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Judgment
Dr. Inder Jit Singh, Presiding Member
The present First Appeal (FA) has been filed by the Appellant against Respondents as detailed above, under section 19 of Consumer Protection Act 1986, against the order dated 23.02.2017 of the State Consumer Disputes Redressal Commission Haryana, Panchkula, (hereinafter referred to as the ‘State Commission’), in Consumer Complaint (CC) no 79 of 2014 inter alia praying for:-
(i) To set aside the impugned order dated 23.02.2017 passed by the state commission.
(ii) To direct the respondents to indemnify the loss of Rs.36,20,000/- along with interest @ 18% p.a. from the date of loss till actual realization.
(iii) To direct respondents to pay a sum of Rs. 1,00,000/- to the complainant for inconvenience, harassment, discomfort, disappointment, mental agony, and deficiency of service.
(iv) To impose Punitive Damages upon the respondents to the tune of Rs. 1,00,000/-.
(v) To award costs in favor of appellant and against the respondents.
While the Appellant was the Complainant, the Respondents were OPs in the said CC 79 of 2014 before the State Commission. Notice was issued to the Respondents on 11.08.2017. Parties filed Written Arguments/Synopsis on 15.05.2018 (Respondents/OPs), 07.05.2018 & 23.02.2023 (Appellant/ Complainant) respectively.
Brief facts of the case, as emerged from the FA, Order of the State Commission and other case records are that: -
(i) The complainant undertook the installation of a Hydro Power Project located on the Yamuna Augmentation Canal in Tusang village, Tehsil Indri, District Karnal, Haryana. The project involved the utilization of vertical Kaplan turbines manufactured by M/s B Fouress (P) Ltd (BFPL). Following the completion of construction and operational preparations, the project was successfully commissioned on 17.06.2011.
(ii) In order to safeguard against potential machinery breakdowns and associated financial losses, the complainant procured a Machinery Breakdown Insurance Policy from OP No. 1, Royal Sundaram Alliance Company Limited. The policy provided coverage with a sum assured amount of Rs 6.1 crore and remained in force from 28.06.2011, to 27.06.2012. Although a cover note was issued at the time of policy issuance, the finalization of terms and conditions was postponed until 24.11.2011, subsequent to policy inception.
(iii) As a problem was identified in the turbine in August 2011, the complainant engaged in discussions with BFPL, the manufacturer of the turbine. On 22.08.2011, it was collectively decided to dismantle the hub in order to rectify the issue. During a meeting held on 24.08.2011, it was discovered that the turbine body was jammed, prompting BFPL to recommend the dismantling of the hub assembly.
(iv) Despite the machinery breakdown occurring on 12.09.2011, the complainant made the decision to continue operating the turbine until that date to mitigate losses. It was explicitly communicated to BFPL that the unit was commissioned in June 2011 and began experiencing problems within a few months. Consequently, engineers inspected the problem and advised the dismantling of the turbine.
(v) As per the request, the water level in the canal was lowered, which resulted in unit No. 2 also tripping. Subsequently, the generator and gear box were dismantled and sent for repairs. The breakdown of the units led to a loss of Rs. 32.90 lacs, and an additional amount of Rs. 3,30,900/- was paid for labor charges associated with the dismantling process. R.L. Aggarwal was appointed as the surveyor by the OPs, and a report was submitted on 28.08.2012. However, OP No. 1 repudiated the complainant's claim in a letter dated 04.10.2012.
Vide Order dated 23.02.2017, the State Commission has dismissed the complaint filed, holding inter alia that the complainant has failed to prove that they suffered loss on account of failure of machinery and OPs are liable to pay the same.
Appellant(s) have challenged the Order dated 23.02.2017 of the State Commission mainly/inter alia on following grounds:
(i) That the evidence submitted establishes that the complainant has successfully demonstrated that the loss incurred was a result of the turbine's cessation at their unit. Upon a careful review of the bill marked as EX R-5, it becomes apparent that the bill explicitly documents the actions taken, specifically stating "rectifying the defects and re-assembly."
(ii) The conclusion reached by the commission, stating that there were no defects in the turbine, is inherently flawed. This conclusion disregards the material submitted on record, which clearly demonstrates that the "defects" were rectified and the turbine underwent "re-assembly." Furthermore, the commission failed to consider the technical report provided by the manufacturer, which remains undisputed by the respondents. Thus, the commission's omission of these crucial factors renders their conclusion erroneous.
