UNIVERSAL PAPER MILLS LTD. vs ORIENTAL INSURANCE CO. LTD.

IN this case the only question involved is whether the assessment made by the Surveyor is to be accepted? Or, whether the Insurance Company is justified in repudiating the claim?

ON 16th February, 1993 fire borke out in mill premises. On 17th February, 1993 Bhadra and Associates (P) Ltd., Surveyors and Assessors; and Mr. S.R.Das, Chartered Engineer were deputed to carry out joint survey. The Surveyors jointly visited the mill premises on 18.2.1993. After considering in detail they submitted their interim report dated 9th August, 1993 wherein they recommended 50% of Rs.3,45,13,100/- as assessed by them subject to their final report. That suggestion made in the interim survey report to pay at least 50% of the amount of loss, was not heeded by the Insurance Company for reasons best known to it. Thereafter, on 31st August, 1994 a detailed Survey and assessment report was submitted to the Insurance Company wherein they assessed the loss at Rs.3,12,61,587/-. Despite the aforesaid survey reports, i.e. the interim and the final, the insured is required to wait for years for the reimbursement of the sum assured on the basis of the insurance coverage. The umbrella of protection which is sought by the Complainant in such cases is denied by delaying tactics adopted by the Insurance Companies. In our view, this would amount to unfair trade practice which is required to be controlled by the higher ups or the I.R.D.A. Such a delay not only frustrates the purpose of insurance policy but the insured may lose confidence in administration and it ruins the insured in some cases. With these remarks, we would narrate a few facts. In the year 1989 the Complainant Company, M/s. Universal Paper Ltd. was declared as a sick industrial unit. A rehabilitation scheme was under consideration of the B.I.F.R. At that stage, the banker, namely, the UCO Bank (Opposite Party No.3) appointed M/s. A.C.Dutta and Co. to audit the affairs of the Company with regard to its stock. On 6.11.1992, the A.C.Dutta & Co. made physical verification of the stocks, examined related books of accounts and papers of the Company and submitted the audited report to the Bank. After verification, the value of the raw materials were valued at Rs.Rs.518.64 lakhs and the value of the finished goods valued at Rs.74.14 lakhs. It appears that on the basis of the said report, the Divisional Office of the Oriental Insurance Company issued a Fire Policy in favour of the Complainant insuring loss from fire to the extent of Rs.539 laksh in respect of finished goods, of duplex board and craft paper lying in godown and/or in Packing Department along with caustic soda and other chemical and dyes etc. On 16.12.1993 fire broke out in the premises of the Complainant and its adjoining areas causing loss and damage to the finished stocks. On 17.2.1993 the Complainant informed the Insurance Company and the Police Station about the fire accident at the factory mill premises. On the same day (17.2.1993) the Insurance Company appointed Mr.S.R.Das, Surveyor to survey and assess the extent of loss caused due to fire at the Complainant"s premises.

THEREAFTER , on 17th February, 1993 M/s.Bhadra and Associates (P) Ltd. were also appointed as Joint Surveyor to survey and assess the loss suffered by the Complainant and to submit a joint survey report. On 18.2.1993, the Surveyors inspected the mill premises and verified the entire record with regard to stocks. On 15.3.1993 the Complainant lodged claim with the Insurance Company claiming a sum of Rs.4,90,65,590/-. On 9.8.1993 in their interim survey report the Joint Surveyors assessed the loss at Rs.3,47,97,650/- and recommended an ad-hoc payment of 50% i.e. Rs.1,72,56,556/-. In between it appears that on 21.10.1993 Superintendent of Police, C.B.I. requested the Insurance Company for a copy of the claim filed by the Complainant for scrutinizing the same. Thereafter, on 23.5.1994, i.e. after one year of the fire, M/s. Development Consultants Ltd. allegedly visited the premises of the Complainant. However, it is the contention of the Complainant that their appointment has remained unknown to them and their report is also not placed on record. However, from the statement made by the Joint Surveyors it is alleged that they were appointed as a technical experts either by the Surveyors or by the Insurance Company.

