This revision petition has been filed by the petitioner Union Bank of India against the order dated 02.02.2015 of the State Consumer Disputes Redressal Commission, Karnataka (in short ‘the State Commission’) passed in Appeal No.126/2011.
2. Brief facts of the case are that complainant/respondent is a partnership firm carrying out the business of distribution of pharmaceutical products. Complainant obtained credit loan facility with opposite party and as per the condition of loan, stock-in-trade of the complainant were hypothecated to opposite party vide hypothecation agreement dated 21.07.2004. Bank used to deduct the premium amount regularly from the account of complainant and paid the same to insurance company. On 7.6.2008/8.6.2008, there was theft in the shop and goods worth Rs.6,58,647/- were stolen. Immediately, complainant lodged an FIR at Police Station. After the investigation, the police have submitted the final report to the Prl. Civil Judge and JMFC Raichur. As the stolen goods were not recovered, the complainant wrote a letter dated 21.4.2009 to opposite party and urged to pay a sum of Rs.6,58,647/- through insurance company. Complainant came to know that opposite party had failed to renew the insurance policy and as such, the insurance was not in force as on the date of commission of theft. The complainant then filed a consumer complaint before the District Forum against the opposite party Bank. District Forum vide order dated 30.08.2010 dismissed the complaint as there was no deficiency in services on the part of the opposite party. Aggrieved with the order of the District Forum the complainant preferred an appeal before the State Commission. State Commission vide its order dated 02.02.2015 allowed the appeal of the complainant and directed OP to pay a sum of Rs.6,58,647/- with interest @ 12% p.a.
3. Hence the present revision petition.
4. Heard the learned counsel for the parties. The learned counsel for the petitioner stated that as per hypothecation agreement it is the duty of the loanee that he should get the hypothecated goods insured as per Clause 10(i) of the hypothecation agreement, which reads as under:-
“10 (i) The Borrower shall at all times during the continuance of this security and from time to time insure the said goods and keep them insured against loss or damage by fire, lightening, riot, civil commotion, strike or any other risks as may be required by the Bank or by law in the joint names of the Borrower and the Bank with insurance companies previously approved of in writing by the Bank to the extent of at least 10% in excess of full marketable value of the said goods as determined by the Bank in its sole discretion and punctually pay the premia due for such insurance and that the cover note/s, insurance policy/polices or certificate/s shall be delivered to the Bank.
5. The clause 10(ii) of the Hypothecation agreement reads as under:
“10. (ii) if the Borrower fails to effect such insurance the Bank may, but without being bound to do so, insure the said goods against any one or more of the aforesaid risks as may be deemed necessary by the Bank in its absolute discretion either in its sole name or in the joint names of the Borrower and the Bank and debit the premia and other charges to such account or accounts as aforesaid.”
6. Learned counsel argued that from above clause it is clear that the bank will get the insurance if the borrower fails to insure the hypothecated goods. However, it is not the primary duty of the bank to get the hypothecated goods insured. The District Forum has correctly appreciated the facts of the case and the law involved in the matter and has rightly dismissed the complaint. The State Commission, however, has allowed the complaint observing the deficiency in service on the part of the bank. The bank is not the insurer and even if there is some deficiency on the part of the bank, insurance amount cannot be ordered to be paid to the complainant. Moreover, the loss has not been assessed by any surveyor and the State Commission has allowed the total claim of the complainant as asked by the complainant.
7. In support of his contention, the learned counsel for the petitioner referred to the following judgments:-
“1. HDFC Bank Ltd. Vs. Kumari Reshma & Ors., AIR 2015 SC 290.
2. Sutlej Industries Ltd. Vs. Punjab National Bank, FA No.306 of 2012, decided on 08.11.2017 (NC)
3. Union Bank of India & anr. Vs. M/s. Learning Spiral Pvt. Ltd. & Ors., RP No.1750 of 2017, decided on 30.07.2018.”
8. On the other hand learned counsel for the respondent/complainant stated that the bank was taking the insurance every year and was deducting the premium from the loan account of the respondent. However, the bank did not take the insurance policy after October, 2007 and theft occurred on June, 2008 and thus, the goods hypothecated were not covered under the insurance at the time of theft. As the bank was taking insurance for the hypothecated goods every year, it was expected of them to have taken insurance after 2007 also. The hypothecation agreement, though states that borrower will arrange for the insurance but, as the bank was arranging insurance on their own after deducting the premium from the loan account of the complainant, there was no occasion for the complainant to have taken the insurance independently. Otherwise also clause 10(ii) requires that if the borrower does not take insurance then the bank will take the insurance for the hypothecated goods. Thus, the bank has failed in its duty to take the insurance for hypothecated goods and the bank is liable to recoup the loss suffered by the complainant as a result of theft. The State Commission has rightly decided that there was deficiency in service on the part of the bank and the amount involved in the theft has rightly been ordered to be paid by the bank to the complainant.
