Ajay Plastic Industries vs UNITED INDIA INSURANCE CO LTD

THE complainant Jai Prakash who is carrying business under the name and style, Ajay Plastic Industries Ltd., obtained a Standard Fire and Special Perils Policy from the opposite party United India Assurance Co. Ltd., for a sum of Rs.90,00,000/ - for the period from 22 -06 -2006 to 21 -06 -2007. In the night of 22 -11 -2006 a fire took place in the factory premises of the complainant and raw material as well as the finished products of the complainant comprising chappals, shoes, etc., are alleged to have been destroyed as well as damaged in the said fire. Information having been given to the insurance company, M/s. S. Soni & Co. was appointed as the surveyor to visit the premises of the complainant and assess the loss from the fire which had happened due to short circuiting. The complainant lodged a claim of Rs.92,49,580/ - with the insurance company.

THE complainant provided several documents including its account books and the purchase and sales bills before the surveyor appointed by the insurance company. The damaged stock found in the factory of the complainant was divided by the surveyor into two parts i.e. identifiable and non -identifiable stock. The surveyor also found some safe stock i.e. undamaged stock in the factory premises. The value of the damaged stock was assessed by the surveyor at Rs.4,75,648.71/ - whereas the value of the safe stock was assessed at Rs.8,17,101.25/ -.

THOUGH the complainant provided the audit reports to the surveyor it was noticed by the surveyor that audit report for the year 2005 -06 was not complete since the signature of the proprietor was missing from the audited balance sheets, which were signed only by the Chartered Accountant. The surveyor also found that the ratio of profit as per the audited balance sheets was extraordinarily high. Some other discrepancies in the audited balance sheets were pointed out by the surveyor in his report. It was also noticed by him that the opening stock shown in the year 2005 -06 was much higher as compared to previous two years. The surveyor after considering the explanation and making verification prepared a revised trading account for the year 2005 -06 and reported that the closing stock as per the revised trading account was Rs.66,23,384.33/ - in the year 2005 -06. More importantly the surveyor found that several purchase bills did not bear telephone number, VAT number, etc., of the seller nor did they have the address of the suppliers. The report of the surveyor, as regards verification of the suppliers reads as under: "18.1 Our visit to different parties location (suppliers) On verifying the purchase bills, we found that the insured had purchased from M/s. Aggarwal Plastics B -39, Inderlok, so we visited the Inderlok and reached at the address given in the purchase bills and found that the party does not exist at that address mentioned in the purchase bill. We also called the parties on their numbers, which was mentioned on the purchase bills but we came to know that the number mentioned in the purchase bills was not pertaining to those parties, from whom the insured had claimed to have purchase goods.

Similarly we also visited the site of another supplier M/s. Garg Trading Company situated at 313B, Inderlok, Delhi and found that no such company was existed at the above said address.

Similarly on going through the sales bills we found that no addresses of parties were mentioned on the sales bills. We then asked the insured to give the details of addresses of the parties along with the telephone numbers and the insured had provided us the details of few of the addresses and telephone numbers to whom goods were sold. We then visited the site of M/s. Rahul Footwear, 3815/15 Kanhiya Nagar, Tri Nagar. However, on reaching in the Kanhiya Nagar, we found that no such industry was located at above said address in street No.15.

We even paid a visit to the site at 3815, but at that address also, it was informed that there was no such industry at this location.

We then visited the site of M/s. Naresh Footwears situated at A -673, Shastri Nagar, Delhi and at this address, the owner of the house clarified that no such industries is located at A -673 in the name of M/s. Naresh Footwear.

In view of above facts we can say that the suppliers of the insured were not in existence at the address being given in the purchase bills. Moreover on calling the telephone no. mentioned on the purchase bills we found that these numbers were not pertaining to those parties, from whom the insured had claimed to have purchased the goods. Likewise we also observed that the sales parties were not in existence.

Apart from this, we also telephonically enquired from rest of the parties and found that most of the parties were not in existence or the no. mentioned in the purchase bills were not getting connected with those parties, which were mentioned in the purchase bills.

This proves and confirms that the records and documents of the insured are not authentic and reliable. Since the insured''s intention was to mislead us, as is evident from the facts, being observed and found during our investigations.