ON 9.8.1994 the Joint Surveyors submitted their detailed final survey report and assessed the loss at Rs.3,12,61,587/-. It is alleged that the Complainant agreed to compromise and settled the claim by receiving only Rs.1.90,00,000/-. For this it is contended by the Insurance Company that discussion took place with the Complainant Company regarding the recommendation of M/s. Development Consultants Ltd. and the final survey report of the joint surveyors and on that basis the Chairman of the Complainant issued a letter to settle the claim for Rs.1.90 Crores. By letter dated 27.10.1994 CBI sought for the information and the documents. Only in September, 1995, the CBI completed the investigation and released the files. Thereafter, on 31.10.1994 the Bank (UCO Bank) agreed to settle its dues with the Complainant Company for a sum of Rs.725 lakhs after waiving interest upto 31st March, 1995. On 10.1.1996 the Division Office of the Insurance Company informed the Complainant that they were processing the claim of the Complainant. As no amount was paid by the Insurance Company, the Complainant was compelled to approach the High Court of Calcutta by filing Writ Petition No. C.O.No. 3082(W)/1996 challenging the delay in implementing the survey report and in not settling the claim. On 10.4.1997 the High Court of Calcutta disposed of the Writ Petition, inter alia, directing the Insurance Company to make payment of Rs.1,72,56,556/- together with interest at the rate of 18% pa. on the basis of the interim report. Against that order, the Insurance Company preferred an appeal before the Division Bench of the High Court. Finally the Complainant as well as the Insurance Company preferred SLP before the Apex Court. In that matter on 7.11.1997 the Apex Court held that for recovery of damages writ petition was not maintainable. Thereafter, the Complainant filed a complaint before this Commission on 13.6.1997 and proceeded with it. In this complaint, the main contention of the Complainant is that there was no justifiable ground in not reimbursing the complainant the loss suffered by it on the basis of the Survey Report. Hence we would first refer to survey reports, of which relevant discussion is as under: From the facts stated above it is clear that on 17.2.1993 the Senior Divisional Manager of the Insurance Company appointed Mr.S.R.Das to survey and assess the loss. Subsequently, M/s.Bhadra and Associates were also appointed as Joint Surveyors. Both of them submitted an interim survey report on 9.8.1993. As per the said survey report Shri S.R. Das visited the mill premises on 18th and 19th February, 1993. As mentioned in the report, fire started on 16th February, 1993 and continued upto 22nd February, 1993; the fire was most horrifying; the Police Officer has visited the site at around 11.00 pm on 16th February, 1993 and the fire brigade reached there at 1.00 am on 17th February, 1993. Thereafter, lot of efforts were made to extinguish the fire. The heap of debris were removed on 24th February, 1993. They have also mentioned that fire originated in the waste paper godown located on the west side of the stock preparation department No.2. After discussing each and every aspect, they have stated that stocks of raw material kept in the godown and in the open yard were completely damaged. They recovered some items partly brunt as well as some in sound condition. They have noticed the loss of building. According to their opinion, the fire might have originated due to electrical short-circuit or due to throwing of beedi or cigarette buds by any of the employees or any member of various outside agencies. They have noted that the insured has claimed a sum of Rs.4,98,78,214/-. They have verified the books of accounts in detail. They have referred to various documents, including the audited report submitted by M/s. A.C.Dutta and Co. on 28th March, 1993 as well as statements given to the UCO Bank, because cash credit facilities were taken by the Company. All these aspects are mentioned in detail by them. They have also drawn the attention of the Company with regard to unjudicious stock holding and the explanation given by the Company was accepted on the basis of physical verification of inventory and examination of record conducted by M/s. A.C. Dutta and Co., Cost Accountants on 16.11.1993. Several meetings were also held by them with one Shri G.D.Rathi, a Consultant in paper technology engaged by the insured Company. The audited accounts are also noted by them.

Finally, they recommended the loss assessed at Rs.3,45,13,100/- and an ad-hoc payment of 50% be given to the Complainant. The relevant discussion in para 13.19 is as under: "13.19.Recommendation of Interim Payment:- We have been requested by the Calcutta Regional Office of underwriter to recommend an interim payment to the insured company pending our final report. In paragraph no.13.8 the loss after adjustment is shown at Rs.3,99,74,152.87. This is to be further reduced for adjustment of Rs.54,61,020.08 in respect of under-statement of raw materials. In our opinion, as expressed in chapter no.13.15 this should be reduced from stock in affected godown. Thus after adjustment of this aspect, total loss comes to Rs.3,45,13,132.79. The total loss be rounded off to Rs.3,45,13,100/- (Rupees Three crores forty five lakhs thirteen thousand one handed only) subject to our final report which will be submitted on completion of verification of different aspects discussed elsewhere in this report. Thereafter, on 9th August, 1994, an exhaustive final survey report was submitted. However, we would narrate only some relevant portion thereof.

