NEW INDIA ASSURANCE CO. LTD. vs SONIA OVERSEAS PVT. LTD.

These two appeals have been filed under section 19 of the Consumer Protection Act, 1986 against the order passed by the U.T. Chandigarh State Consumer Disputes Redressal Commission, (hereinafter referred to as ''the State Commission'') in complaint case No. 118/2007, "Sonia Overseas Pvt. Ltd. versus New India Assurance Co. Ltd.", vide which the claim filed by the complainant Sonia Overseas Private Limited, was allowed and the OP Insurance Company was directed to pay a sum of 52,16,762.62/- alongwith interest @12% p.a. with effect from 24.05.2005 till payment and also cost of 20,000/- was allowed. The Insurance Company was also directed to pay punitive damages of 1 lakh under section 14 proviso of the Act for indulging in unfair trade practice.

Briefly stated, the facts of the case are that the complainant M/s. Sonia Overseas Private Limited is engaged in the manufacturing of Zinc Sulphate (Agro Grade), unwrought Zinc, Ferous Sulphate (Agro Grade) etc. at Industrial Area Phase - I Panchkula. The company had obtained cash-credit limit of 95 lakh from its banker, Canara Bank, Sector - 16, Panchkula against hypothecation of stocks etc. and the stock statements and returns were being duly submitted / verified. The Company had obtained insurance cover from the OP Insurance Company in the shape of ''special fire and special perils policy'' for a sum assured of 95.75 lakh on stocks of raw material, semi-finished and / or finished goods, another policy for a sum of 55 lakh for the stocks and still another policy for 25 lakh consisting of two components, i.e., 7.75 lakh for building and other structures and 17.25 lakh for plant and machinery and/or equipment. The description of the stocks includes Zinc Ash, Zinc Skimming, Zinc dross, unwrought Zinc, Zinc residue, Zinc sulphate, packing material etc. It has been stated in the complaint that on 03.08.2004, at about 3 AM, there were flash floods in the area, following continuous and incessant rain the previous day, due to which the factory of the complainant was also flooded and the level of the water was ft. high, with a heavy and strong current. The heavy and deep fury of flood causing inundation continued till 03.08.2004 evening after which, the water started receding but the said receding continued upto 05.08.2004. The premises, stocks, plant & machinery of the complainant suffered extensive damage due to the floods. The incident was reported to the insurance company on 03.08.2004 which appointed Shri Rakesh Khanna as spot surveyor and M/s. A.K. Govil & Associates as final surveyor. The said surveyors visited and inspected the site and collected the relevant documents and information. Senior officers from the OP Insurance Company also visited the spot. The estimated loss lodged in respect of the stocks lying at the insured premises was 77,75,970/- as per claim form and the actual loss submitted later on, amounted to 93,88,747.95/-. The said loss was also intimated to the Central Excise Authorities at Panchkula on telephone, followed by letter dated 04.08.2004 and the Excise Authorities also arranged inspection of the

stocks lost in the flood and determined the quantity of stocks damaged by arranging weighment noted in the relevant Excise Register. The surveyor A.K. Govil & Associates assessed the loss to the tune of 52,16,762/- and asked the complainant to give consent for payment of the said amount. The complainant gave consent in the hope that the amount shall be paid soon, but in spite of repeated visits and attempts, the amount was not paid. The Insurance Company appointed another surveyor N.S. Sidhu after a period of 2 years in August 2006 and additional documents were supplied to the said surveyor. However, the claim was repudiated by the Insurance Company vide letter dated 13.02.2007.

