VFC Industries Pvt. Limited vs New India Assurance Company Limited & Ors

Heard Mr. Joy Basu, Senior Advocate, assisted by Mr. Saurajay Nanda, Advocate, for the complainant and Mr. Vishnu Mehra, Advocate, for the opposite party.

VFC Industries Pvt. Ltd. (the Insured) has filed above complaint, for directing New India Assurance Company Limited (the Insurer) to pay (i) Rs.75893911/- with interest @18.25% per annum from April, 2006 till the date of realization, as the part insurance claim, (ii) Rs.3794695/- as exemplary damages, (iii) interest @18.25% per annum on Rs.94909909/- from April, 2006 till 26.02.2008, (iv) cost of litigation and (v) 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 it are as follows:-

(a)  VFC Industries Pvt. Ltd. (the Insured) was a company, registered under Indian Companies Act, 1956 and engaged in manufacture and sale/export of packaging material, having its factory at Survey No.3, village Baska, Taluka Halol, district Panchmahal. Its products inter alia include multi-colour folding box board mono, display cartons, flexible packaging, sleeves and pouches amongst others. The Insured had two divisions, namely carton division and flexible packaging division. It had consistent financial and commercial track record with its products having an excellent reputation in market both local and foreign.

(b)  New India Assurance Company Limited (the opposite party) (the insurer) was a public insurance company and engaged in the business of providing insurance services. The Insured obtained four policies from the Insurer i.e. (i) Standard Fire and Special Perils Policy No.220300/11/05/00018 for the period of 01.04.2005 to 31.03.2006, for sum insured of Rs.2.50/- crores on Main Process Building & New PVC Film Manufacturing Building, (ii) Standard Fire and Special Perils Policy No. 220300/11/05/00019, for the period of 01.04.2005 to 31.03.2006, for sum insured of Rs.26.50/- crores on Plant & Machinery in Main Process Building & New PVC Film Manufacturing Building, (iii) Standard Fire and Special Perils Policy No.220300/11/05/00020 for period of 01.04.2005 to 31.03.2006, for sum insured of Rs.7.50/- crores on Stocks Finished goods, raw materials and other material in Main Process Building and raw materials in New PVC Film Manufacturing Building and (iv) Standard Fire and Special Perils Policy No.220300/11/05/00021 for period of 01.04.2005 to 31.03.2006, for sum insured of Rs.6/- crores on Stock and Stock in process in Main Process Building.

(c)  On 07.12.2005 around 22:00 hours, Security Supervisor of the Insured, noticed unusual brightness, in the dispatch area situated in the Main Process Building and upon investigation, he found that there was fire in Bonded Stock Room in Main Process Building. The workers tried to douse the fire with fire extinguishers but the fire soon took devastating nature and became uncontrolled. They immediately informed Fire Service Station Kalol about the fire incident on telephone. Messages of fire were also given to Baroda Municipal Corporation, Gujarat State Fertilizers & Chemicals Ltd., Godhra Nagar Palika, Gujarat Oil Refinery and local police, from where, several fire tenders were deputed on the spot, which doused the fire till 14:00 hours on the next day.

(d)  The Insured informed the Insurer about fire incident on 07.12.2005. The Insurer appointed Sirish Desai & Associate as the preliminary surveyor, who inspected the spot and submitted Preliminary Survey Report dated 14.12.2005, confirming cause of fire as accidental electric short circuit and estimated loss of Rs.29.75/- crores. The Insurer appointed J.P. Mistry Surveyor, Mumbai as the surveyor on 08.12.2005. The surveyor inspected the premises on 13.12.2005 and 14.12.2005, took photographs, prepared inventory, recorded statements of Ramesh Ramprasan Tripathi, Security Supervisor and other witnesses. He asked for various documents from the Insured for assessment of loss. The Insured submitted claim form and gave all the papers as required by the surveyor. In the meantime, the Insurer appointed Sheth Doctor & Associates, Charted Accountant, Mumbai on 31.01.2006 to assist the surveyor J.P. Mistry, in assessing the loss of Stock. The surveyor J.P. Mistry submitted Interim Survey Report dated 12.03.2006, assessing loss of Building to Rs.12357000/-, loss of Plant & Machinery to Rs.147500000/- and loss of Stock to Rs.40000000/- and recommended for ‘on account payment’ of Rs.13/- crores. The competent authority of the Insurer examined the report and made payment of Rs.7.50/- crores on 28.05.2006.

(e)  In the meantime, Mr. Narendra L. Moorjani, Ex-G.M. of the Insured made a complaint dated 27.06.2006 to the Insurer that claim in respect of Stock was exaggerated. The Insurer then appointed Srivatsan Surveyor Private Ltd., Mumbai, on 19.07.2006 a second surveyor for assessment of loss of Stock and asked the surveyor J.P. Mistry to confine his final survey report in respect of loss of Building, Plant & Machinery. The surveyor J.P. Mistry submitted Final Survey Report dated 26.02.2007, in respect of loss of Building, Plant & Machinery and assessed loss of Building to Rs.13447000/- and Plant & Machinery to Rs.203900939/-.