Almost all the stocks of raw materials kept inside the godown where the fire had originated as well as in the open yard and gunny cutting shed were completely damaged by fire. We have inspected different debries. Salvaging operation was carried out by us. It was possible for us to recover some items in partly burnt as well as in sound condition, the details of which have been shown in the chapter of assessment. Most of the materials saved in sound condition were removed by insured in safe place viz. process block. The joint Surveyor Shri S.R. Das, who conducted preliminary survey attended after 36 hours from the time of fire. The materials salvaged in sound condition was ascertained on physical verification of stock and verification of movement of stock after fire. Burnt raw materials of waste paper, Bagasse had no salvage value. Stock salvaged included sound stock of raw materials of paper, Bagasse, Gunny Cuttings, Paddy straw and recovery out of partly burnt and water damage Gunny cuttings. We had endeavoured our best to detect the various type of materials present in the debris of waste paper but the stock was damaged to such extent that it was not possible in most cases to determine exact quality/type of paper, though we were convinced that the debries pertained to various types of paper only. However, wherever it was possible to identify the material on semi burnt state it was found that practically there was no salvage value. The quantification of debris was not feasible. The quantum of ash depends on complete or incomplete combustion to varying degrees and organic properties of materials. It is not possible even to arrive at rough estimate of sound materials from ashes due to absence of any yard stick. 16.3 Verification of Books and Records 16.3.1 Books and records since 1/4/1989 till the time of fire on 16/2/1993 were thoroughly scrutinized by us. However, on examination of such books and records, no major discrepancy was observed. Books and records relating to purchase, consumption, production, salves and stock were thoroughly verified by us. Apart from statutory audit as per Companies Act, accounts were subject to internal audit by a separate firm of Chartered Accountants. 16.3.2 Excise: Returns to Excise Department were found in agreement with records.

Finally, conclusion, inter alia, as under: "18.1 The exact cause of fire could neither be ascertained by us nor by the fire brigade. Forensic examination was not conducted by Police Authority. 18.2 On in-depth verification of the books and records made available to us no anomaly was observed and the loss was assessed by us at Rs.3,12,61,587/- after adjustment of storage/handling loss, microbiological determination and on consideration of average clause and policy excess. "18.4. On detailed study of technical aspects we are convinced about the feasibility of raw material consumption data shown in the records. However, verification of suppliers conducted by M/s. Bhadra and Associates (P) Ltd. revealed that large number of suppliers as referred to in para Nos. 16.12.8 and 17.12 were not traceable. The Chairman of Universal Paper Mills Ltd. submitted in a Joint Minute enclosed with this report that payments were made to the suppliers by A/c payee cheques after receipt of the raw materials, as such addresses of the suppliers are not relevant to them. 18.5. We may therefore, conclude that stock of raw materials at the material time of loss as per records was highly inflated.

On in-depth verification though the loss has been assessed by us at Rs.3,12,61,587.00 (Rupees three crore twelve lakh sixty one thousand five hundred and eighty seven only), in view of observations in foregoing paragraphs, the aspect of settlement is left to the discretion of the underwriter. 18.6. There is no breach of warranty. Contentions of the Insurance Co. In the written version filed by the Insurance Company it has been pointed out that there was no deficiency in service because the Insurance Company was processing the insurance claim and that it could not finalise because of the conduct and changing stand of the Complainant in the method of settlement of the insurance claim. It was also pointed out that there was an attempt on the part of the Company to have higher claim amount than the genuine one either in the guise of the stocks, loss suffered etc. It is pertinently stated: "preferring an inflated claim is the practice in the industry".

IT is admitted that on the receipt of the intimation of fire on 16.2.1993 Mr. S.R.Das was appointed, and, thereafter, M/s. Bhadra and Associates (P) Ltd. were also appointed, as joint Surveyors. It is also stated that the information submitted by the Complainant and the report of the Surveyors do not disclose on what basis the Company or the Surveyors ascertained the quantity of stocks on different materials held by the Company as on 16.2.1993. Therefore, the Insurance Company had doubted the genuineness and correctness of the facts and figures stated in the survey report. It is pointed out that the Insurance Company had also appointed M/s. Development Consultants Ltd. (DCL) who were one of the reputed consultants in the field. The said DCL had not accepted the claim made by the Complainant. Thereafter, the Complainant vide letter dated 9.9.1994 had offered to accept a sum of Rs.1.90 Crores in full and final settlement of the claim. The Insurance Company was in the process of finalisation of the claim on the basis of the information and documents submitted by the Surveyors and the Investigators.