The consumer complaint in question was filed on 16.05.2007/ 30.01.2007 claiming an amount of 93,88,748/- for the loss suffered and 6,08,152/- as compensation on account of delay and thus, the total amount claimed was 99,96,900/-. The complaint was contested by the OP Insurance Company by filing written reply in which they stated that after the floods on 03.08.2004, a preliminary survey was got conducted through Sh. Rakesh Khanna, Surveyor and then M/s. A.K. Govil & Associates were deputed to conduct the final survey and assess the loss. However, both these surveyors gave reports relying upon the stock statements of the Excise Department and did not carry out physical checking of the stocks. The Insurance Company appointed another surveyor, M/s. Consolidated Surveyors Private Limited for verification of records saying that under section 64UM(2) of the Insurance Act, 1968, they were competent to take the help of one or more surveyors to arrive at a just and fair conclusion regarding the quantum of loss. M/s. Consolidated Surveyors computed the maximum loss as 29,24,128/-, but also brought out that there was violation of condition 8 of the Insurance Policy, as fraudulent means were used by the insured claimant. The Insurance Company repudiated the claim because of breach of condition 8 of the policy. In the grounds of repudiation, the Insurance Company stated that the insured had not provided purchase bills of Zinc Ash Residue purchased in the month of May & June 2004. The insured was reported to be holding 722.535 MT stock of Zinc Ash Residue on the date of loss and the material consumed from 01.04.2004 till 31.07.2004 was 490 MT. The quantity purchased had not been shown in the raw material register maintained under central excise rules, but the purchase value had been taken just to increase the value of closing stock. The quantity of Zinc Ash Residue after the loss verified by the Excise Department is 125.070 MT which includes the quantity purchased, i.e., 116 MT during May & June 2004. Further, it was made out from the photographs that although the factory premises were inundated and water entered the Zinc Ash Residue godown and Zinc Sulphate godown, no stock of Zinc Ash Residue had been washed away as was visible from the photographs. It is further averred that the specific gravity of Zinc Ash Residue is 4.8 which means that it is 4.8 times heavier than water. The material was insoluble in water and its solubility was 0.005% only. In view of these facts, only a very strong current of water can carry the material like Zinc Ash Residue to some distance. The water level inside the factory premises was between 1'' to 1.5''. It is further stated in the reply that Zinc Sulphate was soluble in water and hence, its loss to some extent was justified. The material was, however, stored loose outside the godown. Moreover, the Zinc Sulphate godown is situated at plot no. 33, and opens in plot no. 34. Plot No. 33 had not been insured and hence the claim for Zinc Sulphate also was not payable. Further, the maximum stock that could be stored in the godown was 315.384 MT and that also, when the stock was stored upto a height of 5.5''. If the stock is stored up to that height, it will act like a bandh and water cannot enter the godown. The volumetric analysis proved that the stock shown as lost could not be stored in the excise bounded godown of Zinc Ash Residue. Moreover, the factory had stock of 182.560 MT of Zinc Skimming also which was stored in all open area available.

The State Commission vide impugned order accepted the complaint and directed the OP Insurance Company to pay a sum of 52,16,762.62 as assessed by the surveyor M/s. A.K. Govil and Associates vide their report dated 24.03.2005 alongwith interest @12% p.a. within two months. The Insurance Company was also directed to pay a compensation of 1 lakh for unfair trade practice. The State Commission observed that there was no evidence that the complainant had used fraudulent means to claim the amount in question. Both the complainants and the Insurer have filed appeals against this order of the State Commission.

During hearing before us, the learned counsel for the Insurance Company has drawn our attention to the repudiation letter dated 13.02.2007 issued by the Insurance Company in which the points given in the written statement have been reproduced. It has mainly been stated that the complainant had tried to avail higher benefit under the policy by showing inflated purchase of Zinc Ash Residue. Moreover, the stock of Zinc Sulphate was not covered under the policy as its godown was outside the scope of the policy. In this way, the insured had violated condition no. 8 of the policy which provides that if any false declaration is made or a fraudulent claim is made, the benefits under the Policy shall stand forfeited. The learned counsel reiterated the facts stated in the written statement and letter of repudiation, saying that Zinc Ash Residue could not be carried away by flood waters because of high specific gravity of 4.8 and being insoluble in water. The stock of Zinc Sulphate could be lost in the flood, but in the present case, such stock were placed in godown of plot no. 33, which was not insured.

Learned counsel for the complainant has drawn our attention to the order passed by the State Commission saying that the loss of stock had been reported to the Excise Department in connection with the remission of duty for finished product lost in the flood. The Excise Department had arranged the verification and determined the quantity of stocks left in the premises by arranging weighing and put their noting on the excise register for the lost stock after the flood. The learned counsel further says that there was no basis for the second surveyor to say that the stock was placed in plot No. 33. He has drawn our attention to the report made by the spot surveyor Mr. Rakesh Khanna saying that the version given by the spot surveyor is different from that given by the second surveyor. Moreover, as per the report of the spot surveyor, the level of water was 4'' high in that area and the current of flood was also very strong. In the report given by M/s. A.K. Govil and Associates also, the water level had risen to a maximum height of about 3'' and the water remained stagnant for about 30 hours, as a result of which Zinc Ash Residue and Zinc Sulphate were either washed away or got mixed up with muddy water. The learned counsel further stated that the State Commission had rightly observed that Zinc Sulphate was highly soluble in water and Zinc Ash Residue was also soluble in water to some extent. In view of these facts, the report given by second surveyor should not have been believed by the Insurance Company. The learned counsel also stated that the Insurance Company had not supplied the copies of terms and conditions to them.

