New India Assurance Co Ltd vs S S Textiles

M/s. New India Assurance Co. Ltd. has filed this appeal against the decision of U.P. State Consumer Disputes Redressal Commission in Consumer Complaint No. 49 of 2004. A delay of nine days has occurred in filing of the appeal, which is condoned in view of the explanation for the same.

THE respondent/complainant, SS Textiles is a registered partnership firm in Meerut, UP in the business of printing of fabric. The production unit and the godown are both situated in the same premises. The complainant had obtained a ''Standard Fire and Special Perils Policy'' from the appellant. Under the policy, the building was insured for Rs. 50 lakh, the plant and machinery for Rs. 70 lakh and the stock of raw material/packing material for Rs. 100 lakh. The policy was effective from 11.7.2003.

AS per the complainant, on 29.10.2003, a massive fire occurred due to electrical short circuit. Large stocks of finished and unfinished goods, raw materials, etc. were destroyed in this fire. The building and plant and machinery were also damaged. On the report of the complainant, the respondent appointed M/s. Sanjeev Soni and Co. as the surveyors. The case of the complainant is that he submitted all relevant documents in support of his claim of Rs. 40,53,940 on 16.11.2003. Although, all necessary documents had been supplied, the Surveyor delayed the matter and submitted his report only in February 2004. Despite requests from the complainant, the opposite party did not settle the claim. This cost further suffering and loss to the complainant. Claiming this to be a deficiency in service, the complainant made this consumer complaint with a prayer to issue the following directions to the respondent to- "(i) Immediately settle his claim of Rs. 40,53,940. (ii) Pay Rs. 6,22,279 as interest at 18% till the date of the complaint and further interest at 18% till the date of payment. (iii) Pay Rs. 100,000 towards compensation for mental agony and Rs. 50,000 towards costs, (iv) Rs. 36 lakh towards loss of profit cost by the delay in finalisation of the claim."

RESPONDING to the above, the Insurance Company claims that delay in settlement of the claim was only due to non-cooperation of the complainant and non-supply of relevant documents by him. According to the OP, as the claim had not been rejected on the day of complaint, the question of deficiency in service does not arise. The complaint is therefore premature. Claim of interest at 18% is called misconceived and mala fide as the permissible rates in the relevant period were about 6% only. The report of the surveyor has also allegedly, confirmed tampering of purchase bills by the complainant. Several purchase bills, originally not in the name of the complainant, were included in the claim by overwriting and changing the name on the bills.

THE OP/New India Assurance Company has claimed that due to such fraud, the claim is liable to be repudiated for breach of policy condition Nos. 6 and 8. The OP has also claimed that that the fire was caused due to failure of the complainant to take sufficient precautions like, failure to switch off the power supply, non-replacement of old wiring despite continuous increase in the load and an insufficiency of fire extinguishers in the premises. However, the report of the surveyor shows that he has recommended acceptance of the fire in this case as being accidental in nature.

BEFORE the State Commission it was argued by the Counsel for OP that the complainant cannot make the claim higher than the amount he had already agreed to accept by his own free will. In the letter of 22.4.2005 Mr. Amit Bansal of complainant/S.S. Textiles has already conveyed their willingness to accept the amount of Rs. 26,78,839.41 with 13% interest as determined by the Surveyor.

THE State Commission concluded that there could be no justification for rejection of the entire claim on the ground that 14 purchase bills were found to be tampered. The value of such bills has been assessed, by the Surveyor as Rs. 6,98,990.34. The State Commission awarded the amount of Rs. 26,78,839.41, being the amount of loss assessed by the Surveyor, with 6% interest from the date of repudiation i.e. 8.10.2004.

OP/New India Assurance Co. have challenged the above order in this appeal on the ground that it was well within its right to repudiate the claim on account of fraud. It is alleged that the State Commission has failed to appreciate that the party to a contract that violates the principle of good faith, cannot derive any benefit from the terms of the contract.

WE have perused the records and heard the Counsel of the two parties. Mr. S.M. Tripathy, learned Counsel for OP/New India Assurance Company, argued that repudiation of the claim was fully justified on two grounds- (i) Fraud had vitiated the entire contract, and (ii) The insured had failed to co-operate with the Surveyor.