THEREAFTER , the Complainant filed Writ Petition being C.O. No. 3082(W)/1996 before the High Court claiming a sum of Rs.4,90,65,590/-. In the said Writ Petition a direction was sought to implement the survey report and pay the amount to the Complainant. In that Writ Petition it was contended by the Insurance Company that the Writ Petition was not maintainable. It was also contended that as investigation by the C.B.I. was pending the claim was not finalized and that the Complainant withdrew its proposal for settling the claim in the sum of Rs.1.90 Crores vide its letter dated 8.10.1994. In the written version it has also been stated that on 10.4.1997 the Writ Petition filed by the Complainant was partly allowed and the Insurance Company was directed to pay Rs.1,72,56,555/- on ad-hoc basis with interest at the rate of 18% p.a. from 9.8.1993 till its payment. There was a specific direction with regard to claim and counter contentions be either decided in a properly framed civil suit or before the National Commission. Against that order, the Insurance Company preferred Appeal MAT No. 1371 of 1997. The High Court directed the Insurance Company to deposit Rs.2,92,64,282/- on 20.6.1997. Against that order, SLP No. 18684 of 1997 was filed by the Insurance Company. That appeal was allowed on 7.11.1997 by holding that Writ Petition under Art. 226 was not maintainable. Hence, the orders passed by the High Court were set aside. It is further contended that M/s. Developers Consultants Pvt. Ltd. came to the conclusion that loss could be assessed at Rs.1.38 Crores and on that basis the Complainant had offered to settle the claim at Rs.1.90 Crores. From the facts stated above, we have to determine: (i) whether the award should be made on the basis of the offer made by the Complainant to settle the claim at Rs.1.90 Crores? Or (ii) whether the final survey report should be accepted? (iii) Whether the Complainant is entitled to any consequential loss, if any?

WITH regard to the first question we would refer to the offer made by the Complainant and also to their letter withdrawing the offer as well as the response of the Insurance Company on the said offer in the Writ Petition.

IT appears from the record that the Complainant agreed to settle for the sum of Rs.1.90 Crores in a meeting which was held with the officers of the Insurance Company on 9.9.1994. With regard to this so called offer, in the Writ Petition which was filed before the High Court, the Insurance Company, in para 14 of its reply took an inconsistent stand taken on oath before the High Court, which is as under: 14. With reference to paragraph 11 of the said petition, I say that in the month of September, 1994 when the representatives of the Petitioner Company visited the office of the Respondent No.3, they were informed by the Respondent No.3 that CBI investigation is going on in the matter and that reference had also been made to the Central Excise Authorities. However, I deny and dispute that the Respondent No.3 or for that matter any other officer and/or employee of the Respondent No.1 had ever offered to settle the Petitioner"s claim for a sum of Rs.1.90 Crores or any other sum as alleged or at all. Therefore, the question of conditional or any acceptance of the said purported offer of the Petitioners to settle the claim for a sum of Rs.1.90 Crores or any other sum by the Respondents never arose. I say that the Petitioners had time and again voluntarily expressed their intention of settling the matter and had given a proposal to the Respondent No.2 to make payment of Petitioner"s claim. However, the Petitioners vide their letter dated 8th Octobter, 1994 addressed to the Respondents unequivocally withdrew the said offer."

From the aforesaid statement on oath by the Insurance Company made before the High Court, it is apparent that even if there was offer made by the Complainant, the same was not accepted by the Insurance Company or any other officers or employee of the Insurance Company. Further, the statement in the said paragraph makes it clear that the Petitioner had withdrawn the said offer on 8th October, 1994. Further, it is regrettable that despite the aforesaid stand taken before the High Court, the Insurance Company is taking inconsistent and contradictory stand before this Commission so as to suit its purpose, before this Commission. This is neither just nor reasonable by a nationalized Insurance Company. Before this Commission, it has been stated as under: "That, however, on process of the claim, as already offered, the answering Insurance Company still willing to settle the claim in the sum of Rs.1.90 Crores in full and final settlement of the claim".

In any case it is to be stated that if the amount of Rs.1.90 crores was paid in 1994, by this time the Complainant would have easily revived and that was not done by the Insurance Company. Complainant has suffered and is required to spend on litigation. Whether the final survey report should be accepted or not, it has been contended on behalf of the Insurance Company that the Insurance Company has appointed M/s. Development Consultant Ltd. for assessing the loss and they have assessed the loss at Rs.1.38 Crores. Hence, the insured agreed to settle the claim at Rs.1.90 Crores.

