Ammireddy Oils Ltd vs ORIENTAL INSURANCE CO LTD

THIS appeal is directed against the order passed by the Andhra Pradesh State Consumer Disputes Redressal Commission, Hyderabad in C.D. No. 84 of 1994 dated

1.2002. THE State Commission dismissed the complaint, yet went on consider the loss, and assessed the claim of the complainant/appellant by holding that the complainant/appellant was entitled to claim the loss of 219 M.T. of de -oiled bran at the rate of Rs. 2,000 per M.T. after deducting policy excess at 20%. 2. Dis -satisfied with the order passed by the State Commission, the present appeal has been filed claiming compensation for 685.39 M.T. of de -oiled bran lost in fire at the rate of Rs. 2,028 per M.T. with interest @ 21% and cost of the appeal and the complaint. Facts which have given occasion to filing this appeal are as follows: THE appellant company has been carrying on the business of processing of rice -bran and manufacturing rice -bran oil and de -oiled bran (for short DOB). On 20.8.1991, the complainant/appellant insured several items of raw materials as well as finished stock like rice -bran, DOB, Rice bran oil, gunnies etc., with the respondent for Fire Policy -C, for a total sum of Rs. 2,80,10,000 by paying a sum of Rs. 1,30,407 towards premium. THE policy was valid for one year from 9.2.1991. THE appellant paid an additional premium of Rs. 14,510 for coverage of stock under Spontaneous Combustion Clause which reads as under: ''....notwithstanding what is stated in the printed conditions of the policy to the contrary that the insurance under (the 1, 2, 5 and 6 items of) this policy shall extend to include loss or damage by fire only or to the property insured caused by its own fermentation, natural heating or spontaneous combustion.''

ON 5.9.1991, the appellant/complainant entered into an agreement to sell the DOB to M/s. Alfred Toepfer (India) Ltd., the broker for M/s. Alfred C. Toepfer International Gmbh in Hamburg for sale of 1,000 M.T. of De -oiled bran @ US $ 52.00 per MT and agreeing to take delivery by 25.11.1991.

THE fire accident took place on 21.12.1991. The appellant claimed that he suffered a loss of 685.39 M.T. of de -oiled bran and accordingly he preferred a claimed for Rs. 14.80 lakhs. But, the Insurance Company vide their letter dated 12.11.1992 accepted the claim of the complainant only to the extent of Rs. 2,00,087. The complainant being dis -satisfied with the amount offered invoked Clause 13 of the conditions of the policy for seeking arbitration and by letter dated 21.1.1993 nominated Sri Justice Ramanujulu Naidu as arbitrator. Respondent/Insurance company also appointed one Sri Krishna Brahmam, Advocate, Kakinada as Arbitrator. Justice Naidu fell sick and expired in May, 1993. The complainant nominated S.R. Ashok in place of Sri Justice Ramanujulu Naidu and intimated the insurance company as well as Sri Krishna Braham. In the letter dated 4.12.1992, the respondent informed the complainant that out of 685.39 MTs, a deduction of 219 MTs was made for the de -oiled bran lost in the cyclone of May, 1990 and out of the remaining 466.38 MTs, a deduction of 25% was made being the loss occurred prior to the spontaneous combustion and respondent had fixed the value at Rs. 780 per MT being the cost of the manufacture of de -oiled bran arrived at on the basis of the annual report of the company for the year 1990 -91.

ON 17.12.1993, the complainant was informed by the respondents that the appellant has no insurable interest for the claim on the property damaged. Consequently, the complainant filed the complaint preferring the claim as aforesaid.

ORIENTAL Insurance company contested the matter by denying that 685.39 MTs of de -oiled bran was lost by claiming that the material had already been sold and as such, the complainant had ceased to have any insurable interest in the property affected in the fire. They offered to settle the claim at Rs. 2,00,087 based on the report of the Surveyor. They made an offer of settling the claim of Rs. 2,00,087. It was then revealed that the goods had already been sold and the complainant ceased to have insurable interest by virtue of the material having been sold already. The offer became infructuous in view of the said sale. By virtue of the sales effected the buyer became owner of the goods and the complainant ceased to be the owner of the goods. The State Commission dismissed the complaint after considering the evidence led by the parties and decided the matter as mentioned hereinabove.

FEELING aggrieved by the said order, the appellant has filed this appeal.

