Lakshmi Overseas Industries Limited vs Oriental Insurance Company Ltd. and Anr.

THE present complaint has been filed by Lakshmi Overseas Industries Limited, a Public Limited Company, who is engaged in the business of processing, manufacturing and exporting various agricultural commodities such as rice, wheat, sun flower extraction, etc. The main manufacturing and processing unit of the complainant company is situated at Khamanon, Ludhiana, Punjab.

THE complainant company had obtained an insurance policy (Fire Policy C'') vide cover note Nos. 409539 dated 21.11.1995 and No. 409626, dated 8.1.1996 from the opposite party, Oriental Insurance Company Limited, Ludhiana. These policies were taken with respect to the machinery installed and stocks lying in their factory premises at Khamanon. The sum insured for stocks and machinery was of Rs. 6,30,00,000 and Rs. 1,90,35,000, respectively. The policies for stocks and machinery were in force from 22.11.1995 to 21.11.1996 and 8.1.1996 to 7.1.1997, respectively, and these are annexed as Annexure C 2.

THE plant of the rice unit (which includes machinery in open compound, transformers in the building (1st class), thermopac boiler in the open and the machinery installed in the building) of the complainant company situated at Khamanon was insured for a period of one year commencing from 22.11.1995 to 21.11.1996, vide fire provisional cover note CH No. 409539 with opposite party. The stock of paddy and/or rice and/or rice bran, and/or rice husk and/or Bardana whilst lying and/or stored and/or in open and/or in process in Sela plant and/or in par boiled section loose and/or in bags in the insured premises which includes Paddy and/or rice in the process block, Bardana and Husk in open and stock in godowns, etc. lying in the main manufacturing and processing unit of the complainant company at Khamanon was also for a period of one year commencing from 8.1.1996 to 7.1.1997 vide fire provisional cover note CH No. 409626 with opposite party.

ON 1.6.1996, at about 17.30 hours in the evening, fire broke out in the manufacturing unit of the complainant company at Khamanon. Immediately, fire station was informed and they tried to extinguish the fire, but large part of the insured plant and machinery, stocks of paddy, rice, foodgrains, husk, bags, bardana, etc., were damaged.

THE complainant lodged a complaint with the Police Station, Khamanon, Punjab, about the occurrence of fire vide DDR No. 28, dated 1.6.1996.

THE complainant lodged a claim with the opposite party vide letter dated 2.6.1996 informing about the occurrence of fire and requesting them to depute Surveyor for assessment of loss and to register the claim of the complainant company. Complainant also informed the Deputy Commissioner of District Fatehgarh Sahib about the said fire. A formal claim has been filed with the opposite party for an estimated loss of Rs. 70,61,675 against the fire provisional cover note No. 409626 and fire provisional cover note No. 409539.

OPPOSITE parties appointed M/s. Adarsh Associates and M/s. R.K. Singhal and Company of New Delhi as their joint Surveyors. These Surveyors visited the factory premises on 5.6.1996 to conduct the survey and assessment of the loss. Complainant supplied all the required documents, information and clarification to the queries made by the Surveyors. Opposite parties did not settle the claim of the complainant for more than twenty months, i.e., till January 1998, and when the complainant company approached the office of the opposite party, it was communicated to them that the Surveyors had only assessed the loss of Rs. 50,87,215. Opposite parties and their Surveyors sought a written consent from the complainant company for settling the claim of Rs. 50,87,215, for which, with a view to have an early settlement of the claim, complainant gave a consent for settlement vide letter dated 17.2.1998.

AS for the building, which was damaged during the fire on 1.6.1996, it was also insured by the National Insurance Company vide cover note No. 414943 and the claim was lodged at the same time and was settled by the National Insurance Company for Rs. 3,50,237 on 23.6.1997. Opposite party sought for the information of this claim, which was also provided to them. Thereafter, there was no communication from the opposite party regarding settlement of the claim even for more than six months. The Manager of the complainant company visited opposite party on 19.8.1998 and the opposite party informed that the letter of insurance, dated 6.1.1996, at the time of obtaining the policy, was required to be submitted. The complainant replied vide letter dated 21.8.1998 informing that the complainant company had already submitted the letter of insurance, dated 6.1.1996, at the time of obtaining the policy, and then later, after receiving the same, the opposite party sent a letter dated 9.9.1998 asking for the difference of premium of Rs. 9,24,228. The complainant company made the payment of the same on 14.9.1998 and requested the opposite party to release Rs. 29,00,000 as partial claim settlement amount and signed discharge voucher was also sent as per the request of the opposite party vide letter dated 15.9.1998. Complainant company received a sum of Rs. 29,00,000 in partial settlement of its claim. Thereafter, the complainant wrote several letters dated 16.12.1998 and 23.12.1998 to opposite parties for the balance claim.