IN our view, this submission is without any basis. The Insurance Company has intentionally not produced on record the report submitted by M/s. Development Consultant Ltd. Had it been produced on record, the complainant would have verified whether the said Consultants have taken into consideration the voluminous documents which were verified by the joint surveyors. Hence, no reliance can be placed on the contention of the Insurance Company that M/s. Development Consultants assessed the loss at Rs.1.38 crores. Secondly, it has been stated that the stock which was worth Rs.4.39 Crores allegedly purchased by the Complainant, it was found that large number of suppliers were not in existence and could not be traced even after writing registered letters. The registered letters were received back unserved. Further M/s. Development Consultants arrived at the possible/maximum quantum of stock likely to be affected from mainly 3 angles; as per terms of reference: (i) volumetric analysis; (ii) production " consumption rate and (iii) standard stock holding.

IN our view, all these aspects were considered by the joint surveyors in their survey report which is exhaustive. Surveyors recorded that the fire broke out on 16.2.1993 at 10.00 pm, and it was controlled on 22.2.1993 at about 7.45 pm. Even before the fire could be controlled, Surveyor has visited the premises on 19th March and found various portions of the burnt heaps bursting into flames. Surveyors have referred to the fire brigade report wherein it is stated that raw materials to the extent of Rs.5 Crores was damaged and total time taken in extinguishing the fire by the Kharagpur Fire Brigade was 131 hours and 10 minutes, and the fire was extinguished by using water jets, and Mills" hydrants served the purpose of source of water. It is also pointed out that the I.D.B.I., the lead institution, took over the control of the Company in 1989. At that time, the Complainant Company was running in losses, and so it was referred to the B.I.F.R. There was a revised rehibilitation scheme in 1990. Thereafter, the Surveyors have referred to production and turnover in quantity and value for the last three years, i.e. 1990-91, 1991-92 and 1992-93. It is their say that the Surveyors had endeavoured their best to detect various types of materials present in the debris of waste paper. But, the stock was damaged to such an extent that in most of the cases to determine the exact quality and the type of paper was not possible. It is their say that they have verified : (i) books and records since 1.4.1989 till 16.2.1993 relating to purchase, consumption, production, sales and stock thoroughly; (ii) the audited accounts and internal audit by a separate firm of Chartered Accountants. (iii) Returns to Excise Department were found by them in agreement with the records.

In para 16.13.7 they have stated that in course of indepth checking of transactions for 4 years no anomaly was observed and books and records were found to be maintained in normal course of business only. For the supply of stock bills were verified, in order to ensure that purchases were not fictitious. For this purpose, they have stated that except paddy straw and some other negligible items purchases were mostly made by account payee cheques and mostly on credit terms and M/s.Bhadra & Associates Pvt. Ltd. was deputed to carry out the verification of suppliers" bills. Some suppliers could not be traced. But, as the amount was paid by account payee cheques, they have not doubted the said bills. They have also carried out the analysis of storage space vis-"-vis the bulk density of raw materials and the stock holding was found to be unjudicious (high).

THEREFORE , they have verified the power and fuel consumption and found the consumption tobe in parity with the production in 4 years. They have made the necessary deduction with regard to the salvage items. In our view, the verification into the above aspects by the Surveyors justified the finding recorded by them for the loss suffered by the Complainant. There can be no doubt with regard to the Excise record maintained by the Complainant, and audited accounts were prepared prior to fire. Similarly, the other books were also maintained prior to the incident of fire. The sales tax returns were also referred to by the Surveyor. Further, the Industrial Development Consultants, a consultancy in paper technology, were consulted. But, they have not quantified the loss suffered by them in their report.

IN our view, there is no reason to doubt the aforesaid findings of the Surveyors. They have assessed the loss with regard to each and every item, after deducting the value of salvage and undamaged goods. Considering this exhaustive survey report, in our view, there is no reason not to accept the same for assessing the loss. In view of the foregoing discussion, we hold that the findings reached by the Surveyors in the final survey report are just and reasonable, and we accept the same. With regard to consequential loss, nothing has been pointed out and, therefore, we are not required to consider the said claim made in this complaint. In this view of the matter, this complaint is allowed. The Insurance Company is directed to pay the rounded figure of Rs.3,12,60,000/- instead of the sum of Rs.3,12,61,587/- as assessed by the Surveyors in their final survey report with interest at the rate of 9% p.a. from 3 months after the Surveyors" report i.e. from 1.12. 1994 till its payment. However, it is to be clarified that on the basis of the interim order dated 9th March, 1995 the Insurance Company had deposited Rs.88,48,005.15ps, as there was an attachment order from the office of the Recovery Officer, Employees" Provident Fund Organisation, Kolkatta. The Insurance Company shall pay the balance amount after deducting the amount paid by it with the rate of interest as directed above, and also pay the interest at the rate of 9% p.a. on the amount which was paid from 1.12.1994 till its payment. The Complainant is allowed as stated above. The Insurance Company shall pay costs of Rs.25,000/- to the insured.