BHARAT ENTERPRISES vs NATIONAL INSURANCE CO LTD

THIS is a case of loss which occurred to a manufacturer and exporter of leather garments due to an accidental fire. The dispute falls in a narrow compass, pertaining to the assessment of the value of the salvage i.e. the leather goods affected by fire and water, after the accidental fire was doused by the fire force. Facts of the case:

THE facts of the case, in brief, are as follows: The complainant, M/s. Bharat Enterprises is engaged in the manufacturing and export of leather garments with factory at Okhla Industrial Area and godown for storage of finished/dressed leather at Karol Bagh, New Delhi. The Complainant had obtained a Fire Insurance Policy for a sum of Rs. 90 lakh for the period 21.3.1997 to 20.3.1998. On 27.4.1997, fire was caused by an electrical short circuit at their godown and the fire brigade controlled the fire after more than two hours. The fire and water used in extinguishment of fire damaged the stock of finished/dressed leather in the godown. The complainant had also informed the police station and sent a letter pertaining to the fire accident. The insurer was also informed of the accident.

The National Insurance company had appointed M/s. Bhadra & Associates Pvt. Ltd. for survey and assessment of the loss. The surveyors had advised them not to dispose of the salvage without their permission. The complainant had also submitted complete claims form to the Surveyors claiming a sum of Rs. 33,48,662.35 after deducting probable value of salvage. The Surveyor after sometime gave permission for disposal of the damaged stock/salvage which was sold by the complainant for a sum of Rs. 9,02,455. As there was delay in the settlement of the claim, the complainants reminded the insurance company to settle the claim through reminders in the months of July, August, October and November, 1997. The Insurance Company appointed another Surveyor i.e. M/s. Adarsh Associates. The second urveyor re -looked into the whole matter and came to the conclusion that the salvage value assessed by the complainant is very low. The second Surveyor held that the amount payable is Rs. 9,03,922 after deducting the value of the salvage as assessed by him namely Rs. 22,83,246. The Issue:

THE issue for decision is whether salvage value should be taken at Rs. 9.5 lakh or at Rs. 22,83,246 as assessed by the second Surveyor. Submissions of the learned Counsel for the Complainant:

LEARNED Counsel for the complainant submitted that the main issue to be determined is that of the value of the salvage. He pointed out the fire claim form submitted by M/s. Bharat Enterprises to support his contention which is reproduced as under: Articles destroyed or Damaged Value or property or articles damaged or destroyed at the time of the fire Value of salvage Amount claimed i.e. actual loss or deduction of salvage value (in Rupees) Finished/Dressed damageddue to fire 4,65,735.35 15,000.00 4.50,735.35 Finished/Dressed damaged due to watrer 34,39,400 5,41,473.00 28,97,927.00 33,48,662.35

On 21.5.1997, M/s., Bharat Enterprises wrote a letter to M/s. Bhadra and Associates Pvt. Ltd. The extracts of the letter is reproduced below: '' We bring to your kind notice that the damaged stock is fast deteriorating its originally (sic) and strength day -by -day. If you will find that our quotation is higher than their quotation which you have received. Kindly let us give(sic) permission whether we shift the damaged stock for refinishing or sale or not. If our quotation does (sic) not suitable than (sic) you can sell the salvage to some other parties or you can arrange to shift the salvage somewhere. This is for your immediate action.''

THE Surveyor has replied in the following words: '' This refers to salvage inspected by us at your godown relating to damage by fire and water on 27th April. You are allowed without any prejudice to dispose of the salvage on your own account as per your suitability.''