IN reply to the letter, dated 23.12.1998, opposite parties replied vide letter, dated 7.1.1999 informing that regarding the balance claim, head office sought certain clarifications from their Surveyors. On 5.4.1999, complainant company received a letter, dated 15.9.1998, for a cheque of Rs. 1,37,995, informing that they had approved the total claim for a sum of Rs. 30,37,995. Effectively, complainant received only Rs. 30,37,995 although their rightful claim was Rs. 70,61,675, and hence, the present complaint is filed in this Commission. Complainant submitted that they not only suffered immense loss due to delay in settlement of its claim, but also the excessive rate of interest that they were burdened with on the additional borrowed funds to meet the loss incurred due to fire. Complainant company submitted a representation on 10.5.1999 to the opposite party with a request to consider the claim again which was ignored completely.

THE learned Counsel for the complainant contended that the complainant suffered immense loss due to the delay in settlement of its claim and is entitled to both interest for the period of non -settlement of claim as well as damages incurred, by it due to such delay. Delay in settling the claim by the opposite parties amounts to deficiency in service, and hence, interest as well as compensation for belated settlement of the claim should be allowed. Secondly, the insurance claim was settled only partly and the rest of the claim was arbitrarily and unilaterally reduced by the opposite parties, despite express terms of the insurance policy. Due to the electric short circuit on 1.6.1996, a large number of stocks, plant and machinery of the complainant company were destroyed due to fire, this loss cannot be compensated by the opposite party by reducing the claim without any justification, and hence, deficiency in service is attributable to the opposite parties.

THE complainant company filed a complaint in this Commission for a claim of Rs. 40,29,680, which is the balance from the original claim, with interest at the rate of 24% per annum from the date of loss till the date of final realization.

THE learned Counsel for the complainant submitted that two policies were issued by the cover notes, by which plant of the rice unit (which includes machinery in open compound, transformers in the building, thermopac boiler in the open and the machinery installed in the building) of the complainant company situated at Khamanon was insured vide provisional cover note CH No. 409539 with opposite party during the last year.

IT is submitted that the opposite party disputes regarding qua Bardana stating that it is not covered by the policy, is incorrect because Bardana is a stock'' and not stores''. "As per the Webster''s Business Dictionary, stock'' means goods or merchandise that is normally kept on hand by a particular business in connection with its business. As per Black''s Law Dictionary at page 1415, stock'' means "the capital of a merchant or other person including his merchandise, money and credits, or, in other words, entire property employed in business". Stock'' in the ordinary parlance means the inventory carried by a business in the ordinary course of its business'' and applying such definition, Bardana, which is the jute bag in which the rice is packed, cannot by any stretch of imagination be stated to be a part of stores''. Stores'' means the spare parts which are kept for the routine repair and maintenance of machinery and do not include items which are a part of the final product which is manufactured and sold by a manufacturing unit. It is averred that in the instant case, the complainant is engaged in the business of manufacturing and marketing of rice for which the essential items are paddy (the raw material), rice (finished goods), jute bags (which is the packing material), rice bran (which is a by -product), and rice husk (which is also a by -product) and all these items are sold either as stand -alone items or in conjunction with each other. The complainant company sells the aforegoing as distinct commodities also, that is to say, it sells rice packed in jute bags (and also other bags) and it also sells jute bags. Thus, all these items form a part of its stock or merchandise and it is wholly misconceived to state that Bardana (jute bags) from a part of stores'' and do not form a part of stock''."

THUS , Bardana was clearly covered under the policy and the loss suffered due to Bardana amounts to Rs. 21,06,225, which is covered under the policy, which had been, deducted by opposite parties. The complainant never accepted the alleged full and final settlement and refused to accept the amount tendered to it and written various letters to the opposite parties for settlement of rest of the claim. It is stated that the original office of the opposite party has recommended the loss at Rs. 50,87,215. It is reiterated that the amount claimed by the complainant is clearly payable since 1996, but the opposite parties deliberately delayed the settlement of the claim causing tremendous mental agony and harassment to the complainant.

THE learned Counsel for the opposite party submitted that they have deputed M/s. Adarsh Associates and M/s. R.K. Singhal and Co. Pvt. Ltd., as joint Surveyors to survey the affected godown to assess the loss, who submitted their report on 17.2.1998. The loss assessed by the Surveyors in respect of Bardana in the affected godown was Rs. 21,06,225 and there was no loss of Bardana in the open. The loss assessment made by the Surveyors is as follows: Assessment of stocks in godown: Rs. P. Rice Full 3,56,360.00 Rice Broken 19,42,241.00 Rice Bran 5,25,448.00 Bardana 21,06,225.00 49,30,274.00 Less Salvage value 2,03,350.00 Net assessed loss in respect of stocks 47,26,924.00 Net assessed loss in respect of plant and Machinery 3,45,616.24 Fire fighting expenses 17,100.00 Total : 50,89,640.24 Less Policy excess 2,500.00 Net assessed loss 50,87,140.24 Or say 50,87,140.00

THE first three items, which relate to rice full, rice broken and rice bran were covered by insurance policy and Bardana in the affected location was not at all covered by the policy. It is averred that Bardana is not an item of stock and that it is only a store item. Reference to Law Lexicon of P. Ramanatha Aiyer at page 1807 was made, which describes stock'' as follows: "The stock is that which must increase of itself, it is the source and foundation of industry, this store is that which we must add to occasionally, it is that from which we draw in time of need. By a stock we gain riches; by a store we guard against want; a stock requires skill and judgment to make the proper application: a store requires foresight and management to make it against the proper season. A tradesman stocks himself with such article as are most saleable....."

