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Judgment
Subhash Chandra, Presiding Member
This complaint under section 21 of the Consumer Protection Act, 1986 (in short, the ‘Act’) is filed by the Partner of the complainant firm engaged in the manufacturing of PP / HDPE laminated fabric and L D agricultural pipes located at 81 Industrial Area, Rao Extension, Indore, M.P against the Opposite Party from whom it had obtained a Standard Fire and Special Perils Policy (SFPPS) (in short, the ‘Policy’). Deficiency in service and unfair trade practice is alleged in the repudiation of the loss claimed on account of a fire accident on the insured premises during the validity of the said policy.
The facts, according to the complainant are that the factory premises which was insured under the Policy (No.151100/11/2011/513) for the period 19.03.2011 to 18.03.2012 for fire and earthquake for a sum of Rs. 2,47,15,000/- each. The risk covered was for plastic goods manufacturing (excluding foam plastics). It also had insurance cover for stock of plastic goods material finished and unfinished goods material and related goods for Rs. 1,00,00,000/-, furniture, fixture & fittings for a sum of Rs.40,00,000/-, plant and machineries for Rs.85,00,000/- other items such as electrical panel, cooling tower, stabilizer, transformer, oil etc. for Rs.21,15,000/-.
On the night of 31.01.2012, a fire accident occurred on the premises which was controlled by the Fire Brigade after a few hours. The Police and the Opposite Party were informed about the accident on 31.01.2012 and 01.02.2012 respectively. The Complainant stated that the loss due to fire was estimated at Rs.1,70,00,000/- on account of extensive damage to building, plant and machineries, raw material, finished and semi-finished goods, electrical and electronic goods. A claim of Rs.1,54,66,406/- was preferred by the Complainant with the Opposite Party. The Opposite Party deputed Mr. Sunil Gupta, Surveyor who submitted a Preliminary Survey Report dated 05.02.2012 stating that the cause of the fire appeared to be an electrical short circuit. Thereafter, M/s. R.K. Singhal & Co., New Delhi were appointed as Surveyors, who, after obtaining various documents and information through several queries, submitted a report dated 15.11.2012 based on which the Opposite Party concluded that there was violation of policy conditions Nos.1 and 8 and repudiated the claim as a “No Claim”. The instant complaint challenges this repudiation and is before this Commission seeking compensation of Rs. 2,06,66,406 with the prayer to direct the opposite party to:
i. settle his claim for Rs.1,54,66,406/- along with interest @12 percent from the date of loss, i.e. 31.01.2012;
ii. compensate the complainant for mental harassment and other expenses for Rs.50,00,000/-;
iii. pay the complainant Rs.2,00,000/- towards the cost of filing the complaint;
Upon notice, the complaint was resisted by the Opposite party by way of a reply. Admitting the sanction of the Policy for the period 19.03.2011 to 18.03.2012, the opposite party took preliminary objections that (i) the complainant was not a ‘consumer’ under the provision section 2 of the Act, since it was a commercial entity and the Policy in question was for a commercial purpose as held by Hon’ble Supreme Court in Laxmi Engineering Works vs. P.S.G. Industrial Institute AIR 1995 SC 142 and this Commission in Sree Anantha Grameena Bank vs. The Industrial Finance Corporation of India IV (2005) CPJ 10 (NC); (ii) in view of the complicated and disputed questions of facts and evidence involved, this Commission lacked jurisdiction and the matter be referred a civil court or to arbitration as per general condition No.10 of the policy; (iii) the present complaint could not be decided summarily; (iv) there was no deficiency in service which was made out by the Complainant as the Opposite Party had acted on the basis of the Surveyor’s report based on technical inspection, physical verification and clarification obtained from the Complainant.
On merits, it was stated that report dated 15.11.2012 of surveyor M/s. R.K. Singhal & Co. Pvt. Ltd. regarding the alleged loss of Rs.1,68,61,000/- had considered the documents provided by the Complainant including the balance sheet with stock book. The stock and unlaminated fabric had been found increased by 7,841 Kg valued at Rs.7,44,895/- showing excess stock of unlaminated fabric as on 30.04.2011 as 1,081 Kg and stock of unlaminated fabric between 30.09.2011 to 01.10.2011 had been wrongly shown in excess by 6760 Kgs. Therefore, the gross profit was actually a gross loss as per the surveyor based on the monthly profit and loss account. The clarification on this issue from the Complainant was found by the surveyor to be baseless since there was no substantial increase in RM price for the entire year. Hence, the surveyor had concluded that the balance sheet could not be considered as authentic. However, after working of the profit and loss account on “First in First out” (FIFO) basis for the previous year and current year on the basis of sales bills, it concluded that the insured was running on profit whereas in the current year it had suffered a loss almost every month.
