Luxra Enterprises Pvt. Ltd. vs INDIA ASSURANCE CO. LTD.

M /s. New India Assurance Co. Ltd., the Opposite Party 1, hems and haws and comes out on both sides on the question of compensation. The but and ben stance set up by it creates a doubt in this Commission''s mind. A Fabian policy adopted by it will help whom, when the people are already exasperated by senseless delays. However, the repudiation letter has some merit and the objections raised by the OP cannot be dismissed out of hand. The truth lies somewhere in the middle.

M /s. Luxra Enterprises (P) Ltd., the complainant company used to transact the business of manufacturing of ready -made garments at its factory at 49, Udyog Vihar, Phase -IV, Gurgaon, Haryana. In February, 2000, the complainant got an export order, through an agent, M/s. Sirdanwal Overseas, to manufacture 25,200 shirts. Subsequently, the quantity of shirts was increased to 34,800 pieces/shirts through a fresh order of credit placed on M/s. Sirdanwal Overseas and which was again transferred in the name of the complainant company. The complainant company obtained a credit facility in the nature of "packing credit" from Canara Bank, OP2, to the tune of Rs. 50,00,000/ -, which was disbursed in two installments of Rs. 25,00,000/ - each, in March, 2000 and May, 2000. The stock of goods, i.e., raw material, WIP, finished goods of ready -made garments, etc., lying in the factory of the complainant company stood hypothecated with OP2. Bank also got insured the above said factory premises/building, plant and machinery as well as stocks lying therein with M/s. New India Assurance Co. Ltd., OP1, under the Fire and Allied Perils, loss of property, etc., Premium amount of Rs. 21,197/ - was paid by OP2 on behalf of the complainant company. The total IDV amount was Rs. 85,00,000/ -.

DURING the subsistence of the said policy, on 11 -12 July, 2000, the factory of the complainant caught fire. The building, its electrical fittings, fixtures, plant, machinery and the entire stock lying in the said factory was completely gutted and destroyed. The said fire broke out at about 4.30 am. The fire brigade service took around five hours to extinguish the same. A complaint was lodged with the police. Its copy has been annexed to the complaint as Annexure P -4. On 12.07.2000, intimation was given to OP1. The loss was assessed and claimed in the sum of Rs. 1,16,96,023/ -, copy of the fire claim along with claim bill is annexed as Annexure P -5 (colly). M/s. R.N. Sharma & Co., the Surveyor visited the spot. During the last week of July, 2000, it transpired that the Head Office of OP1 at Mumbai had appointed M/s. Sunil J. Vohra & Associates, Mumbai, as another Surveyor for carrying out the survey of the damaged goods caused by the aforesaid fire. M/s. R.N. Sharma submitted a report in the months of July -August, 2000. They assessed the loss at Rs. 75 -80 lakhs in the said survey report which was not disbursed to the complainant. On 30.10.2000, the complainant company received letter from OP1 acknowledging that the complainant company had supplied all the documents to the Surveyors as per their record. A copy of which was placed on record as Annexure P -6.

M /s. Sunil J. Vohra & Associates, the Second Surveyor, submitted their report to the Head Office in Jan -Feb, 2001, wherein they assessed the loss at Rs. 54,93,865/ -, after deductions. Copy of the report has been placed on record as Annexure P -7. However, the said amount was also withheld. Despite various requests, the amount was not paid to the complainant. The complainant was constrained to report the acts/omissions of the officials of the Head Office & Branch Office of OP1 to the Grievance Cell of OP1 vide letters dated 03.02.2001 and 02.03.2001, copies of which have been placed on record as Annexure P -8 (colly). As the complainant could not get compensation from the insurance company, it had to dispose of all its machinery, debris and salvaged shirts and took loans from different persons and returned the loan amount to OP2 as part payment to the outstanding amount. Enquiry was complete. Both the Surveyors had given their reports. However, OP1, vide letters dated 11.06.2001, 25.05.2001 and 09.04.2001, demanded some more documents from the Complainant, without any rhyme or reason, though all the documents have already been provided to both the Surveyors. Copies of the said letters have been placed on record as Annexure P -9 (colly). The complainant vide letter dated 20.06.2001, in order to expedite the settlement, it had sent all the documents once again. Copy of the said letter has been placed on record as Annexure P -10. On 06.07.2001, the complainant received another letter from OP1, dated 28.06.2001, asking to supply some more documents. The complainant again, vide letter dated 09.07.2001, again supplied the said documents. Thereafter, correspondence was exchanged between the parties, from August 2001 to 10th October, 2001.