(iii) The Commission failed to acknowledge that Mr. Rajesh Keshry, being an employee of the appellant, lacked the technical knowledge or expertise to identify the turbine damage. Additionally, the Commission disregarded Mr. Sandeep Singh's statement denying the suggestion that excessive silt caused the machinery to jam. The assertion that there was no damage to the machinery and that it was only dismantled to remove silt, without replacing any parts, is inaccurate. It is essential to note that only the manufacturer can provide accurate information regarding any faults in the machinery. The commission did not fully consider the manufacturer's report, further contributing to the oversight in their evaluation.
(iv) The impugned order neglects the diagnosis conducted by the turbine manufacturer. Furthermore, it disregards the manufacturer's recommendations to continue operating the machine with the runner blades in the same open condition until further closure. These crucial aspects were completely overlooked in the order, leading to an erroneous conclusion.
Heard counsels of both sides. Contentions/pleas of the parties, on various issues raised in the FA, based on their FA/Reply, Written Arguments, and Oral Arguments advanced during the hearing, are summed up below.
6.1. Respondents have admitted that originally Appellant had taken two Insurance Policies (i) Machinery Breakdown Policy and (ii) Machinery Loss of Profits Policy, covering turbines situated at policy scheduled premises for the period between 28.06.2011 upto 26.07.2012 and for the same a Risk Acceptance Letter (RAL) dated 28.06.2011 was issued. Respondents argued that the terms and conditions of policies are part and parcel of the RAL, and were duly sent to the Appellant at the time of issuance of said Letter, hence Appellant cannot feign ignorance of such terms & conditions. Only the policy schedule was dated 24.11.2011. the Appellant has taken an untenable plea that he was not supplied with policy copy with terms & conditions and that they were issued mere RAL on 28.06.2011. Till date, Appellant never informed Respondents about non-receipt of policy with terms & conditions. Appellant is taking this plea to over-come the exclusion clauses under the policy.
6.2 Appellant intimated Respondents on 15.09.2011 that position of bearing of runner blade assembly got disturbed and submitted a duly filled claim form. The statutory surveyed appointed by the Respondents submitted its report dated 28.08.2012, based on the facts and recommendations of this report, the claim of Appellant was repudiated.
6.3 Respondents further argued that Appellant has admitted that machinery had some prior problems in its functioning viz Runner Blade (Turbine), manufacturers M/s B. Fouress (P) Ltd. had advised Appellant to dismantle the hub assembly of hydro plant on 22.08.2011 itself, but against the advise of manufacturer, the Appellant continued to operate the turbine until 12.09.2011. Thus Appellant violated the terms & conditions of policy which states that Appellant shall abide by manufacturer’s instructions for operating the machine.
6.4 Respondents contended that the facts of case, on closer examination, would reveal that subject machinery did not break down within the meaning of terms & conditions of the policy, problems with machinery existed for over a month before the date of incident i.e. 12.09.2011, he machinery was operated against the advise of the manufacturers. The shut down of the turbine was not on account of sudden breakdown as alleged, but the same was to carry out the planned repair/maintenance of the turbines, which coincided with the planned shut-down of the canal on 12.09.2011. The hub assembly of turbine had developed problems prior to 12.09.2011 due to silt deposited by water from the canal, the problem persisted from August 2011 itself. Work order was placed with manufacturers on 02.09.2011, and the turbine was operational till 1600 hrs. of 12.09.2011. Turbine Unit No.1 was shutdown on 1600 hrs. of 12.09.2011 and turbine unit No.2 was shutdown on 1700 hrs. of 12.09.2011. The surveyor had found no physical damage to any component of the turbine, loss had gradually occurred over a period of time on account of silt deposit inside the turbine. The Appellant is projecting a regular maintenance work in the turbine due to deposit of silt as an event of breakdown of machinery, intending to get cover for something which was otherwise not covered under the terms of policy. The terms of policy excludes any damage due to normal wear and tear or gradually developing flaws, defects, cracks or partial fracture in any part not necessitating immediate stoppage.
6.5 Though the machinery may be only a few months old, and would not normally have any defect, it may develop gradual faults due to manufacturing defects, making manufacturer liable under warranty. The machine may develop gradual faults due to operator’s negligence, as the Appellant has neglected the advice of manufacturer, for which Appellant is held liable for their negligence due to lack of maintenance. The gradual deposit of silt is not covered under the policy terms as the same is normal wear & tear and policy terms specifically excluded cost incurred for such maintenance.
