TANAWALA SYNTHETIC TEXTILE LTD. vs ORIENTAL INSURANCE CO. LTD

THE Complainant functioning in the name and style of M/s. Tanawala Synthetic Textile Ltd. at Navagam, District Bhavnagar, Gujarat for manufacturing fabric out of the yarn purchased by them took a fire policy dated 23.4.1990 from the Oriental Insurance Co. Ltd., Bhavnagar for a sum of Rs. 28.42 lakhs, comprising (i) Rs. 26.42 lakhs for stock of raw materials, stock in process, semi-finished goods, finished goods etc., and (ii) Rs. 2 lakhs for furniture, fixture, fitting including complete electrical installation, valid for the period 23.4.1990 to 22.4.1991. Another fire policy for Rs. 30 lakhs was taken on 21.12.1990 comprising (i) Rs. 5 lakhs for building of 1st class construction consisting of ground floor and surrounding compound wall situated at Bhavnagar-Rajkot Road, Navgam, District Bhavnagar (ii) Rs. 15 lakhs for machinery and/or accessories forming complete unit of insured''s Synthetic Textile Mills and (iii) Rs. 10 lakhs for stock of raw materials, stock in process, semi-finished goods, finished goods etc. valid for the period 21.12.1990 to 20.12.1991.

THE details of the complaint are that on 14.1.1991, fire broke out in the factory and the complainant lodged an FIR on the same day with the Police Station, Vartej. The Complainant informed the Opposite Party-Insurance Company on 15.1.1991 about the fire. The O.P. immediately appointed a Surveyor-M/s. C. P. Mehta and Co. Surveyors, Assessors and Valuers to inspect the Complainant''s factory premises to assess the loss. The Surveyors visited the factory premises on 17.1.1991 and examined the loss. The Complainant has filed a long list of correspondence exchanged between them and the said Surveyors and the Insurance Company during March, 1991 to February, 1993. This mainly pertained to the Surveyors and/or Insurance Company asking the Complainant for more documents and the Complainant informing them that all the relevant papers and documents demanded have been submitted. The Regional Office at Ahmedabad of the O.P. also appointed an Investigator - All India Claims Recovery Consultants (AICRC for short) - whom the Complainant gave some documents as required by them. On 8.2.1993 the Complainant wrote to the O.P. stating that as their claim had not been sanctioned, arbitration proceedings may be started to settle the matter. This request was rejected by the O.P. on 9.3.1993 and the Complainant was once again requested to comply with the demand of the Surveyors for more documents/records in order to release the report at the earliest.

THE Surveyors wrote on 12.3.1993 to the O.P. mentioning that AICRC were not returning to them the original papers collected from them, sales invoices, purchase invoices, process bill etc. despite reminders and requesting the O.P. to assist them in the matter. The Surveyors also informed the Complainant on 12.3.1993 that they proposed to visit the factory premises in the first week of April 1993 and requested them to keep all information readily available. The proposed visit did not materialise and the Complainant was asked by the Surveyors to come to Bombay for discussion. Accordingly, Shri C. M. Shah, Director of the Complainant Company visited Bombay on 23.6.1993 during which they were informed that the matter would be finalised at Bhavnagar on 8.7.1993. The Complainant wrote to the Surveyors on 28.6.1993 to send details of the visit. But the Surveyors kept postponing the proposed visit and the said visit did not take place nor the claim settled. 5. Aggrieved by the inaction on the part of the O.P. in setting the insurance claim since January, 1991 which allegedly resulted in huge losses inasmuch as the factory could not be put into production for about 3 years, the Complainant preferred the present petition before us on 7.1.1994 with the following claim : (a) Total loss on account of fire at the factory in terms of the insurance policy Rs. 58,00,000/- (b) Interest on (a) from 14.1.1991 to 5.1.1994 Rs. 30,00,000/- (c) Damages on account of loss of profit, business, goodwill quantified @ Rs. 5,000/- per day Rs. 54,00,000/- Rs. 1,42,00,000/- The Complainant also prayed for payment of pendentealite interest @ 18% on Rs. 88 lakhs and costs by the O.P.