VIDE letter dated 11.10.2001, the complainant was informed that another (third) Surveyor, M/s. ABM Engineers & Consultants for re -working and investigation of the claim of the complainant was deputed. The appointment of that Surveyor was challenged. However, the complainant fully co -operated with M/s. ABM Engineers & Consultants and Sh. B.S. Agarwal, Surveyor of M/s. ABM Engineers & Consultants was shown all the documents. OP1 offered an amount of Rs. 34 -35 lakhs in full settlement, but the complainant refused the same. Vide its letter dated 15.01.2002, OP1 stated that the contents of the letters dated 15.01.2002 were misleading and that the complainant company could not make available the accounting records of M/s. ABM Engineers & Consultants. Under these circumstances, the complainant was again constrained to report the manipulative and illegal conduct of the above said Surveyors before the Grievance Cell, Head Office of OP1 at Mumbai, vide letter dated 05.03.2002. However, no action was taken. A letter was sent to OP1 requesting therein, to pay the claimed amount with interest @ 18% p.a., otherwise, legal action would be taken against it.

THEREAFTER , OP1 appointed Sh. R.G. Verma, Chartered Accountant (Fourth Surveyor), to conduct an investigation of the claim, who conducted detailed investigation and submitted his report dated 28.05.2002, marked as Annexure R -26, observing that the claim was a fraudulent one. The case of OP1 hinges upon this report, which, according to its counsel, towers above the rest. His report at point Nos. 10, 13, 14, 15 & 16 are germane to the present controversy and, as such, the same are reproduced as follows: - "10. Doubtful fabric supplier Whole of the fabric of 104203 meters said to be used for manufacturing 34800 pieces of shirts was purchased from M/s. S.V. Traders whose authenticity about supply of fabric could not be established at all. Width of the fabric/nature of fabric/colour of fabric/printed or dyed/construction of fabric/cotton or polyester component of the fabric, etc., are not mentioned on the purchase order or invoice or challan. M/s. S.V. Traders has a Photostat copying shop at 15, Tolstoy Marg where they have shown their office. The invoices and the challans produced by M/s. S.V. Traders are not authentic in support of supply of fabrics. The rate of Rs. 50.00 per meter paid for the fabric is also not above doubt in the absence of any detail about the fabric. No sample of shirt manufactured by the insured was provided to us to verify cost of fabric. The amount paid to M/s. S.V. Traders seems to be highly manipulated for rate/quantity/value. That 104203 meters of fabric was supplied by M/s. S.V. Traders is not above doubt. As a result that 34,800 pieces of shirts were manufactured at all is not above doubt.

Connivance with M/s. S.V. Traders On the basis of circumstantial evidences it seems that the insured in connivance with M/s. S.V. Traders had siphoned off about Rs. 50.00 lacs through them. The real cost of the fabric/shirt could not be ascertained in the absence of any piece of shirt or sample of the fabric purchased.

About the L/C

..........The opener of the L/C makes sure by way of impossible conditions in the L/C that no financial obligations takes place. For opening the L/C the opener charges about 2% from M/s. Sirdanwal Overseas.

About doubtful integrity of Mr. Ajay Verma of M/s. Sirdanwal Overseas.

Mr. Ajay Verma of M/s. Sirdanwal Overseas is a man of doubtful integrity. A case under Section 420/406/120B of IPC vide FIR No. 98 dated 06.04.2002 had been filed at C.R. Park, New Delhi...........

Reason to manipulate fire The basic inadequacies in the LC points out that the said LC was not particularly meant for export. It is doubtful that 34,800 pieces of shirts were ready for export. On realizing the fact that whatever pieces of shirts made could not be exported under the said LC and fear of resultant loss after having procured bank finance of Rs. 50.00 lacs might have made the insured to manipulate the fire. Even if the shirts were to be sold in the local market since they could not be exported, the income from selling them locally would not have fetched more than a few lacs, whereas an insurance claim after fire would have fetched much better value for these shirts......

