Oriental Insurance Company Ltd vs M/s Dangi Financial & Management Consultancy Pvt. Ltd

Heard Mr. Vishnu Mehra, Advocate, for the appellant and Mr. Anand Patwardhan, Advocate, for the respondent.

Oriental Insurance Company Limited (the opposite party) has filed aforementioned appeal from the order of State Consumer Disputes Redressal Commission, Maharashtra, dated 13.06.2014, passed in CC/01/213, partly allowing the complaint with cost of Rs.20000/- and directing the appellant to pay Rs.1572887.15 with interest @6% per annum from 28.05.2001 to the respondent.

The office has reported that this appeal has been filed with delay of 17 days. The appellant has filed IA/6100/2014, for condonation of delay in filing the appeal. Cause shown are sufficient. Delay in filing the appeal is condoned.

M/s. Dangi Financial & Management Consultancy Pvt. Ltd. (the respondent) filed CC/01/213, for directing the appellant/Insurer to pay (i) Rs. 1572887.15 with interest @18% per annum, for the period till the claim is actually paid, (ii) Rs.20000/- as cost of litigation; and (iii) any other relief, which is deemed fit and proper, in the facts and circumstances of the case.

The facts, as stated in the complaint and emerged from the documents attached with the complaint, are as follows:-

(a) M/s. Dangi Financial & Management Consultancy Pvt. Ltd. (the Insured) was a private company, registered under the Companies Act, 1956 and engaged in the business of share broking and trading in securities on behalf of its customers. The Insured was registered as main brokers with National Stock Exchange of India under Security and Exchange Board of India Act, 1992.

(b)  Oriental Insurance Company Limited (the Insurer) was a subsidiary of General Insurance Corporation of India and engaged in the business of providing different types of insurance services to the general public. The Insured obtained ‘Stock Brokers Indemnity Insurance Policy’ No.120000/47/98/001, for a period of 01.06.1997 to 31.05.1998, for risks, Part-1 for Section-1-Infidelity of Employees, Section-2- Computer Crime Indemnity and Section-3 Errors & Omissions, covering risk of Rs.25/- lakhs any one claim unlimited in the aggregate. Part-II for Section-1-Legal Liability, Section-2-Counterfeit Securities and Section-3-Loss of Security and/or Cash covering risk of Rs.25/- lakhs any one claim unlimited in the aggregate. This policy was renewed for a period of 01.06.1998 to 31.05.1999, vide Policy No.120000/48/99/001.

(c) The Insured had its one Branch Office in Surat, where Mr. Jay Kumar Sethia was posted as Branch Manager, since 01.03.1997, who was solely responsible for overall functioning of Surat Branch Office. Mr. Jay Kumar Sethia was authorised to operate bank account of the Insured in Tamil Nadu Mercantile Bank including issue of cheques to creditors and receive money from the debtors for and on behalf of the Insured. His signatures were verified by the bank, for operating the account of the Insured. He was also authorised to enroll new clients upon ascertaining their credit worthiness to his satisfaction.

(d)  While internal audit and scrutiny of the cheque books issued from Tamil Nadu Mercantile Bank, it was noticed that during 23.04.1998 to 20.07.1998, Mr. Jay Kumar Sethia, Branch Manager Surat had issued a number of cheques amounting to Rs.1470000/- to one Mr. Vimalbhai. The Insured wrote a letter dated 05.12.1998 to Tamil Nadu Mercantile Bank, requiring supply of the details of cheques issued by Mr. Jay Kumar Sethia and its encashment. When this fact came to the knowledge of Mr. Jay Kumar Sethia, he evaded from the branch office. The Insured terminated services of Mr. Jay Kumar Sethia and published termination notice in newspapers on 08.12.1998. The Insured also wrote various letters to Mr. Jay Kumar Sethia, prohibiting him from collecting any cash from the debtors and to handover cash, cheques, shares and securities, belonging to the Insured, in his possession.

(e)  The Insured tried to lodge a FIR against Mr. Jay Kumar Sethia at Surat Police Station but the police refused to register the FIR, on the pretext that the offence was discovered in Mumbai. The Insured along with its sister concern Wibord Securities Ltd. filed an application under Section 156 (3) Cr.P.C. on 11.03.1999, before Additional Chief Metropolitan Magistrate, in which, the concerned Magistrate issued process to Mr. Jay Kumar Sethia.

(f) The Insured submitted insurance claim before the Insurer on 23.04.1999 for Rs.1572887.15. The Insurer appointed Sunil J. Vora & Associates, Mumbai, as the surveyor for survey and assessment of the loss. The surveyor demanded various papers, which were supplied to him time to time.  The surveyor submitted Survey Report dated 17.06.2002, holding that Mr. Jay Kumar Sethia had misappropriated Rs.350000/- during the period of 01.06.1997 to 31.05.2998 and Rs.1120000/- during the period of 01.06.1998 to 31.05.1999. He observed that (i) the movement of fund was outside the business work. Payments made by Mr. Sethia were not those who owed your company any money. (ii) The copies of the honoured cheques through which the payments were made did not represent your company’s dues or payment to clients as a result of NSE transactions. (iii) You did not initiate and followed up recovery of dues from the concerned parties by civil action. This was very important to protect recovery rights. (iv) Vigorous follow up to apprehend and charge sheet the culprit were not undertaken by you. No FIR registered as yet. He opined that there was violation of Condtion-2 and reasonable care was not taken to minimise the loss.

(g)  The complaint was filed on 28.05.2001, claiming deficiency in service as the Insurer had unreasonably delayed in settlement of the claim. The Insurer repudiated the claim, vide letter dated 22.08.2002,on the grounds as mentioned in the report of surveyor.

