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The New India Assurance Company Limited v/s M/s Polycap Industries Through Sri Vinod Kapoor, Proprietor

    FIRST APPEAL No. 93 OF 2008

    Decided On, 05 July 2010

    At, National Consumer Disputes Redressal Commission NCDRC


    For the Appellant : S. L. Gupta, Advocate. For the Respondent : Dhananjay Shahi, Advocate.

Judgment Text

Anupam Dasgupta

This appeal by the New India Assurance Company Limited challenges the order dated 13.11.2007 of the Delhi State Consumer Disputes Redressal Commission (in short, ?the State Commission?), Delhi in complaint case no. 355 of 1998. By this order, the State Commission held that the surveyor had erred in assessing the value of the insured stocks and machinery of the respondent proprietary concern which were damaged by the fire that broke out in its business premises in the night of 27.02.1997. By using some of the figures adopted by the surveyor in arriving at his assessment, the State Commission held that the indemnifiable loss was Rs. 12, 17,309/- (as against the sum of Rs. 4, 44,102/-, assessed by the surveyor) and directed the appellant to pay the balance sum along with Rs. 50,000/- as compensation towards mental agony, costs, etc.

2. The facts of the case are mostly undisputed. The respondent concern was engaged in manufacturing printed polythene bags for its customers. It had obtained a fire policy ?C? from the appellant for the period 09.01.1997 ? 08.01.1998. In the night of 27.02.1997, a fire broke out in the mezzanine floor store room of the factory, due to electrical short-circuit. A large part of the raw material and finished stocks as well as some machinery (mainly printing cylinders) were severely damaged. The proprietor of the insured concern filed a claim of Rs. 14, 65,650/-. The surveyor appointed by the appellant assessed the payable loss at Rs. 4, 44,102/-. The insured accepted the payment of Rs. 4, 32,972/- offered finally by the appellant and signed a discharge certificate dated 17.09.1997 for the said amount in the presence of the Chief Manager of Jammu and Kashmir Bank, Azadpur Branch to which the stocks, etc., were hypothecated. The insured, however, wrote a letter dated 10.11.1997 to the appellant?s Branch Manager concerned protesting against the low amount of payment vis a vis his claim and requested reconsideration of the amount of loss assessed. He also wanted to know the basis on which the payment had been worked out. When there was no reply to this letter, the insured issued a legal notice dated 27.01.1998 to settle the claim for Rs. 10, 35,678/-. It was then that the insurer wrote back under its letter of 04.02.1998 conveying the bare details of the calculations leading to the assessed amount of Rs. 4, 44,102/- and the actual amount paid, i.e., Rs. 4, 32,972/- (after deduction of additional premium payable, etc.). Thereafter, the insurer also sent a reply dated 07.04.1998 refuting the contentions in the complainant?s legal notice. This led the insured (hereafter, ?the complainant?) to file the complaint on 26.11.1998, with the result mentioned above.

3. We have heard Mr. S. L. Gupta, learned counsel for the appellant and Mr. Dhananjay Shahi, learned counsel for the complainant/respondent and perused the documents on record. Mr. Gupta has asserted that the complainant could not have filed this complaint having accepted the payment offered by the insurance company in full and final settlement of his claim. Secondly, according to Mr. Gupta, the State Commission had misread the survey report in arriving at the amount of loss of stocks. On the other hand, Mr. Shahi has argued that the acceptance of the payment was under duress, because of the financial pressures that the complainant was facing at the relevant time and his letter of November 1997 to the insurer was proof of this. Hence, the complaint was maintainable in view of rulings of the Apex Court as well as this Commission. Moreover, the assessment of the surveyor did not do justice to the complainant inasmuch as it adopted the book value of stocks in arriving at the extent of underinsurance and yet rejected the same while working out the value of damaged stocks.

4. In our view, there are only two issues for determination in this case: (i) whether the complainant has alleged and established that the discharge voucher signed by him (and also witnessed by the Chief Manager of the Bank to which his insured stocks were hypothecated) was under duress/coercion; and if the answer to this question is in the affirmative, (ii) whether the surveyor?s assessment of the loss suffered by the complainant was justified.