IN their counter filed in May, 1994, the O.P. have mentioned that they had considered (i) the Survey Report dated 7.3.1994, (ii) the Investigation Report dated 7.3.1994 of L.V. Associates and (iii) letter dated 4.3.1994 from Gujarat Electricity Board (GEB) to them, and repudiated the claim through their letter dated 27.4.1994 to the Complainant and that in view of the repudiation, the remedy if any available to the Complainant is to file a suit in the Civil Court of Original Jurisdiction. The O.P. have also made the following points : (a) The complaint does not disclose any deficiency in service and the allegeo loss and damage suffered by the Complainant is only Rs. 7,16,278/- as per the Survey Report. The Complaint is therefore not maintainable, (b) In case the Complainant is now called upon to substantiate their claim itemwise, voluminous records will have to be examined and a lot of evidence will have to be recorded which is beyond the jurisdiction of this Commission, (c) The petition is time barred as it is beyond one year from the date of the alleged incident, (d) The delay on the part of the O.P. is not intentional. Due to non-cooperatice attitude of the Complainant in not furnishing to the Surveyors complete list of damaged items and records relating to their quantity and value for inspection, survey could not be promptly accomplished and the survey report could be submitted only on 7.3.1994, (e) The claim of the Complainant is fraudulent because of the following : (i) The investigation regarding the nature of fire indicates that fire had spread from one corner to another which is unusual and uncommon as the stock in process of polyster viscos yarn and fabric are not the type of stock that would cause very severe fast burning of fire. The presence of burning and scorching marks on almost entire flooring indicate the presence of external inflammatory liquids. Considering the quantity and type of salvage available, the stocks claimed by the Complainant could not have been involved in the fire, (ii) Non-production and account books, namely, Profit and Loss Account and Balance Sheet, statements showing yarn requirements for different varieties of cloth, transport documents of processing fabric, electricity bills from 1st January, 1990 to loss date, copy of the muster roll from 1st January, 1990 to loss date and a sketch showing the lay out for storage of stocks, (iii) Complainant has not taken any steps to protect and preserve the salvage and to minimise or arrest the damage to the machinery. Salvage was not presented for ascertaining its condition and value, (iv) Letter from GEB shows that there was no consumption of electricity by the Complainant during September, October, December, 1990 and January, 1991 while it was just 400 units in November, 1990. The production of approximately 14000 meters of cloth each month during this period claimed by the Complainant would be impossible as there was also no alternative energy producing system such as generator set. For the same reason, closing stock of 47,480 meters in June, 1990 reported to the Surveyors is also false, (v) Additional insurance policy for another Rs. 10 lakhs was taken only 25 days before the incident (vi) Complainant has already shifted from textile to manufacture of oxygen gas and steel mill as the Complainant initially was a ship breaker.

IN their rejoinder, the Complainant have made the following points : (i) The appointment of L.V. Associates was never notified to them nor did these Consultants ever meet the Complainant. On the other hand, the report of the AICRC submitted in October, 1992 was not produced by the O.P. before this Commission. (The Complainant filed before us an unsigned copy of this Report), (ii) The allegation of false declaration about the cause of fire and the quantum of production is erroneous and untenable; the insurer has not produced a single reliable document other than conjectures contained in the Survey Report which contentions were made after a lapse of three years. The observation in FIR/Panchanama and in the AICRC Report shows that the fire was caused by electrical short circuit, (iii) The contention about the power consumption based on a letter of GEB is a contrived exercise of the L.V. Associates and the Surveyors who have misread the Board''s letter. The letter shows the meter regarding as ''O'' for some months prior to the fire incident, the amount payable and payment made. But the L.V. Associates/Surveyors have assumed that there was no power supply and hence the factory was not in production since August, 1990. However, the meter fixed by the GEB was defective and the Complainant was repeatedly drawing the attention of the Board to this and demanding its replacement. A new meter was installed on 2.11.1990 but even that stopped functioning. The Complainant have produced copies of their letters dated 28.9.1990, 25.11.1990 and 28.12.1990 to GEB in this regard which were purportedly given to the Surveyors also on 17.1.1991, (iv) The additional insurance taken 25 days before the incident was necessitated by the change-over from a private limited company to a public limited one in June, 1990 with an additional capital of Rs. 30 lakhs and thus the decision was governed by business logic and ground realities. Also the insurer did verify the facts based on inspection of the premises before issuing the policy, (v) Regarding the allegation that the Complainant did not mitigate the loss by not cleaning/oiling the machinery and re-starting the same, the fault was that of the Insurer in not settling the claim, as according to the technical expert of the Surveyors it would cost Rs. 8.25 lakhs to carry out the repairs and restart, (vi) While on the one hand the Surveyors were not sure about the content of the salvage, they dithered in getting a sample thereof tested; apparently the sample was never got tested from any laboratory. The report of the AICRC (para 4.0) throws light on this aspect, (vii) The Complainant had given the required documents to the Surveyors who handed them over to the AICRC. The Surveyors and the AICRC were not coordinating with each other, the letter from the Surveyors dated 12.2.1993 to the O.P. brings out this state of confusion. The Complainant have also filed a copy of their Audited Accounts for 1990-1991 certified by the Chartered Accountants in August, 1991.