6.6 As regards second policy, viz Machinery Loss of Profits, the Respondents contend that it is not sustainable as this policy is consequent to the original Machinery Break-down Policy and Respondents are not liable under this policy unless there is also an admissible claim under the Machinery Breakdown Policy. Since the claim under 1st policy is disputed, the claim under the 2nd policy is also disputed. The surveyor has also given findings on these lines.
6.7 Respondents contend that surveyor has assessed the loss to Appellant for a sum of Rs.1,37,064/- and therefore, if at all the Respondents are held liable to pay claim under the Machinery Breakdown Policy, then the same shall not exceed the said sum of Rs.1,37,064/-. Appellant is not entitled to a claim Rs.3,30,900/- made by him under this policy. Similarly, under the 2nd policy (Machinery Loss of Profits) the claim of Rs.32.90 lakh is not admissible, surveyor has assessed the loss at Rs.3,41,590/- only and therefore, if at all Respondents are held liable to pay the claim under this policy, the same shall not exceed Rs.3,41,590/-.
6.8 Respondents contend that manufacturer’s report appears to be a generic one on the working of a Kaplan turbine, and the diagnostic report of manufacturer cannot be admitted as proof of machinery break down.
6.9 Appellant on the other hand has contended that on 04.08.2011, a sudden problem was noticed in the runner blade (turbine) of unit No.1, Appellant immediately informed the manufacturer, who visited the site on 04.08.2011, started checking the components relating to runner blade so as to trace out the problem. On 24.08.2011, the manufacturers informed that the body of turbine is jammed and dismantling is required. Since the project was commissioned only 2 months ago, the manufacturer asked to get the canal closure to dismantle the turbine and allowed us to continue the project. Appellant requested the Irrigation Department to stop the canal water for dismantling, the department issued canal wire dated 12.09.2011 for closure of the canal. On 04.09.2011, the manufacturer informed the details of repairs that were required, on 05.09.2011 the Appellant placed work order for carrying out the desired repairs, on 12.09.2011, the Appellant placed work order for carrying out the desired repairs, on 12.09.2011 the blades of the turbines got struck and as per request of Appellant, the Irrigation Department stopped the water. The Appellant continued to run the project to minimize the generation of losses. On 15.09.2011, Appellant informed the Respondents about the repairs that had to be carried out. On 07.08.2012, surveyor rejected the claim observing that no physical damage was caused and there was no sudden breakdown, it was a case of planned repair and the subject loss gradually occurred over a period of time. On 04.10.2012, Respondents rejected the claim of Appellant stating it is excluded under the policy exclusions as ‘gradually developing flow’. On 24.01.2013, the manufactures issued a detailed report pointing out the cause of damage to the turbine, the Respondents again repudiated the claim on 12.03.2013. On 18.10.2013, Respondents repudiated the claim under the 2nd policy based on report dated 10.06.2013 of the surveyor.
6.10 Appellant further contended that replacement of a part is not a pre-requisite to prove damage, State Commission has erred in holding that since no part has been replaced, the damage could not be proved. The labour charges shown in the invoice were not only towards dismantling but also towards ‘rectifying the defects’ and ‘re-assembly’. As the project had been commissioned only two months back, there could not be any situation of repair and maintenance. It was on manufacture’s own advice to get canal closed and till then the project was continued by Appellant to minimize losses. Appellant argued that Respondents’ plea of gradually developing flow is not applicable as turbine has a life of 35 years whereas damage occurred within 2 months from its getting operational. If it was a case of gradually developing flaw, it would have happened in unit No. 2 and other Mussapur turbine, which has not happened. There is no such gradual flaw even till date in the turbines of Khukhni and Mussapur projects. The manufacturer’s report records the cause for misalignment of hub assembly of turbine, which does not show the cause was ‘gradually developing flaw’.
6.11 The complainants argued that the State Commission has wrongly interpreted the wordings of surveyor report dated 24.08.2012 in which it has been mentioned that the claim was not admissible under the terms and conditions of insurance policy. While in the order of the State Commission, it has been mentioned that the claim is repudiated because there was no defect in the machinery of the project, whereas in the repudiation letter dated 04.10.2012, the claim was repudiated on the ground of exclusion of the policy.
6.12 Appellant denied that the have failed to prove that appellant has suffered loss on account of failure of machinery as the loss has already been assessed by the surveyor in its report and the appellant has already filed the report of manufacturer in support of its claim, which proves that there was a misalignment in the mechanism because of the jolt.