THE loss assessed by the Surveyors net of policy excess was Rs. 50,87,140, and under the terms and conditions of the policy since Bardana was not covered, Rs. 21,06,225 was deducted from the total amount and an amount of Rs. 5,000 towards fire fighting expenses was also deducted and the opposite party rightly settled the claim for Rs. 30,37,995. It is vehemently argued that the opposite party is not required to pay any amount, as claimed in the complaint.

WE have heard the parties, perused the documents and thereafter arrived at the conclusion that there is deficiency in service by the opposite party both on the grounds of delay and also for not considering Bardana as an insured item.

WE have perused the policy and the extract regarding the item in question i.e., Bardana'' is given hereunder: "On stock of paddy and/or rice and/or rice bran and/or rice husk and/or bardana whilst lying and/or stored and/or in open and/or in process block and/or in process and/or in godowns and/or in sheller and/or in Sella Plant and/or in par boiled section loose and/or in bags in the insured''s premises, as per following details: Paddy and/or rice in the process block Rs. 150.00 Lac Bardana and husk in open Rs. 30.00 Lac Stock in godowns Rs. 450.00 Lac Total Rs. 630.00 Lac"

IN the survey report, while verifying the stock in godown, it is noted and is reproduced here: "IN RESPECT OF STOCKS IN GODOWN: Insured had claimed a sum of Rs. 51,55,760 in respect of stocks as per following details: S. No. Item Quantity Unit Rate Value 1. Rice (Full) 500 Qtl 715 3,57,500.00 2. Rice (Broken) 3700 Qtl 550 20,35,000.00 3. Rice Bran 1640 Qtl 400 6,56,000.00 4. Bardana 103500 20.36 21,07,260.00 No. Total : 51,55,760.00"

THE Surveyors also noted that during their first visit on 5.6.1996 they physically inventorised the total sound stocks and stocks -in -process, lying/stored in various godowns and process blocks of the insured''s factory location wise and after detailed reconciliation of the same with the insured''s stock records, as discussed in later part of the report and after ascertaining their respective cost, they have ascertained the total value of stocks stored in the godowns at Rs. 3,73,02,134.74 as summarized in enclosed schedule marked as Annexure A''. Thereafter, they noted in their report (8.1.3) that they accepted loss in respect of following question: JUDGEMENT_29_LAWS(NCD)3_2009.htm

SURVEYORS also gave a noting regarding bardana, which is as follows: " With regards to cost of Bardana i.e. empty gunny bags stored in the affected godown in bundles of 50 each after used once, as stated above in the report that the insured purchases Paddy from FCI and State Govt. Agencies duly packed in jute/gunny bags for milling purpose and return the finished product i.e., rice to the State Agencies in the same jute/gunny bags. In view of the average yield of about 67% from the paddy, almost 1/3rd of the jute/gunny bags remain empty with the insured. These empty bags or either to be returned to Govt. Agencies or otherwise for which the State Govt. Agencies charge an amount of Rs. 20.35 per bag ( i.e., Rs. 19.49 unit cost + 4 % S.T. + 10% Surcharge on S.T.) as per Memo No. 829 -IR (597) -97/541 dated 20.3.1997 issued by the Jt. Director (Rice), Food and Supply Deptt., Punjab Gdvt., Chandigarh, a copy of which is enclosed and marked as Annexure -''F''. In view of the above the unit cost for Bardana has been accepted by us at Rs. 20.35 bag."

SURVEYORS assessed the loss for stocks in godown. In their report, loss on account of stock of Bardana in the godown was shown as 1,03,500 quantity, at the rate of 20.35, which would come to Rs. 21,06,225, and finally they worked out the loss and assessed it at Rs. 50,87,140 and noted that the loss has been discussed with the insured and their consent was obtained. After seeing the terms of policy, it is very clear that Bardana was included in the stock and the Surveyors assessed the loss accordingly. There is no reason for the opposite party to deny rightful claim of the complainant arbitrarily taking flimsy pleas. Suffice to say that deficiency in service is established based on the terms of the policy and the Surveyors'' report as discussed. The complainant is entitled to both interest for the period of non -settlement of the claim as well as for the delay in settling the claim. Accordingly, we partly allow this complaint and direct the opposite party to pay Rs. 21,06,225 with interest @ 9% from 17.4.1998 i.e. two months after completion of survey report, till the date of payment and cost of Rs. 10,000 be paid within two months from the date of this order. Accordingly, the complaint is partly allowed. Complaint partly allowed.