Navajyoti Tobacco Enterprises (P) Ltd vs UNITED INDIA INSURANCE COMPANY LTD

MR. Justice K.S. Gupta, Presiding Member-Complaint by M/s. Navajyoti Tabacco Enterprises (P) Ltd. was filed on 30.8.1997 impleading United India Insurance Company Ltd. as opposite party No. 1 Andhra Bank as opposite party No. 2, S. Radhunathan and Associates, Surveyors as opposite party No. 3, C.J. Rao, Chartered Engineer and Surveyor as opposite party No. 4 and Chairman, United India Insurance Company Ltd. as opposite party No. 5. By the order dated 19.3.2002 the names of opposite party Nos. 2 to 4 were ordered to be deleted from the array of parties. Vide order dated 13th September, 2002 the complaint was dismissed relegating the complainant to Civil Court. Against this order the complainant filed Civil Appeal No. 8 of 2003 which was disposed of by the Supreme Court by the order dated 20th January, 2003 in following terms: "The learned Senior Counsel for the appellant, pointing out ground No. 1 in the grounds of appeal submitted that certain statements were wrongly recorded. If that be so, it is open to the appellant to approach the Commission. In this view learned Counsel seeks permission to withdraw the appeal to approach the National Commission. Hence the appeal is dismissed as withdrawn."

THEREAFTER, in MA No. 83/2003 filed by the complainant, said order dated 13th September, 2003 was recalled by the order dated 9.4.2007.

ALLEGATIONS made in the complaint are being set out without reference to the averments relating to opposite party Nos. 2 to 5 as also the reliefs claimed against them. It was alleged that complainant is a private limited company and had been carrying on business of purchase and sale of tobacco, tobacco seedlings and other allied products and was registered under Tobacco Board Act, 1975. Complainant had been storing tobacco material in the godowns of M/s. Hindustan Graphite Refinery and Products Co. at D. No. 14-1-51, GNT Road, Kovvur taken on lease basis and the leased godowns were equipped with electrical fittings. Complainant had hypothecated the tobacco material with Andhra Bank and availed of the facilities of Key Cash Credit Loan (KCC) and Open Cash Credit (OCC) from the bank. On 27.11.1990 the bank purchased insurance policy ''C'' bearing No. 150605/11/13/10 for a sum of Rs. 33,29,000 for the period from 29.11.1990 to 28.11.1991. Policy covered F and C risks in respect of the stocks of tobacco in bales and/or in cases and/or in loose declared as under: Kgs. Value (Rs.) (i) B.Y.-152 cases 30,400 8,20,000 (ii) B.Y.-2"-200 bales 20,000 5,40,000 (iii) L.B.Y.-37 bales 3,700 1,00,000 (iv) L.B.Y.-77 cases 15,400

,14,000 (V) L.B.Y.-2"-445 bales 44,500 10,40,000 (Vi) Brown - 248 bales - 4,15,000 Total: 33,29,000 4. It was alleged that on 27.5.1991 at around 4.30 a.m. the employees of the complainant''s lessor noticed outbreak of fire in the godowns due to electric short circuit. Upon receiVing intimation of fire, the complainant informed opposite party No. 1 Insurance Company, Fire Officer and Police Officers of KoVVur on 27.5.1991 itself. In the fire, stock-in-trade, furniture and fittings were gutted and the entire godown building worth about Rs. 5,00,000 was collapsed and reduced to ashes. It was further stated that on 28.5.1991, C.J. Rao, SurVeyor appointed by the Insurance Company Visited the site, conducted spot inspection, took photographs and installed the stock register on eVery page showing the stock commencing from 12.1.1984 till 26.4.1991. On 29.5.1991 the Andhra Bank intimated the Fire Officer, KoVVur about the particulars of the stocks and its Value as Rs. 33,19,822. On 6.6.1991, S. Raghunathan and Associates, another SurVeyor sent a letter to the said Bank calling upon it to submit eleVen documents and copy of the letter was also addressed to the Director, Central Tobacco Research Institute at Rajahmundry for testing of the samples of the damaged stocks of tobacco and report thereon. The results of the samples as per the report of CRTI are as follows: Sl. No. Sample % of Nicotine % of Sugar % of Chloride Remarks 1. Unburnt portion of tobacco redried strips 1.51 15.20 0.69 A feeble smell of No. 3 ash resembles that of FCV 2. Burnt black portion of redried strips 0.71

