Canara Bank v. M/S United India Insurance Co. Ltd. & Ors.
DEEPAK GUPTA, J.
1. Leave granted.
2. All these appeals are being decided by one common judgment
since they arise out of a common order dated 08.06.2018 of the National
Consumer Disputes Redressal Commission, New Delhi, herei nafter
referred to as ‘the National Commission’.
3. Briefly stated the facts of the case are that most of the claimants,
hereinafter referred to as ‘the farmers’, had grown Byadgi Chilli C rop
during the year 2012-2013. Some of the farmers had some other crops.
These farmers had stored their agricultural produce in a cold store run
by a partnership firm under the name and style of Sreedevi Cold Storage,
hereinafter referred to as ‘the cold store’. These farmers also obtained
loans from Canara Bank, hereinafter referred to as ‘the Bank’. The
loan was advanced by the Bank to each one of the farmers on s ecurity
of the agricultural produce stored in the cold store. The cold stor e was
insured with the United India Insurance Company Limited, hereinafter
referred to as ‘the insurance company’. A fire took plac e in the cold
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS.
store on the night intervening 13.01.2014 and 14.01.2014. The entire
building of the cold store and the entire stock of agricultural produce
was destroyed.
4. After the fire, the cold store, which had taken out a
comprehensive insurance policy, raised a claim with the insurance
company but the claim of the cold store was repudiated by the insurance
company mainly on the ground that the fire was not an accidental fire.
The farmers had also issued notice to the insurance company in respect
of the plant, machinery and building but this claim was repudiated by the
insurance company on the additional ground that the farmers had no
locus standi to make the claim as the insured was the cold store and
not the farmers. It was further pleaded that Conditio n No.8 of the
insurance policy had been violated, and that there was no privi ty of
contract between the farmers and the insurance company. Since the
claims of the farmers were either rejected or not answere d, they filed
claim petitions against the cold store, the Bank and the insurance company
in which the primary relief claimed was the value of the agricultural
produce as on the date of fire and interest thereupon and eac h of the
farmers also claimed damages of Rs.1,00,000/- per head. Ther e were
91 claim petitions filed and in most of them the agricultural produce was
Byadgi Chilli. In a few petitions, the agricultural produce was Dabbi
Chilli, Guntur Chilli, Bengal Gram, Coriander (Dhania ), Jwar etc.
However, this will not have any material impact on the decision of these
cases. The details containing the name of the claimants, the nature of
the produce, number of bags and quantity thereof, rate, and number of
kilograms have been set out in Para 7 of the judgment of the Nat ional
Commission which we are not reproducing for the sake of brevity.
5. In the claims filed it was pleaded that the cold store w hile
levying the general charges had also charged the insurance pr emium
paid by it. It would be pertinent to mention that a tripart ite agreement
had been entered into by each one of the farmers while taking a loan
from the Bank and hypothecating the agricultural produce which was
stored in the cold store. The farmer, the Bank, and the cold stor e were
parties to the tripartite agreement. The cold store issued a warehouse
receipt giving the particulars of the crop stored, the valu e thereof and
also the date of the tripartite agreement. For the period in questi on i.e.
from 2012-2013 till the occurrence of fire, the cold store was admittedly
insured with the insurance company. The plant and machinery of t he
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cold store was insured for Rs.5 crores and the stocks were in sured for
Rs.30 crores.
6. The case of the farmers was that in terms of the tri partite
agreement, the cold store had got the stocks insured from the insurance
company. The fire was an accidental fire and, therefore, in terms of the
policy, the insurance company was liable to pay the amount of value of
the agricultural produce stored with the cold store as on the date of fire
and was also liable to pay interest on the amount payable. The insurance
company resisted the complaint mainly on the ground that the ‘farmers’
were not ‘consumers’ within the meaning of Consumer Protection Act,
1986, hereinafter referred to as ‘the Act’. It was also claimed that there
was no privity of contract between the farmers and the insurance
company because the policy was taken by the cold store and not by the
farmers. It was alleged that the entire story of loans w as a false story.
On merits, any conceivable objection which could be taken was taken.
The insurance company went to the extent of denying that the claimants
were farmers or they had produced the agricultural produce or that they
had stored it in the cold store. It was also alleged that the B ank was
negligent as it did not take any step to recover the amount due for more
than two years. The case of the insurance company is that nobody in his
right mind would store agricultural produce for such a long pe riod of
time. Therefore, the very genuineness of the tripartite agree ment was
challenged. The other main ground taken was that the fire was not an
accident and there was no spontaneous combustion on account of
electrical short circuit. According to the insurance company, there was
an element of arson involved and the cold store seems to ha ve been
deliberately set on fire.
7. The stand of the cold store was that the fire was acc idental
and that since the stock was insured, the amount was payable b y the
insurance company. The Bank supported the claim of the farmers with
the caveat that the amount should be paid to it so that it could set it off
against the loans advanced to the farmers.