HAVING heard the parties Counsel at length, we feel that the following points need our consideration. (a) Whether in view of the order received property in de -oiled bran under the Contract of Sale stood transferred to M/s. Alfred C. Toepfer International Gmbh in Hamburg and the appellant had not even lien of unpaid seller? (b) Whether the de -oiled bran had lost in value before spontaneous combustion and loss suffered would not be covered by the policy? (c) Relief. Point No. 1: In so far as this point is concerned, the complainant as per Annexure A -4 dated 5.9.1991, undisputedly received order to sell 100 MTs or 5% more or less at buyers option Indian de -oiled Rice bran Extraction FAQ of continuous plant production containing not less than 16% Oils and Albuminoids combined, Maximum 5% Sand and/or Silica; Maximum 12% Moisture, Maximum 14% Fibre and free from weevils and lumps. The price settled was 52 US $/MT of 1000 kilos. Shipment was to be made by 25.11.1991 at buyers option. Buyer was required to be given approx. 14 days clear notice of ships readiness prior to shipment. The payment was to be made Cash against documents on presentation at Deutshe Bank, Tulsiani Chamber, Nariman Point, Bombay - 400 021 within seven bank working days provided seller has submitted two complete sets of non -negotiable documents to M/s. Alfred C. Toepfer (India) Export Pvt. Ltd. Bombay -400 021.

ONE of the most important term of agreement was if seller fails to deliver the entire quantity contracted and/or fails to deliver the quantity rejected at the port of loading, the seller was supposed to pay to the buyer dead freight at ruling contract rate and default price on the date of sailing of the vessel for the quantity not delivered.

BEFORE proceeding further to decide impact of the above mentioned order on the part of ownership of the goods, it would be useful to refer to the definition in terms ''Sale and Agreement to Sell'' given in Sub -sections (3) and (4) of Section 4 of the Sale of Goods Act, 1930 which reads as under: 3. Where under a contract of sale the property in the goods is transferred from the seller to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place, at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell. 4. An agreement to sell becomes a sale when the time elapses or the conditions are fulfilled subject to which the property in the goods is to be transferred.'' Here, it would be worthwhile to note the nature of the goods. Sub -section (7) of the Sale of Gods Act defines the definition of the goods, which reads as under: 7. Goods perishing before making of contract -Where there is a contract for the sale of specific goods, the contract is void if the goods without the knowledge of the seller have, at the time when the contract was made, prished or become so damaged as no longer to answer to their description contract.

THE different kinds of goods have also been defined in Sub -sections (1), (2) and (3) of Sections 6 and 14 and they read as under: 6. Existing or future goods -(1) The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or future goods. (2) There may be a contract for the sale of goods the acquisition of which by the seller depends upon a contingency which may or may not happen (3) There by a contract of sale the seller purports to effect a present sale of future goods, the contract operates as an agreement to sell the goods. 14. Implied undertaking as to title, etc. -In a contract of sale, unless the circumstances of the contract are such as to show a different intention there is - (a) an implied condition on the part of the seller that, in the case of a sale, he has a right to sell the goods and that, in the case of an agreement to sell, he will have a right to sell the goods at the time when the property is to pass; (b) an implied warranty that the goods shall have and enjoy quiet possession of the goods; (c) an implied warranty that the goods shall be free from any charge or encumbrance in favour of any third party not declared or known to the buyer before or at the time when the contract is made. (Emphasis supplied)

IN this regard, it is required to be considered whether the property in the goods is to be transferred under the agreement to sell and when the property in the goods was intended to pass. For this purpose, Sub -sections 18 and 19 of the Sale of Goods Act provide as under : Goods must be ascertained -Where there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained.

PROPERTY passes when intended to pass -(1) Where there is a contract for the sale of specific or ascertained goods the property in them is transferred to the buyer at such time as the parties to the contract intend to be transferred. (2) For the purpose of ascertaining the intention of the parties regard shall be had to the terms of the contract, the conduct of the parties and the circumstances of the case. (3) Unless a different intention appears, the rules contained in Sections 20 to 24 are rules for ascertaining the intention of the parties as to the time at which the property in the goods is to pass to the buyer. (emphasis supplied) 18. In the aforesaid light, it is evident that 1000 MT of de -oiled bran was required to be produced in terms of the order placed while there was loss of 685.39 MT. Consequently, in terms of the aforesaid provisions, the goods were not in deliverable stage and the future goods which were required to be manufactured by the seller. After fulfilling obligations under other agreement to sell the entire de -oiled bran did fall in the category of specific goods for it was identified by the appellant and was intended to be sold in terms of agreement to sell. 19. Since as against 1000 MT, the de -oiled bran, there was only 685.39 MT, it was less than the requisite quantity. Consequently, there was no occasion of separation for stock sold and since de -oiled bran was being manufactured for the purpose of agreement to sell separation or non -separation of the stock which was required to be sold had lost all its value. However, seeing the intention it is apparent that the goods were ascertained for the purpose of sale.