Under these circumstances, the present complaint was filed with the following prayers: - a) direct the opposite party No. 1 to pay Rs. 1,48,57,100 (Rupees one crore forty eight lakhs fifty seven thousand and one hundred only) to the complainant/petitioner company;

b) grant interest @ 24% per annum from the date of filing of the present complaint till the realization of the decretal amount.

c) award full costs of the present proceedings.

d) any other or further relief which this Hon''ble Court may deem fit and proper in the facts and circumstances of the case may also be granted in favour of the complainant/petitioner and against the opposite party No. 1".

DEFENCE:

OP 1 in its written version, has enumerated the following facts. It is claimed that the claim made by the complainant is fraudulent which is hit by condition Nos. 1 and 8 of the said Policy. The repudiation letter of the Insurance Co., OP1, dated 28.06.2002, which is wee bit lengthy, runs as follows: - "The alleged loss has been surveyed and assessed by the surveyors appointed by us. The matter has also been investigated by the investigators. The reports of the surveyors and the investigators have been examined by us. Through investigations, it was revealed that -You have reported to have manufactured 34,800 men''s shirts for export. You have reported to be holding two Letters of Credit for export of shirts to Dubai. It was further reported that 104203 mtrs of fabric was purchased by you from M/s. S.V. Traders for Rs. 49,34,395/ - @ Rs. 50/ - per mtr., for manufacture of shirts. Upon investigation, it was also revealed that there was no export order with you for export of shirts. The Letters of Credit did not mention the name of the importer. There was no fabric vendor in the name of M/s. S.V. Traders from whom you alleged to have purchased the fabric for Rs. 49,34,395/ -. The address of M/s. S.V. Traders mentioned on the invoices was that of a Photostat shop. The invoices and the challan of the M/s. S.V. Traders were not authentic. You did not endorse the invoice with Apparel Promotion Council which is mandatory for export of garments. No inspection was done by the alleged importer. No packing list was prepared under Letter of Credit for export. No piece of shirt or that of fabric was provided to the investigators to enable them to ascertain the value of the fabric/shirts. It is thus clear that you have connived with M/s. S.V. Traders to make this fraudulent claim. The various facts and circumstances pointing out that your claim is fraudulent has summarized as under: -

i) You had no export order mentioning the name and address of the importer.

ii) The Letter of Credit does not contain the name and address of the buyer to whom goods were to be exported. The shipping documents namely invoice, shipping bill, marine policy, etc., cannot be made in the absence of the name of the buyer. The goods cannot be shipped or exported without name of the buyer. As a matter of fact, the name of the buyer was not found in any of the documents submitted by you more particularly even the documents submitted to Canara Bank for availing the packing credit limit of Rs. 50,00,000/ -. Bank of India Overseas Branch, New Delhi have not certified the copies of Message sheets which treated as LCs.

iii) As per the stocks statement to Canara Bank on 5th July, 2000 by you, 34,800 shirts were allegedly ready as on 1st July, 2000. The letter of credit was expiring on 9th July, 2000. The balance in fabrics was shown as "nil". It was not explained why the said consignment of 34,800 shirts was not shipped on or before 1st July, 2000. The stock inspection report and bank does not show quantum of stock in their reports.

iv) As per the terms of the Letter of Credit, the goods were to be inspected for the quality and quantity by the representatives of the buyer. However, no inspection was done, clearly because there was no buyer.

v) The Letter of Credit was alleged to have been extended upto 8th August, 2000 in favour of the somebody else. However, there was no occasion for extension of Letter of Credit more particularly when the goods were alleged to be ready as back as on 1st July, 2000.

vi) The garment cannot be exported without endorsement of invoice by Apparel Export Promotion Council. No such endorsement was obtained from Apparel Export Promotion Council. It is clear that no export was to be made.

vii) If the goods were to be exported, a marine policy would have been procured as required under the Letter of Credit. However, no marine policy was obtained by you.

viii) No packing list was prepared for export of goods. If the goods were to be exported, the packing list in triplicate was required in terms of the Letter of Credit.

ix) If the goods were to be exported, you would have taken a shipping bill through the Cargo Clearing Agent. However, no such shipping bill was taken, although the goods were alleged to be ready by 1st July, 2000 and the Letter of Credit was expiring on 9th July, 2000.