8. The Karnataka State Consumer Disputes Redressal
Commission at Bangalore, hereinafter referred to as ‘the State
Commission’ vide judgment dated 28.04.2017 held that the farmers had
proved that the fire took place on account of electrical short circuit and
no element of human intervention or use of kerosene was found. The
State Commission also found that as per the tripartite agreement entered
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
into between the farmers, the Bank and the cold store, it was mandatory
for the cold store to insure the goods so hypothecated by the farmers
with the Bank. The insurance company was held liable to pay the amount
to the farmers. The State Commission assessed the value of the goods
by taking the value as reflected in the warehouse receipts issued a t the
time of taking of loan and did not accept the plea of the far mers that
they should get the market value of the goods as on the date of fire. The
Bank was also held deficient in service. The cold store and the insurance
company were held jointly and severely liable and were directed to pay
the value of the agricultural produce hypothecated with the Bank to the
farmers/claimants as on the date of tripartite agreement t ogether with
the interest at the rate of 14% per annum payable from six months from
the date of the incident till the date of realisation. One complaint being
Complaint No.597 of 2015 was dismissed. In some of the complaint s,
the Bank was also held jointly and severely liable to pay t he costs of
Rs.10,000/- whereas in a large number of cases the complaint aga inst
the Bank was dismissed.
9. Aggrieved by the aforesaid judgment dated 28.04.2017 of the
State Commission, an appeal was filed before the National Commission.
By the impugned judgment, the National Commission concurred wi th
the findings of the State Commission and held that the far mers are
consumers. It held that the insurance company was aware of t he fact
that the goods were held in trust. It further held that there is no evidence
to show that the fire was not an accidental fire or that the fire had been
started by the owner of the cold store. However, it partly a llowed the
appeal of the insurance company and reduced the interest from 14%
per annum to 12% per annum. The farmers had also filed appeal claiming
that in terms of the insurance policy they should have been paid the
value of the goods as on the date of fire. However, this claim was rejected
basically on the ground that the farmers had failed to show that the chilli
and/or other produce stored is of the same class and charac teristics as
reflected in the Variety-wise Periodic Report of the Bengaluru Market
for different commodities. As far as the appeals filed by the Bank were
concerned, the National Commission held that in the peculia r facts of
the case where the farmers had suffered substantial losses, the principal
amount of loan advanced by the Bank would be remitted by the insurance
company to the Bank but the other amount i.e. interest and da mages,
would be given to the farmers. It was also held that the re was no
509
deficiency of service on behalf of the Bank and the costs impose d on
the Bank in some of the cases were set aside.
10. Before this Court, appeals have been filed by the insur ance
company, the farmers, the cold store and the Bank.
11. We have heard Shri P.P. Malhotra, learned senior counsel
appearing for the insurance company, Dr. Rajeev Dhavan and Shri Gopal
Shankaranarayanan, learned senior counsel appearing for the farme rs,
Shri Sajan Poovayya, learned senior counsel appearing for the cold store
and Shri Dhruv Mehta, learned senior counsel appearing for the Bank.
Appeals of the Insurance Company
12. Shri P.P. Malhotra, learned senior counsel appearing for the
insurance company raised several issues for consideration of this Court.
One of the contentions raised by him is that the fire in question was not
an accidental fire. It is also contended that the f armers were not
consumers and therefore the consumer fora have no jurisdiction to decide
the dispute. He next contends that there is no privity of contract between
the farmers and the insurance company. According to him, a contract of
insurance is to be strictly construed between the parties to the contract.
He submits that there was no insurable interest of t he farmers and the
tripartite agreement entered between the Bank, the farme rs and the
cold store was never disclosed to the insurance company. He fur ther
submits that there is non-disclosure of important facts by the cold store
(insured) and, as such, the insurance company is not liable. He also
urged that the liability of the insurance company is excluded by virtue of
General Exclusion Clause 5 and General Condition no.1 and General
Condition no.8 of the insurance policy.
Whether the fire was an accident?
13. As far as this issue is concerned, both the State Commission
and the National Commission have come to the conclusion that the fire
was an accidental fire and occurred due to a short circuit. T hese are
pure findings of fact which, in our view, cannot be challenged in these
proceedings. However, since lengthy arguments were addressed by Shri
P. P. Malhotra in this behalf, we shall deal with the same. At the outset,
we may note that the electrical inspector, the police investigation team
and the forensic science laboratory (FSL) have all come to the conclusion
that the fire took place due to a short circuit. The concluding portion of
the report of the FSL reads as follows:-
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
“From the above examination, the following observations have
been made
1. Presence of combustible materials like thermocol (wh ich are
used to insulate the walls) pillars, wooden partitions and the grains
stored inside the building could have enhanced the spread of fire.
2. The congested space in the building might have accelerated
the smoldering fire.
3. The fire might have originated at the sixth floor front side of the
building. But it was not possible to locate the exact place of origin
of fire since the complete building was involved in fire.
4. An electrical short circuit may have initiated the fire.”
The insurance company relies upon the findings given by a
company namely Truth Labs and those of Rank Surveyors Private Limited,
which read as follows:-
“Based on a thorough and in-depth inspection of the incident site,
forensic examinations, field investigations, documentary evidence
analysis and personal evidence obtained, it is concluded that the
fire occurred in M/s. Sree Devi Cold Storage, Billary on the
intervening night of 13/14th January 2014.
a. Was not due to spontaneous combustion on account of bacterial/
chemical fires.
b. Was not due to electrical failure caused by short circuit.
c. And was on account of extraneous ignitable fire acceleran ts
such as kerosene used deliberately for ignition, in itiation,
propagation and burning of stocks in the cold storage through human
intervention.
d. Based on the motive, means and opportunity to carry out such
malicious acts the possibility of the involvement of management
in such a nefarious act cannot be ruled out.”