After the main arguments in the case were over, it was considered necessary to seek clarifications from the parties regarding the conflicting reports submitted by the surveyors. Accordingly, the spot surveyor, Mr. Rakesh K. Khanna, the main surveyor Mr. A.K. Govil and the second surveyor Mr. N.S. Sidhu were heard in the presence of counsel for the parties. The spot surveyor, Mr. Rakesh Khanna and the main surveyor Mr. A.K. Govil stated that the entire stock of raw material and zinc sulphate fertilizers were lying stored in plot No. 34 at the time of incident. However, Mr. N.S. Sidhu the second surveyor stated that the stock of zinc sulphate was lying in plot No. 33, which was not insured. The second surveyor, however, stated that his assessment was based on the photographs only, since he was deputed to assess the loss, nearly 2 years after the incident. The main surveyor, Mr. A.K. Govil submitted details of computation of loss on different items, namely, zinc ash, zinc sulphate and plant & machinery. Out of the total assessed amount of 52,16,762.62, a sum of 34,42,833.42 was in respect of the zinc ash raw material, whereas the assessment for loss of zinc sulphate was 17,67,821.93. The loss to plant & machinery was 6,107.27 only. It was further stated by the spot surveyor and main surveyor Mr. A.K. Govil that the stock of zinc sulphate was lying in bags as well as lying loose on the said premises. The second surveyor, however, maintained that the fertilizer zinc sulphate was lying in bags only. Further, during hearing at the time of seeking clarifications from surveyors, the learned counsel for the complainant submitted a set of rulings, saying that the appointment of second surveyor or appointment of investigator was illegal in accordance with the view taken by various courts including the Apex court in their judgments, since there was no reason to discard the report of the first surveyor.

We have examined the entire material on record and given a thoughtful consideration to the arguments advanced before us.

The basic question that arises for our consideration is whether the complainant deserves to be compensated for the alleged loss of raw material and finished goods during the said incident of floods. The case of the OP Insurance Company is that both the preliminary surveyor Mr. Rakesh Khanna and the main surveyor Mr. A.K. Govil and Associates based their reports upon the statements of the Excise Department and they did not physically verify the stocks on the premises of the insured. This prompted the insurance company to appoint a second surveyor, M/s. Consolidated Surveyors for verification of records and bills. It has been made clear in the repudiation letter sent by the OP Insurance Company and also in their written statement before the State Commission that no stock of zinc ash residue had been washed away during floods. As per testing of a sample of zinc ash residue done in the International Testing House, Panchkula, it was stated that the specific gravity of zinc residue was 4.8, meaning thereby that such residue was 4.8 times heavier than water. The solubility of zinc ash residue in water is very little, rather zinc ash is stated to be insoluble in water. Under these circumstances, it is clear that unless the water current was so strong that it could physically wash away the zinc ash, there was no question of zinc ash having dissolved and carried away by water. The heaps of zinc ash residue are visible in the photographs attached with the claim, meaning thereby that zinc ash had not been washed away during floods. It has also been stated by volumetric analysis that if the stock of zinc residue is stored upto a height of 5''5", the maximum stock which can be stored in the godown is 315.384 MT. If the stock is stored upto a height of 5''5", it will act like a bandh and water could not enter into the godown.

In the light of the facts stated above, it is held that there is no evidence of zinc ash residue being washed away during floods, looking at the physical properties of specific gravity and solubility of such a raw material. The complainant is, therefore, held not entitled for any compensation for the loss of zinc ash residue.

Now, coming to the loss of the finished product zinc sulphate, it is an admitted fact that zinc sulphate is a fertilizer, soluble in water. It can be stated, therefore, that during the floods in question, the finished product, zinc sulphate could have been washed away, causing loss to the complainant for which they are required to be compensated. The spot surveyor as well as the main surveyor Mr. A.K. Govil have stated that some of the stocks of zinc sulphate was lying in bags and the other stock in loose form on the ground, but these stocks were lying in plot No. 34 only. The second surveyor, however, has maintained that the stock of zinc sulphate was lying on the adjoining site, i.e., Plot No. 33, which was not covered under insurance. The assessment made by the second surveyor is based on photographs only, because the said assessment was made after a lapse of 2 years of incident. In this regard, it shall be worthwhile to quote from the report given by the spot surveyor Mr. Rakesh Khanna, in which it has been stated as below:- "Behind this hall, there was another big hall where crystallization plant & packing machine were installed. On one side, there was a storage place of Zinc Sulphate. In this storage place, some bags of filled Zinc Sulphate & also loose crystals of Zinc Sulphate were present badly affected with water. The insured informed that crystals of Zinc Sulphate were also lying stored on the floor of this hall which got washed away with water. Further on the side of the hall there was a covered passage, where some material filled bags were present & this entire passage was filled with water. Insured had also occupied 2 rooms constructed in the passage area of plot No. 33 (Plot No. 33 is also owned & occupied by insured where another unit of galvanisation is situated). Both these rooms have entrance from insured''s factory at plot No. 34 & not from Plot No. 33. In the rear room, mud produced during the processing was lying stored filled in bags, while in the front room some empty bags were floating & some filled bags reportedly of Ferrous Sulphate were present at one corner."

