totally damaged stock has been computed on a proportionate basis as there is no other basis available for computation of its value, which comes to Rs. 1,09,850. A further deduction of 50% from this value has been made on account of variation factor, since this value has been estimated. In computation of value of totally damaged stock rates of all medicines physically verified has been taken on proportionate basis. Stock as per trading account method, as on date of loss is Rs. 25,21,162 and value of physically verified stock (other than totally damaged) comes to Rs. 7,27,737.30. As per the Insured rest of stock i.e. Rs. 17,93,424.70 (2521162 - 727737.30) was totally burnt stock. However, during the course of our physical verification we never found medicine worth Rs. 17.93 lacs totally damaged. Out of 42 racks in the ground floor medicine of 7 racks only were fully gutted. These were mostly tablets, capsules and injections of M/s. Lupin, M/s. Sunpharma, M/s. RP Pharma -ceuticals, M/s. Panacea Biotech, M/s. Cadila, M/s. Zadex & Biochem. These were collected in nine boxes and weighed 61 kgs. These medicines were not of so high value that it would amount to Rs. 17,93,424.70. The value of totally damaged stock has been computed proportionately and it comes to Rs. 54,925 after deduction of variation factor @ 50%. Thus rest of the stock of Rs. 17,34,499.70 (2521162 - 727737.30 54925.00 ) was safe and we are of the firm opinion, such stocks were sold by the Insured before the loss occurred. As is a common practice in the trade, such stocks were sold by Insured without issuing bills and without accounting them in the books of accounts. Hence, the stock value in the books was overstated due to under recording of sales and the Insured has tried to take benefit of such a situation. Alternatively, it is also possible that the Insured might have kept their stocks at some other locations and have not disclosed about such stocks and locations, while the value of such stocks lying at other locations is included in the books and the Insured is trying to claim those stocks lying at other locations, as damaged in the fire at affected premises. Moreover, during our visit to the affected premises of the Insured, we had physically verified all the stocks lying there and have included the same in our assessment and there is no space for any further stocks in the affected premises. The shop was of the size of about 12'' x 8'' with mezzanine floor having even lesser area since the access to that floor was from within the shop through the ceiling only the stocks lying there were also affected due to fire, heat and water. In the shop at ground floor all the stocks were kept in the 42 racks only and out of which, stocks in the 35 racks were physically verified by us and in case of 7 racks only, the stocks were fully burnt. The value of stocks physically verified and kept in 35 racks has been computed as Rs. 5,49,250.06 and proportionate value of 7 racks comes to Rs. 54,925. 14.0 ASSESSMENT OF LOSS: As per the Insured, market value of stock damaged is Rs. 25,13,200. Since stock is insured for Rs. 25 lacs he has claimed Rs. 25 lacs as per its duly filled claim form.

On our physical verification of heat affected and damaged items we had found that in the ground floor out of 42 racks stock of seven racks were totally burnt and it weighed 61 kgs. Although as per the Insured the whole stock of Rs. 25,13,200 was damaged by fire, but in our opinion stock of value of Rs. 7,82,662.30 only was damaged by fire. Since fire took place on 27.10.2001 and physical verification was conducted on 29 and 30 October, 2001, in our opinion the Insured had kept safe stocks worth Rs. 17,38,499.70 (2521162 -782662.30) in different premises or has sold the same already before the date of loss and date of physical inventory. Hence, we summarise the loss as under: 15.0 SUMMARY OF ASSESSMENT OF LOSS: Particulars Net Loss Gross Loss Dead Stock Average Loss Claimed Assessed Factor @5% Clause Assessed Stocks 25,00,000 7,82,662.30 39,133.00 99.16% 7,37,284.00 Less: Excess clause (as per policy) 10,000.00 Net Loss Payable : 7,27,284.00

AS may be seen from this report, the Surveyor for ascertaining the value of stocks as on 27.10.2001 had adopted two courses -one based on the statements of stock sent to the J and K Bank Ltd. who provided cash -credit limit against hypothecation of stocks, by the complainant and another on the Trading A/c prepared after verification of the balance sheet, purchase and sale Invoices/ vouchers maintained by the complainant firm. The value of stocks based on statements of stock furnished to the bank was assessed at Rs. 23,66,634. Value of stocks based on Trading A/c was assessed as Rs. 25,21,162. Surveyor opted the later valuation of Rs. 25,21,162 for assessment of the loss in this case. After physical verification, the surveyor assessed the damage to the stocks of 35 racks to be Rs. 7,27,737.30 while that of the 7 racks to be Rs. 54,925. According to the Surveyor, the stock worth Rs. 17,34,449.40 was either sold by the complainant without issuing bills and without accounting them in the books of accounts or kept at some other undisclosed location(s). It was urged by Mr. Suri, Advocate that the observation made by the surveyor in regard to the complainant having sold the stock of Rs. 17,34,499.70 without issuing bills and without accounting them in books of Accounts or having kept the stock at some other location(s) is based on conjectures and surmises. Under Section 24 of the Drugs and Cosmetics Act, 1940 every person for the time being in charge of any premises whereon any drug (or cosmetic) is being manufactured or is kept for sale or distribution shall, on being required by any Inspector so to do, be legally bound to disclose to the Inspector the place where the drug (or cosmetic) is being manufactured or is kept, as the case may be. Surveyor, thus, could have obtained from the office of Drugs Control Department of Govt. of NCT of Delhi, the particulars of location(s) other than shop No. 1520/9 Bhagirath Palace where the complainant may have kept the medicines for sale and distribution which course of action has not been adopted by the Surveyor. Observation of the Surveyor of the possibility of complainant having kept the stock at some other location(s) is not well founded. Further, as is manifest from the said report, the Surveyor had not detected any irregularity in the records including books of accounts maintained by the complainant - firm. Observation that the complainant may have sold medicines without issuing bills and without accounting them in books of accounts too is, thus, without any basis. Aforesaid sum of Rs. 17,34,499.70 has, therefore, to be added in the amounts of Rs. 7,27,737.30 and Rs. 54,925 being amounts of damage to the medicines of 35 racks and 7 racks respectively. Net loss payable assessed at Rs. 7,27,284 is, therefore, erroneous.