14. We may note that it is not disputed that in the construction of
the cold store, the temperature was maintained by insulating the walls of
the cold store. Bitumen (coal tar) and Thermocol were used for providing
insulation. The FSL found that in a fire which takes place in a building
where such material is used for construction, hydro carbon s would
511
obviously be present. On the other hand, M/s. Truth Labs mainly relied
upon the presence of hydro carbons to come to the conclusion that the
fire had not occurred spontaneously and on account of electrical short
circuit but occurred on account of extraneous ignitable fire accelerants
such as kerosene. The conclusions of M/s. Truth Labs were based on
some inspection and chemical analysis carried out by a team headed by
Dr. R. Srinivas. Admittedly, this report of Dr. R. Srinivas was never
furnished to the parties nor was placed before the State Com mission.
Interestingly, when Mr. G. V. H. V. Prasad, Director of M/s. Truth Labs
was put a specific query whether the walls of the ground floor and the
top floor and the inside portion of the cold store along with 169 pillars
were constructed by sandwiching bitumen and thermocol between the
concrete in order to raise the level of insulation, he replied that ‘he was
not aware of how the Cold Storage was built’. This clearl y shows the
shoddy manner in which M/s. Truth Labs conducted the investigation.
There can be no proper investigation of a fire if the investigating agency
does not even try to find out what is the nature of construct ion of the
building which has been destroyed in the fire. M/s. Truth Labs has clearly
stated that the observation that fire took place on account of extraneous
ignitable fire accelerants, is based on the chemical analysis report which
shows presence of hydro carbons in the debris. It is apparent that
M/s. Truth Labs, for reasons best known to it, did not analyse the material
used for construction because if it had done so, it would have reali sed
that hydro carbons would be present when thermocol or bitume n are
burnt. Thermocol is basically a rigid plastic foam material which is derived
from petroleum and natural gas by-products. Bitumen is a s emi-solid
hydrocarbon product produced from crude oil. Both thermocol and bitumen
are derivatives of petroleum products and hence are hydrocarbons by
their very nature. Therefore, presence of hydrocarbons would be natural
when a fire takes place. The presence of hydro carbon could not lead to
a conclusion that kerosene oil had been used to ignite the fire.
15. The National Commission has also dealt in detail with this
issue and has come to the conclusion that M/s. Truth Labs visit ed the
burnt cold store on two occasions and collected samples on bot h the
occasions. It, however, decided to send 12 samples collected only in the
second visit for analysis. Interestingly, the controlled s amples were
collected from a plastic bag containing (fresh unaffected) chillies found
in the burnt stock of the affected premises. The controlled samples did
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
not show presence of hydro carbons and hence, the assumption that the
presence of hydro carbons in the remaining samples was not relatable to
thermocol and tar. There is no explanation why the samples taken on the
first visit were not sent for analysis. It is also difficult to believe that in a
building which has been totally gutted in a fire, there would be one plastic
bag containing (fresh unaffected) chillies found in the burnt stock. It is
possible that these unburnt chillies may have been introduced later on.
Therefore, we cannot place any reliance on the report of M/s . Truth
Labs.
16. In any event, neither in the report of M/s. Truth Labs nor in
the other reports by the insurance company is there anything to show
that the insured had set the cold store on fire. Whether the fire took
place by a short circuit or any other reason, as long as insured is not the
person who caused the fire, the insurance company cannot escape its
liability in terms of the insurance policy. We reject the contention of the
insurance company that the fire was ignited by the use of kerosene and
hence it is not liable.
Rule of Strict Interpretation
17. It has been submitted on behalf of the insurance compa ny
that the terms of the insurance policy should be construed strictly and
since only the insurance company and the cold store (insured) we re
parties to the contract of insurance, the insurance company wi ll not be
liable to pay any claim to the farmers. Various authorities were cited by
both sides.
18. In United India Insurance Co. Ltd. v. Harchand Rai
Chandan Lal1 this Court held as follows:-
“9….It is settled law that terms of the policy shall govern the
contract between the parties, they have to abide by the definition
given therein and all those expressions appearing in the p olicy
should be interpreted with reference to the terms of policy and
not with reference to the definition given in other laws. It is a
matter of contract and in terms of the contract the relation of the
parties shall abide and it is presumed that when the parties ha ve
entered into a contract of insurance with their eyes wide o pen,
they cannot rely on the definition given in other enactment….”
1 (2004) 8 SCC 644
513
19. Reliance was placed on Raghunath Rai Bareja v. Punjab
National Bank 2 wherein it was held:
“58 . We may mention here that the literal rule of interpretation is
not only followed by judges and lawyers, but it is also followed by
the layman in his ordinary life. To give an illustration, if a person
says “this is a pencil”, then he means that it is a pencil; and it i s
not that when he says that the object is a pencil, he means that it
is a horse, donkey or an elephant. In other words, the literal rule
of interpretation simply means that we mean what we say and
we say what we mean. If we do not follow the literal rule of
interpretation, social life will become impossible, and we will not
understand each other. If we say that a certain object is a book,
then we mean it is a book. If we say it is a book, but we mean it
is a horse, table or an elephant, then we will not be able to
communicate with each other. Life will become impossible. Hence,
the meaning of the literal rule of interpretation is simply that we
mean what we say and we say what we mean.”
20. Reliance was also placed on the following paragraph in Suraj
Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co.
Ltd.3:
“26 . Thus, it needs little emphasis that in construing the terms of
a contract of insurance, the words used therein must be given
paramount importance, and it is not open for the court to add,
delete or substitute any words. It is also well settled that since
upon issuance of an insurance policy, the insurer undertakes to
indemnify the loss suffered by the insured on account of risks
covered by the policy, its terms have to be strictly con strued to
determine the extent of liability of the insurer. Therefor e, the
endeavour of the court should always be to interpret the words in
which the contract is expressed by the parties.”