99 1.67 TOBACCO ash 3. Ash - - 3.70 5. Then there is reference of the correspondence which the Surveyors/Insurance Company had with the Andhra Bank and the complainant. It was pleaded that opposite party No. l-Insurance Company had been delaying the settlement on one pretext or the other and demanding production of wholly irrelevant, unwarranted and extraneous documents for about 5 years. Attributing deficiency in service, direction was sought to be passed against the opposite party-Insurance Company to pay a total amount of Rs. 1,11,99,600 as detailed in para-21 as under: Rs. (i) Value of the stocks of tobacco goods insured as per policy 33,29,000.00 (ii) Interest @ 24% p.a. thereon from 27.5.1991 to 31.3.1997 46,60,600.00 (iii) Compensation for loss of profit in the business for 6 years @ Rs. 2,00,000 per year on account of delay in settlement of claim 12,00,000.00 (iv) Compensation for mental distress, harassment and inconvenience 20,00,000.00 (v) Cost of correspondence for more than five years. 10,000.00 Total: 1,11,99,600.00

OPPOSITE party-Insurance Company contested the complaint by filing written version. Complaint was stated to be barred by limitation. Issuance of Insurance policy ''C'' in question for Rs. 33,29,000 was not denied. However, it was stated that the policy was issued in the name of Andhra Bank, Kovvur - Account M/s. Navjyoti Enterprises Pvt. Ltd., complainant. It was further stated that on receiving intimation by the letter dated 27th May, 1991, the answering Insurance Company deputed C.J. Rao, Surveyor. Initialling of the alleged stock register by Shri C.J. Rao would not amount to verification of the correctness or genuineness of the entries made in the register. All pages of the register were initialled by the Surveyor as a precaution to avoid further chance of addition or alteration. While intimating the Insurance Company of fire through the said letter, the complainant did not specify the quantity and value of the stocks alleged to have been lost in fire whereas in the report to the Station Fire Officer on 27.5.1991 the complainant ventured to mention the quantity in bundles and value of the stocks, etc. Certificates issued by the Fire Officer and/or the Police Officer did not substantiate the authenticity of the quantity of stocks at the time of fire as alleged by the complainant. Policy covered the stocks of FVC of different grades. It was further alleged that the stocks of tobacco pertained to 1984 crop and the same must have lost the colour, quality and weight by lapse of period of 7 years. This fact was also confirmed by Andhra Bank in the affidavit of V. Balakrishnan filed in OS No. 25 of 1991 instituted by the Bank against the complainant for recovery of the outstanding dues which is still pending. It was claimed that on the date of fire, the stocks was not having marketable value. There is reference of the correspondence exchanged between the complainant and the Surveyors of Insurance Company. It was alleged that because of non-co-operation and non-submission of material by the complainant and the said Bank, the Surveyor was unable to assess the loss and answering opposite party was, therefore, constrained to repudiate the claim vide letter dated 2.12.1996. C.J. Rao, Surveyor participated in the survey till August 1994 and thereafter because of his accident on 2.9.1994, causing him grievous injuries resulting in a number of operations, he remained confined to bed and in October 1995 he informed the Insurance Company about his inability to carry out the work of joint survey with S. Raghunathan and Associates, Surveyor. It was stated that answering opposite party is even now prepared to take decision in the matter if the complainant or the Bank, supplied and furnished the authenticated copies of the stock register maintained in Form 28 and monthly statements filed by the complainant in Forms 31 and 32 as required under Section 37 of the Tobacco Board Rules along with the audited balance sheet from 1.4.1984 to 31.3.1991 and also the Inspection reports by the inspectors of the Bank. Denying deficiency in service, liability to pay the amount claimed was refuted.