25.0 Accounting and Investigation Adjustment

During our verification of purchase bills for the period 01 -04 -06 to 27 -11 -2006 we have verified the purchase bills from the parties, from whom the insured had claimed to have the purchase. To verify the authenticity of purchase bills we conducted the investigations in relation to the purchase bills and found that most of the purchase bills were not authentic and genuine (Details already given in para No.18.0 and 18.1). We also verified the payments made to party from Bank A/c Statement and cash book and we found that most of the payments were made to the parties in cash.

In our opinion, the entries passed by the insured in their cash book, purchase ledger accounts was nothing but it was the bookish entry so that purchase will be exaggerated and in the same proportion closing stock could be increased.

The amount of purchase which does not prove to be genuine during our investigation has been found as Rs.14216634/ - (details are given in Annexure -VII)

To arrive at the net of loss to analyse the reasons for difference in value of damaged stocks between various alternative methods, as per various records and physical verification basis, we concluded that the amount of purchase to the tune of Rs.14216634/ - is not found to be authentic and genuine during our investigations since it was higher as compared to amount of damaged stocks before accounting and investigation adjustments, so the loss in all cases found to be Nil.

In view of above we can say that the records of the insured are not proper and authentic since the loss as per all the above said alternative methods found to be Nil after the adjustment of accounting and investigation entries."

THE surveyor separately computed the alleged loss to the complainant on the basis of the stock record, trading account and bank stock statement. The loss was assessed at Rs.66,72,107.90/ -, Rs.77,81,380.88/ - and Rs.97,67,208.44/ - respectively on the aforesaid basis.

THE value of the salvage was assessed by the surveyor at Rs.3,65,000/ -. He also found that value of the stock at risk was Rs.11,63,474.97/ - whereas the sum insured was only Rs.90,00,000/ -. However, the average clause did not apply in the present case. On the basis of physical verification the net loss to the complainant, after deduction of salvage and 10% on account of dead, slow moving and variation factor, was assessed at Rs.1,53,083.84/ -.

THE overall conclusion drawn by the surveyor reads as under: Based on above observations, we conclude as under: 1. The fire broke out in the basement area of the premises located at E -731, DSIDC, Narela Industrial Area, New Delhi -110040.

After our appointment we immediately proceeded to the insured''s site and enquired about the incident and asked about the occupancy of ground floor and other upper floors.

During our enquiry the insured informed us that ground floor is occupied by M/s. Advance Enterprises, whereas first and second floor was occupied by M/s. Bhushan plastics.

On going through the policy schedules, we found that the policy does not mention or specify the address of basement only. This specifies the address of entire premises in which three firms were running the business of same kind of activities. Moreover, the stocks found in the basement area were of much lower value as compared to the sum insured.

The insured was asked to immediately show and provide us the records and documents to finalize the claim; however, the insured provided us the records and documents in piecemeal even after a lapse of four months.

On verifying the audited balance sheets for the year 2005 -06, we observed that the financial data reflected in the balance sheet was not found to be reliable due to reasons as cited in para No.12.0 of our survey report.

On our verification of purchase bills we observed that few of the purchase bills were not genuine since the telephone no was not proper or VAT no. etc. on some of the bills were missing therefrom, which created doubts to our mind and we then verified the payments of these parties and found that most of the payments were made in cash. So we conducted the detailed investigations and found that most of the purchases were not authentic and reliable and this proved that the records and documents produced by the insured were made available to mislead us while finalisation of the claim.

During our investigations, we found that the purchases to the tune of Rs.14216634/ - was not authentic and reliable so the same has been deducted from the gross loss, which ultimately proved that there was no loss of stocks to the insured, since the amount of this purchase was found to be higher as compared to the value of the damaged stocks being arrived at different methods.

In view of the above said facts and observations, we can say that the insured had not produced the genuine records and documents to finalise the claim and concealed the actual position and violated the principle of utmost good faith, which applies to the insured at the time of loss occurred at factory and gross loss assessment based on such records comes to Rs.6672107.90/ - (as per stock record), Rs.7781380.88/ - (As per trading account) and Rs.9767208.44/ - (as per bank stock statement). However, the loss on physical verification basis after salvage comes to Rs.153083.84/ -."

