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Judgment
Avm J. Rajendra, Avsm Vsm (Retd.), Presiding Member
The present First Appeal has been filed under Section 19 of the Consumer Protection Act, 1986 (“the Act”) against the Order dated 16.11.2017 passed by the learned Himachal State Consumer Disputes Redressal Commission, Shimla (“the State Commission”), in Consumer Complaint No. 11 of 2016, wherein the Complaint filed by the Complainant (Respondent herein) was partly allowed.
There was a delay of 34 days for filing the present Appeal. For the reasons stated in the Application seeking condonation of delay being IA No. 1724 of 2018, the same is condoned.
For the sake of Convenience, the parties in the present matter being referred to as mentioned in the Complaint before the State Commission. The Complainant, M/s Sohal Enterprises through its Proprietor Shri Sanjeev Kumar Sohal, is in the business of scrap dealing for about 12 years to earn his livelihood and hired the premises for scrap Godown from Smt. Vijay Kumari. While The Divisional Manager, National Insurance Company Ltd and The Branch Manager are referred to as the Opposite Parties /Insurer (OPs in short).
The brief relevant facts of the case, as per the Complainant are that the Complainant’s Scrap Store was insured with the OPs for Rs.50.00 Lakhs under a ‘Standard Fire and Special Peril’ policy from 02.07.2013 to 01.07.2014. The firm diligently paid the premium of Rs.32,304 to the OPs. Tragically, on the night of 14.02.2014, a fire broke out in the Godown, resulting in complete destruction. Promptly, the incident was reported to both the police and the OPs. The OPs appointed Shri Pramod Kumar as spot Assessor. He visited the spot, however his Report, if any, was never made public by the OPs. Subsequently, Shri Sanjeev Mahajan, an independent Surveyor, conducted physical inspection, identifying a short-circuit as the probable cause of the fire that severely damaged the stocks of Iron, Gatta, and plastic scrap. The surveyor also affirmed that there was no breach of warranties by the Respondent and assessed the loss as Rs.24,57,905, after adjustments. The OPs further appointed Shri Surinder Kumar Soni, a Chartered Accountant, to reassess the damages. He reassessed the loss at Rs. 12,83,989. However, despite multiple visits to OPs office and repeated requests, the claim was not settled, thereby demonstrating deficiency in service. Feeling aggrieved, he filed a Consumer Complaint and sought relief, which included payment of Rs. 50.00 Lakhs as per the policy and compensation and costs.
The OPs/Insurer countered the Complainant's claim by filing a reply before the learned State Commission, asserting that there is no deficiency in service. They contended that Complainant has no cause of action against the OPs. The Complainant concealed material facts from the Commission and sought legal recourse, without full disclosure. The OPs asserted that while the stock within the Godown was insured, the items kept outside were not covered by the policy. The OPs appointed Shri Sanjeev Mahajan as Surveyor and Loss Assessor, who conducted an immediate site visit on the following day. As per the report dated 29.01.2015 furnished by Shri Sanjeev Mahajan, the Complainant had incurred Rs.24,57,905 loss. The said report had significant disparities in figures between sales, purchases, stocks recorded in VAT returns and bank statements. Further, the audited accounts for the financial years 2012, 2013, and 2014 showcased a continuous decline in sales. Thereafter, the Appellant sent a letter dated 02.02.2016 seeking clarification from the Respondent regarding discrepancies in sales and purchase figures. In their reply, the Respondent vide letter dated 12.02.2016 stated that the stock presented by them to the loss assessor included stock held by debtors (credit sales pending payment), indicating that the stock in the statement comprised items not in the Godown but sold to buyers without payment receipt. Thereafter, the OPs appointed Shri Surender Kumar Soni, a Chartered Accountant for assessing the loss. He filed a report re-evaluating the initial Surveyor's assessment observing material inconsistencies in the Respondent's financial data that were overlooked by the first Surveyor. Consequently, Shri Soni reassessed the loss as Rs.12,83,989. The CA highlighted discrepancies in sales, net profit, purchase figures, and resulting stock-in-hand. They flagged a significant increase in stock despite declining sales, suggesting a deliberate inflation of stock figures. Notably, VAT return data for the quarter ending 31.12.2013 indicated purchases exceeding sales, contrary to standard business practices in scrap business aimed at profitable sales rather than stockpiling inventory. These discrepancies were highlighted as purposeful actions aimed at inflating stock level. They offered Rs.12,83,989 as full and final settlement. The same was not accepted by the Complainant. Thus, no deficiency in service has been committed by the OPs as regards the policy in question.