WE have heard Mrs. Anjani Aiyagari for the complainant and Mr. A.K. De for the Insurance Company and also considered the written arguments filed.

LOSS was assessed on two different methods by S. Raghunathan and Associates, Surveyor in the final report dated 12.8.1996. Loss under alternate method was assessed taking the total weight of tobacco stated to have been lost due to fire as 1,48,556 kgs. Mr. De fairly conceded that assessment of loss in the present case is to be made on alternate method. Paras 13 and 18 of the said final survey report which are material, are reproduced below: 13.00 Age of stocks 13.01. The insured informed that the stocks were held in the godown and burnt were of 1984 crop. It will be pertinent to note that the age of the tobacco would affect their grade and recovery of tobacco would, therefore, influence the realisable market value. 13.02. According to Andhra Bank letter dated 10.12.1986 to Navajoyti Tobacco Enterprises (P) Ltd., their efforts to dispose of the stock in liquidation of the liability have not been successful since the stock could not be sold due to lack of market. 18.00 Assessment 18.01. As regards assessment, as mentioned in our earlier para, due to violation of condition 6-B of the policy insurers have no liability under this claim. The insured had confirmed in their letters and during various meetings, that they did not have documents other than those submitted by them vide their letter dated 21.3.1992. As made out very clearly in our letters to the insured, bankers and the stock at the location where the fire took place, period of storage and extent of damage could not be arrived at on the basis of their records. As regards the bank records, our final letter dated 25.10.1995 to the Andhra Bank, Kovvur branch is self explanatory. The bankers vide their last letter dated Nov. 95 confirmed that they also furnished whatever extent they could furnish the claim papers available with them. Insurers attention is drawn to our remarks under para No. 17 of this report wherein it is clearly mentioned that as to how the final assessment could not be carried out with available information and records from both the bank and the insured. Though the charred remains were sent for testing at the Tobacco Testing Lab, Rajamundry, the results did not confirm the particular grades for which the claim was preferred. It may also be noted that in pursuance to United India, R.O. letter dated 8.12.1995, Andhra Bank officials along with Mr. V. Surya Rao, Managing Director of the insured company had a discussion with us on 15th and 16th December, 1995 at our office in Madras. Reference is also invited to Andhra Bank letter dated 14th December, 1995, in response to our letter dated 25.10.1995. During the discussion it was explained by Andhra Bank officials and the insured that apart from the particulars and the documents, already made available, no further informations are available. Only copies of borrowers statements have been submitted and that too without bank''s seal and signature. Hence status quo is maintained as regards proof of availability of stock as per regular stock records. It is also gathered during the discussion that OCC stocks amounting to Rs. 14,52,585, on which the bank do not have control have been transferred on 27.8.1987 to KCC godown. Two different reasons were attributed, by the insured and the bank, for the above shifting of the stock. Hence if at all to be considered, only KCC stocks amounting to Rs. 18,67,237 can be taken into account as available stock which were supposed to have been physically verified by the bank. In their letter dated 13.3.1996, Andhra Bank, Kovvur had confirmed this KCC figure and also expressed their refusal to make available the inspection records of these stocks for our study. Hence, if the insurers choose to settle the claim under their discretion, a provisional assessment based on one particular document, viz., 1984 audited balance sheet which alone could be considered to certain extent as an authenticated record (as it was done by professional auditors, as per the company law norms), will be Rs. 8,74,619.00 as follows: 18.02 According to the insured, subsequent to 1984 no transactions were made. It could, therefore, be relied that 1984. Audited accounts are the basis. According to 1984 audited accounts following amount are appearing. Stocks Rs. 51,34,900.00 Amount due to Bank (KCC Rs. 10,49,233.35 + OCC Rs. 9,42,254.52 Rs. 19,91,487.87 Since the bank has advanced 70% on the stock, the value of stock must have been Rs. 28,44,979. Sum insured : Rs. 33,29,000.00 There is heavy under insurance inasmuch as against value of Rs. 51,34,900 (As per certified accounts) the same is insured for Rs. 33,29,000.00. Hence the under insurance factor is 0.65. Therefore, if the insurer desires to settle the claim, in their discretion, in no case it can exceed Rs. as detailed below. Applying the average factor: Rs. 28,44,979 @ 0.65= Rs. 18,49,237 Less depreciation @ 50% on the above Rs.