Parties filed their evidences by way of affidavit, rejoinder and short synopsis. I have heard learned counsel for both the sides and carefully considered the material on record.
The complainant has argued that the repudiation of his claim by the opposite party is incorrect, since he had provided all details to the surveyor. There was no dispute with regard to the cause of fire. The conclusion by the surveyor that the stock held was at variance was incorrect since the complainant had been filing statements with the bank with whom it had a cash-credit arrangement. He had explained the volume of production and, therefore, there was no reason for the surveyor to conclude that the stocks held were in excess and that a profit had been incorrectly shown as compared to the previous year. The calculation by the surveyor is contested as being erroneous and it is stated that sales tax had been paid regularly which was proof of the fact that there was production and sale of the tarpaulins. The complainant stated that it had installed new machinery to enhance manufacturing capacity which was not considered by the surveyor .
On its part, it was stated by the Opposite Party that the surveyor had calculated turnover of the insured from 2009 to 2012 on the basis of the balance sheet and concluded that production in the current year shown as 103.53% appeared to 99.5% in the previous year which could not be substantiated during enquiries. On the basis of actual purchase and sales bills of the previous year’s balance sheet, the yield was worked out to be 98.12%. The Surveyor’s report also noted the stock of unlaminated fabric as on 31.01.2012 to be inflated. The stock register was reported to have been burnt in the fire. However, the details were obtained from records on the software maintained by the Complainant and it was found that the stock of unlaminated fabric as on 31.01.2012 had increased by 7841 Kgs from 97,739 Kg to 105,580 Kg. According to the opposite party, the stock of 1,04,810 Kgs as on 30.09.2011 was wrongly shown as 1,11,570Kgs on 01.10.2011 and reflected an unsubstantiated increase in stock by 6760 Kgs. Hence, the stock of unlaminated fabric as on 30.04.2011 had shown increase of 1081 Kgs (85,247 Kg minus 84,166 Kgs). The surveyor also noted irregularities relating to procurements from M/s. Mas Woven Industries and M/s. Geotax Textiles Private Limited after enquiries with the said industries who denied sales against cash receipts as claimed by the complainant.
The surveyor had, therefore, concluded that the insured’s books of accounts were false and the provisional balance sheet based on false and fabricated documents. Consequently, the sales and purchases ledgers and details of payment were considered to be not authentic. The claim was concluded to be based on misrepresentation of facts and was accordingly repudiated by the Opposite Party vide letter dated 10.01.2023 in terms of conditions No.1 and 8 of the Policy which reads as under:-
“1. This Policy shall be voidable in the event of misrepresentation, mis-description or non-disclosure of any material particular.
If the claim be in any respect fraudulent or if any false declaration be made in support thereof, or if any fraudulent means or devices are used by the insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by willfull act, or with connivance of the insured, all benefits under this policy shall be forfeited.”
From the above, it is evident that the complainant was in the business of manufacture of Poly Propelene and High Density Polyethylene since 2005 and had extended its production capabilities in 2011 by way of installation of new plant. It had also availed a loan of Rs.1,00,00,000/- for plant and machinery and Rs.50,00,000/- cash credit limit for stock and raw materials. It is also evident that it had been taking an insurance policy since 2010 which was a Standard Fire and Special Perils Policy. The insurance covered building Rs.40,00,000/-, plants and machinery for Rs.85,00,000/- and stock for Rs.1,00,00,000/- for which a premium of Rs.55,716/- had been paid. The fire incident on 31.01.2012 night is not disputed. The FIR was lodged the same night and the opposite party informed the next day. The loss assessment was done by a surveyor of the opposite party (Sunil Gupta) who recorded that the loss was caused by insured perils and as such the claim was admissible. The insurer appointed a Surveyor, M/s. R.K. Singhal to assess the loss. Based upon the surveyor’s assessment of the loss for Rs.49,62,113/- which was stated to be non-admissible, and opposite party vide its letter of repudiation dated 10.01.2013 rejected the claim on the grounds of condition nos.1 and 8 of the Insurance Policy.