The learned State Commission, following due deliberation and assessment of the case's facts and circumstances, partly allowed the complaint, issuing the following Order-
“18. In view of the findings upon point No.1 above complaint is partly allowed. It is ordered that opposite parties will pay a sum of Rs.2457905/-(Twenty-four lac fifty seven thousand nine hundred & five) to complainant along with interest @ 9% per annum from the date of filing of complaint till its realization as assessed by Shri Sanjeev Mahajan surveyor cum loss assessor cum registered valuer cum chartered engineer appointed by insurance company within 30 days after receipt of certified copy of order jointly and severally. It is further ordered that in addition opposite parties would also pay compensation to the tune of Rs.10000/-(Ten thousand) for mental pain and agony jointly and severally. In addition opposite parties would pay litigation costs to the tune of Rs.10000/-(Ten thousand) jointly and severally. Loss assessment report submitted by Shri Sanjeev Mahajan surveyor cum loss assessor cum registered valuer cum chartered engineer annexure-R1/5 and insurance policy annexure-R1/10 alongwith original printed terms and conditions of Standard Fire and Special Perils Policy relating to exclusion clause will form part and parcel of order. File of State Commission be consigned to record room after due completion forthwith. Certified copy of order be transmitted to parties forthwith free of costs strictly as per rules. Complaint is disposed of. Pending application(s) if any also disposed of.”
Being aggrieved by the impugned order of the State Commission, the OPs/insurer (Appellants herein) has filed this present Appeal no. 145 of 2018 with the following prayer:
(a) Pass an order allowing the present appeal and set aside the impugned order of the Himachal Pradesh State Consumer Disputes Redressal Commission, Shimla dated 16.11.2017 in Complaint No. 11/2016;
(b) Award appropriate costs to the Appellants.
(c) Pass any other order as may be deemed fit and proper.
In the Appeal, the Appellant contended that the insurance policy specifically covers stock stored in the Godown and explicitly excludes coverage for goods kept in the open. Examining the policy makes it evident that it doesn't insure items stored outside the Godown. The photographs captured by the surveyor validate that the damaged goods were located outside, therefore not falling under the insured category. The Appellant asserted that the State Commission's reliance on the assessment in the initial Surveyor's report by Shri Sanjeev Mahajan, considering it as unquestionable and final is erroneous as it disregarded number of issues. They highlighted discrepancies in the stock figures recorded in VAT returns and bank statements. Additionally, audited accounts for the fiscal years 2012, 2013, and 2014 indicate a substantial increase in stock, coupled with a decline in sales. They contended that a scrap purchase business aims to sell goods for profit rather than accumulating them, casting doubt on the accuracy of the assessment by the Surveyor. They offered Rs.12,83,989 as full and final settlement. The same was not accepted by the Complainant.
Upon notice on the memo of Appeal, the Respondent/ Complainant has not filed any reply/objections. However, he filed his written submissions and `reiterated the issues raised in the Complaint and emphasized that Mr. Soni was the third Assessor appointed by the Insurance Company. He pointed out that the Report of the first Assessor was not presented, and the Report of the Second Assessor was dismissed without justification. According to the Respondent/ Complainant, this action contradicts the Supreme Court's ruling. As a result, they insist on the Appeal's dismissal and seek costs for the same.
In his arguments, the Counsel for the Appellant/OP reiterated the grounds of the appeal, and emphasized that Shri Sanjeev Mahajan, the Surveyor & Loss Assessor vide report dated 29.01.2015, assessed the loss at Rs. 24,57,905. He asserted that the report had significant disparities in figures between sales, purchases, stocks recorded in VAT returns and bank statements. Further, the audited accounts for the financial years 2012, 2013, and 2014 showcased a continuous decline in sales. Thereafter, the Appellant sent a letter dated 02.02.2016 seeking clarification from the Respondent regarding discrepancies in sales and purchase figures. In their reply, the Respondent vide letter dated 12.02.2016 stated that the stock presented by them to the loss assessor included stock held by debtors (credit sales pending payment), indicating that the stock in the statement comprised items not in the Godown but sold to buyers without payment receipt. Thereafter, Shri Surender Kumar Soni, a Chartered Accountant, filed a report re-evaluating the initial surveyor's assessment. He observed material inconsistencies in the Respondent's financial data that were overlooked by the first Surveyor. Consequently, Shri Soni reassessed the loss at Rs. 12,83,989. The CA highlighted discrepancies in sales, net profit, purchase figures, and resulting stock-in-hand. They flagged a significant increase in stock despite declining sales, suggesting a deliberate inflation of stock figures. Notably, VAT return data for the quarter ending 31.12.2013 indicated purchases exceeding sales, contrary to standard business practices in scrap business aimed at profitable sales rather than stockpiling inventory. These discrepancies were highlighted as purposeful actions aimed at inflating stock levels.
