M/s Padmaja Laboratories Private Limited vs United India Insurance Company Ltd

Heard Mr. B.V.S. Halapathi Rao, Advocate, for the complainant and Mr. Ravi Bakshi, Advocate, for the opposite party.

M/s. Padmaja Laboratories Private Limited (the Insured) has filed above complaint, for directing United India Insurance Company Limited (the Insurer) to pay Rs.9999999/- with interest @18% per annum from 27.07.2011 till the date of payment, towards balance insurance claim, punitive damages and any other relief, which is deemed fit and proper in the facts and circumstances of the case.

The complainant stated that M/s. Padmaja Laboratories Private Limited (the Insured) was a company, registered under the Companies Act, 1956 and engaged in manufacturing and supplying the veterinary and poultry medicines and feed supplements. The Insured had Factory Licence of 10968 and Registration No.66481, Drug Control Licence No.30/AP/KR/96/F/CC and VAT Registration and TIN No.28810865472. The Insured took  factory premises at Plot No. 158/4, D. No.2-134 & 135, Industrial Area, Chinnoutapalli Post, Gannavaram Mandalam, Krishna district, on lease, vide lease deed dated 01.08.2011, for manufacturing and storing raw material and final products. United India Insurance Company Limited (the Insurer) was a public insurance company and used to provide different insurance services to the public. The Insured obtained “Standard Fire And Special Perils Policy” No.151003/11/11/11/00000151 from United India Insurance Company Limited (the Insurer), for the period of 19.05.2011 to 18.05.2012, for a sum insured of Rs.2.5/- crores (i.e. Rs.50/- lakhs on Plant & Machinery, Rs. 1.7/- crores on raw materials, Rs.10/- lakhs on Stock in Process and Rs.20/- lakhs on Finished Goods, including packaging materials), stored at factory premises. The Insured had credit facility from State Bank of Hyderabad, MSME branch, Vijayawada and assets and stocks were hypothecated.

Major fire broke out at the factory premises of the Insured in morning of 27.07.2011. Nagaraju, Supervisor of Security Guard on duty informed the Managing Director, on telephone that smoke was emanating from the ventilators at first floor of the Feed Block building. The Security Guards and other staff tried to douse the fire but its spread soon and became out of control. They immediately informed Fire Service Station, at Gannavaram and Hanuman Junction, from where, fire tenders were deputed on the spot, who could control the fire in 3:20 hours. The Insured informed the fire incident to the local police station on 28.07.2011, where it was registered as FIR No.191 of 2011. The Insured informed the Insurer on telephone on 27.07.2011 about the fire incident at its factory premises as the loss. The Insurer appointed M. Purnachadra Rao, Surveyors & Loss Assessors, Guntur, as the surveyor on 27.07.2011, who visited the spot on 28.07.2011, 01.08.2011 and on subsequent dates, inspected the factory premises and took photographs. He noted that (i) Feed Block building, 1st & 2nd floors were affected with the fire. (ii) The machinery installed therein were burnt/charred. (iii) Electrical wiring, installation and fittings were gutted. (iv) Raw materials stored in the southern half of the building (separate room) was totally burnt to ashes. (v) The finished products ready for dispatch, lying in the corridor of the 1st floor of Feed Block was totally burnt. (vi) The finished goods lying in the middle of the preparatory hall also burnt totally. (vii) The medicines stock under process at eastern side of the preparatory hall was burnt and charred. (viii) The packaging materials lying at packing section (south west room) also burnt. (ix) Packaging materials, few raw materials and finished goods stored in the racks of the western side room were totally burnt. (x) Few medicinal stocks under test and calibration lying at northern side of Feed Block all along from the entrance door towards east also burnt.  The surveyor asked the Insured to submit claim form and the requisite papers for assessment of loss. The Insured submitted claim form for Rs.11420119/- for Raw Materials and Rs.3108795/- for Stock in Process and Finished Goods and supplied all the papers to prove the incident and assess the loss. The surveyor submitted Final Survey Report dated 02.02.2012, to the Insurer, assessing the loss of Raw Materials to Rs.3917632/- and Stock in Process and Finished Goods to Rs.476215/-. After deducting for excess clause, he assessed Net loss to Rs.4368847/-. Then the papers were examined by the competent authority, who accepted the report dated 02.02.2012 but reduced the loss to Rs.3125000/- and sent discharge voucher to the Insured for signature on 11.07.2012 for Rs.3121285/- and after signing the discharge voucher, payment of Rs.3121285/- was made.

The Insured gave a legal notice dated 01.02.2013, for supply of a copy of survey report and the reasons for reducing the claim. The Insurer, vide reply notice dated 17.05.2013 informed that after accepting full and final settlement on 11.07.2012, the matter cannot be reopened after six months. Then the Insured filed CC/141/2013 on 16.05.2013, claiming deficiency in service, which was returned for presentation before this Commission, vide order dated 05.12.2017. Then above complaint was filed on 10.01.2018. The complainant stated that the Insured submitted claim for Rs.14528914/-. The surveyor verified the damaged articles and found to be correct. But the surveyor illegally deducted loss of Raw Materials to Rs.3917632/- and Stock in Process and Finished Goods to Rs.476215/-. After deducting for excess clause, he assessed Net loss to Rs.4368847. The Insurer has further deducted the loss to 3121285/- without any basis.