IN terms of Section 19, the property even in specific or ascertained goods would be transferred to the buyer at such time as the parties to the contract intend it to be transferred. In this regard, it is notable that shipment of the de -oiled bran was to be made by 25.9.1991 at buyers option. It was required to be analysed as per GAFTA contract, by a Surveyor to be appointed by the buyer. Further, pre -shipment analysis was to be conducted at port. It is to be noted that one of the conditions was that if seller -appellant failed to deliver the entire quantity contracted and failed to deliver quantity at the port, the seller -appellant was supposed to pay to the buyer on the date of sailing of vessel for the quantity not delivered. It would mean that at the time of shipment of the goods, the losses which were likely to be suffered by the purchaser were to be considered. It would also mean that if by ascertaining goods which were not shipped, the property would not stand transferred to the purchaser. Had the intention being otherwise, then instead of default price on the date of selling of the vessel, the default price on the specific date prior to the date would have been fixed. In this regard, it may be mentioned that Section 20 of the Sale of Gods Act would not be attracted for the property in the goods would stand passed when the contract was made for following reasons. Firstly, those gods were to be specifically manufactured for the purchaser. They did not exist at the time of contract. Secondly, they were not in deliverable state as they were yet to be brought to the port to make them in deliverable state as were required by Section 21 of the Sale of Goods Act. In terms of Section 22, the seller was bound to weigh, measure the de -oiled bran for the purpose of ascertaining the quantity as well as the price and in terms of Section 22 of the Sale of Goods Act, the property would not pass until such act or thing was done and the buyer had noticed thereof. Thirdly, since de -oiled bran was not in deliverable stage, the question of unconditional appropriation to the contract, either by the seller with the assent of the buyer or by the buyer with the assent of the seller, the question of transfer of interest in the goods thereupon would not arise to indicate that the property had passed on to the buyer. Fourthly, since de -oiled bran was still in the manufacturing stage, such assent had to be expressed and expressed assent could not have been given to suggest that appropriation had been made. Besides, de -oiled bran was not delivered to the carrier in pursuance to the contract. Fifthly, the goods for the purpose of transmission to the buyer were not given after requirement and analysis at the port of loading there could not be any unconditional appropriation of the goods of the contract. Further, the action to reserve or not to reserve was still required to be decided, it could not be said that the goods were in deliverable stage. Thus, it could be said to be only an agreement to sell.

IT may further be noticed that Section 46 provides for unpaid sellers rights. In this regard Sections 46 and 47 read as under: 46. Unpaid sellers rights -(1) Subject to the provisions of this Act and of any law for the time being in force, notwithstanding that the property in the goods may have passed to the buyer, the unpaid seller of goods, as such, has by implication of law - (a) a lien on the goods for the price while he is in possession of them - (b) in case of the insolvency of the buyer a right of stopping the goods in transit after he has parted with the possession of them; (c) a right of re -sale as limited by this Act. (Emphasis supplied) Where the property in goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies, a right of withholding delivery similar to and co -extensive with his rights of lien and stoppage in transit where the property has passed to the buyer. 47. Sellers lien -(1) Subject to the provisions of this Act, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely - (a) where the goods have been sold without any stipulation as to credit; (b) where the goods have been sold on credit, but the term of credit has expired; (c) where the buyer becomes insolvent. (2) The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. (Emphasis supplied)

THERE is no dispute about the fact that the insured was in possession of the goods in question, the question of payment in terms of the agreement could not arise, for neither the documents were sent nor the de -oiled bran was delivered. The property could not be said to have passed on to the buyer. An unpaid sellers right to withholding delivery similar to and co -extensive with his rights of lien and stoppage in transit even in these cases where the property has passed to the buyer. Besides, one of the most important term of agreement was that if seller fails to deliver the entire quantity contracted and/or fails to deliver the quantity rejected at the port of loading, the seller was supposed to pay to the buyer dead freight at ruling contract rates and default price on the date of sailing of the vessel for the quantity not delivered.

SEEING the condition of the payment, it is apparent and further seeing neither the payment nor the delivery was made for the de -oiled bran and was not brought to Kakinada it would not be possible to say that all the rights in de -oiled bran have been transferred. Since, de -oiled bran was much less than 1,000 MT, it could not be said to be even ready for delivery. But, in view of the pleadings in the complaint, it was certainly being manufactured in connection with the said transaction.