,24,619 LESS lump sum salvage value Rs. 50,000 Rs. 8,74,619 An alternate assessment, based on the realizable value of stock prior to the fire, is as detailed below: Total weight of tobacco stated to have been lost due to fire 1,48,556 kgs. At Rs. 3 per kg., as suggested by Shri. C.J. Rao, Rs. 4,45,668 LESS lump sum salvage value Rs. 50,000 Net amount to be considered. Rs. 3,95,000 Insurers are advised to obtain letter of indemnity from the insured as well as bank. 9. Quality of the stocks burnt would be an important factor in determining the quantum of compensation payable by the opposite party-Insurance Company Report of Central Tobacco Research Institute, Rajahmundry (CTRI) which is extracted in para No. 8 of the complaint, would show that the percentage of nicotine was 1.51 while that of sugar was 15.20 of the unburnt portion of tobacco redried strips. Percentage of chloride thereof was 0.69. During the course of arguments Mrs. Aiyagari, Advocate drew our attention to the relevant page of the Text Book called "Tobacco Production Technology" published by CTRI (at page 342) and Table-I of the article with the heading ''Prospects for Improvement of Quality in Indian Flue-Cured Tobacco'' published in Indian Tobacco Bulletin, Vol. 3, No. 1, 1971. Table given at page-342 of the said Text Book being material, is reproduced below: Quality Characteristics of Flue-cured Tobacco Character Traditional Northern Southern Karnataka Black soil light soil light soil light soil Nicotine% 1.0 to 2.7 1.6 to 2.9 0.9 to 1.1 1.5 to 1.8 Total N% 1.5 to 2.5 1.8 to 2.7 2.3 to 2.6 1.9 to 2.7 Reducing Sugars% 8.6 to 20.9 13.8 to 23.5

1 TO 17.5 18.0 TO 27.0 Chlorides % 0.5 TO 2.0 0.7 TO 1.5 0.5 TO 0.9 0.1 TO 0.2 Moisture Equilibrium% 12.2 TO l5.4 14.0 TO l7.1

