M.F.Papers Ltd. vs National Insurance Company Ltd.

M/s M.F. Papers Limited are the complainant in this case. Alleging deficiency on part of the opposite party-National Insurance Company Limited, they have filed this complaint seeking a compensation of Rs.1,32,56,456.50 ps.

THE complainant is running a paper mill to manufacture deluxe white paper, craft paper, Abri paper as also ordinary white paper. THE raw materials used for the purpose are white cuttings, copy waste, wrapper, old books and old office records. THE paper mill has a capacity to manufacture 12 tonnes per day. In order to safeguard their business, they obtained Fire-C Insurance Policy on the 23rd of May, 1996 from the opposite party-Insurance Company for a sum of Rs.1 Crore to cover the stock of all kinds of waste paper in any form being used as raw material for manufacturing whilst lying and/or stored and/or kept in the open compound of M/s M.F. papers Ltd. situated at Village Bool (Ludhiana). THE policy was valid for a period of one year upto 22nd of May, 1997. It so happened that on the night intervening the 6th - 7th of December, 1996 a fire broke out in the factory premises at about 2.45 a.m. Despite the intervention of a fire tender, the fire was controlled only at about 10.45 a.m. on the next day i.e. on the 7th of December, 1996. The complainant claims that waste papers to the extent of 951540 Kgs. valued at Rs.97,76,218.50 were lying in the main premises on the fateful day. The entire stock except 5500 Kgs. valued at Rs.28,820/- was destroyed in the fire. The police authorities were informed about the same. The opposite party-Insurance Company was also informed about the fire promptly on the early morning of 7th of December, 1996 and a claim for Rs.97,47,394.50 ps. was lodged before them on the 28th of December, 1996.

The opposite party-Insurance Company on receipt of the information of loss by fire appointed M/s Consolidated Surveyors (P) Ltd. as preliminary surveyors, which was followed by the appointment of M/s Mehta and Padamsey Surveyors Pvt. Ltd. as the final surveyors. On the basis of the reports submitted by the preliminary surveyors and the final surveyors, a team of investors was pressed into service, who opined that the whole story of the fire due to short-circuit having broken out was concocted only with the mala fide intention to defraud the opposite party-Insurance Company. It was in this background that the opposite party-Insurance Company finally repudiated the claim. This is how M/s M.F. Papers Limited are before this Commission in this complaint.

ON notice being served, the opposite party-Insurance Company has contested the complaint/claim. In their detailed written version, they have extensively quoted from the reports of the M/s Consolidated Surveyors Pvt. Ltd. and M/s Mehta & Padamsey Surveyors Pvt. Ltd. as also from the reports of R.S. Ahluwalia and S.S. Bajwa, Investigators and finally from the joint report of M/s R.L. Aggarwal & Sons (Chartered Accountant) and M/s Mehta & Padamsey Surveyors Pvt. Ltd. and relying thereupon they have arrived at the decision to repudiate the claim, holding that fire was not caused by short-circuit, besides for non-cooperation of the complainant with the surveyors and the investigators and giving misleading information with mala fide intention to derive undue and undeserved benefit. They have, therefore, prayed for the dismissal of the complaint with cost. In the rejoinder to the written version, the complainant-M/s M.F. Papers Ltd. has controverted all the explanations/objections raised by the opposite party-Insurance Company and have reiterated their stand in the complaint.