5. Though the complainant alleged in his complaint that his signature was obtained on a blank form (of discharge voucher) before releasing the amount, this story must be rejected outright for the simple reason that had this been so, the complainant (an educated, small industry owner) would not have sat quietly for nearly two months since 17.09.1997 (when the discharge voucher was made out) to write to the insurer on 10.11.1997 and, in any case, he would not have failed to mention this in that letter had the allegation been true. Further, that the Chief Manager of the Jammu and Kashmir Bank, Azadpur Branch (to which the complainant?s stocks, etc., were hypothecated) signed the discharge voucher on the same date also adds to the unlikelihood of this allegation of the complainant. However, from the content of the letter dated 10.11.1997, it is obvious that the insurer obtained the complainant?s signature on the discharge voucher without giving him the full details of the calculations and, more important, the basis of the valuations adopted by the surveyor (and the insurer). Even in the highly belated reply dated 04.02.1998 (after receiving the complainant?s legal notice at that), the insurer conveyed only the arithmetical details of the calculations of the surveyor (and its own regarding premia deductions), not the basis of his assessment of loss, deductions on account of underinsurance, etc. Despite the insurer?s protestations that the details of the assessment had been discussed with the complainant, we find it difficult to accept that someone who had suffered a loss of over Rs. 10 lakh according to his claim would voluntarily accept a payment of just about Rs. 4.30 lakh. In our considered view, the complainant could not have accepted this, much smaller payment voluntarily unless he was in dire financial difficulty due to the losses on account of the fire because of which he was left with no alternative but to accept the much smaller payment in so-called full and final settlement of his claim. This acceptance was thus under duress and hence the complainant was entitled to file a consumer complaint challenging the validity of the assessment. This view is in conformity with the Apex Court?s decision in the case of United India Insurance v Ajmer Singh Cotton and General Mills and Others [(1999) 6 SCC 400]. The State Commission ought to have examined this aspect, if necessary by calling for additional evidence/documents, which unfortunately it failed to do altogether. It instead passed an order of questionable basis regarding the amounts.

6. This brings us to the surveyor?s report. We find this report not entirely impartial on two counts.

(i)(a) First, the surveyor explicitly acknowledged, ?Our representative verified the books of accounts of M/s Polycap Industries for the period 1st April ?96 to 27th February ?97. The Books of Accounts verified by our representative were sales register, purchase register, general ledger, etc. The Trading Account of M/s Polycap Industries for the period 1st April ?96 to 27th February ?97 corroborated with the books of accounts maintained by the insured.? On the basis of the said books of accounts and trading account, the surveyor went on to assess the adequacy of the insurance amount vis a vis the stocks held on 27th February 1997 and concluded that there was underinsurance to the extent of 25.65%.

(b) However, when it came to ascertaining the value of the damaged stocks on the date of the peril (27th February 1997), the surveyor had the following reasoning:

?As abovementioned, the Trading Account of M/s Polycap Industries duly certified by their Chartered Accountant for the period 1st April ?96 to 27th February ?97 showed a closing stock of Rs. 21, 23,920/-. The value of sound stock as per our physical inventory obtained by our representative on 1st March ?97 showed sound stock of Rs. 9,24,270/-. Accordingly, the amount of loss was claimed by the insured as follows:

Closing stock of M/s Polycap Industries

As on 27th February ?97 as per Trading Rs. 21, 23,920

Account for the period 1st April ?96 to

27th February ?97, duly certified by the

Chartered Accountant

Less: Value of sound stock as per physical

Inventory made by our representative as on Rs. 9, 24,270

1st March ?97 (Annexure ?A?)


Rs. 11, 99,650


However, this amount claimed by the insured appeared to be very excessive considering the salvage and debris of the fire.