The Insurer filed its written reply on 08.09.2002 and contested the complaint. The fact of obtaining ‘Stock Brokers Indemnity Insurance Policy’ No.120000/47/98/001, for a period of 01.06.1997 to 31.05.1998, its renewal for the period of 01.06.1998 to 31.05.1999 and embezzlement of Rs.1572000/- by Mr. Jai Kumar Sethia, during insurance period have not been disputed.It has been stated that as soon as the Insurer received information of loss, the surveyor was appointed. The surveyor submitted Survey Report dated 17.06.2002, which was received on 27.06.2002. After receiving the Survey Report dated 17.06.2002, the papers were submitted to the competent authority, who after examining all the papers, repudiated the claim vide letter dated 22.08.2008. The delay occurred at the level of the surveyor in submitting his report as the Insured had delayed supply of required materials and information. The Insurance Policy provides for indemnification of losses which arise out of or pertain to resulting from dealings and or transactions of the Insured. Payment of Rs.1470000/- by Mr. Jai Kumar Sethia to Mr. Vimalbhai through cheques during 23.04.1998 to 20.07.1998, was not in respect of the dealings and transaction of business of the Insured as such the claim in this respect was not covered under the policy. Condition No.-2 requires for notification of the claim as soon as possible and in any event within 30 days after first discovery of infidelity of the employee. In the present case more than 300 days delay has occurred in notification of the claim after first discovery of infidelity. The Insured has not taken reasonable care to minimise loss inasmuch as no step was taken to recover the amount either from Mr. Jai Kumar Sethia or from Mr. Vimalbhai. There was no deficiency in service on the part of the Insurer.

State Commission, after hearing the parties, vide judgment dated 13.06.2014, held that the Insured tried to lodge FIR, which was not accepted by jurisdictional police. Then, the Insured filed an application under Section 156 (3) Cr.P.C., which was treated as a criminal complaint and process was issued to the accused under Section 406, 409 and 420 I.P.C., which was a sufficient legal action against the accused. Thereafter, the claim was lodged with the Insurer on 23.04.1999 as such there was no delay in lodging the claim. The Insured terminated the services of the concerned employee and initiated criminal proceeding against him. Mr. Jai Kumar Sethia made payments to Mr. Vimalbhai through cheques although the Insured had no liability towards him as such it was misappropriation of fund by the employee and covered under Infidelity of Employees clause and ground of repudiation of the claim was not justified. The Insured had no details of Mr. Vimalbhai to whom payments were made, as such no proceeding for recovery of money was made. On these findings, the complaint was partly allowed as stated above. Hence this appeal has been filed.

We have considered the arguments of the counsel for the parties and examined the record. Payment of Rs.1470000/- by Mr. Jai Kumar Sethia, the Branch Manager the Insured to Mr. Vimalbhai, a stranger, through cheques during 23.04.1998 to 20.07.1998 has not been disputed. However, in the Survey Report dated 17.06.2002 and in Repudiation Letter dated 22.08.2002, it has been mentioned that movement of fund was outside the business network of the Insured; Payments made by Mr. Sethia were not those who owed Insured company and money; and the honoured cheques through which the payments were made did not represent Insured’s company dues or payment to the clients as a result of National Stock Exchange transaction. According to the appellant, Insurance Policy provides for indemnification of losses, which arise out of or pertain to resulting from dealings and or transactions of the Insured. Therefore, first question arises as to whether the claim was admissible under the ‘Stock Brokers Indemnity Insurance Policy’.

The opening paragraph of the policy reads as follows:-

“Whereas the Assured, as herein defined, have paid, the premium as consideration for this Policy. The Oriental Insurance Company Ltd. (hereinafter called the Underwriters) agree to indemnify the Assured in the manner stated as set out in the Schedule to have been incurred or sustained by reason of any of the following insured events provided that such indemnification of losses are notified to the Underwriters during the period of insurance specified in the schedule or in accordance with Special Condition-2.2, in respect of Part-I and Part-II of the Policy and arise only out of or pertain to or resulting from dealings and/or transactions of the Assured which commenced on or after the retroactive date as defined in the Policy through the National Stock Exchange including the Assured’s Trade for Trade transactions routed on the National Stock Exchange, subject to the provisions of Exclusion Clause-4 under Part-I and Part-II of the Policy. “

The Insured in the complaint has nowhere stated that payment of Rs.1470000/- made by Mr. Jai Kumar Sethia, the Branch Manager of the Insured to Mr. Vimalbhai, through cheques during 23.04.1998 to 20.07.1998 pertained to or resulting from dealings and or transaction of the Assured. As such the claim in this infidelity was not admissible in Policy. Finding of State Commission, contrary to it is illegal. The counsel for the appellant has relied upon the judgment of Supreme Court in Oriental Insurance Company Vs. Sony Cheriyan, (1999) 6 SCC 451 and Polymat India Pvt. Ltd. Vs. National Insurance Company Ltd., (2005) 9 SCC 174 in which it has been held that terms and conditions of insurance policy ought to be strictly construed.

As the claim was not admissible in Insurance Policy, as such, we do not find any necessity to examine other grounds of repudiation letter or findings of State Commission in that respect.

ORDER

In view of the aforesaid discussions, the appeal is allowed. The order of State Consumer Disputes Redressal Commission, Maharashtra, dated 13.06.2014, passed in Consumer Complaint No.213 of 2001, is set aside. The complaint is dismissed. The parties shall bear their own cost.