THE parties thereafter have filed their respective evidence. On behalf of the complainant, affidavit only of Shri Sukhdev Singh Panesar, Managing Director of the complainant-M/s M.F. Papers Ltd. has been filed whereas on behalf of the opposite party-Insurance Company affidavits of Shri I.P.S. Hira, Sr. Divisional Manager, Ludhiana and Shri D.K. Jain, licensed surveyor of M/s Mehta & Padamsey Surveyors Pvt. Ltd., Shri R.S. Ahluwalia, investigator, and Shri N.S. Sidhu of M/s Consolidated Surveyors Pvt. Ltd. have been filed. On behalf of the complainant-M/s M.F. Papers Ltd., it has been argued by Ch. Amarjeet Singh, learned counsel, that the opposite party-Insurance Company having charged a hefty premium of Rs.71,820/- for the stock declaration policy indemnifying stock of all kinds of waste paper in any form being used as raw material for manufacturing whether lying in store or kept in the open have unjustifiably resiled from their promised responsibility by repudiating the claim of the complainant on flimsy grounds. He contends that in order to arrive at a report of their own liking, they have resorted to the appointment of a series of surveyors and investigators. They have erroneously held that the fire was not accidental against the proven report of the police authorities and the report of their joint surveyors that it was caused due to short-circuit. On the point of non-cooperation, learned counsel submitted that the finished product was an excisable item and the Central Excise authorities have been regularly checking the books of the complainant with regard to the maintenance of stock of raw material and their officials have been authenticating the registers. That apart, the quarterly statements as required under the Central Excise Rules were being sent to the concerned authorities. The opposite party-Insurance Company was also being informed about the stock position on a monthly basis. Their officials have often visited the factory premises from time to time and Shri N.S. Sidhu of M/s Consolidated Surveyors Pvt. Ltd. had also verified the stock position on 6th of December, 1996, which was at 951540 kg. on the date of the incident. A copy of the balance sheet as on 6th of December, 1996 as certified by their Chartered Accountant also had been submitted before the surveyors. Learned counsel contended that whatever information was sought by the surveyors had been provided and in view of the fact that the complainant had in hand a huge order for compliance, it was necessary for them to have built up an inventory to satisfy the indents. According to him, it was wrong on part of the surveyors to have suspected the purchases of raw material. During the proceedings before this Commission, Shri Sukhdev Singh Panesar, Managing Director of the complainant-M/s M.F. Papers Ltd. had made a claim that contrary to the allegation of the joint surveyors that the books of accounts/documents/papers referred to in their letter dated 14th of September, 1998 had not been furnished to them, they had indeed vide their letter dated 26th of March, 1998 forwarded all the documents except the documents listed at Sl. No. 3 and 4. This Commissions thereafter had directed the opposite party-Insurance Company to verify the truth in this regard as that would provide a fair assessment with regard to the charge of non-cooperation by the complainant. The opposite party-Insurance Company referred the matter to M/s Mehta & Padamsey Surveyors Pvt. Ltd., who have reiterated their stand on non-cooperation stating that except for what is stated in their report, they had not received any other document as now being claimed by the complainant.

EXPLAINING that the joint surveyors have made a big issue of purchases of raw material being made from M/s M.F. Board & Securities Ltd., which is alleged to be a company promoted by the Directors of the complainant-M/s M.F. Papers Ltd., he explains that most of the documents concerning M/s M.F. Board & Securities Ltd. were also furnished to the surveyors but they resorted to asking irrelevant information such as mode of transportation of stocks purchased from M/s M.F. Board & Securities Ltd. just, not only to delay but to somehow frustrate the claim of the complainant. He, therefore, submits that in repudiating the genuine claim of the complainant the opposite party-Insurance Company has been grossly deficient in rendering the service and the claim of the complainant deserves to be accepted.

LEARNED counsel for the respondent-Insurance Company on the other hand has contended that the incident of fire was stage-managed by the complainant to mislead and defraud the opposite party-Insurance Company and it was not a genuine case of fire by accident. In support of his contention, he has pointed out a series of anomalies in the contentions of the complainant, which belie the authenticity of the incident. According to the complainant, their supervisor Shri Swaran Singh informs the Managing Director Shri Sukhdev Singh Panesar at 02.45 a.m. of 7th of December, 1996 about the fire at the factory premises. Shri Swaran Singh, however, does not inform the fire brigade himself. Further, the Managing Director, who is at Ludhiana, does not inform the fire brigade to rush to his factory premises but contacts his Manager Shri Nagesh Sahani through a message on the pager directing him to reach the factory premises. The Manager, who himself was 20 kms. away, thereafter proceeds for factory premises and reaches there at 3.55 a.m. It was only thereafter that he informs the fire brigade. According to the learned counsel, all this goes to show that the complainant himself was buying time to allow the fire to spread and finally when the lone fire tender reached from Ludhiana, the fire was controlled by 10.00 a.m. in the morning. The fire obviously was not a major one and certainly not of serious nature. The next ground advanced by the learned counsel is that as per the admission of the complainant, the production in the factory had been suspended for a period of 20 days ostensibly for the purpose of maintenance w.e.f. 5th of December, 1996 i.e. strangely on the previous day of the stock catching fire. The oblique reference of the learned counsel is an attempt on part of the complainant to build up a false case to lodge a claim.