We have carefully gone through various case records, in particular both the insurance policies, Surveyor’s reports, manufacturer’s report, the repudiation letter and rival contentions of the parties. Some of the important/relevant clauses of the Insurance Policies are reproduced below:-
(A) MACHINERY BREAKDOWN INSURANCE POLICY
“subject to the terms, exceptions, exclusions, provisions and conditions contained herein or endorsed hereon, the Company will at its own option by payment or reinstatement or repair indemnify the insured against unforeseen and sudden physical damage by any cause not hereinafter excluded to any insured property specified in the attached Schedule (s) whilst in the 'premises therein mentioned necessitating its Immediate repair or replacement. This Policy shall apply to the insured items after successful completion of their performance/acceptance tests, whether they are at work or at rest, or being dismantled for the purpose of cleaning or overhauling, or in the course of the aforesaid operations themselves, or when being shifted within the premises, or during subsequent re-erection.”
GENERAL EXCEPTIONS:
“1. x x x x
x x x x
x x x x
4.Gradual developing flaws, defects, cracks or partial fractures in any part not necessitating immediate stoppage although at some future time repair or renewal of the parts affected may be necessary.”
OBLIGATIONS OF THE INSURED
“a. The Insured shall take all reasonable steps to maintain the insured property in efficient working order and to ensure that no item is habitually or intentionally overloaded. The insured shall fully observe the manufacturers’ instructions for operating, inspection and overhaul, as well as Government, Statutory Municipal and all other binding regulations in force concerning the operation and maintenance of the insured plant and machinery.”
(B) MACHINERY LOSS OF PROFIT INSURANCE POLICY
“The Policy Schedule is subject to
x x x x
Machinery Breakdown Policy: EM00001433000100.”
MACHINERY LOSS OF PROFIT INSURANCE (MLOP) POLICY (OUTPUT BASIS)
x x x x
“The Company hereby agrees with the Insured that if at any time during the period of Insurance stated in the Schedule, the business carried on by the Insured at the premises specified in the Schedule be Interrupted or Interfered with in consequence of an Accident which shall mean sudden and unforeseen physical damage, as defined in the Machinery Insurance/Boller and Pressure Plant Insurance Policy of any machinery specified in the schedule of machinery then the Company shall in respect of each item in the Schedule indemnify the Insured against the amount of loss as hereinafter defined resulting from such interruption or interference.”
x x x x
EXCLUSIONS
x x x x
“ (i) Willful act or willful neglect or gross negligence of the insured or his responsible representatives.”
(C) CONDITIOINS
x x x x
“d) The insured shall at his own expense take all reasonable precautions and comply with all reasonable recommendations of the Company to prevent loss or damage and comply with statutory requirements and manufacturers’ recommendations.”
x x x x
g) In the event of any occurrence, which gives rise to or is likely to give rise to a claim under this Policy the Insured shall-
xxxx
(ii) do and concur in doing and permit to be done all such things as may be reasonably practicable to minimize or establish the extent of any interruption of or interference with the business or to avoid or diminish the loss resulting therefrom.”
In the letter dated 04.09.2011, the manufacturer has informed the Appellant that “…….. we need to do the necessary repairs to the hub assembly for which entire Generator set needs to be dismantled and after the necessary works need to be re-erected……”. Work order dated 05.09.2011 to the manufacturer states the scope of work as “Labour Charges for dismantling of Generator, Gear box and turbine units, turbine hub assembly, rectifying the defect and re-assembly" Claim form dated 04.10.2012 stated total replacement value of machinery affected as “Rs. 350 lakh approx. (including generator accessories and parts). Report of manufacturer on Mussapur Hub Assembly rectification states “…..the rotating assembly can struck seriously, if some foreign material struck in between the gap of runner blade and the runner chamber…… the jolt will cause misalignment in the mechanism of the hub assembly and if the jolt is serious it will damage the internal parts like crank bearings/hub bearings…… in case of Mussapur there was a misalignment in the mechanism because of this jolt……”. We also take note of the fact that schedule to Insurance Policy is dated 24.11.2011.