It has been brought out that the insured had occupied two rooms, constructed in the passage area of Plot No. 33. Although these rooms had entrance from the factory of the insured at Plot No. 34; in the rear room, mud produced during processing was lying stored filled in bags, while in the front room, some empty bags were floating and some filled-bags reportedly of ferrous sulphate were present at one corner. During hearing before us also, the second surveyor could not explain as to how he had reached the conclusion based on photographs only that zinc sulphate was stored in uninsured Plot No. 33.

In view of the evidence on record and the facts brought out during hearing of the parties, it is, therefore, made out that the insured is entitled to be compensated for the loss of stock of zinc sulphate during floods.

The State Commission, in the impugned order observed that the appointment of Mr. N.S. Sidhu, Director, M/s. Consolidated Surveyor Private Limited was illegal as it was in violation of section 64 UM (3) of Insurance Act, 1938. We, however, find no reason to agree with this conclusion of the State Commission, relying upon the judgment given by the Hon''ble Apex Court in the case, " Sri Venkateswara Syndicate vs. Oriental Insurance company Limited" [2009 (8) SCC 507] , where the Hon''ble Apex Court held in unequivocal terms that there was no prohibition in the Insurance Act, 1938 for appointment of a second surveyor by the Insurance Company, but while doing so, the Insurance Company had to give satisfactory reasons for not accepting the report of the first surveyor.

In the instant case, the OP Insurance Company have made it very clear that the assessment made by the spot surveyor and the main surveyor were based on the record of the Excise Department only and that they never carried out physical verification of the stocks. It is held, therefore, that the insurance company were well within their rights to appoint another surveyor.

Further, section 64 UM(3) of the Insurance Act 1938 reads as follows:- "(3) The Authority may, at any time, in respect of any claim of the nature referred to in sub-section (2), call for an independent report from any other approved surveyor or loss assessor specified by him and such surveyor or loss assessor shall furnish such report to the Authority within such time as may be specified by the Authority or if no time-limit has been specified by him within a reasonable time and the cost of, or incidental to, such report shall be borne by the insurer."

The above section makes it clear that the Insurance Regulatory Development Authority may call for an independent report at any time from any other approved surveyor or loss assessor etc. During the course of arguments, the learned counsel for the complainant submitted that the Insurance Company was required to refer the matter to the Insurance Regulatory Development Authority (IRDA), rather than appointing a second surveyor. The learned counsel referred to the judgment of the Hon''ble Supreme Court in Sri Venkateswara Syndicate vs. Oriental Insurance company Limited" [supra] and some judgments of the Hon''ble Commission in various cases from time to time.

However, we do not find any justification to agree with the contention of the complainant that the Insurance Company was required to refer the matter to the IRDA, rather than appointing a second surveyor. There is no such obligation cast upon Insurance company to take such recourse. The Judgment of the Hon''ble Apex Court in Sri Venkateswara Syndicate vs. Oriental Insurance Company Limited" [supra] , makes the legal position on the issue absolutely clear as the Insurance Company has furnished reasons for appointing a second surveyor.

Based on the above discussion, it is held that the complainant is entitled to be compensated for the loss of zinc sulphate only, due to the incidence of floods. Mr. A.K. Govil, the main surveyor carried out the necessary computation for loss on account of washing away of zinc sulphate as 17,67,821.93/-, out of the total computation of loss of 52,16,762.62/-. He submitted a document dated 11.02.2015 in this regard which has been placed on file. The complainant has already been paid a sum of 29,24,128/- by the Insurance Company in compliance of order dated 15.12.2008 passed by this Commission. The amount paid in excess by the Insurance Company shall, therefore, be refunded to them by the complainant within a period of 4 weeks from today. There shall be no order as to costs.

The statutory amount alongwith accrued interest, if any, be refunded to the appellant.