SINCE the claim was not paid, the complainant has approached this Commission seeking payment of Rs.90,00,000/ - along with interest at the rate of 18% per annum from 23 -11 -2006 and compensation amounting to Rs.20,00,000/ -.

DURING the pendency of the complaint the claim was repudiated by the insurance company on the following grounds: "After going through all the documents, our surveyor has opinioned that you had not produced the genuine records and documents to finalize the claim and concealed the actual position and violated the principal of utmost good faith which applies to the insured. After going through the survey report and records produced by surveyor, we are of the view that you have not produced the genuine record and documents. In view of this ground the competent authority has repudiated the liability."

THE complaint has been resisted by the insurance company primarily on the ground that the claim is based on manipulated and fabricated record and, therefore, condition No.8 of the policy applies to the said claim. It would, thus, be seen that even the claim assessed by the surveyor on the basis of physical verification of the stock has not been paid by the insurance company. This has happened primarily on the ground that the purchases shown by the complainant were reported to be fictitious, as the surveyor could not find the seller firms existing at the address made available to him and even could not contact them on the telephone numbers made available by the complainant or otherwise printed on the purchase bills.

THE complainant has filed before this Commission, affidavits from (1) Shri Sudhir Kumar of Aggarwal Plastics, (2) Shri Bal Kishan of Shyam Trading, (3) Shri Mukesh Kumar of Advanced Enterprises, (4) Mrs. Sushma of Gard Trading Company, (5) Shri Kapil of Cem Traders, (6) Shri Amit Kumar of Gulshan Trading, (7) Ms. Sunita Devi of Freedom Industries, (8) Shri Sushil Kumar of Rohit Footwear, (9) Shri Ram Karan of Luxmi Enterprises and Traders and (10) Shri Sat Prakash of H.R. Co. In their respective affidavits the aforesaid persons have stated that the complainant had purchased goods and the said sale was duly recorded in their account books. The amount of the goods alleged to have been purchased by them has also been given in the respective affidavits of the aforesaid persons. They have claimed that they had shifted their business place. The old business address as well as the new business address have been given by all of them except Mr. Mukesh Kumar, Sushma, Ram Karan, Amit Kumar, Sunita Devi and Sushil Kumar in their respective affidavits. These six persons do not claim any change of address. Mukesh Kumar has stated that he has shifted to another place due to sealing drive but has not disclosed that address. Ms. Sushma also has not disclosed her new address in the affidavit filed by her. Amit Kumar, however, has stated that he has shifted work as general store but again has not disclosed the address of the said general store. Sunita Devi has not at all disclosed her new business address in the affidavit filed by her and the same is the position of Sushil Kumar. Ram Karan has given the name of his new business but has not disclosed his new address.

THE learned counsel for the complainant states on instructions from the complainant who is present before us that the complainant is ready to produce, before the surveyor, all the aforesaid deponents as well as other sellers mentioned in the report of the surveyor whose affidavits they have filed.

IN our opinion, the complainant needs to be given a fair and reasonable opportunity to establish the genuineness of the purchases claimed by him. Therefore, we permit him to produce all the persons mentioned in Annexure 7 to the report of the surveyor before either the same surveyor or a new surveyor to be appointed by the insurance company on the date, time and place to be informed to him by the insurance company/surveyor. The aforesaid persons will produce all such material as may be reasonably required by the surveyor, to satisfy him with respect to the genuineness of the sales claimed by them. The surveyor shall also be entitled to make such local inquiries as he may deem appropriate for the purpose of verification of the assertion made by the complainant and the above referred sellers. If after considering the documents produced by them and making such local inquiries as he may deem fit the surveyor is satisfied that all the purchases mentioned in Annexure 7 to his report are genuine purchases, he will recommend an appropriate quantum of compensation based upon the physical verification of the stock found by him in the factory premises of the complainant. If, however, one or more purchases are found to be fraudulent or fictitious, the insurance company will be entitled to reject the entire claim altogether. The insurance company is directed to appoint/reappoint the surveyor and convey the date, time and place where the complainant has to produce the purchasers before the surveyor, within four weeks from today. The complainant shall produce the said purchasers before the surveyor on the date so fixed by the surveyor. The entire verification process shall be completed by the surveyor within four months from today and an appropriate decision on the basis of the report of the surveyor shall be taken by the insurance company within 45 days thereafter. The complaint stands disposed of.