IN so far as submission of the learned Counsel of the respondent to the effect that in view of agreement, the complainant has lost his insurable interest is concerned be relied upon Birkbeck Permanent Benefit Building Society, Re, Official Receiver v. Licence Insurance Corporation, (1913) 2 Ch.D 34. It does not help the respondent as would be evident from the following observations: ''An insurance against fire was effected on a granary with kiln for drying corn attached, and the third condition endorsed on the policy stated, that unless the trades carried on in the insured premises were accurately described, and if a kiln or any process of fire heat were used and not noticed in the policy, the policy should be void; and the sixth condition is stated that if the risk to which the insured premises were exposed should be by any means increased, notice should be given to the office, and allowed by endorsement by the policy, otherwise the insurance is to be void. A vessel laden with a cargo bark having sunk near the premises of the insured, he allowed it to be dried at his kiln, gratis, and the consequence of the fire at the kiln during this process, the premises were burnt down. It was found by the jury, that the trade of drying bark is more dangerous than that of drying corn. It was held that: 1. the use of the kiln for a different purpose than that intended at the time when the policy was made, was not an inaccurate description within the third condition; 2. this gratuitous use of kiln by a third person, was not such an alteration of the business and increase of the risk as required to be notified to the office within the sixth condition; 3. there was no warranty that nothing but corn should be dried in the kiln; 4. there was no negligence on the part of the insured, which would vacate the policy.'' It is evident that in this case the goods were not sold and were also not in the possession of the purchaser for want of delivery. The amount has also not been paid. As such, neither the interest in the property had been transferred nor the vendor had lost his lien over the property. As such, aforesaid observations are not going to help the respondent. Similarly, the case of Bartlett v. Homles, (1853) 22 LJCP 182, is not going to help in view of the specific provisions under the Sale of Goods Act.

THERE could not be any dispute about the proposition particularly, in terms of judgment in State of U.P. v. M.K. Anthony, 1985 Cri LJ 493, that falsus in uno falsus in omnibus, is not a sound rule for the reason that hardly one comes across a witness whose evidence does not contain a grain of untruth or at any rate exaggeration, embroideries or embellishments. One may add that one has to keep margin for the difference what has been actually seen; what has been believed to be true after seeing partly; and what has been said immediately after the incident by those who claimed to be present and was believed to be true by the witness depending on circumstances in which the witness is placed.

THE submission that an admission of execution of agreement to sell would amount to an admission about the sale would be stretching the admission too far and beyond reasonable limits. It could not be said on this basis that property rights in the goods had been passed on to M/s. Alfred Toepfer India Pvt. Ltd. It may further be mentioned that Surveyor has reported as under: ''Inspection: As the affected bags are thrown helter skelter and a part of them burnt open, spilled away and consist of some rough husk bags, we would not able to quantify these stocks either on count basis or on volume basis. Hence, quantification on these affected stocks is relied upon the books of records, accounts and other registers as verified by our joint Surveyors (Chartered Accountants). Verification: As verified by the Chartered Accountants the quantity of D.O.B. stock as on date of loss in the fire affected godown is 466.390 M. Tonnes. Costing/Valuation: Based on the annual report of the company the cost of production of D.O.B. on works cost basis as per our joint Surveyor calculation is arrived at Rs. 780 per M.T.

WHAT was deposed by P.W. 1, V. Veerabhadra Rao, who is Administrative Officer -cum -Manager in his re -examination as well as further cross -examination, has not been properly appreciated. In the re -examination the said witness deposed; ''Though we have entered into an agreement with Alfred Toepfer India Ltd. for the supply of 750 metric tonnes to be shipped to Rotterdam/any GCA Country, but it was not lifted''. In the further cross -examination, the said witness deposed: ''We have filed the agreement.'' Thus, what the said witness meant and deposed was that the appellant had just entered into agreement with the said foreign buyer. Further the impact of the agreement in writing could not be modified by this oral statement.

IN the light of aforesaid discussion, we hold that there was only an agreement to sell and by no stretch of imagination, it is possible to hold that the complainant has lost all rights including insurable rights in the property insured. This point is decided accordingly. Point No. 2 Just decision on this point would depend on the finding about the risk covered under the insurance policy relating to spontaneous combustion.

THERE is no dispute about the fact that in respect of spontaneous combustion an additional sum of Rs. 14,510 was paid and consequently, the contention of the Insurance Company should fail. The question whether the matter in hand is covered by spontaneous combustion or not may be seen in the light of recent judgment of this Commission in the case of M/s. Murli Agro Products Ltd. v. M/s. Oriental Insurance Company Ltd., I (2005) CPJ 1 (NC), O.P. No. 253 of 1999 decided on 10.12.2004.