After going through all relevant records, we tend to agree with the contentions of Appellant, in particular his contention that it was not a case of planned repair, or normal wear and tear as the project had been commissioned only two months back, there could not be any situation of repair and maintenance, it was not a case of gradually developing flaw, the manufacturer’s report records the cause for misalignment hub assembly of turbine, the Appellant’s decision to continue to run the project to minimize the generation losses was based on manufacturer’s advice. We are of the view that the break-down of the machinery is covered under the Machinery Break Down Policy and exclusions/exceptions are not attracted. Respondents have admitted that the Policy Schedule was dated 24.11.2011, which leads credence to contentions of Appellant that perhaps copy of terms & conditions of policy (ies) were not supplied along with Risk, Acceptance letter. We are not in agreement with the findings of State Commission that as the bill is only for labour charges and not for replacement of any part, and it was the bounden duty of complainant to prove that any part of the turbine was changed. We agree with the contention of Appellant that replacement of a part is not a pre-requisite to prove damage, the labour charges in the bill include charges for rectifying the defects and re-assembly. In our view, State Commission erred in concluding that when there is no defect in any part, it cannot be opined that OPs are liable to pay any compensations, and that complainant has not suffered loss on account of failure of machinery. The claim of the appellant has been in respect of misalignment in the bearings in the hub assembly resulting in dismantling, repairing, and reassembling of the turbine and consequent loss for the period during which the said turbine remained inoperative.
It was held by Hon’ble Supreme Court in Canara Bank Vs. United India Insurance Co. Ltd. & Ors. (2020) 3 SCC 455 that ‘Insurance Policy must be read holistically so as to give effect to reasonable expectations of all the parties including the insured and the beneficiaries- it must be interpreted in a commercially sensible manner- coverage clauses to be read broadly, and ambiguity, if any, to be resolved in favour of insured-exclusions to be read narrowly.” In Haris Marine Producs Versus Export Credit Guarantee Corporation (ECGC) Limited, Civil Appeal No. 4139/2020 decided on April 25, 2022, the Hon’ble Supreme Court held that “It is entrenched in our jurisprudence that an ambiguous term in an insurance contract is to be construed harmoniously by reading the contract in its entirety. If after that, no clarity emerges, then the term must be interpreted in favour of the insured, i.e., against the drafter of the policy.”
In view of the forgoing, we find that action of Respondent Insurance Company herein in repudiating the claim under Machinery Break Down Policy is not justified. Hence, this repudiation letter dated 04.10.2012 is set aside. The Appellant is found entitled to a claim of Rs.3,30,900/- under this policy.
As regards claim under Machinery Loss of Profit Policy, as the same was repudiated by Respondent Insurance Company merely on account of this reason that it is not sustainable as this policy is consequent to the original Machinery Breakdown Policy, which the Respondent Company repudiated, hence in view of our findings under para 12 above regarding admissibility of claim under Machinery Breakdown Policy, the repudiation of claim under Machinery Loss of Profit Policy vide letter dated 11.06.2013 of the Respondent, shall also not stand and the same is also set aside with a finding that Appellant is entitled to claim under the Machinery Loss of Profit Policy also.
However, for the purposes of assessing the quantum of loss under the Machinery Loss of Profit Policy, the matter is remanded back to the Respondent Insurance Company for fresh assessment within two months of this order, after giving an opportunity of personal hearing to the Appellant to file all relevant documents/evidences in support of claim already made under this policy.
For the reasons stated hereinabove, and after giving a thoughtful consideration to the entire facts and circumstances of the case, various pleas raised by the learned Counsel for the Parties, the FA is allowed/disposed off with the following directions/reliefs: -
(i) Order of State Commission dated 23.02.2017 is set aside, the complaint of Appellant is partially allowed.
(ii) Repudiation of claim under Machinery Breakdown Policy as per letter dated 04.10.2012 of Respondent Insurance Company and repudiation of claim under Machinery Loss of Profit Policy as per letter dated 11.06.2013 of Respondent Insurance Company is set aside. The Appellant’s claim is found admissible under both the policies.
(iii) Under Machinery Breakdown Policy, the Respondent Company shall pay the claim of Rs.3,30,900/- within two months of this order alongwith simple interest @9% w.e.f. 15.03.2012 (date of intimation plus 6 months) till the date of actual payment.
(iv) For assessment of loss under Machinery Loss of Profit Policy, case is remanded back to Respondent Insurance Company for reassessing the quantum of loss within two months after giving an opportunity of personal hearing to the Appellant as well as an opportunity to file all relevant documents/evidences in support of their claim. The eligible claim so assessed shall be paid within a maximum of three months from the date of this order alongwith simple interest @ 9% p.a. w.e.f. 15.03.2012 (date of intimation plus 6 months) till the date of actual payment.
The pending IAs in the case, if any, also stand disposed off.