21. The principles relating to interpretation of insurance policies
are well settled and not in dispute. At the same time, the provisions of
the policy must be read and interpreted in such a manner so a s to give
effect to the reasonable expectations of all the parties including the insured
and the beneficiaries. It is also well settled that cove rage provisions
2 (2007) 2 SCC 230
3 (2010) 10 SCC 567
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
should be interpreted broadly and if there is any ambiguity, th e same
should be resolved in favour of the insured. On the other hand, the
exclusion clauses must be read narrowly. The policy and its components
must be read as a whole and given a meaning which fur thers the
expectations of the parties and also the business realities. According to
us, the entire policy should be understood and examined in such a manner
and when that is done, the interpretation becomes a commercially sensible
interpretation. As far as the present case is concerned, if we read the
tripartite agreement along with the terms of the policy it is obvious that
the Bank insisted that the stock be insured. The farmers were t old that
they would pay the premium. The cold store while fixing the rent obviously
factored the premium into the rent. It was obvious that the intention of
the parties was that they would be compensated by the insurance
company in case of any untoward loss.
Whether the farmers are consumers and the issue of privity
of contract
22. One of the main grounds of attack to the judgments of bot h
the State Commission and the National Commission on behalf o f the
insurance company is that the farmer is not a consumer insofar as the
insurance company is concerned. The contention is based on the ground
that the insurance policy is admittedly only between th e insurance
company and the cold store. It is further urged by Shri Malhotra that the
claim of the cold store for damage to the building, plants and machinery
was repudiated by the insurance company on 16.09.2015. The cold store
has not challenged the repudiation. Thereafter, all the complaints have
been filed through one counsel which indicates that they have bee n
orchestrated by the cold store itself. It is also submitted that the tripartite
agreement is not relevant as far as the insurance company is concerned
since the insurance company is not a signatory to the tripartite agreement.
It is further contended that the coverage for the goods was only for the
goods owned by the cold store and not by the farmers who are in the
nature of third parties. It is contended that in some cases the tripartite
agreement has not even been signed by the Bank.
23. On the other hand, on behalf of the farmers, it is sub mitted
that they paid rent to the cold store which included the element of
insurance. It is submitted that the crops were given o n contractual
bailment to the cold store for a valuable consideration and, therefore, the
cold store held the goods as a bailee on behalf of the farmers. It is also
515
submitted that in terms of the tripartite agreement, t he cold store was
bound to take out an insurance policy and the crops and the pre mises
were separately insured and the insurance was renewed every time f or
a period of 3 years. It is also submitted that insurance company was
aware that the insurance policy had been taken for the be nefit of the
real owners i.e. farmers.
24. To decide these issues, it would be apposite to refer t o the
definition of ‘consumer’ under Section 2(d) of the Act, which reads as
follows:-
“2 Definitions. - (1) In this Act, unless the context otherwise
requires,-
xxx xxx xxx
(d) “consumer” means any person who, -
(i) buys any goods for a consideration which has been paid or
promised or partly paid and partly promised, or under any system
of deferred payment and includes any user of such goods other
than the person who buys such goods for consideration paid or
promised or partly paid or partly promised, or under any system
of deferred payment, when such used is made with the approval
of such person, but does not include a person who obtains suc h
goods for resale or for any commercial purpose; or
(ii) hires or avails of any services for a consideration which ha s
been paid or promised or partly paid and partly promised, or under
any system of deferred payment and includes any beneficiary of
such services other than the person who hires or avails of the
services for consideration paid or promised, or partly paid a nd
partly promised, or under any system of deferred payment, when
such services are availed of with the approval of the first mentioned
person…;”
25. The definition of consumer under the Act is very wide and it
not only includes the person who hires or avails of the servi ces for
consideration but also includes the beneficiary of such servi ces who
may be a person other than the person who hires or avails of services .
26. Taking the issue of privity of contract, we are of the considered
view that as far as the Act is concerned, it is not necessar y that there
should be privity of contract between the insurance company a nd the
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
claimants. The definition of consumer under Section 2(d) quoted
hereinabove is in 2 parts. Sub-clause (i) of Section 2(1)(d) deals with a
person who buys any goods and includes any user of such goods other
than the person who buys such goods as long as the use is made with the
approval of such person. Therefore, the definition of consumer even in
the 1 st part not only includes the person who has purchased but includes
any user of the goods so long as such user is made with the approval of
the person who has purchased the goods. As far as the definition of the
consumer in relation to hiring or availing of services is concerne d, the
definition, in our view, is much wider. In this part of the section, consumer
includes not only the person who has hired or availed of the services but
also includes any beneficiary of such services. Therefore, an insur ed
could be a person who hires or avails of the services of the insurance
company but there could be many other persons who could be the
beneficiaries of the services. It is not necessary that those beneficiaries
should be parties to the contract of insurance. They are the consume rs
not because they are parties to the contract of insurance b ut because
they are the beneficiaries of the policy taken out by the insured.
27. The definition of consumer under the Act is very wide and it
includes beneficiaries who can take benefit of the insurance availed by
the insured. As far as the present case is concerned, under the tripartite
agreement entered between the Bank, the cold store and the far mers,
the stock of the farmers was hypothecated as security wi th the Bank
and the Bank had insisted that the said stock should be insured wi th a
view to safeguard its interest. We may refer to the penultimate clause of
the tripartite agreement which reads as follows:-
“WHEREAS the Third Party has agreed to insure the produce/
goods stored in the cold storage to indemnify the produce in case
of any casualty or accident by any means to cover the risk a nd
also to cover the loan amount to avoid loss at the cost of the
Second Party till the release order or repayment of the loan
amount.”