x) M/s. S.V. Traders from whom 104203 mtrs., fabric was alleged to have been purchased for Rs. 49,34,395/ - for manufacture of shirts, was a doubtful entity. The address given on the invoice and the challans was not of fabric shop but a Photostat shop. The nature of the fabric, width, colour, etc., were not maintained on the invoice/challans. No sample of fabric or the shirts was provided to ascertain the cost of the fabric.

xi) The Letter of Credit was opened through M/s. Sirdanwal Overseas of Mr. Ajay Verma, who is a criminal against whom a case under Section 420, 406 and 120B of the Indian Penal Code bearing FIR No. 98 dated 4th April, 2000 has been issued against him and his accomplices. As per the FIR, the substandard fabric worth not even Rs. 16/ - per mtr, was sold @ Rs. 55/ - for manufacture of shirts in similar manner.

From the above facts discovered during the investigation, it is clear that the alleged 34,800 shirts alleged to have been burnt in the fire were not meant for export. Rather, if made, they could not have been exported, as there was no buyer, no export order, no shipping bill, no marine policy, no packing list and so on. On the other hand, you had availed the finance of Rs. 50,00,000/ - from the Canara Bank. On the basis of your assets and credibility. Your financial condition was not sound as per the audited profit and loss account. You had suffered a loss of Rs. 98,030/ - for the year ending 31st March, 1999 and a meager profit of Rs. 44,794/ - for the year ending 31st March, 2000. You, therefore, manipulated the fire to make this fraudulent claim".

In view of the above, competent authority are of the view that the alleged fire was not accidental but was manipulated by you. You have also made gross misrepresentations, mis -descriptions and concealed material particulars. You have made false declarations and your claim is clearly fraudulent. Competent authority, therefore, hereby invoke conditions No. 1 & 8 of the insurance policy and repudiate your claim. Conditions nos. 1 & 8 of the insurance policy are reproduced for your ready reference: -

Condition No. 1: This policy shall be voidable in the event of misrepresentation, mis -description or non -disclosure of any material particulars.

Condition No. 8: If the claim be in any respect fraudulent or if any false declaration be made or used in support thereof or if any fraudulent means or devices are used by the insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the willful act or with the connivance of the insured, all benefits under this policy shall be forfeited".

OP1 took the photographs of the office of S.V. Traders which are marked as Annexure R -27.

SUBMISSIONS AND FINDINGS: -

COUNSEL for the complainant argued with vehemence that it is difficult to fathom why the survey report of the First (Preliminary) Surveyor was discarded. He stressed that there could be no conflictions on the point that the report of First Surveyor has to be accepted under all probabilities. He has cited a number of authorities in this context. The Hon''ble Apex Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Co. Ltd. & Anr., Civil Appeal No. 4487 of 2004, decided on 24.08.2009, was pleased to hold: - "22......... We also add, that, under this Section the insurance company cannot go on appointing Surveyors, one after another, so as to get a tailor made report to the satisfaction of the concerned officer of the insurance company, if for any reason, the report of the Surveyors is not acceptable, the insurer has to give valid reason for not accepting the report. Scheme of Section 64 -UM

particularly, of sub -sections (2), (3) and (4) would show that the insurer cannot appoint a second surveyor just as a matter of course. If for any valid reason, the report of the Surveyor is not acceptable to the insurer, may be for the reason, if there are inherent defects, if it is found to be arbitrary, excessive, exaggerated etc., it must specify cogent reasons, without which it is not free to appoint second surveyor or surveyors till it gets a report which would satisfy its interest. Alternatively, it can be stated that there must be sufficient ground to disagree with the findings of Surveyor/Surveyors. There is no prohibition in the Insurance Act for appointment of second Surveyor by the Insurance Company, but while doing so, the insurance company has to give satisfactory reasons for not accepting the report of the first surveyor and the need to appoint second Surveyor".

The Hon''ble Supreme Court in United India Insurance Co. Ltd. Vs. MKJ Corporation,, (1969) 6 SCC 428 has laid down that a reasonable time of two months would be justified for the insurance company to take a decision whether claim requires to be settled or rejected in accordance with the policy. In this particular case, the insurance company has taken two years to repudiate the claim.