The Complainant submits that the surveyor has erred in calculating the yield of the insured to be 103.53% on the basis of the available raw material. On the day of the incident stock was reported to be 140.12 MT and the production to be 145.12 MT, whereas the weight of finished goods was 5815 Kgs (5.81MT) which, when added to the total weight of raw material of 140.18 MT, works out to 145.99 MT. Hence, the yield is 99.4% and not 103.53%. It was also stated that the record of the Sales Tax Department had confirmed and tallied with invoices and tax receipts by the surveyor. However, since all the documents had been burnt, the records had to be recreated which was in the knowledge of the surveyor and this included the evaluation of stock by Canara Bank for Rs.1,05,04,673/- which has been ignored by the surveyor. It is submitted that since the plant was under-going expansion and the new machinery had been installed in 2011. It was not working in full capacity till stabilization and, therefore, the calculation of the surveyor that there was a loss in 2011-12 had not appreciated the correct position. It was also argued that the surveyor erred in not observing that there was a steady rise in the price of raw materials and that the demand for tarpaulins was from February to September and accordingly production was usually oriented to meeting the demand during this period. It was also contended that the surveyor had concluded without basis that the documents presented by the complainant were fraudulent and therefore he repudiated the claim. The fact that the documents had been recreated on the basis of old purchase bills, sales bills and other documents in possession of the Chartered Accountant was an admitted fact. The charge that the stock was inflated by 7820 Kg on the date of loss is stated by the complainant to be due to a typographical error in the process of the recreation of the documents. The actual weight of stock was 1061 Kgs and the error is admitted by the complainant. As regards the cash transactions with M/s. Mass Woven Industries Private Limited and M/s. Geotex Textiles Private Limited, complainant states that no written affidavit was obtained from M/s. Mass Woven in support of its denial. It is stated that M/s. Geotextiles Private Limited had supplied substandard material which had been returned and, therefore, they had denied dealing in cash with the complainant. It is claimed that the record had been set right as per the records of the Sales Tax authorities. The surveyor is stated to have erred in assuming the quantity of stock on the day of the fire accident by considering the ratio of raw material to be 28% granules and 72 % ULF. It was stated that plastic granules were available from M/s. Reliance Industries located in Rau, District Indore, whereas the procurement of ULF took at least 15 to 17 business days and was a key ingredient and accordingly, the stock of ULF was larger in order to maintain the cycle of production. Therefore, it was argued that the assessment of loss by the surveyor is based on an inaccurate appreciation of facts and is based on surmises and conjectures. Accordingly, complainant has claimed that its insurance claim of Rs.2,06,66,604/- with interest at 12 % from the date of loss i.e. 31.01.2012 along with costs is justified.
The contentions of both the parties have been considered. Complainant avers that the opposite party has repudiated the claim based on the report of the surveyor. Per contra, the opposite party has argued that the complainant failed to justify the discrepancy in the stocks and the production figures and hence the claim was fraudulent. Accordingly the claim has been repudiated on the basis of Policy conditions 1 and 8.
The report of the surveyor is an essential requirement under section 64 UM of the Indian Insurance Act, 1938 in a matter of claim that was preferred by the insured. The position with regard to the appointment of surveyor’s had been clearly laid down by Hon’ble Supreme Court in Sri Venkateswara Syndicate vs Oriental Insurance Co. Ltd. & Anr. (2009) 8 SCC 507 in Civil Appeal No.4487 of 2004 decided on 24.08.2009 However, it has also been laid down by the Hon’ble Supreme Court in Pradeep Kumar Vs. New India Assurance Company Limited (2009) 7 SCC 787 that the surveyor’s report is not the final word or so sacrosanct and that the Insurance Company cannot depart from it for valid reasons while assessing the claim against loss.
The surveyor’s report is contested by the complainant on the ground that it is based upon an incorrect interpretation of facts despite the long time it took to finalize its report. It is argued that there had been a capacity expansion in the plant, the nature of demand for tarpaulins was seasonal and based upon agricultural production and the availability of raw material stock was managed through local purchases of plastic granules. It was admitted that there were certain discrepancies in the information supplied by the complainant during the course of the enquiries by the Surveyor which were subsequently clarified. Hence, the claim of the complainant was argued to be justified.
From the foregoing, it is evident that the initial loss surveyor had concluded that although the exact cause of fire could not be ascertained, on the basis of evidence, the cause of fire could be concluded to be either due to an electric short circuit in the control panel which resulted in sparking and ignition of raw material/unlaminated fabric lying nearby or on account of the heated raw material in the extruder machine on the first floor falling on the raw material granules which ignited the fire. It is the conclusion of the surveyor that in either of the two cases, the loss was caused by an insured peril and as such the claim was admissible and tenable under policy conditions. The damage to the building, plant and machinery, stock of raw material and stock of finished goods was held to be admissible. The report of the final surveyor, however, concluded that the insured’s Books of Accounts were false and the provisional balance sheet was based on fabricated documents, since the sales and purchase registers as well as details of payments were fabricated and the balance sheet was not authentic. The surveyor, therefore, assessed the loss to stock on the basis of consumption/production of the whole year by considering the consumption of unlaminated fabric. The balance sheet was concluded to be based on a stock book where the entry for unlaminated fabric had been increased by 7,841 Kg. valued at Rs.7,44,895/-.