In the other limb of his argument, the learned counsel has referred to the total lack of cooperation with the surveyors and investigators as is evident from the number of letters written by them to provide the relevant books of accounts. However, the most important aspect of the claim being a fabrication has been that a major part of the raw material has been shown to have been purchased from M/s M.F. Board & Securities Ltd., which is a sister-concern of the complainant-M/s M.F. Papers Ltd. Despite repeated references, the complainant has failed to provide details with regard to the status of the said supplier. On the contrary, the investigators report clearly indicates that the said M/s M.F. Board & Securities Ltd. was controlled by the same Board of Directors who control the complainant-M/s M.F. Papers Ltd. The transactions, therefore, have been correctly held to be doubtful. Overall, the counsel submits that it was not a case of accidental fire but an unnatural one to defraud the opposite party-Insurance Company and derive undeserved gain and the complaint has to be dismissed.

WE have given our thoughtful consideration not only to the arguments advanced by the learned counsel for the parties but have also carefully perused the records of the case. At the outset, we would like to observe that apart from filing the lone affidavit of the Managing Director Shri Sukhdev Singh Panesar, the complainant-M/s M.F. Papers Ltd. have not filed evidence of any other employee. Admittedly, the fire broke out after mid night of the 6-7 December, 1996 and it was accidentally noticed by Shri Swaran Singh, Supervisor, when he had got up on a natures call. Shri Sikander Singh, Security Guard, was woken up by him. On the Managing Director being informed, he sent Shri Nagesh Sahani, Manager, and Shri Goswami, who reached the factory premises. All these employees had first hand knowledge with regard to the fire and had contributed in their own way to control the fire by informing the fire brigade or otherwise but strangely the complainant-M/s M.F. Papers Ltd. have not produced them or filed their affidavits. This we are observing because the opposite party-Insurance Company has appointed two senior retired police officers as the investigators and they have recorded the version of these employees and have given a report, which totally goes against the complainant. Be that as it may, it is admitted by the complainant that production in his factory had been stopped w.e.f. 5th of December, 1996 for a period of 20 days ostensibly for the purpose of maintenance. However, he claims that he had built up an inventory of 951 metric tones of raw material valued at Rs.97,76,218/- prior to the stoppage of production, which does not appeal to our mind as retention of a huge inventory also entails expenditure and no businessman would, in the normal course, resort to such a course. The complainant in para-8 of his complaint states that the quantum and quality of raw material depends on the order in hand. He, however, does not state anywhere as to what were the orders in hand and who had placed such orders to justify the abrupt building up of such a huge inventory. No doubt, there appears to have an afterthought to project some orders from Okhla and Delhi, which, for the reasons explained by the investigator in his report, are self serving in nature and have been correctly not believed.