IN New India Assurance Co. Ltd. Vs. Chitra Mala T.V. Repair Centre, : 2002 (1) CPR 112 NCDRC, it was held that survey report filed by first Surveyor can be relied upon and one submitted by the other Surveyor, after more than one year, cannot be relied upon. It can be concluded that the report of the second Surveyor was obtained by the insurance company in order to repudiate the genuine claim of the petitioner.

THE counsel for 0P1 made the following submissions. She pointed out that the preliminary surveyors M/s. R.N. Sharma & Co. visited the complainant''s factory on 13th, 14th, 15th and 18th July, 2000 and requested the complainant to furnish the documents/information mentioned in its letter dated 19.07.2000, which is marked as Ex. R -3. The above said letter shows that M/s. R.N. Sharma had requested the complainant to furnish as much as information detailed on 26 items. However, without waiting for the said information, the Surveyor gave his report on 20.07.2000. The relevant portion of his report which is crucial and clinching, is reproduced as under: - "Estimated Loss:

Based on our physical inspection of the damage caused, information readily made available by the insured and coverage under the referred policy we are of the opinion the underwriters liability would be within Rs. 75 lacs. We will revert back to you with our final survey report as soon as the insured furnishes all the relevant documents/information.

Warranties:

This report is issued without prejudice and is subject to terms and conditions of the policies of insurance, issued to and held by the insured".

The Preliminary Surveyor, in his report, dated 20.07.2000, also did not give the basis of the estimate of loss at Rs. 75.00 lakhs. Letter was also written to the Preliminary Surveyor asking about the basis of figure of Rs. 75.00 lakhs, which was not responded. That was followed by reminder dated 28.06.2001. Those letters were placed on record as Ex. R -14 and R -15.

WE are unable to locate substance in the arguments urged by the learned counsel for the complainant. This is a peculiar case, where as many as four Surveyors/Investigators were involved. We have to be very careful in finding out whether their reports have evidentiary value. The report of the first Surveyor is liable to be rejected on the following grounds. He wanted to decide the matter in a jiffy. He did not wait for the reply of the complainant to his letter dated 19.07.2000, R -3, but gave his report on 20.07.2000. Thereafter, letters were written to him by the complainant to clarify and complete the investigation but he did not respond. His bizarre conduct is difficult to fathom. In the report itself he clearly, specifically and unequivocally stated, "we will revert back to you with our final survey report as soon as the insured furnishes all the relevant documents/information". By no stretch of imagination, it can be said to be the final report. It has to be eschewed out of consideration. Consequently, his report cannot be made the basis for assessing the compensation.

THE logic trotted out by the counsel for the opposite party No. 1 was that the reports of remaining two Surveyors were rightly rejected. She made the following submissions. Thereafter, the Branch Office appointed another Surveyor on 30.07.2000. On 22.08.2000, the complainant submitted its claim form duly filled in, marked as R -5, with acknowledgment letter of intimation dated 12.07.2000. The complainant company requested the OP1 to expedite the matter at the earliest to enable it to clear its bank dues and other liabilities. In the claim bill, the complainant and claimed an amount of Rs. 1,16,96,023/ -. The OP vide letters dated 26.08.2000, 04.09.2000 and 27.09.2000, marked as Annexures R -6, R -7 & R -8, respectively, requested the complainant to furnish all the documents/information. The Surveyor submitted his report dated 12.02.2001 to the OP on 19.03.2001, wherein he assessed the loss of the complainant at Rs. 54,93,865/ -, which was proved on record as Annexure R -9. She further argued that the Branch Office found that the quantum of loss was assessed without verifying and providing any supporting documents/details and, therefore, vide letter dated 26.03.2001, clarification was sought from the Surveyor. However, the Surveyor did not respond. Still not satisfied with this report, OP, on 09.04.2001, sought the list of machineries, profit and loss account, verified copies of the balance sheet for the last two years, original copy of letter of credit, details of financial arrangement and status of the insurable interest on the building from the complainant, marked as Annexure R -10, which was followed by reminders dated 25.05.2001, 11.06.2001, Ex. R -11 & R -12, respectively. The complainant submitted part of the information/details on 20.06.2001. OP1 vide its letter dated 28.06.2001, Ex. R -13, asked the complainant to furnish the remaining documents. Similar letter was also sent to the Surveyor. In the absence of said clarification, OP1 was not able to ascertain the cost of the shirts. The Surveyor had taken the value of the shirt at Rs. 253/ - but it was not clear from where he had taken the said value. On the other hand, the complainant had taken the order at the rate of 5.9 USD i.e., Rs. 271/ - and adding overhead expenses the cost comes to Rs. 295/ - per shirt. Thereafter, the third Surveyor, M/s. ABM Engineers & Consultants were appointed on 22.08.2001. They gave their opinion dated 12.09.2001 on 17.09.2001, marked as Ex. R -16, stating therein that the claim needs to be reworked. M/s. ABM Engineers & Consultants called upon the complainant vide letter dated 18.10.200, marked as Ex. R -17, to furnish the requisite details. They recorded the minutes of meeting dated 25.10.2001, 31.10.2001 and 02.01.2002, and marked the same as Ex. R -18, R -19 & R -20. Another letter dated 03.01.2002, Ex. R -21 was sent to the complainant asking it to produce various documents. The OP alleges that the complainant did not furnish the complete information and documents sought from them. Letters to this effect are marked Ex. R -22 & R -23. Ultimately, M/s. ABM Engineers & Consultants submitted their report dated 28.02.2002 in which they assessed loss at Rs. 24,76,585/ -. However, they expressed a doubt on the genuinity of the LC. Their report dated 28.02.2002 was proved on record as Ex. R -24.