28. The aforesaid clause in unambiguous terms binds the cold
store to insure the goods, to indemnify the produce, to cover the risk and
cover the loan amount. This insurance policy has to be taken at the cost
of the second party which is the farmer. Therefore, there can be no
manner of doubt that the farmer is a beneficiary under the p olicy. The
farmer is, therefore, definitely a consumer and we uphold the orders of
both the Commissions that the complaint under the Act is maintainable.
517
29. Shri Malhotra in support of his argument relied upon the
judgement of this Court in M. C. Chacko v. The State Bank of
Travancore, Trivandrum 4 wherein the appellant as Manager of High
Land Bank, Kottayam, had an overdraft account with the Bank. The
father of the appellant had executed letters of guarantee in f avour of
Bank agreeing to pay the amounts due to the Bank under the overdraft
agreement subject to a limit of Rs.20,000/-. The Court held:-
“10 . Even if it be granted that there was an intention to create a
charge, the Kottayam Bank not being a party to the deed could
enforce the charge only if it was a beneficiary under the terms of
the contract, and it is not claimed that the Bank was a beneficiary
under the deed Ext. D-1. The suit against M.C. Chacko must
therefore be dismissed.”
30. We are of the view that this judgment has no relevance to the
case before us. This Court held that the Kottayam Bank was not only
not a party to the deed but was also not a beneficiary under the contract.
In our opinion, the Consumer Protection Act clearly provides t hat a
beneficiary of the services, other than the insured is a consumer und er
the Act.
General Exclusion Clause No.5
31. It has been urged that there is violation of Clause 5 of the
policy under the heading of General Exclusion wherein losses of certain
types have not been covered. The said clause reads as follows:-
“5. Loss, destruction or damage to bullion or unset precious stones,
any curios or works of art for an amount exceeding Rs.10000/-
goods held in trust or on commission, manuscripts, plans, drawings,
securities, obligations or documents of any (illegible) stamps, coins
or paper money, cheques, books of accounts or other business
books, computer systems records, explosives unless otherwi se
expressly stated in the policy.”
32. The argument raised by Shri Malhotra is that since the goods
were held in trust by the cold store, the insurance company is not liable.
We are not at all impressed with this argument. This is not a case where
the goods were deposited only on the basis of trust. The goods were
kept in the cold store on payment of rent by the farmer. Thi s is not a
4 (1969) 2 SCC 343
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
case envisaged under Exclusion Clause 5 quoted hereinabove. These
goods were also not held on commission. Shri Rajeev Dhavan, learned
senior counsel appearing for the farmers submits that the r elationship
between the farmer and the cold store was of bailor and bai lee. He
submits that the crops were given on contractual bailment to the cold
store for consideration.
33. In the present case, as pointed out above, the farmer ha d
agreed to pay consideration to the cold store and, therefore, the goods
were not held in trust per se but the goods were held by cold store as
bailee of the goods for consideration. The possession of the farm produce
was handed over by the bailor, i.e. farmer to the cold store i.e. the bailee,
in terms of the contract. There may be inter se rights and liabilities
between the farmer and the cold store but it cannot be said that the
goods were held ‘in trust’. The goods were also not held ‘on commission’.
No commission was payable and only rental was paid. Therefor e, we
reject this argument on behalf of the insurance company.
General Condition Nos. 1 & 8 :
34. Shri Malhotra has placed reliance on Condition Nos. 1 & 8 of
Part B of the General Conditions of the Insurance Policy:-
“(B) GENERAL CONDITIONS:
1. This policy shall be voidable in the event of misrepresentation,
mis-description or non- disclosure of any material particular.
xxx xxx xxx
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 anyone 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.”
35. The contention of Shri Malhotra is that the insurance company
was not informed by the Bank, the cold store or the farmers that the
farm produce or the insured goods belong to the farmers and therefore
the policy is voidable. At the outset, we may note that misrepresentation
or misdescription only makes the policy voidable. The insurance company
never chose to declare the policy void for 3 long years when it w as in
existence and, at this stage, cannot be permitted to wriggle out of its
519
liability by taking this objection. Even otherwise, we are of the view that
the submission made on behalf of the insurance company is without any
substance. The policies of insurance clearly show that the premises was
separately insured for Rs.5 crores and the stock in trade we re insured
for Rs.30 crores. This insurance was taken not only for t he year when
the fire took place but was renewed for 3 long years. The insuranc e
policy had an Agreed Bank Clause which reads as follows:-
“(1) AGREED BANK CLAUSE:
It is hereby declared and agreed:-
(i) That upon any monies becoming payable under this policy the
same shall be paid by the company to the bank and such part of
any monies so paid as may relate to the interests of other parties
insured hereunder shall be received by the Bank as Agents for
such other parties.
(ii) That the receipts of the Bank shall be complete discharge of
the company thereon and shall be binding on all the parties insured
hereunder.”
36. The aforesaid clause itself clearly indicates that it was agreed
by the insurance company that upon any amount being payable under
the policy in question, the same would be paid to the Bank and the amount
so paid “may relate to the interests of other parties” . The said amount
would be received by the Bank as agent for other parties. Therefore,
the insurance policy itself envisaged that there were inter est of other
parties and not only the Bank and the insured. Therefore, it was for the
insurance company to verify and find out who was the owner of the
goods. It could not presume that all the goods belong to the cold store.