The Counsel for the Appellant has placed reliance upon the following judgements to support his case:-
(i) Polymat India (P) Ltd. v. National Insurance Co. Ltd. & Anr., (2005) 9 SCC 174,
(ii) New India Assurance Company Ltd. v. Pradeep Kumar, (2009) 7 SCC 787.
(iii). Sikka Papers Ltd. v. National Insurance Company Ltd., (2009) 7 SCC 777.
(iv) Sri Venkateswara Syndicate v. Oriental Insurance Company Limited, (2009) 8 SCC 507
The Learned Counsel for the Respondent reiterated the facts of the case in the Complaint and the affidavit of evidence filed before the learned State Commission. He vehemently argued against the assertion that the Insurance Policy doesn't cover materials stored in the open. He highlighted a specific clause within the policy titled "STOCKS LYING ADJACENT IN OPEN," which explicitly warrants coverage for stocks placed in the open vicinity of the insured premises. The Counsel asserted that this clause is distinct from the case referenced in the judgment of Polymat India (P) Ltd. Vs National Insurance CO. Ltd., where the insured party explicitly declared no goods were stored in the open, a situation contrary to the current scenario. Regarding the assessment reports, he has argued that the Respondent had immediately informed the Appellants about the incident. The Appellants appointed Shri Pramod Kumar as spot Assessor. He visited the spot, however his Report, if any, was never made public by the Appellants. Subsequently, Shri Sanjeev Mahajan, an independent surveyor, conducted a physical inspection, identifying a short-circuit as the probable cause of the fire that severely damaged the stocks of Iron, Gatta, and plastic scrap. The surveyor also affirmed that there was no breach of warranties by the Respondent and assessed the loss at Rs.24,57,905 after adjustments. The learned Counsel further argued that the Respondent made multiple visits to the Appellants' office, yet their claim remained unsettled. Instead, the Appellants further appointed Mr. Surinder Kumar Soni, a Chartered Accountant, to reassess the damages. Notably, no valid reasons were presented for appointing a third assessor, contrary to the ruling in Sri. Venkateswara Syndicate Vs. Oriental Insurance Company Ltd. The Counsel highlighted that Mr. Soni neither visited the Respondent's premises nor supported his assessment with any photographic evidence. Both of his opinions lacked dates, with the first opinion indicating submission following a 'Personal Discussion'. Ultimately, Mr. Soni's assessment pegged the loss at Rs. 12,21,686 without proper site visitation, photographic evidence, or comprehensive evaluation, leading the State Commission to rightly reject both reports. He also relied on in New India Assurance Company Ltd. Vs. Pradeep Kumar, explaining that when surveyor reports are prima facie erroneous and contradictory to evidence on record, the Consumer Fora have the authority to discard such reports, as done by the Hon'ble Supreme Court in that case. Additionally, citing the precedent set in Sri. Venkateswara Syndicate (Supra), he emphasized that OPs cannot repeatedly appoint surveyors to tailor reports to suit their mandate. He stressed that delay in settlement of fair claims contradicts the fundamental purpose of insurance and causes significant monetary, physical, and mental distress to the insured.
I have examined the pleadings and associated documents placed on record and rendered thoughtful attention to the arguments advanced by learned Counsels for both the parties.
The primary issue in the case revolves around the assessment and settlement of an insurance claim for loss suffered by the insured party in a fire accident. There are contentions regarding the coverage of the insurance policy concerning the damaged goods stored in the open, disputes over the assessment reports provided by different surveyors, and the subsequent reassessment conducted by a Chartered Accountant, appointed by the OPs/ Insurance Company. The central dispute pertains to the validity and accuracy of these assessments, with the insured party alleging deficiencies in the evaluation process, delays in claim settlement, and the OPs repeated appointments of assessors without proper reasoning or adequate assessments. Ultimately, the question is whether the insured is entitled to the claim under the policy and whether the insurance company's actions in assessment and settlement align with legal principles and precedents.
It is an established fact that the Appellants appointed Shri Sanjeev Mahajan, Surveyor cum Loss Assessor and a Registered Valuer and Chartered Engineer to assess the loss and submit his report. He has undertaken the survey by conducting physical inspection and identified electric short-circuit as the probable cause of the fire that severely damaged the stocks of Iron, Gatta, and plastic scrap. The surveyor affirmed that there was no breach of warranties by the Complainant and assessed the loss as Rs.24,57,905, after adjustments and submitted his report dated 29.01.2015. Subsequently, the OPs appointed Shri Surinder Kumar Soni, Chartered Account as a surveyor. He submitted his report and reduced the loss in the fire accident as Rs.1221686. No adequate reasons warranting such repeated appointments of surveyors have been brought out.