ACCORDINGLY , M/s. Bharat Enterprises sold the goods for Rs. ,02,255 as per their invoice dated 3.10.1997. Though the first Surveyor assessed loss at Rs. 28,41,854, the Insurance Company appointed another Surveyor who assessed salvage at Rs. 22.83 lakh and loss at Rs. 9,03,022. This paltry amount was offered by the opposite party by letter dated 11.7.2001 i.e. 3 years and one month after the complaint was filed before the National Commission. Even at this stage the opposite parties had concealed the basis on which the said amount had been arrived at. Even though the discharge voucher sent by opposite parties had been returned duly signed as part payment of the claim, the opposite parties have not yet paid the said amount. This shows there has been clear deficiency in service by the Insurance Company. 9. Learned Counsel further submitted that the complainant has tried to process the fire and water affected leather goods for export but it could not be done. They had to sell this to third party. They also submitted on affidavit to that effect: ''That in the course of business in the month of June, 1997, M/s. Continental Leathers received certain quantity of water damaged leather from M/s. Bharat Enterprises, A -110, Okhla Industrial Area, Phase -ll, NewDelhi -110020, enquiring if the said material can be re -processed and finished and the quality could be so improved as to make it suitable for the purpose of export by them. That M/s. Continental Leathers thoroughly examined the said material and found that the same could not be so re -processed and finished as to make it suitable for export purposes and accordingly advised M/s. Bharat Enterprises.''

THE first Surveyor has assessed loss at Rs. 28,41,854 and the second Surveyor unreasonably has reduced the same to Rs. 9,03,922. Hence he submitted that the following claims be honoured by the National Commission: 1. A sum of Rs. 28,41,854 being the amount of loss assessed by the first Surveyor as having been suffered by the complainants as a result of the said fire. 2. Interest @ 18% p.a. on the said amount of Rs. 28,41,854 from 27.4.1997 upto the date of institution of this action and thereafter upto the date of realization. 3. A sum of Rs. 1,00,000 being the compensation for harassment, mental pain and agony due to non -settlement of the claim despite continuous approach by the complainant. Submission of the learned Counsel for the Insurance Company:

THE learned Counsel for the insurance company submitted that the complainant had not come to the Commission with clean hands. They have sold the salvage to M/s. Continental Exports and subsequently this was bought by their sister concerns. He quoted from the report of M/s. Adarsh Associates: '' During our inquiries from Mr. Kathuria of M/s. Continental Leathers, he stated that the quality of leather in question could not be improved during refinishing and hence the insured M/s. Bharat Enterprises disposed of the entire quantity to them at Rs. 9,02,455 on 3.10.1997. Mr. Kathuria on our insistence identified all the sales transactions i.e. sales made at lower rates, from his records during or after November, 1997 upto early February and a statement has been prepared by Mr. Manoj Sharma, Accounts Manager of M/s. Bharat Enterprises and Mr. O.P. Kathuria in our presence on 7.5.1998 after scrutiny of books of Continental Leathers. On perusal of the same, it will be observed that M/s. Continental Leather has sold a quantity of 7,56,225 SDM (instead of 7,21,964 DCM) of damaged quantity purchased from M/s. Bharat Enterprises Leather for a total amount of Rs. 22,83,246. Insureds who are known as Leather Kings and are well established in the leather trade since long, could not explain why the involved quantity of leather sold by them at Rs. 9,02,455 to a third party could fetch them Rs. 22,83,246 in resale and why they being expert in leather trade could not use or realize a better price in direct sale''.

Accordingly he submitted that the salvage value has to be taken at Rs. 22,83,246 and what is payable to the complainant is Rs. 9,03,922. He also submitted that proprietors of M/s. Continental Leather are related to those of M/s. Bharat Enterprises and that they are common directors. This was vehemently denied by the representative of Bharat Enterprises who was present during the hearing. Rejoinder by the learned Counsel for the Complainant:

LEARNED Counsel for the Complainant, Mr. S.M. Tripathi quoted one of the paragraphs of survey report of Adarsh Associates: '' On further examination of the above referred statement prepared from sales records of M/s. Continental Leathers, it has been observed that out of above sale of water damaged quantity of leather nearly 25% quantity has been purchased at a lower rate by Ms. BL Leather Pvt Ltd., which is one of the sister concerns of the insured''.

(emphasis supplied).

