Bhola Plastic Industries Pvt Ltd vs Orientalinsurance Co Ltd

THE complainant company obtained four insurance policies from the opposite party, as detailed in para 3 of the complaint. In a fire which broke out on 02 -10 -2004 in the factory premises of the complainant, the building as well as a number of machines, fittings, fixtures, etc., got damaged. A claim having been lodged with the insurance company, M/s. Sandeep Bharti and Associates were appointed as the surveyors to assess the loss. The complainant gave a consent letter dated 05 -11 -2005 to the surveyor agreeing to accept a sum of Rs.2,33,74,208/ - towards settlement of their claim in respect of damage to building, electrical installations, fittings to CD manufacturing machines and offset printer, etc. Soon thereafter the surveyor submitted their report on 07 -11 -2005, estimating the loss to the complainant as under: JUDGEMENT_85_LAWS(NCD)3_2015.htm

It would, thus, be seen that consent from the complainant was taken in advance, on the basis of the loss estimated by the surveyor and the report was thereafter submitted after taking consent of the complainant. It would also be seen that on reinstatement basis the loss to the complainant was estimated by the surveyor at Rs.3,36,47,672/ - whereas on net loss basis it was estimated at Rs.2,33,74,208/ -.

VIDE letter dated 03 -03 -2006, the opposite party informed the complainant as under: This has reference to the reported damages to automatic CD Manufacturing Plants, Offset Printing Machines, AC Plant with other machines, cabling, fittings, buildings and stock, etc., due to fire on 02 -10 -2004. We are pleased to inform you that the competent authority of our company has approved your claim for Rs.1,71,72,279/ - towards full and final settlement of your captioned loss. We wish to further inform you that as per the terms & conditions of the policy, you were required to replace the damaged property and taking congnizance of the replacement of the damaged CD machine of the kind and type, the competent authority has decided to withhold a sum of Rs.61,53,548/ - on account of difference of custom duty rate between 39.2% and 5.1%. If you decide to actually reinstate the damaged machinery with the new machinery of the same kind and type or decide to convert the machine under EPCG to general import machine, the amount deducted/withheld can be considered for payment provided the same is done in conformity with the policy terms and conditions, principle of indemnity, etc.. Kindly send us the enclosed discharge voucher duly completed and signed on Re.1/ - revenue stamp towards full and final settlement of this claim, so that we may be able to release your claim payment at the earliest. It would thus be seen that the insurance company was of the view that under the policy, it was obligatory for the insured to replace the damaged machines and accordingly it decided to withhold a sum of Rs.61,53,548/ - and release only the balance amount of Rs.1,71,72,279/ - to the complainant till the complainant reinstated the damaged machinery with the new machinery of the same kind and type or decided to convert the machines under EPCG to general import machine. The complaint was accordingly paid a sum of Rs.1,71,72,279/ -. Though in the complaint a sum of Rs.1,57,25,107/ - towards the balance principal amount and Rs.23,23,260/ - towards interest is claimed, the learned counsel for the complainant fairly states that he is pressing only for payment of Rs.61,53,548/ - along with interest on that amount.

IN its reply the insurance company has inter alia stated that on receipt of the final report of the surveyor, the claim was approved for Rs.2,33,25,827/ - but an amount of Rs.61,53,548/ - was required to be withheld by the opposite party as the amount of custom duty to the extent the claim by the complainant was not in fact incurred while importing the machines which were installed as a replacement of the damaged machines. According to the opposite party the complainant imported machines paying duty at the rate of 5.1% for replacing the machines which were got damaged during fire and, therefore, claim for custom duty at a higher rate is not admissible. A perusal of the letter dated 22 -12 -2005 sent by the surveyor to the insurance company would show that the damaged machines were not imported by the complainant under EPCG scheme but were imported on payment of full custom duty at the rate of 56.83% for the first machine in November 2002 and at the rate of 39.20% for the second machine in February 2004. It is also stated in the said letter that the custom duty rate prevalent on the date of loss was 39.20%. Para 1 of the aforesaid letter also shows that the complainant had placed an order for import of two machines under EPCG Scheme. That order was placed in August 2004, much before the incident of fire occurred on 02 -10 -2004 and a concessional custom duty at the rate of 5.1% was paid for the import of the said machines. The complainant had submitted a bond, undertaking to carry out export in terms of the provisions of the scheme, when it was allowed to import the machines at concessional custom duty of 5.1%. The license for import of the aforesaid two machines was also granted on 22 -09 -2004, about 10 days before the loss took place.