IT is pertinent to mention that vide order dated 6.5.2008, amount of Rs. 11,38,814 deposited by the opposite party Insurance Co. pursuant to the order dated 13.2.2008 was allowed to be withdrawn by the complainant on furnishing personal bond. However, before withdrawal, the complainant has to place on record the report of disposal of the salvage and permission to do so from the concerned Authority because the damaged medicines could not be used or sold by the complainant. In the order dated 29.5.2008 releasing the said amount there is reference to a letter dated 30.1.2003 of the Drugs Control Department, Govt. of NCT, Delhi. Reading of this letter (copy at page 172) would show that on random checking the medicines in complainant''s shop were found damaged due to fire and water used for extinguishing the fire. Some of the medicines had also expired. Complainant was, therefore, advised to destroy the medicines under intimation to Drug Control Department. In absence of evidence of the destruction of medicines, by the order dated 19.5.2009 the complainant was directed to disclose on affidavit by 20.5.2009 as to on which date the medicines were destroyed and when was the Drugs Control Department intimated. On 19.5.2009 after hearing final arguments the case has been reserved for orders. Complainant has filed the affidavit of Rajesh Kumar Jain, managing partner of the firm on 22.5.2009 instead of 20.5.2009 enclosing therewith a copy of the letter dated 23.2.2003 sent by the firm to the Drugs Control Department. This letter bears the seal of the Department together with date of 26.2.2003. Second para of this letter reads thus: "Immediately on receipt of your said letter, we had approached you so that the salvage is disposed to your satisfaction. You had accordingly deputed the concerned Drug Inspector from your Department under whose personal supervision and presence the above said salvage was destroyed and dumped in the ground by us."

Reference in this letter is made to the aforesaid letter dated 30.1.2003, copy whereof was also sent by the Department to the opposite party -Insurance Co. Above letter dated 23.2.2003 is conspicuously silent in regard to the date when the medicines were destroyed/dumped and the place where those were dumped/destroyed as also the name of the Drug Inspector under whose supervision the destruction/dumping of medicines was done. Furthermore, complainant has not furnished any explanation why the said letter was not filed along with letter dated 30.1.2003 in the Commission despite the order dated 6.5.2008. Certificate, if any, issued by the Drugs Control Department regarding alleged destruction/ dumping has not been filed. Mr. Pattjoshi, Adv. pointed out that no intimation of the destruction/dumping of the salvage was sent by the complainant to the opposite party Insurance Co. who had vital interest therein for settling the claim made. In this backdrop, there are sufficient reasons to hold that the salvage was sold in the market and letter dated 23.2.2003 has been fabricated by the complainant to support the stand to the said effect. Salvage of 37 racks of the value of more than Rs. 7.00 lakhs which was damaged by heat and water, was totally unfit for human consumption. Complainant is, thus, not only disentitled to the reimbursement of the salvage value but its drug licence deserves to be cancelled. Complainant is not entitled to any interest paid to J & K Bank and compensation for mental agony. Complainant is entitled to a total amount of Rs. 17,89,424.70 only (Rs. 54,925 + Rs. 17,34,499.70) subject to deductions towards dead stock @ 5%, average clause -99.16% and excess claim -Rs. 10,000. Settlement of claim for a lesser amount by the Insurance Co. is deficiency in service on its part. Payment of Rs. 11,38,814 made to the complainant includes interest @ 12% p.a. on Rs. 7,27,284 from 16.11.2002. In view of the finding returned above, we are not inclined to award further interest to the complainant.

FOR the foregoing discussion, complaint is partly allowed with direction to the opposite party -Insurance Co. to pay amount of Rs. 17,89,424.70 subject to deductions referred to in the preceding para to the complainant within 6 weeks. Of course, the Insurance Co. will be entitled to adjust amount of Rs. 11,38,814 paid to the complainant out of the amount payable. No order as to cost.

REGISTRAR along with covering letter will forward a copy of this order to the Chief Secretary, Government of NCT of Delhi for initiating action, if any, at his end. Complaint partly allowed.