The assumption of the insurance company that it had insured the goods
belonging to the cold store itself has no factual basis. It is a well-known
fact that cold stores are constructed in such a way that t here are many
compartments in the cold store. Any person can deposit a small or large
amount of goods to be kept in cold store. Normally, it is the goods of
third parties which are stored in a cold store and, therefore, w e are
dealing with a policy of insurance whereby the premises and the stock
and goods in a cold store have been insured. The natural corollary would
be that the insurance company should have known that the goods belong
to the third parties. From the policy of insurance, we find that in respect
of description of risk, the insurance covers “Stock of Guntur Chil lies/
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
Byadigi Chillies/Other variety Chillies, Jawar Seeds, Bengal Garam, Red
Gram, Tambrind, Coriander Seeds & Other pulses.”
37. This stock in trade was covered for a sum of Rs.30 crores
and premium was charged accordingly. A prudent insurance compa ny
before issuing a policy of such a heavy amount, must or at least should
have ascertained the value and the nature of the goods. The insura nce
company before us is one of the largest nationalised insurance companies
and a presumption has to be drawn that it must have verified the details
before insurance policy was issued. If verification had been done by a
visit to the cold store, it could have been easily found out who a re the
owners of the stock. In case, the insurance company has chosen not to
verify the stock it cannot take advantage of its own neglige nce. The
principle of berrima fides has no application because the cold store had
declared all necessary facts. The bank clause clearly indicate d that the
goods were hypothecated/pledged to the Bank. Therefore, the insurance
company now cannot turn around and claim that the names of the owners
were not supplied to it at the time of insurance. We also c annot lose
sight of the fact that the insurance policy was renewed at le ast twice.
Therefore, the policy was in existence for 3 years and it is in the 3 rd year
that the fire took place. If the insurance company chooses not to even
write a letter to the insured or take any steps to verify the value of the
goods and ownership of the goods, it cannot now turn around and urge
that it was not aware about the nature or ownership of the goods.
Fraudulent Claim
38. The insurance company also contends that the whole scheme
is fraudulent and that no farmer in his right senses would store agricultural
produce for such a long time. This argument is totally baseless.
39. Byadgi Chilli is the major component of the goods that were
stored in the cold store. It is a very famous variety of chilli and is produced
in two types – dabbi and kaddi. One of the main uses of this chilli is not
only as an item of food but as an item to extract red colour p igment
which is used in the manufacture of lipsticks, nail polis hes, and other
cosmetics etc. The material extracted is called oleoresin, which is a red
oil extracted from the pods. Many cold stores have been constructed in
the area where this chilli is grown because if these chillies are stored at
a low temperature of 4 to 6 degree Celsius, the colour and pur ity is
maintained and it also increases the amount of oleoresin which can be
extracted from chilli by about 30% to 40%. As such the farmers took a
521
commercial decision to store the chillies because after st oring it, the
value would go higher.
40. The insurance company also urged that some of the tripartite
agreements are not signed by the officials of the Bank. It is urged that
this shows that the agreements cannot be relied upon. We are not at all
in agreement with this submission. As long as the parties to the tripartite
agreement i.e. the Bank, the farmer and the cold store, are not disputing
the correctness of the agreement, there is no reason why we should not
accept the same to be a genuine document.
Non-disclosure of material facts:
41. It has been urged on behalf of the insurance company that
while submitting the proposal form on 21.03.2013, the cold store had not
listed out the names of the parties who had an insurable interest including
the financial institutions. It is, therefore, submitted that the cold store
deliberately did not disclose the fact that the produce belonge d to the
farmers. Shri Malhotra placed reliance on the judgment in Satwant Kaur
Sandhu v. New India Assurance Co. Ltd.5 wherein it was held that:
“25 . The upshot of the entire discussion is that in a contract of
insurance, any fact which would influence the mind of a prudent
insurer in deciding whether to accept or not to accept the risk is a
“material fact”. If the proposer has knowledge of such fact, he is
obliged to disclose it particularly while answering questions in the
proposal form. Needless to emphasise that any inaccurate answer
will entitle the insurer to repudiate his liability beca use there is
clear presumption that any information sought for in the proposal
form is material for the purpose of entering into a contract of
insurance.”
42. At the outset, we may mention that the initial insurance policy
was taken in the year 2011, if not earlier, and that prop osal form was
very material. The same has not been produced by the insurance company
before us. Thereafter, it was only renewal of the policy. Furthermore, if
a column is left blank, again the insurance company should have asked
the insured to fill in the column. There is no wrong information given in
the proposal form though it may be true that all the requisite information
was not supplied. The column requires listing out the parties who have
an insurable interest including financial institutions. Since the policy had
5 (2009) 8 SCC 316
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
a bank clause, the name of Canara Bank should have been mentioned in
column 5. That was not there. If the insurance company while accepting
the proposal form does not ask the insured to clarify an y ambiguities
then the insurance company after accepting the premium cann ot now
urge that there was a wrong declaration made by the insur ed. In case
the insured had written that there were no persons who had an insurable
interest, the position may have been different but leaving out the column
blank does not mean that there was some misdeclaration of fact s. We
are, therefore, clearly of the view that the judgment of this Court in
Satwant Kaur Sandhu’s case (supra) is not applicable to the facts of
the present case.