As on 30.04.2011, the unlaminated fabric for the period 13.09.2011 to 01.10.2011 had been wrongly shown in excess by 6,760 Kgs. The surveyor also concluded that there was no substantial increase in the retail marketing price during the years, and therefore, it is concluded that the balance sheet was not authentic. The surveyor also concluded that there was no evidence of the extruder machine having been operated on the day of the fire since no production record of manufacturing of granules on the day of fire had been produced and the production of PCV pipes had been ‘nil’ since 22.12.2011. He, therefore, disagreed with the findings of the loss assessor deputed by the opposite party.
Bulk purchases utilizing the loan from the bank on a high rate of interest was also noted by the surveyor. It was also pointed out that the opening stock of unlaminated fabric was 97,840 Kgs, which indicated that the entire procurement of ULF during the year had been consumed. It was questioned why such a huge quantity of raw material valued at Rs. 90,00,000/- had been stored when the unit was running in a loss. Cash payments for purchases from M/s. Shree Vinayaka Packaging Solution and M/s. Mas Woven Industries as per investigation by surveyor was concluded to be false as it had been denied by the parties. Cash payment of Rs.7,59,154/- to M/s. Geotex was also concluded to be false and fabricated. Hence, the books of accounts and provisional balance sheet of the Chartered Accountant were concluded to be based on false and fabricated documents, and therefore, the claim was found to be inadmissible.
The complainant’s case is that the surveyor had wrongly concluded that the yield of the insured unit was 103.53% percent and that on the day of the fire accident the yield was 99.4 % based on the calculation of yield considering the weight of finished goods being 5818 Kgs. It was contended that the Sales Tax Department had during enquires confirmed the invoices and tax receipts. Income tax had also been filed on the basis of the balance sheet approved by the Chartered Accountant which was now questioned by the surveyor. It was also contended that Canara Bank had prepared a monthly stock statement after due diligence and the stock was found to be substantially correct except for two incorrect entries which were attributable to the fact that the records had been destroyed in the fire and had to be reconstructed which led to these discrepancies. The complaint had conceded the erroneous entry of 7820 Kgs of raw material valued at approximately Rs. 7.50 lakhs.
The Complainant submits that the surveyor failed to consider the fact that a new machine had been installed and production had not peaked as the machine was yet to stabilize. Manufacturing of tarpaulins was dependent upon the demand based upon the agricultural production cycle for soyabeen and wheat. It was also contended that the surveyor had wrongly concluded that the price of raw material had shown a steady increase and that the price of raw material was largely the same. It is contended that in actual fact there had been substantial variation in the costs of raw material. The total stock valued on the date of loss was Rs.1,05,04,763/-.
In view of the fact that the initial assessment of the cause of fire by the loss being accidental and being a covered peril under the policy, the report of the surveyor who was also deputed by the opposite party appears to be based on the unacceptability of the stock assessment. In view of Pradeep Kumar (supra) the opposite party could have also re-examined the matter, since the cause of fire was a covered peril. The information from the Sales Tax department have not been controverted by the opposite party. The Income Tax returns based on the balance sheet certified by the Canara Bank have also not been controverted. The conclusion, therefore, that the balance sheet was false and fabricated does not appear to carry much weight specially since there are adequate mitigating reasons to justify the production level and stock possession, in view of the operations of the unit. The conclusion arrived at by the surveyor has been accepted by the opposite party in a routine, unquestioning manner without assessing the case independently by the opposite party.
For the reasons stated above, the complaint has merits and is liable to succeed. The same is, accordingly, allowed with directions to the opposite party to pay complainants a sum of Rs.49,62,113/- along with compensation @ 6% per annum on this amount from the date of fire accident i.e. 31.01.2012 till the date of this order. This order shall be complied within eight weeks, failing which the amount shall be paid with interest at 9 % per annum till the date of realization. Opposite party shall also pay the complainant litigation costs of Rs.50,000/-. All pending I.As, if any, shall stand disposed off with this order. The Complaint is disposed off in the above terms.