7 TO l3.6 13.0 TO l5.0 Pore volume (ml/g) 0.11 TO 0.19 0.14 TO 0.24 0.13 TO 0.15 0.13 TO 0.17 Filling value (cc/g) 2.6 TO 2.8 2.2 TO 2.8 2.6 TO 3.5 2.9 TO 3.3 Table-I of the above article which TOo is material, is given below: Constituent/Quality Index Acceptable limits Total nitrogen (%) 1.0 - 3.0 Protein nitrogen (%) 0.4 - 1.3 Amino nitrogen (%) 0.1 - 0.4 Nicotine (%) 0.7 - 3.0 Ether extractives (%) 3.8 - 7.5 Total sugars (%) 10.0 - 26.0. Reducing sugars (%) 8.0 -24.0 Organic acids (%) 9.0-22.0 Ash (%) 9.0- 15.0 PH 4.6 -5.5 % Total sugars /% Total N 8-14 % Reducing sugars/% Total N 7-13 % Total sugars/% Nicotine 8-14 % Reducing sugars/% Nicotine 7-13 % Total sugars /%Proteins 2.5-5.5 % Reducing sugars /%Proteins 2.0 - 5.0 % Total N / % Nicotine 12. 12 NP Add: Stripping charges per kilogramme : Rs. 1.50 NP Redrying and packing charges per kg. : Rs. 8.00 NP Cost of production per kg. of tobacco : Rs. 21.62 NP Thus, the value of 1,48,556 kgs. of stocks @ Rs. 21.62 NP. would be Rs. 32,11,780. On market value basis the computation would have to be made thus: (A) As per the evidence of B. Rama Krishna, Surveyor, the export price obtained by Polisetti Somasundaram in 1990 was US $ 1.50 which is equivalent to Rs. 42.00 (B) However, as per Minimum Export price fixed by the Government- (a) LBY - 69,500 kgs. @ Rs. 26.90 : 18,69,550 (b) LBY2 - 44,500 kgs. @ Rs. 23.25No. : 10,34,625 (c) Brown - 34,556 kgs. @ Rs. 14.00 (which is the average of Rs. 15.50 and Rs. 12.50) : 4,83,784 Aggregate minimum market value : 33,87,459 11. Submission is, however, without any merit. Aforesaid two tables give the minimum and maximum limits of nicotine, sugar and chloride. Considering the said report of CTRI the percentages of nicotine, sugar and chloride of the unburnt portion of tobacco redried strips tested was far below the maximum limits given in two tables. Indisputably, the stocks of tobacco burnt was of the crop of 1984. Same was about 7 years old on the date of fire on 27.5.1991. Stock could not fetch the value similar to that of the crop of 1990-1991. Complainant has not led any cogent evidence that the striping charge incurred was 1.50 per kg. and redrying and packing charges were Rs. 8.00 per kg. as stated in the report of B. Ramakrishna, Surveyor appointed by the complainant filed after more than 12 years of the occurrence. It also does not appeal to reasons that on one kg. tobacco valued at Rs. 12, the striping, redrying and packing charges would be Rs. 9.50 per kg. Evidence is missing that the value of raw tobacco was Rs. 38,30,639 as alleged, computation of loss, thus, cannot be made on costs of production basis. Again, aggregate market value of stocks cannot be determined at Rs. 33,87,469 based on the export price. Due to highly depressed percentages of nicotine, sugar and chloride of burnt stocks, the export price fixed by the Government cannot be made the basis for assessment of loss in this case. Needless to repeat that the said Surveyor in alternative has assessed the loss at Rs. 3 per kg. It is stated that it was made on the suggestion of C.J. Rao, Surveyor. It was pointed out that in the preliminary survey report dated 17.9.1991 Shri Rao has not suggested the computation of loss of stocks at the rate of Rs. 3 per kg. nor has Shri Rao filed any affidavit affirming that any such suggestion was made by him to the said Surveyor. Above rate is on lower side. Considering the entire facts of the case, we are of the view that interest of justice will be met if the value per kg. is computed at Rs. 7 including all charges instead of Rs. 3. Computing at this rate, the total value of the stocks of 1,48,556 kgs. which is not disputed by the Insurance Company would come to Rs. 10,39,892 and after deducting lump sum salvage value of Rs. 50,000, the net amount payable would be Rs. 9,89,892. 12. Admittedly, policy in question was purchased by Andhra Bank as the complainant was availing of the facilities of KCC and OCC from that Bank. Bank was alleged to be charging interest on the advanced amount @ 18% p.a. We quantify the rate of interest on the said amount @ 12% p.a. payable from after two months of the report of Surveyor dated 12.8.1996. Obviously, the awarded amount is to be paid to the said Bank who has even filed suit for recovery of the outstanding dues and not to the complainant.

FOR the foregoing discussion, the complaint is partly allowed with direction to the opposite party-Insurance Company to pay aforesaid amount of Rs. 9,89,892 with interest @ 12% p.a. from after two months of the report of Surveyor dated 12.8.1996. Insurance Company will pay Rs. 15,000 as cost. Awarded amount will be paid to the concerned branch of the Andhra Bank within two months from today. Complaint partly allowed.