Thus we based our assessment on the basis of physical inventory of damaged stock taken by our representative on 1st March ?97.? [Emphasis supplied]

(c) Thereafter, the surveyor went through a convoluted exercise of burning 10 kg of undamaged raw material to obtain 7.5 kg of burnt debris (in the shape of solid lump) and applying the ratio of 10/7.5, assessed the quantity of damaged stock from the weight of solidified lumps left after the fire and sticking to the walls and floor of the store room. Thereafter, assuming certain ratios of raw material, finished stocks and wastage from visual inspection and their proportions in the inventory of sound stocks and then using their unit value rates as per the invoices, the final value of the damaged stock was calculated at Rs. Rs. 5, 26,754/- after deducting the value of dead stock @ 5%. In other words, the value of the damaged stocks was brought down from the audited book value of Rs. 11, 99,650/- to Rs. 5, 26,754/-, a reduction of more than 50%.

(d) In our view, this methodology adopted by the surveyor was both illogical and partly against its own observations. Having found the books of accounts and the audited trading account of the insured in order, the surveyor could have gone by the said accounts in determining the value of the damaged stock. Or, if he suspected the books of accounts, he should not have used the same book figures to ascertain if there was underinsurance. Just because the value of the damaged stock at Rs. 11, 99,650/- , derived from the books of accounts (viz., total value of the stock on hand as on the date of the peril - Rs. 21, 23,920/-) and the value of the undamaged stocks as found/verified by the surveyor?s own representative (Rs. 9, 24,270/-) was, in the opinion of the surveyor, ?very excessive?, it did not mean that the surveyor could choose whatever was the worst case for the insured. If the surveyor wanted to go entirely by his own convoluted method of determining the value of the damaged stock, the least he could have done in fairness and equity was to assess the degree of underinsurance on the basis of the two sets of figures he depended on, viz., his own estimate of the value of the damaged stock, viz., Rs. 5, 26,754/- and the value of sound stocks (also according to the surveyor?s own verified figures) of Rs. 9,24,270. These would have added up to Rs. 14, 51,024/-. In that case, there would have been no underinsurance, the sum assured for stocks being Rs. 15 lakh in all.

(ii) Secondly, in respect of the assessed value of damaged machinery, namely printing cylinders, the only reason that the surveyor gave in his report for adopting a depreciation of as high as 50% across the board was the sentence, ?Most of the cylinders damaged in the fire were purchased by the insured from 1993 onwards.?[Emphasis supplied]. If these cylinders were purchased from 1993 onwards, the least the surveyor should have acknowledged was that some were purchased close to the year of the fire, i.e., 1997. In any case, it was not beyond the surveyor?s ability to ascertain from the complainant the number of cylinders purchased from year to year since 1993. It was also not beyond the normal ability of such an energetic surveyor (who could persuade a manufacturer to bring down his quotation for new cylinders from Rs. 142/- per inch to Rs. 105/- per inch) to ascertain the average life in years of such cylinders and base his estimation of depreciation on that authentic information, instead of applying the flat rate of 50%. We are thus unable to accept the logical validity of treating all damaged cylinders by the same yardstick in terms of depreciation.

7. The net result of the foregoing discussion is that the assessment of loss by the surveyor cannot be accepted in its entirety. However, the question remains as to how much more ought to be allowed as the amount payable to the complainant towards his insurance claim. Keep

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ing in view the amounts disallowed by the surveyor, we are of the opinion that the interest of justice and equity would be adequately addressed if a sum of at least Rs. 2 5 lakh on account of damaged stocks and another Rs. 0.50 lakh on account of damaged machinery (cylinders), in all Rs. 3.00 lakh is allowed as the additional amount payable ab initio. This additional amount should have been paid right at the time of settling the claim, i.e., 10th September 1997 and should, therefore, carry reasonable interest since that date till payment. 8. As a result, the appeal is partly allowed and the order of the State Commission is set aside. The insurance company is, however, directed to pay to the complainant a sum of Rs. 3.00 lakh along with interest @ 9% per annum from 10th September 1997. In the course of these proceedings, the insurance company was directed to deposit Rs. 4 lakh with the State Commission and the complainant was allowed to withdraw 2 instalments of Rs. 2 lakh each against restitution security. The insurance company shall, therefore, work out the balance amount, if any, payable to the complainant according to these directions after taking cognisance of the dates of withdrawal by the complainant and complete the payment process within 4 weeks from the date of this order. Conversely, if any amount is found to be due from the complainant, he shall refund the amount, without interest, to the insurance company within the same period. No costs.