43. As already held above, the insurance company itself could
have also taken some initiative in the matter. To make a contr act void
the non-disclosure should be of some very material fact. No doubt, it
would have been better if the Bank and the insured had given at least 1
tripartite agreement to the insurance company but, in our v iew, in the
peculiar facts of this case, not disclosing the tripartite agreement or the
names of the owners cannot be said to be such a material fact as to
make the policy void or voidable. We are clearly of the view that there is
no fraudulent claim made. There is no false declaration made and neither
is the loss and damage occasioned by any wilful act or connivanc e of
the insured.
44. In view of the above discussion, we are clearly of t he view
that the insurance company under the insurance policy is liable to indemnify
the cold store with regard to the value of goods and since the far mers
are the beneficiaries, they are entitled to get the amount payable under
the policy. However, this will obviously be subject to the bank clause
which we have already referred to above.
Appeal of the Bank
45. The Bank has raised objections to the interest portion of the
amount being given to the farmers. Otherwise it supports the case of the
farmers. Reliance has been placed on the bank clause alread y quoted
above and it is submitted that the direction of the National Commission
to pay the interest to the farmers is against the Agreed Bank C lause in
terms of which the money is to be paid to the Bank till the outstandings
of the Bank are covered. Shri Dhruv Mehta, learned senior counsel for
the Bank submits that since the farmers are claiming benefit of the policy,
523
they cannot urge that the bank clause is not applicable . It is further
submitted by him that the National Commission has to decide questions
on the basis of legal considerations and equitable considerations or equity
has no role to play in such matters. On the other hand, it has been urged
by Dr. Rajeev Dhavan that the bank clause is only a processual clause.
46. We cannot accept the submission of Dr. Dhavan that the bank
clause lays down only a process. The insurance policy is a contract and
the amount has to be paid as per the terms of the contract. In our view,
the National Commission could not have ordered that the interest on the
amount payable to the farmers should not be paid to the Bank t ill the
liabilities of the Bank are paid out. Arguments have been addressed
before us that this Court may exercise its power under Article 142 of the
Constitution of India to ensure that justice is done to the far mers. We
feel that there is no need to invoke the jurisdiction under Art icle 142
because even after paying off the dues of the Bank, some amount of the
value of the goods along with interest thereupon will be payable to the
farmers.
Whether there was a deficiency in service on the part of
the Bank
47. It was urged on behalf of the insurance company that there is
deficiency of service by the Bank and, in fact, it was argued that the
Bank connived with the farmers because it did not get the valuation of
the products done properly and further, it took no step s to sell the
agricultural produce after one year which liberty it had in te rms of the
tripartite agreement. We find no force in this argument. As already pointed
out above, the value of Byadgi chillies which was the major agricultural
produce stored in the cold store rises the longer it is kep t in the cold
store. Therefore, the Bank could have taken a commercial decision not
to sell the produce because the product was not deteriorating i n any
manner and its value was not diminishing.
48. The State Commission had held that there was deficiency on
behalf of the Bank in rendering services but the National Comm ission
held otherwise. We are of the view that the Bank was remiss to a limited
extent. When the Bank issues loans against the hypothecation of goods,
as in the present case, and insists that the goods should be ins ured to
safeguard its outstandings then a duty lies upon the Bank to inform the
insurance company of the policy. If both the Bank and the insuranc e
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
company had done what would be expected of good financial institutions,
there would have been no needless litigation. The matter has dragged to
this stage only because the names of the farmers were not mentioned in
the policy or because the tripartite agreement was not handed over to
the insurance company. The Bank, as a prudent financial institution, should
have insisted that the tripartite agreement should also be handed over to
the insurance company. Therefore, we feel that there is so me level of
deficiency on behalf of the Bank.
49. In view of the aforesaid, we feel that the Bank cannot claim
interest at the contractual rate and is not entitled to claim interest at the
contractual rate because the farmers have been driven throu gh a long
drawn litigation which could have been easily avoided if the Bank had
itself sent the copy of the tripartite agreement to the insurance company
or insisted that the insured should send the same to the i nsurance
company. We accordingly hold that the Bank cannot claim interest at
the contractual rate. We are therefore, of the view that the Bank would
be entitled to charge simple interest right from the date of grant of loan
at the rate of 12% per annum.
The amount of claim payable:
50. The farmers in their appeal have claimed that in terms of the
policy of insurance the value of the goods was to be assesse d on the
date of fire and the value was not to be assessed as men tioned on the
date when the goods were stored in the cold store. In this reg ard, we
may make reference to the opening portion of the insurance policy wherein
the insurance company has agreed to insure the goods. Relevant portion
of the insurance policy reads as follows:-
“IN CONSIDERATION of the insured named in the schedule
hereto having paid to the United India Insurance Company Limited
(hereinafter called the Company) the full premium mentioned in
the said schedule. The Company Agrees (Subject to the conditions
and exclusions contained herein or endorsed or othe rwise
expressed hereon) that if after payment of the prem ium the
property insured described in the said schedule or any part of
such property be destroyed or damaged by any of the peri ls
specified hereunder during the period of insurance named in the
said schedule or of any subsequent period in respect of which the
insured shall have paid and the Company shall have accepted
the premium required for the renewal of the policy, the
525
Company shall pay to the insured the value of the propert y
at the time of the happening of its destruction or the amount
of such damage or at its option reinstate or replace su ch
property or any part thereof .”