The Insurer filed its written reply on 07.06.2018 and contested the complaint. The facts relating to, obtaining insurance policy and loss occurred to the Insured due to fire on 27.07.2011 have not been disputed. The Insurer stated that the Insured signed the discharge voucher 11.07.2012 for Rs.3121285/- and accepted payment as full and final settlement, without protest, as such, the complaint is not maintainable. The Insurer stated that as soon as the Insured informed about the fire incident at its factory premises, the Insurer appointed surveyor on the same day i.e. 27.11.2011. The surveyor submitted Final Survey Report dated 02.02.2012, assessing the loss to Rs.4368847/-. Finding discrepancies, in the Final Survey Report, the Insurer decided to take an opinion from Charted Accountant. Charted Accountant, after examining the papers found that the surveyor based his assessment on the Statement of Stock submitted to the Bank but ignored the VAT Return supplied by the Insured. There was vast difference between the closing/opening stock as shown in VAT Returns and Statement of Stock submitted to the Bank. Charted Accountant assessed the loss to Rs.32.89 lakhs, on the basis of closing/opening stock as shown in VAT Returns. After deducting 5% towards excess clause, Net Loss was assessed to Rs.31.89 lakhs. The Insurer offered for Rs.3121285/- as full and final settlement of the claim, which has been accepted by the Insurer. Settlement of the claim does not suffer from any illegality. After expiry of six months from the settlement of the claim, the Insured gave legal notice. There was no deficiency in service on the part of the Insurer.

The Insured filed Rejoinder Reply on 16.11.2018. Along with Rejoinder Reply, the Insurer filed Second Opinion Report dated 12.11.2018, submitted by L.S. Rao, Insurance Surveyor, Vijayawada. and Affidavit of Evidence of Tanna Poornachandra Rao. The Insurer filed Affidavit of Evidence of Gyan Prakash, Administrative Officer. Both the parties filed their written synopsis.

We have considered the arguments of the counsel for the parties and examined the record. The surveyor in Final Survey Report dated 02.02.2012, has noted that machinery installed were burnt/ charred and electrical wiring, installation and fittings were gutted. But the Insured did not raise any claim in this respect, in the Claim Form. As such observations in this respect do not appear to be corrected. In paragraph-10 of the Final Survey Report, the surveyor noted that he had found the Bank Statement as authoritative document for assessment of loss. The Insured provided copies of Stock Statement as provided to the bank but there is no certificate of the Bank relating to verification of the Stock at the factory premises of the Insured. In the absence of verification of the stock by the Bank Authority, Stock Statement was merely a document of the Insured. The Insurer found that Stock Statement was not tallying with the closing/opening stock as submitted by the Insured VAT Returns. As such the Insurer took opinion from Charted Accountant. Charted Accountant, after examining the papers found that the surveyor based his assessment on the Statement of Stock submitted to the Bank but ignored the VAT Return supplied by the Insured. There was vast difference between the closing/opening stock as shown in VAT Returns and Statement of Stock submitted to the Bank. Charted Accountant assessed the loss to Rs.32.89 lakhs, on the basis of closing/opening stock as shown in VAT Returns.  Supreme Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Ltd., (2009) 8 SCC 507 and New India Assurance Company Ltd. Vs. Sri Buchiyyamma Rice Mill, (2020) 12 SCC 105, held that Insurance Act, 1939 does not impose any restriction upon the Insurer for appointment of second surveyor. As such, repudiation letter cannot be held as illegal only on the ground that the Insurer took an opinion of Charted Accountant on the Final Survey Report of the surveyor.

Charted Accountant in his report dated 20.06.2012 found that by making double entry of 2000 kgs. of Piperazine Hex Hydrate of Rs.551004/- and 17000 kgs of Calcium carbonate of Rs.15028/- and 500 Kgs of Dextrose purchased on 01.07.2011, value of the stock was increased. Opening stock as on 31.05.2011 was shown as 9014.67 Kgs. On the basis of 9 Invoices  of 01.06.2011 to 9.06.2011, entry were made in May, 2011 of 18000 Kgs. of Piperazine Hex Hydrate. Similar negative stocks of total value of Rs.3628121.24 were noticed. Closing/opening stock as shown in VAT Returns did not tally with Statement of Stock submitted to the Bank. Finding serious discrepancies in the papers of the Insured the Charted Accountant based his assessment on VAT Returns. Charted Accountant further found that processing charges and other indirect expenses were wrongly shown inasmuch as the Insured business entails five direct expenses which were analysed as per enclosure-6. Processing charges for the first four months, for a turnover of Rs.406.87 lacs was Rs.4384111/- i.e. 10.78% of gross turnover and in the processing charges for full year of 12 months, for a turnover of Rs.1141.22 lacs was Rs.4594117/- i.e. 4.03% compared to  2009-10 of 6.19% & 2010-11 of 5.01%. On the basis of various anomalies as noted in the report, some of which have been pointed out above, Charted Accountant had reduced the value of the stock which were found entered two times in the stock statement as well as negative stocks from the valuation as determined by the surveyor as the surveyor has not taken into account the double entry as well as negative stock entry.

Neither in the complaint nor in rejoinder reply and evidence, the Insured has given explanation of these discrepancies. In the circumstances we do not find any illegality in the settlement of the claim for an amount other than assessed by the surveyor. Supreme Court in Amravati District Central Co-operative Bank Limited Vs. United India Fire and General Insurance Company Limited, (2010) 5 SCC 294, upheld deduction under excess clause was according to terms of the policy. Settlement of the claim does not suffer from any illegality.

ORDER

In view of the aforesaid discussion, the complaint is dismissed.