WE have heard counsel for both parties and carefully gone through the available records. The O.P. have raised the preliminary points, namely, of pecuniary jurisdiction and time limitation. As per Section 21(a) (i) of the Consumer Protection Act, pecuniary jurisdiction of over Rs. 20 lakhs for this Commission pertains to the value of the claim. The claim of the Complainant being for Rs. 1.42 crores is therefore within our jurisdiction. In regard to time limitation, since the insurance claim was repudiated only on 27.4.1994, the complaint filed on 7.1.1994, is not time-barred. It may be mentioned that most of the correspondence in the case from the side of the Complainant is in Gujarati in respect of which English translation has been filed in the complaint. In our order we have relied on the English translation so filed.

THE issues which have to be settled are : (i) the cause of fire, (ii) The quantum of production and stocks of cloth and yarn in the said period, (iii) The extent of loss and (iv) Whether the repudiation was done in time and after due application of mind.

ADMITTEDLY there was fire in the factory on 14.1.1991. In the Panchnama recorded on the day of incident in the presence of Senior Inspector of Police, Vartej Police Station, it is noted "we believe that the cause of fire was short circuit". In their report dated 17.1.1991 the Fire Brigade Division, Choke Gate, Bhavnagar Municipal Corporation have recorded the time of fire extinguishing as 10.15 hrs; they have, however, stated that their certificate is not concerned with the fire incidence or its reason. The letter of repudiation of the OP refers to the presence of external inflammatory liquid at the site of the incident. They have, however, not produced any evidence in this regard nor have they given reasons why the Surveyors did not send the samples of burnt material on the site for testing in any laboratory. The next issue is about the quantum of production and stocks in this period. According to the Survey Report, information given by the insured showed opening stock of fabric in April, 1990 at 17094 meters, daily output of fabric at 475-500 meters, closing stock of fabric at 94421 meters (i.e. about six months'' production), total yarn consumption at 9509.5 kgs. (i.e. 40 kg. per day) and stocks of yarn on hand at 6259.1 kgs. (5.25 months'' stocks). The Surveyors have found it difficult to believe this. In this connection, it is seen from letter of the Surveyors of 12.3.1993 to the O.P. that they had with them original documents pertaining to sales invoices/purchase invoices/process bills of the factory which were collected from them by the AICRC who were not returning the same to them and for which purpose the Surveyors sought the help of the O.P. As late as on 25.2.1994, the Surveyors wanted the L.V. Associates, company of Claims Investigators (Claims Investigators for short) to verify the purchase bills of the insured from the various parties and they in turn reportedly visited three placed and found that the purchase bills were genuine but that the industries could not confirm the despatch details and gate passes. These investigators have further pointed out that on enquiry, it was found that the earlier investigators had only written letters and did not make personal visits as claimed and that there was no scrutiny of documents and enough time was given to the insured to manipulate many documents. As for sales invoices, the Claims Investigators have stated that even though the traders in Bhavnagar confirmed about the purchases, they could not produce any details for the payments. According to them, these two facts required a thorough examination of books of accounts of the insured and that since the insured had already gone to the court, no cooperation would be expected from their side. They have then relied on the information supplied by the GEB regarding the consumed by the factory during June, 1990 to April, 1991 to check about the production details. The Claims Investigators were of the view that considering the consumption of 0.9 units per meter of cloth, power consumption during June and July, 1990 would have been 12808.8 units and 13946.4 units for making 14232 and 15496 meters of cloth respectively as claimed by the complainant, whereas it was only 1000 and 1100 units. They therefore, contended that there was no production in the unit from commencement and even if there was any production, it was only a negligible quantity that too only at the time of commencement and that the factory was closed since August, 1990.