The contention of OPs that the policy does not provide cover for stocks stored outside the Godown and that the photographs by the surveyor reveal that the damaged goods were located outside and thus not fall under the insured category, is untenable. Para-3 of the subject Insurance Policy at Page-10 specifically provides that the insurance cover includes the ‘stocks lying adjacent in open’.
As regards scope for multiple survey reports, the Hon’ble Supreme Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Limited and Another, (2009) 8 SCC 507, decided on 24.08.2009, has held that:
"32. There is no disputing the fact that the surveyor / surveyors are appointed by the insurance company under the provisions of the insurance Act and their reports are to be given due importance and one should have sufficient grounds not to agree with the assessment made by them...
In our considered view, the Insurance Act only mandates that while settling a claim, assistance of a surveyor should be taken but it does not go further and say that the insurer would be bound by whatever the surveyor has assessed or quantified; if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainly depute another surveyor for the purpose of conducting a fresh survey to estimate the loss suffered by the insured."
The option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, with due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the surveyors."
In Khatema Fibres Ltd. v. New India Assurance Company Ltd., 2021 SCC OnLine SC 818, decided on 28.09.2021 it was held that:
“32. It is true that even any inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law or which has been undertaken to be performed pursuant to a contract, will fall within the definition of the expression ‘deficiency’. But to come within the said parameter, the appellant should be able to establish (i) either that the Surveyor did not comply with the code of conduct in respect of his duties, responsibilities and other professional requirements as specified by the regulations made under the Act, in terms of Section 64UM(1A) of the Insurance Act, 1938, as it stood then; or (ii) that the insurer acted arbitrarily in rejecting the whole or a part of the Surveyor’s Report in exercise of the discretion available under the Proviso to section 64UM(2) of the Insurance Act, 1938.
Two things flow out of the above discussion, They are (i) that the surveyor is governed by a code of conduct, the breach of which may give raise to an allegation of deficiency in service; and (ii) that the discretion vested in the insurer to reject the report of the surveyor in whole or in part, cannot be exercised arbitrarily or whimsically and that if so done, there could be an allegation of deficiency in service.
A Consumer Forum which is primarily concerned with an allegation of deficiency in service cannot subject the surveyor’s report to forensic examination of its anatomy, just as a civil court could do. Once it is found that there was no inadequacy in the quality, nature and manner of performance of the duties and responsibilities of the surveyor, in a manner prescribed by the Regulations as to their code of conduct and once it is found that the report is not based on adhocism or vitiated by arbitrariness, then the jurisdiction of the Consumer Forum to go further would stop.”
It is an established legal position wherein the Hon’ble Supreme Court has deprecated the practice of insurance companies in repeatedly appointing surveyors to assess the loss. Therefore, appointing surveyors one after another so as to get a tailor-made report to the satisfaction of insurer is impermissible.
On due consideration of the facts placed on record, it is evident that the Complainant was issued with the standard fire and special perils policy by the OPs and at the time of fire incident the said policy was in operation. The insurance company is under legal obligation to indemnify the loss sustained by Complainant as assessed by Surveyor and Loss Assessor and Registered Valuer and Chartered Engineer Shri Sanjeev Mahajan.
In view of the discussion above, I am of the considered view that the Order of the learned State Commission dated 16.11.2017 in Complaint No. 11/2016 does not warrant any interference, except for grant of compensation over and above the interest element already granted.
The Hon’ble Supreme Court in the case of DLF Homes Panchkula Pvt. Ltd. Vs. D.S. Dhanda, in CA Nos. 4910-4941 of 2019 decided on 10.05.2019 has held that multiple compensations for singular deficiency is not justifiable. Therefore, award of further compensation as claimed is untenable.
Therefore, the Order of the learned State Commission dated 16.11.2017 in Complaint No. 11/2016 is modified as follows:
ORDER
I. The Appellants/ Opposite Parties shall jointly and severally pay Rs.2457905/-(Rs. Twenty-four Lakh fifty-seven thousand nine hundred & five only) to the Complainant/ Respondent, along with simple interest @ 9% per annum from the date of filing the complaint till its realization, within a period of one month from the date of this order. In the event of delay beyond the said one month, the interest rate applicable for such delayed period shall be @ 12% per annum.
II. The Appellants/ Opposite Parties shall jointly and severally pay Rs.10,000/-(Rs. Ten thousand only) towards costs of litigation within a period of one month from the date of this order.
II. The order for payment of compensation of Rs.10000/-(Ten thousand) for mental pain and agony is set aside.
FA No. 145 of 2018 stands disposed of accordingly.
There shall be no order as to costs.
Pending Applications, if any, also stand disposed of accordingly. The Registry is directed to release the Statutory Deposit amount, if any due, in favour of the Appellant as per law, on compliance of this order.