IT was expected of the complainant to have explained as to what was the consumption of raw material per month even if the unit is run on a 24 hour basis and what was the optimum inventory he was required to maintain. IT appears that the consumption of raw material in the past had been in the range of 200 to 225 metric tones and as a prudent commercial decision an inventory of not more than 2 to 3 months is required to be kept even as per the complainants own averment. Considering that the unit was to be closed for a period of 20 days for maintenance, building up stock of 951 metric tones of raw material (sufficient to run the unit for 4 months) does not evince credibility. The investigator on this point has commented as under :- In present situation, when the factory was closed on 5-12-1996 upto 25-12-1996 for maintenance and repair, the quantity of raw-material should have been very much less than 230 tons (Although Insured claims that he was having raw-material around 1000 tons). Vide his letter dated 10-3-1997, the insured has committed that the Pakka Plinth level, on which the raw-material was lying is of 100 X 100 size, where the raw-material is kept. On the night of fire, in the half area of the plinth level, Gatta and other cheap type of raw-material was kept and on the other half, the raw-material of copies was kept. The total area where the copies were kept comes to 500 Sq. Feet. The insured claims that the Raw-material of copies was staged upto the height of 12 to 16. Stagging upto the height of 12 to 16 of Gunny Bags packed with waste copies is not possible. The insured is not having any mechanical device to .. (lift) .. the Raw-Material bags upto that height. Moreover, the raw-material is stored in open and in absence of any enclosure or support, it is not possible that a voluminous packing of such a bulky raw-material could be placed by this human being upto that height. The manual labour, could only do the staging upto the height of 6. Keeping in view this height in our mind, the estimated stock in the given area could be as under :- Total plinth area for storing the copies is 100 X 50 = 5000 Cubic Ft. If we take that the stagging was done upto the height of 6 then the total area where the raw-material could have been stored comes to 5000 X 6 = 30000 Sq. Ft. The size of the bag in which copies are packed is of 3 X 2 X 1 = 6 Sq. Ft. On the ground layer, only 800 bags could be stored and upto the height of 6 only 4800 bags could be stored, if the weight of a bag is 50 Kg., the total raw-material which could have been stored comes to 4800 X 50=240000 Kgs.

The complainant not having rebutted the report of the investigator, who has filed his affidavit, nor having filed any interrogatories, we are convinced that the inventory could not have been more than 240 metric tones as worked out by the investigator, even if the raw material had been stacked to a height of 6.

THE other aspect which casts a serious doubt pertains to the purchase of raw material from M/s M.F. Board & Securities Ltd., a sister-concern of the complainant-M/s M.F. Papers Ltd. In this regard, we would like to reproduce the report of the investigator Shri R.S. Ahluwalia, which is relevant. It reads as under :- Purchase of Raw-Material and its Rates :- THE Raw-Material was purchased by the insured from the market, but surprisingly from July, 1996 onwards as per records the firm started purchasing raw-material from M.F. Boards And Securities. On our enquiry regarding the Directors of M.F. Boards and Security, the insured informs us that M.F. Board and Security have got different Directors namely N.K. Sawhney, Parveen Kumar & Hareesh Kumar. We made enquiries and found that Sh. G.S. Bansal, Sh. A.S. Sandhu and Sh. S.S. Panesar, the Directors of M.F. Papers Limited are the Directors of M/s M.F. Boards and Securities. As per the Company Law a limited firm cannot make purchases from a firm, in which any of its Directors have got interest and if such a purchases are to be made, in that situation the Board of Directors passes resolution to this effect, but as per the copies of minute book of M.F. Papers Limited, no such resolution was passed from April till Dec, 1996. M.F. Boards and Securities is a firm in which all the Directors of M.F. Papers Limited are the Directors, this fact was confirmed by us by visiting the Registrar of Companies, Jalandher on 5-3-1997 and the Public Issue Prospectus of the company also confirms it. M.F. Boards and Securities applied for the Sale Tax No. on 4-7-1996, whereas as per records it starting selling the raw-material to M.F. Papers Ltd. on 1-7-1996. As per our enquiries from Sale Tax Office, M.F. Boards and Securities did not get any Sale Tax No. till date. THE purchase of raw-material upto 1,00,00,000/- in Oct/Nov, 96 is unpresidented (unprecedented). We fail to understand, from where the raw-material came and how this raw-material was transported. Inspite our repeated requests that we would like to examine the books of M.F. Boards and Securities, we were told that since the firm has got different Directors, so they cannot force them to show the books to us. We feel that the firm exist only on papers and only the accounting entries are rotated. THE purchase rates shown on the M.F. Boards and Securities bills are much higher then the rates of the raw-material supplied by other dealers. If we examine the Ledger entries of M.F. Boards and Securities Ltd., we find that no purchase was made from this firm after Nov.14, 1996. In the month of Oct, 1996 the purchases worth Rs.73,00,000/- were made, most of these purchases were shown to have been made from M.F. Boards and Securities and similarly, the purchases were made in Nov, 1996. THE most surprising aspect is that most of the payments made to the firm are shown as payment made in cash of Rs.20,000/-.