A perusal of the information from GEB shows that bills were raised by the Board in respect of the factory during the period in question and amounts have been paid for each of these months, even when against the column "unit consumed" remarks such as ''house lock'' and ''O'' are indicated. The Complainant has also produced copy of their letters to the Board complaining about the meter. Further, the audited accounts for 1990-91 show manufacturing expenses as under : Tanawala Synthetic Textiles Ltd., Bhavnagar Schedule ''J'' : Manufacturing Expenses 1990-91 1989-90 ------- Power 33,047 12,372 ------Processing expenses 3,38,970 39,460 ------Wages 3,10,576 39,822 --------Freight and Octroi 5,585 188 ---------Factory repairing expenses 3,07,552 --------Machinery expenses 18,248 -------Total 10,13,978 91,842 It is seen that the expense on power during 1990-91 rose to Rs. 33,047 from Rs. 12,372 during 1989-90. Further a sum of Rs. 11,238/- is shown as expenses on packing and forwarding under administrative and other expenses. These expenses on manufacturing and packing and forwarding indicate that there was production in the factory.

HOWEVER , the issue is not just whether there was production and if so how much and whether there were stocks after sales, but more importantly whether the stocks as claimed on the date of incident by the Complainant were in fact stored in the factory premises. In this connection, it is seen that there is a note below item No. 10(d) of the Notes forming part of Accounts wherein, the Chartered Accountants have mentioned that the quantitative details in respect of raw materials consumed, production, sales and closing stocks are not available with the Company. It is not clear why the Complainant could not furnish this information in quantitative terms to the auditors. In the result, the documents produced by the Complainant do not go to conclusively establish that the quantity of stocks claimed by them was in fact in the premises at the time of the incident. In the absence of necessary evidence in this regard, we have to turn to the Survey Report. The observations in the Report are as follows. "In Section 1 which had most of the working machinery, a careful examination of the stock in process of yarn/fabric on the various looms showed that bare minimum/bottom quantities only were on various looms. In Section 11 the position of the stock-in-process of yarn/fabric on the various looms also showed meagre quantities. Salvage of stocks supposedly of yarn merely showed bottom cones and empty cones from the salvage it was apparent that there had been only a nominal quantity of yarn at the time of the fire. In Section III where fabric was supposed to have been stored, not a single taka of fabric could be found in the salvage. Careful sifting and examination of the salvage revealed old healds, cut-scraps, cardboard cartons and such other items. The above was certainly not the salvage expected to be found out of 6259.210 kgs. of yarn and 80329 meters of fabric supposedly in the premises. After considering the above we are of the opinion that at best the value of the total stock and stock in process lying in the building at the time of the loss could have been Rs. 50,000/-. After deducting the value of salvage, the net loss has been assessed at Rs. 49,900/-.

THE Surveyors have assessed the loss under the other heads, namely, building, machinery, furniture and electricals at Rs. 41,290/-, Rs. 5,91,598/- and Rs. 35,990/- respectively. For assessing the damage to the machinery, the Surveyors had coopted one Mr. M. S. Divakar, erstwhile technical director of N.T.C. The net total loss as assessed by the Surveyors is Rs. 7,16,278/-. In the facts and circumstances of this case, we are inclined to accept this assessment.

THERE has been an inordinate delay of more than three years on the part of the OP in deciding on the claim of the Complainant. The incident took place on 14.1.1991. The Surveyors visited the factory premises on 17.1.1991. There was protracted correspondence with the Complainant asking for information/papers, lack of coordination between the Surveyors and investigation agency and post-ponement by the Surveyors of the proposed time and venue of their meeting with the Complainant. The technical expert of the Surveyors gave his report on the damage to machinery on 25.9.1991. The AICRC gave its Report in October, 1992. As late as in February, 1994 only, L.V. Associates set about to verify the various purchases of the insured and gave their report on 7.3.1994 to the OP. The Survey Report was also submitted on 7.3.1994. The repudiation was done on 27.4.1994. The letter of repudiation sent after a long delay of over three years and during the pendency of the complaint does not set out valid grounds for not accepting the loss as assessed by the Surveyors. This long delay by itself is a deficiency in service as per Section 2(1) (o) and (g) of the Act. In the light of the aforesaid, we direct the opposite party-Insurance Company to pay to the Complainant within three months from the date of receipt of this Order : (i) a sum of Rs. 7,16,278/- towards loss sustained on account of fire in the factory with interest at 18% per annum from 14.7.1991 till the date of payment, (ii) compensation of Rs. 20,000/- for the mental agony suffered by the Complainant on account of the inordinate delay on the part of the OP to decide on the claim and (iii) costs of Rs. 2000/-.