UNDISPUTEDLY , the damage was caused as per the Surveyors report due to spontaneous combustion on account of Oxidation - Exothermic heat in absence of radiation or conduction. The heat would accumulate and would get hotter and hotter. The oxidation will be produced and higher temperature would reach to the point of ignition by the substances. It would begin to burn without the application of any more heat or any flame, a fire would broke out. The policy might indicate by fire only. But, if it also provides cover for loss or damage to the property insured ''caused by its own fermentation, natural heating or spontaneous combustion'', the Insurance Company could not claim that the loss was not covered. The submission that loss caused by spontaneous combustion was not covered, would be contradicted by acceptance of additional premium of Rs. 14,510.

THE present case is much better than the case in M/s. Murli Agro Products v. Oriental Insurance Co. Ltd. (supra), it was held in that case by this Commission that spontaneous combustion was covered by recovery of additional premium. This aforesaid term was vague. Consequently, the benefit should be given to the insured and the imagined exclusion term must be read down so as to serve the main purpose of the policy that is to indemnify the damage caused due to fire, B.V. Nagaraju v. M/s. Oriental Insurance Co. Ltd., II (1996) CPJ 28 (SC)=I (1997) ACC 123 (SC)=(1996) 4 SCC 648.

THE appellant claimed and was reimbursed with regard to raw material i.e., 219 MTs. of rice bran and 44,000 gunny bags only. But the appellant was not fully indemnified in respect of De -oiled Bran, which is a finished product. According to the report of D.G. Prasad partner of Parisrama Surveyors, the fire took place due to dumping of stocks in one corner of the godown wall to wall and choking the ventilation grills also.

IN so far as external damage is concerned, the fire affected De -oiled bran bags, which were quantified at 466.390 MTs., and the additional cover granted with spontaneous combustion endorsement is in respect of covering the property, which subject to spontaneous combustion. An unusual view taken by the Surveyors was that extension endorsement though was spontaneous combustion also but it provided cover for loss or damage by fire only of or to the property insured caused by its own fermentation, natural heating or spontaneous combustion. If the policy covered the loss that caused by fire as well as caused by its fermentation and spontaneous combustion, the Insurance Company cannot escape the liability in respect of the loss of 25% of the damaged quantity as pre -ignition. We have no inhibition in accepting that there may be weight loss in the process of oxidation heating before reaching the final stage of spontaneous combustion. If loss due to spontaneous combustion is covered, it would also cover the aforesaid weight loss also caused in the process oxidation, heating, and reaching to the ignition point in the process of spontaneous combustion. Accordingly, this estimated loss of 25% relating to the damaged quantity as pre -ignition damage due to self -heating would be covered under the policy relating to risk of spontaneous combustion. As such, the claim of the respondent/Insurance Company for deduction of the amount by 25% pre -ignition damage was not justified.

IT may be mentioned that the State Commission has rightly held that without any material evidence from the side of respondent/Insurance Company that there was no justification for the opposite party in deducting 219 MTs. of De -oiled Bran from the quantity lost in the accident. In so far as assessment damage is concerned, it should not have been calculated @ Rs. 585 per M.T., particularly, in the face of the fact that loss assessed as per the joint Surveyors calculation was Rs. 780 per M.T. This is totally unreasonable to deduct 25% from the price on the one hand and to deduct further 25% from 466.390 MTs. on any logic. The appellant is, therefore, entitled to claim compensation @ Rs. 780 per M.T. for 466.390 M.Ts.

WE do not think that there is any reason for us to interfere with the amount of salvage or deduction of Rs. 2,500 for fire policy C excess for the fire peril.

THUS , the assessment is worked out as below: The total quantity of affected de -oiled bran stocks in this spontaneous combustion fire is M.Ts. Rs. 466.390 Loss on this considered damaged quantity of 466.390 M.Ts. of de -oiled bran at Rs. 780 as dis - cussed supra is Rs. 3,63,784.20 Less : Salvage of damaged quantity towards compost manure value on L.S. basis Rs. 2,000 No. Under -insurance : The sum insured on this affected item is Rs. 1.81 crores and the value at the time of loss is a max. of Rs. 2.724 lakhs Less: Fire Policy C Excess for the fire Peril for Rs. 2,500 Net adjusted loss is Rs. 3,58,284.20 Rounded off to Rs. 3,58,284. The appellant is also entitled to interest @ 9% p.a. seeing that the accident took place on 24.12.1991 and the Surveyor submitted the report on 20.10.1992. We feel that the appellant should get interest w.e.f. 1.1.1993 @ 9% p.a. The respondent, Insurance Company is directed to pay the aforesaid amount within a period of six weeks.

THE appeal is allowed accordingly. Parties are left to bear their own costs. Appeal allowed.