OUR attention was drawn to para 15 in the Surveyor''s report which shows that the total fabric used for production of the finished goods shown in the registers at production and sale points, was shown as 15,98,521 metres while, as per his calculation, it should have been 15,72,926 metres. This is taken by the Surveyor as evidence of fictitious entries, as the difference in quantity is almost the same for which purchase bills in the name of others were raised.

OUR attention was further drawn to eight bills in which the name of some other purchaser was struck out and the name of the complainant written. This was argued as being the evidence of fraud, which would vitiate the whole contract in terms of Condition 8 of the policy. It needs, however, to be noted that these bills are spread over a period of five months, before the fire accident and the surveyor has deducted the entire amount in these bills, Rs. 6,98,990.34, from the loss assessed by him. It is significant to note that the total purchase bill for cloth, as per the report of the Surveyor, was Rs. 4,57,59,502.00 (para 13 of the Surveyor''s report). Thus, what was considered as objectionable/fabricated bills, constituted only 1.5% of the total purchase and the amount involved in them, has already been deducted by the Surveyor from the assessment of loss. In this situation, the existence of a very small number of bills (1.5% of the total) cannot be called an aberration significant enough to justify repudiation of the entire claim under the policy. The State Commission has, therefore, rightly rejected this as a justification for repudiation of the entire claim.

LEARNED Counsel for the appellant/OP cited the letters of 29.10.2003 and 30.12.2003 written by the Surveyor to the complainant. In these letters, details of relevant sale ledger entries from the books of the parties, from whom these doubtful purchase bills were received and copies of delivery challans, in proof of their physical movement to the complainant, had been sought. It was argued that non-submission of these particulars had delayed settlement of the claim. The claim arose in October 2003. The above queries were raised by the Surveyor in the next two months and his report was submitted to the Appellant/OP in February 2004. In the written response of the respondent/complainant it has been pointed out that the explanation for scoring out of some names and writing the name of the Complainant on a few purchase bills, had been given to the OP/Insurance Company on 27.12.2003. Along with this letter, the affidavits of concerned parties, books of account and GR receipts had also been sent to the Surveyor. OP has not challenged this claim of the complainant, in the present proceeding before us.

LEARNED Counsel for the respondent/complainant argued that the appellant was not justified in considering some of the bills of fabric purchase as fictitious. According to him, the scoring out of names is done by the vendor himself and is a normal practice of the trade. It happens in cases where a purchaser does not lift the stock and the same is sold to another purchaser. He drew our attention to the running Bale/Carton numbers in the purchase receipts being specifically mentioned in the transporter''s receipt, as proof of physical movement of goods by the complainant. Consideration of this evidence by this Commission, was objected to by the Counsel for the appellant/OP, on the ground that this evidence was not produced before the State Commission. This cannot be accepted for the reason already noted in the previous para. As per the written response of the respondent/Complainant, the relevant details had been sent to the Surveyor on 27.12.2003. However, we do not consider it necessary to delve any further into this matter as the Counsel for the respondent/complainant has limited the claim to the amount recommended by the Surveyor.

THE impugned order needs to be considered in the light of the following facts pertaining to this case- (a) The appellant/New India Assurance Company did not repudiate the claim of the complainant until after filing of the consumer complaint before the State Commission. (b) As per the observation of the Surveyor in para 9.3 of his report, "the fire appears to be accident in nature and does not seem to have been caused by any exclusions under the policy". (c) The value of fabrics purchased in the bills held to be fabricated by the Surveyor is only about 1.5% of the total value of the fabrics purchased during the relevant period i.e. 1.4.2003 to 28.10.2003. (d) The above conclusion reached by the Surveyor, is based only on his calculation that the quantity of cloth involved in purchase through such bills is approximately equal to the quantity, which as per his calculation is excess quantity shown as used in the stock register. (e) However, towards the above, the Surveyor has already made a deduction of Rs. 6,98,990.34 from the total loss assessed by him.

FOR the reasons detailed above, the impugned order of Uttar Pradesh Consumer Disputes Redressal Commission awarding compensation equal to the amount of loss assessed by the Surveyor i.e. Rs. 26,78,839.41 as compensation is legally correct and does not require to be interfered with. The award shall carry interest at the rate awarded by the State Commission. The appeal is accordingly dismissed for want of merit. Appeal dismissed.