THE insurance policy in question, to the extent it contains the basis of indemnifying the complainant reads as under; In cases where an insured item is destroyed, the Company will pay the actual value of the item immediately before the occurrence of the loss, including costs for ordinary freight, erection and customs duties if any provided such expenses have been included in the sum insured, such actual value to be calculated by deducting proper depreciation from the replacement value of the item. The Company will also pay any normal charges for the dismantling of the machinery destroyed, but the salvage will be taken into account.

IT would, thus, be seen that the insurance company is under a contractual obligation to pay to the insured, the actual value of the machinery immediately before the occurrence of the loss and such value would inter alia included the custom duty if any. The custom duty in terms of the aforesaid clause in my view would be either the duty which the insured actually paid at the time of import of the machine in question or the duty applicable on the regular import of the damaged machines, and not the import duty applicable on the date the insured is actually compensated. In the present case admittedly the complainant paid duty at the rate of 50% at the time of import of the first machinery and at the rate of 39% at the time of the import of the second machinery. Even if import duty applicable on the date of the loss is taken for the purpose of assessing the value of the machinery immediately before the occurrence of the loss, it would be 39.20%, which was the normal custom duty applicable on import of such machines as reported by the surveyor. The concessional import duty which is applicable only to the machinery which is imported for the purpose of exporting the goods manufactured using the said machines cannot in my view be considered to be the duty applicable for the purpose of assessment of the loss to the insured, for the simple reason that it is not obligatory to import the machinery only under the EPCG scheme. Only if a person is seeking to export the goods manufactured on the machine sought to be imported by him, he will be allowed to import the machine paying concessional import duty of 5.1%. In fact, in terms of the policy, it was not at all obligatory for the insured to replace the damaged machine in a case where reimbursement is on depreciated basis. A person suffering loss may decide to altogether discontinue his business or change the business in which he was previously engaged at the time the loss took place. It cannot be said that in such a case the insurance company will not be liable to pay him merely because he choses not to replace the damaged machine. He undoubtedly suffered a loss, when the machines were destroyed in the fire and the policy does not require the insured to replace the machine, before being reimbursed by the insurer.

IN any case, the order for the machine which the complainant imported at the concessional duty of 5.1% was placed much before the incident of fire took place and even the import license was issued to him about 10 days before the said fire. Therefore, it cannot be said that the aforesaid machine at the concessional duty of 5.1% were imported by the complainant as replacement for the machines which got damaged in the fire that broke out on 02 -10 -2004. Obviously, the complainant, while seeking to import those two machines wanted to augment his capacity by adding the two machines which could be used for the purpose of exporting the product manufactured on those machines. If later on, he decides not to import any more machines as a replacement for the machines which got damaged in the fire which broke out in his premises he cannot be denied any part of the claim otherwise payable to him, on account of his not replacing the machines.

THEREFORE , the insurance company could not have withheld payment of Rs.61,53,548/ - on the ground that the said payment would be considered only when the complainant replaced the machines with the new machines or converted the machines under EPCG to general import machines. The stand taken by the insurance company in my view was wholly unjustified and contrary to the terms of the insurance policy.

FOR the reasons stated hereinabove, the opposite party is directed to pay the amount of Rs.61,53,548/ - to the complainant within six weeks from today along with interest on that amount at the rate of 9% per annum from 08 -03 -2006 when amount of Rs.1,71,72,279/ - was released to the complainant till the date of payment. In the facts and circumstances of the case there shall be no order as to cost. The complaint stands disposed of.