51. The highlighted portion of the aforesaid clause leave s no
manner of doubt that the insurance company in consideration of the
premium received had agreed to either reinstate the goods or r eplace
the same or pay to the insured the value of the property at the time of
happening of its destruction or damage. The State Commission and the
National Commission had rejected the claim of the farmers in this regard
on the ground that the variety-wise periodic report of the B engaluru
market, produced by the farmers, showed that the ra nge between
minimum and maximum price for Byadgi and Guntur chillies etc. is very
vast and to arrive at an average price would mean construing that all the
chillies are of standard quality. According to the National Commission,
this would be a speculative exercise based on the assumpti on that the
entire quantity of chillies is of the same class and characteristic.
52. At the time when the farmers deposited the goods with the
cold store there were handed over warehouse receipts which not only
gave identity of the agricultural produce but also reflected the quantity
of the agricultural produce and its market value on the date when this
produce was stored in the cold store. However, the quality of the produce
is not reflected in the warehouse receipts.
53. Though we hold that in terms of the clause discussed above
the insurance company is liable to pay the value of the goods as on the
date of the fire, we feel that the National Commission was right when it
came to the conclusion that it was not possible to award an a mount
based on the variety-wise periodic report of the Bengaluru market. This
is the only evidence produced by the farmers and brought to our notice
to support their contention. The National Commission is right that the
difference between minimum price for which this product was sold during
the period 14.12.2013 to 14.01.2014 and the maximum price for the
same agricultural produce during this period is so high that without exactly
knowing what was the quality of agricultural produce, it would not be
possible to ascertain what was the price on the date of fire . To give an
example, Byadgi chillies have a price range of Rs. 3,200 per quintal to
Rs. 17,300 per quintal i.e. Rs.32 per kilogram to Rs.173 per kilogram.
There is no way for any Court to determine what the exact price would
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
have been without having the benefit of the quality of produce.
Unfortunately, even in the warehouse receipts there is no grada tion or
reflection of the quality of the produce.
54. We, therefore, affirm the decision of the National Commission
that the value of the goods as reflected in the warehouse receipts should
be taken to be the value on the date of fire. We may add that this value
is not very different from the median value for most of the products. We
rely upon the value given in the warehouse receipts becaus e that was
the value which was given by the farmers, not knowing that their product
is going to be burnt, and was accepted by the cold store, whi ch must
have known the value of the product in the local market and acce pted
by the Bank, which on the basis of such surety advanced the loan.
55. In view of the aforesaid discussion, we are of the view that
the Bank shall be entitled to recover the principal amount advanced by it
to each one of the farmers along with the simple intere st at the rate of
12% per annum from the date of advancing of loan till repayment thereof.
The insurance company is liable to pay the value of goods as reflected in
the warehouse receipts of each farmer along with simple interest at the
rate of 12% per annum from the date of fire till payment of the amount.
The dues of the Bank till the date of fire will have to be first determined
and, thereafter, the excess will be payable to the farmer along with the
interest.
56. To clarify the issue we take the example of the first fa rmer-
Thippa Reddy at Sr. No.1, in whose Account No.1425844005736, the
loan of Rs.10,00,000/- was sanctioned on 30.08.2011. The insurance
company has worked out his outstanding on the date of inciden t at
Rs.13,57,307/- whereas the value of the goods was 2,00,2000 as per the
warehouse receipt. If we calculate simple interest at the rate of 12%
per annum on Rs.10,00,000/- from 30.08.2011 till 14.01.2014, it works
out to Rs.2,84,712/- approximately. Obviously, if the farmer has paid any
amount towards the loan that will also have to be adjusted but for the
sake of clarification, we are assuming that no amount has bee n paid.
Therefore, with effect from 14.01.2014, the insurance company shall be
liable to pay interest on 10,00,000/- at the rate of 12% per annum to the
Bank and shall also be liable to pay a sum of Rs.7,17,288/- along with
interest at the rate of 12% per annum from 14.01.2014 till payment to
the farmer.
527
57. In view of the above, we dispose of the appeals with the
following directions:
1. That the insurance company shall be liable to pay to each one
of the farmers the value of his goods to be assessed as pe r the
rate mentioned on the warehouse receipts when the goods were
stored in the Cold Store in terms of our direction given hereinabove
along with interest at the rate of 12% per annum from the date of
fire till payment or deposit thereof.
2. That the Canara Bank shall file certified statements of accounts
before the Karnataka State Consumer Disputes Redres sal
Commission showing the principal amount of loan advanced to
each farmer and the amount due to the Bank by calculating simple
interest @ 12% p.a. up to 13.01.2014 i.e. payable by 14.01.2014
after adjusting the payments which the Bank may have received
in the loan account.
3. The Bank in the statement of accounts shall also set out the
amount due with the aforesaid rate of interest up to 30.04.2020.
4. The aforesaid statement be filed before the State Commission
on or before 02.03.2020.
5. That thereafter, the State Commission in each appeal shall
determine the amount payable to the farmer by calculati ng it in
terms of the clarification given above i.e. after adjusting the amount
due to the Bank as on 14.01.2014. This exercise be completed on
or before 31.03.2020.
6. Out of the aforesaid amount, the Insurance Company shall pay
the amount of loan along with simple interest at the rate of 12%
per annum from the date of advancement of loan to the date of
payment directly to the Bank.
7. Thereafter, the insurance company shall deposit the amount
payable to the farmers with the State Commission on or be fore
30.04.2020.
58. All appeals are disposed of in the aforesaid terms. N o order
as to costs. Pending application(s), if any, shall also stand(s) disposed of.
Divya Pandey Appeals disposed of.
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]