HE stated that just to deprive the insurer this elaborate exercise is carried out by the second Surveyor. He also denied that of any relationship except business relationship exists between Bharat Enterprises and Continental Leathers. In any case the leather was unfit even after re -processing for export so the question of Bharat Enterprises buying back the leather does not arise. Findings: It is useful to analyse here the reports of the two Surveyors. The claim in this case is for Rs. 33,48,662. The complainant is a 100% export promotion unit and hence no home sales were being made. The first Surveyor has reported that the cause of the fire perhaps may be due to short -circuit and two fire engines participated in the fire fighting operations. Apart from the fire, goods were also affected due to water logging. The first Surveyor in his report has assessed the loss by calculating the number of the bags which were not affected by fire, those which were totally damaged and those which were partly damaged and those which were affected by water logging due to fire fighting. He has stated that: '' We have verified the relevant books and records relating to purchases of leather, issue, consumption and sales of leather and sales of finished garments and the stock register kept for the godown and a consolidated stock register maintained at Head Office/Works. A stock register was maintained for the godown where the finished leathers were stored.''

THE Complainant also enjoyed bills discounting limit of Rs. 2 crores. He has also reported that the stock damaged by water is also totally unfit for manufacturing garments for the purpose of export. On random verification of the water affected stock, it was found that the strength of the leather had deteriorated to a great extent. Fungus and moulds have developed which have been depicted. The salvage value after protracted persuasion with the insured has been determined at 25%, 30% and 40% of cost of the affected leather of the three categories. After detailed analysis, he has assessed loss at Rs. 28,41,855 as against the stock at the material time of fire at the insured godown was verified at 16,18, 135 Sq. DCM, the landed cost of which was verified at Rs. 75,53,837. He has also stated that consumption of leather and production and sales of finished garments were reconciled. Further he has enclosed an Auditors report to support this view.

AS against this, in their investigation and reassessment report M/s. Gupta and Aggarwal have tried to pick holes in the report of M/s. Bhadra and Associates and have concentrated on the salvage value. They say that their report on the salvage value is based on their experience and after making inquiries from the experts in the trade who have certified that the water affected leather can be reprocessed by treating with various chemicals and by providing recoating of pigments, etc. depending upon nature and extent of damages. Who are the experts? Whom they have contacted? For this the Surveyor has not produced any affidavit from any well -known expert to support their contention. A perusal of their report leads us to conclude that it is more a fault finding report rather than a fact finding one. They have not given cogent reasons to disprove the assessment of the first Surveyor. As has been pointed out earlier, the main issue to be determined is about the value of salvage. It is clear from the records and submissions that first Surveyor has permitted the complainant to dispose of the salvage i.e. the leather goods affected by water and fire. Salvaged material was sold to M/s. Continental Leathers for Rs. 9,02,455.

THE insurance company has handled this case in a lackadaisical manner. The insurance company has finalized the case after three years and nine months after the occurrence of loss and after the complaint was filed before this Commission. This clearly shows that there is deficiency of service on the part of the insurance company.

THE learned Counsel for the Insurance Company has also submitted that the whole of the processed goods were re -purchased by the sister concerns at a fabulously higher price i.e. at Rs. 22,83,246 with a view to defraud the insurance company. Against this contention, one has to read one of the paragraphs of the surveyor report mentioned earlier according to which M/s. Continental Leathers have sold nearly 25% of the quantity to M/s. B.L. Leather at a lower rate (emphasis supplied). This means a part of the reprocessed leather has been sold at a lower rate and not at a higher rate. In any case, there is no question of Bharat Leather re -purchasing directly or indirectly processed damaged leather as it is a 100% export oriented unit. They have not produced adequate proof to prove their contention. The first Surveyor after a detailed analysis and investigation has assessed loss correctly at Rs. 28,41,854. The Insurance company has not paid the amount even when the insured was willing to accept the offer made by the Insurance Company i.e. Rs. 9,03,922 as part payment of the claim subject to the decision of this Commission.

ACCORDINGLY , we direct that a sum of Rs. 28,41,854 being the amount of loss assessed by the first Surveyor be paid by the National Insurance Co. Ltd. to M/s. Bharat Enterprises, the Complainant,with 10% interest from 11th June, 1998 i.e. the date of the complaint till its payment. As the stand taken by the Insurance Company is unjustified we impose costs of Rs. 50,000 to be payable to the NCDRC Bar Association. Ordered accordingly.