9. In support of her contention, the learned counsel for the respondent referred to the following judgments:-
“1. Rajgarh Sehore Kshtriya Gramin Bank Vs. Ramgopal & Ors, III (2006) CPJ 300 (NC)
2. Shree Kalyan Ayurvedic Pharmacy Vs. Commercial Co-operative Bank Ltd., IV (2007) CPJ 127 (NC)
3. Corporation Bank Vs. Sandhya Shenoy & Ors., I (2009) CPJ 34 (NC).”
10. I have carefully considered the arguments advanced by the learned counsel for both the parties and examined the record. From the record, it is seen that the bank had taken the insurance in the year 2005 and premium was paid in October, 2005. Next year also the premium was paid in October, 2006 and the insurance was valid till October 2007. However, it seems that no premium has been paid after October, 2007 and theft happened in June, 2008 when the hypothecated goods were not covered under insurance. Clearly, the clause 10(i) of the hypothecation agreement casts duty on the borrower to take the insurance for the hypothecated goods in the joint name of the bank and the borrower. Thus, the primary duty to obtain the insurance of the hypothecated goods is of the borrower and Clause 10(ii) of the hypothecation agreement only provides that if the borrower does not obtain the insurance of the hypothecated goods as per clause 10(i), then the bank may, but without being bound to do so, insure the said goods. Thus, it is clear that the bank is not bound to get the hypothecated goods insured, but the bank in its interest may insure the said goods. Thus, two things are clear from clause 10 (i) & (ii). The first is that it is the primary duty of the borrower to obtain the insurance for the hypothecated goods and the second is that the bank has discretion to obtain the insurance for the hypothecated goods, if the borrower does not insure the same. In Syndicate Bank Vs. Nagarath Mechanical works and Anr. Appeal No.166 of 2006 decided on 31.05.2011, 2011 (3) CPC 376 (NC) this Commission observed that bank will not be liable for purchase of insurance policy on behalf of the borrower. Similarly in HDFC Bank Ltd. Vs. Kumari Reshma AIR 2015 SC 290, the Hon’ble Supreme Court held that if the borrower failed to insure the vehicle it was absolute fault of owner not the fault of the financer. In Central Bank of India Vs. Jagbir Singh Civil Appeal No.3645 of 2015 decided on 16.04.2015 the Hon’ble Supreme Court of India held that financer/bank is not liable for purchase/renewal of Insurance policy. Thus, even though in the year 2005 and 2006 the premium were deducted by the bank and paid to the insurance company to get insurance, however, in October, 2007 no premium was deducted by the bank and the insurance could not be taken. The complainant also did not bother to effect insurance from October, 2007 till June, 2008. Thus, complainant has also been negligent in the present case and the total responsibility cannot be loaded on the bank only.
11. I agree with the argument of the learned counsel for the petitioner that the bank is not the insurer and under Consumer Protection Act, 1986, the compensation is to be granted on the basis of the deficiency in service if any. This Commission in FA No.601 of 2012, State Bank of Bikaner & Jaipur vs. M/s. Jaishree Industries & Ors. Decided on 18.09.2018 (NC) has reduced the liability of the bank to Rs.8,00,000/- and liability of Insurance Company as nil in a case where the bank and the Insurance Company were held jointly liable to pay the insurance amount of Rs.36,89,345/- as the bank had not corrected the address of the work place.
12. Based on the above discussion, I find that the complainant has been equally negligent in insuring the hypothecated goods as per Clause 10(i) of the hypothecation agreement. Legally the bank is safe in the light of Clause 10(ii) of the hypothecation agreement. However, as the bank was taking insurance for the last two years, it was expected that the bank should have continued with the renewal of insurance. Thus, both the parties have been negligent in getting the hypothecated goods insured. In thes
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e circumstances, the bank cannot be asked to compensate the complainant for the total loss suffered, this is another matter that even this loss of Rs.6,58,647/- has not been assessed by any competent person like a surveyor. This being a case of contributory negligence, in my view, a compensation of Rs.2,00,000/- will be reasonable and sufficient. I also find no justification for awarding 12% p.a. interest on the amount of compensation. In my view, interest @8% p.a. shall be sufficient and reasonable. 13. The revision petition No.3027 of 2015 is thus, partly allowed and the petitioner bank is directed to pay Rs.2,00,000/- as compensation to the respondent/complainant instead of Rs.6,58,647/- as ordered by the State Commission. The bank shall also pay interest @8% p.a. on this amount of Rs.2,00,000/- from the date of filing of the complaint i.e. 18.05.2010 instead of 12% p.a. as ordered by the State Commission. This order be complied by the petitioner bank within 45 days of the receipt of this order. The bank will also pay Rs.20,000/- (rupees twenty thousand only) as cost of litigation to the complainant.