IT was also brought to our notice that it was reported in "Punjab Kesari", dated 09.05.2002, that the Delhi Police arrested a gang of three persons who had duped the exporters of crores of rupees on the basis of forged documents. One of them was Mr. Ajay Verma of M/s. Sirdanwal Overseas from whom the complainant is alleged to have dealings for LC and procurement of export order, in FIR No. 98, dated 06.04.2002, P.S. Chittaranjan Park, under Sections 420, 406 and 120Bof IPC. The newspaper report was placed on record as Ex. R -25.

COUNSEL for the OP1 contended that ultimately they appointed Sh. R.G. Verma, Chartered Accountant, as Investigator in this case. His investigation report dated 28.05.2002 was proved on record as Ex. R -26. The learned counsel for the OP also pointed out that Bank of India, OP2 also confirmed that LCs expired without receipt of documents and the complainant was neither the beneficiary nor a notified party of LC. The Bank further certified that no documents were received under the LC. The letters of Bank were proved on record as Ex. R -29 and R -30. Her argument is a strawman intended to divert us from real issues. Under these circumstances and against all the odds the report of M/s. Suni J. Vohra appears to be reliable and trustworthy. It must be borne in mind the despite non -production of the few records against which adverse presumption must have been drawn, it concluded that the complainant must have lost the goods worth Rs. 54,93,865/ -. The insurance company cannot be permitted to change Surveyor after Surveyor, on the ground that full documents did no -see the light of the day. Presumptions/assumptions have a great role in deciding the matter conclusively.

THERE is no evidence on record that the appointment of Surveyor Nos. 2, 3 & 4 was with the consent of the Head Quarters. After the second Surveyor, there is no reasoning given as to why third and fourth Surveyors were appointed. This is an admitted fact that the fire broke out in the premises of the complainant. All the first three Surveyors spoke about this fact in one voice. Even the Investigator/Fourth Surveyor, did not deny the happening of incident and admitted in no uncertain terms that shirts worth rupees few lakhs must have been burnt. There can be no conflictions on the point that some loss was occurred to the complainant. Whether the Order or LCs were fake or manipulated or the Order for import of shirts could not be proved or Mr. Ajay Verma was involved in a criminal case has got no bearing on this case. There is no inkling on evidence of record that Mr. Ajay Verma was involved in this particular case.

IT cannot be laid down as a rule of thumb that the Surveyor cannot ask for other documents after he has informed the complainant that the documents are complete. There lies no rub. Under these circumstances, we have no hesitation to accept the second Surveyor, M/s. Sunil J. Vohra''s report. The same is partly accepted and we allow the complaint and direct the Insurance Company, OP1, to pay a sum of Rs. 54,93,865/ - to the complainant, within 45 days from the receipt of this order, otherwise, it will carry interest @ 10% p.a., till its realization. In view of peculiar facts of this case, there is no order as to costs or pendente lite interest.