IT is obvious from this report, which is again unrebutted, that the complainant had failed to provide, perhaps deliberately, the books of M/s M.F. Boards & Securities Limited. His assertions much later before this Commission that he had supplied the books of accounts and other documents of M/s M.F. Boards & Securities Limited cannot be believed. Had it been really so, the complainant should have produced the copies supplied to M/s Mehta & Padamsey Surveyors Pvt. Ltd. before this Commission. IT may be noticed that major part of the raw material was purchased from M/s M.F. Board & Securities Limited and that too in the immediate vicinity prior to the closing of the unit for the purpose of maintenance for a period of 20 days. In the absence of any Sales Tax Number prior to the date of purchase and other details with regard to the functioning of the M/s M.F. Board & Securities Limited, serious doubt expressed by the investigator cannot be brushed aside. The possibility of the complainant floating a sister-concern to deal with waste paper and show the purchases from it to give the appearance of authentic purchases cannot be ruled out. This aspect has also been dealt with by the joint surveyors in their report and they have opined that the two companies were closely connected and were practically managed jointly by the same group of persons. The whole attempt, therefore, appears to have been to build up a case for making a claim which is not genuine. Coming to the question with regard to whether the fire was accidental or natural, no doubt, there is no unanimity of opinion expressed by various agencies. While the first surveyor had expressed his apprehension with regard to the fire having been caused due to short-circuit, he had left it to the investigator to undertake a deeper probe. The fire brigade stated the reason as unknown; the police report/FIR states that the fire was natural and it happened due to short-circuit of electricity. The investigator after a detailed investigation opined that the claim of electric short-circuit cannot be believed/relied upon. According to the surveyor, the electric wires passed along the trees at a height of 10 to 12 while as per the claim of the complainant the raw material was stacked on the plinth area upto a height of 12 to 16. Had the claim of short-circuit been true, with the claimed height of raw material not only the poles but also the leaves and branches of the trees would have burnt whereas they found that the poles on which the electric wires passed were still standing and even the wires were found intact and the shed of the searchlight was also found intact. Even the empty drums lying in the area were not found damaged. No doubt, the joint surveyors in their report have opined that the possibility of the fire having been caused due to some electric fault or short-circuit cannot be ruled out. However, there is no concrete evidence apparent from the records that the fire occurred as a result of short-circuit. The authentic cause of fire, perhaps, could have been obtained from the Electrical Inspector, which has not been obtained by either of the parties. However, the manner in which the incident of fire has been handled by the complainant supports the investigator that it was stage-managed fire because the fire was first detected by Shri Swaran Singh, Supervisor, accidentally while attending to a natures call. Shri Sikander Singh, the Chowkidar, was asleep and had to be woken up. Thereafter, the Supervisor informs the Managing Director at Ludhiana, who, in turn, informs Mr. Sahani, the Manager, on his pager but does not inform the fire brigade to rush to the factory premises. It was Mr. Sahani who after a journey of 20 odd kilometers to the factory premises informs the fire brigade at about 4.00 a.m. The reason as to why Shri Swaran Singh, Supervisor, did not immediately inform the fire brigade or the police station, which is only two kilometers away from the factory premises, has not been explained. It is further noticed that the labourers, who were living adjacent to the factory premises, were not immediately woken up to undertake fire fighting operation and it was only after Mr. Sahani reached the spot that the labourers were woken up to enter inside the factory premises to douse the fire. These are circumstances, which strengthen the apprehension that the fire perhaps was organized with the ulterior motive. Since the affidavits of Shri Swaran Singh, Supervisor, and Shri Sikander Singh, Chowkidar, who were eye-witnesses to the origin and occurrence of the fire, have not been filed, we must draw adverse inference against the complainant to the effect that these witnesses were not willing to toe the line of the complainant.

Thus, evidence on record and preponderance of probability point out towards a fraudulent claim. We are, therefore, of the view that the complaint being devoid of merit deserves to be dismissed and we order accordingly. There shall be no order as to cost.