(f) Srivatsan Surveyor made inquiries at the factory premises on 27.07.2006, 08.09.2006 to 12.09.2006. He collected various papers from the Insured, in order to assess the loss of Stock. Sheth Doctor & Associates, Charted Accountant, Mumbai submitted his Report of Assessment of Loss of Inventories dated 11.04.2007 assessing loss of Stock to Rs.77838000/-. Srivatsan Surveyor examined this report also and submitted his Survey Report dated 24.04.2007, assessing the loss of Stock to Rs.77842057/-. The Insurer, vide letter dated 02.05.2007 called for some information from Srivatsan Surveyor, who replied vide letter dated 07.05.2007. The Insurer, vide letter dated 18.10.2007 called for some explanation from Sheth Doctor & Associates, which was replied by him vide letter dated 11.12.2007. It is alleged that under pressure Srivatsan Surveyor submitted his revised Report dated 02.02.2008, assessing the loss of Stock to Rs.40786231/-. The Insurer again vide email dated 08.02.2008, called for some more explanation on the revised report, which was replied, vide email dated 10.02.2008.

(g)  The Insurer vide letter dated 05.03.2007 called for following explanations from the surveyor J.P. Mistry on his report dated 26.02.2007 i.e. (i) From the RIV a reduction of 25% has been considered on all the damaged machines uniformly to take care of negotiations and technology improvements. What was justification on across the board for reduction of 25% in RIV adopted? (ii) Assessment of machinery under Item-22- Loss of this machinery has been adjusted to Rs.1.70/- crores. This machinery was manufactured in 1972 and purchased by the Insured in November, 1985. 75% depreciation could have been considered for this machine, while 66% depreciation was given on it; and (iii) Machine No.1- SAM-South Korean make- As per invoice, basic cost of this machinery was USD1550000/-. In break-up given for this machinery for RIV calculation, basic cost is considered to USD1571000/-. The surveyor J.P. Mistry gave his reply through letter dated 06.03.2007. The Insurer then wrote another letter dated 28.06.2007 to the surveyor J.P. Mistry, raising objection in respect of valuation of the building and the machineries. The surveyor J.P. Mistry replied this letter vide his letter dated 03.07.2007. The Insurer, then wrote another letter dated 12.07.2007 to the surveyor J.P. Mistry, raising some fresh grounds to the assessment of loss to Building, Plant & Machinery, which was replied by him on 25.07.2007.

(h)  In spite of various letters, when J.P. Mistry did not revise his Final Survey Report dated 26.02.2007, the Insurer took opinion of Bhatawadekar & Company on the report dated 26.02.2007. Bhatawadekar & Company, Mumbai, vide his letter dated 17.09.2007 confirmed the genuineness of Final Survey Report dated 26.02.2007, specifically stating that the costs as assessed by Mistry were lower than his assessment. However, he observed that when import of second-hand machine was permitted by the government, then taking quotations of new machines for determination of the value of machines purchased in second hand was not proper. The insurer appointed Bhatawadekar & Company, Mumbai as Joint Surveyor with J.P. Mistry and wrote a letter to the surveyor J.P. Mistry, for resurvey, which was refused by him vide letter dated 14.01.2008. Bhatawadekar & Company submitted its Final Survey Report dated 31.01.2008, assessing loss of Plant & Machinery to Rs.129236678/-. In the meantime, the Insured through various letters requested for settlement of the claim as he was facing financial problems. The Insurer sent a discharge voucher on 27.02.2008, for full and final settlement. As the Insured was under financial stress, he signed discharge voucher and then Rs.94909909/- was paid on 28.02.2008 as full and final settlement of the claim. The Insured wrote protest letters dated 26.02.2008, for further payment of Rs.40796231/- as the balance claim for Stock and 28.02.2008, for further payment of Rs.75893911/- as the balance claim for Building, Plant & Machinery.

(i) The Insured filed this complaint on 12.04.2008, alleging deficiency in service and stating that on the basis of discharge voucher, the legal claim cannot be foreclosed. The discharge voucher was signed as the settlement of the claim was unreasonable delayed and due to fire incident, the Insured was suffering from financial difficulties. The Insurer in an arbitrary and highhanded manner, by stopping payment of the professional fee of the surveyor exercised undue pressure upon them for changing their survey report, which was refused by the surveyor J.P. Mistry but Srivatsan Surveyor submitted a Report dated 02.02.2008, assessing the loss of Stock to Rs.40786231/-, which was illegal.

The opposite party filed its written reply on 16.07.2008, in which, material facts have not been disputed. It has been stated that as soon as information of fire incident at the factory premises of the Insured was received, the Insurer appointed Sirish Desai & Associate as the preliminary surveyor and J.P. Mistry Surveyor, Mumbai as the surveyor on 08.12.2005. The surveyor inspected the premises on 13.12.2005 and 14.12.2005, took photographs, prepared inventory, recorded statements of the witnesses. He asked for various documents from the Insured for assessment of loss. The Insured submitted claim form and gave the papers as required by the surveyor. In the meantime, the Insurer appointed Sheth Doctor & Associates, Charted Accountant, Mumbai on 31.01.2006 to assist the surveyor J.P. Mistry, in assessing the loss of Stock. The surveyor J.P. Mistry submitted Interim Survey Report dated 12.03.2006, on which, ‘on account payment’ of Rs.7.50/- crores made on 28.05.2006. Mr. Narendra L. Moorjani, Ex-G.M. of the Insured made a complaint dated 27.06.2006 to the Insurer that the claim was exaggerated. The Insurer then appointed Srivatsan Surveyor Private Ltd., Mumbai, on 19.07.2006, a second surveyor for assessment of loss of Stock. Srivatsan Surveyor submitted his Final Survey Report dated 24.04.2007 and determined loss of Stock to Rs.77842057/-. His report and other papers were examined by the competent authority of the Insurer, who pointed out various discrepancies, in particular, assessment of stock of work-in-progress and list of finished goods and semi-finished goods as prepared by Sheth Doctor & Associate was changed without any basis. Finding apparent mistakes, Srivatsan Surveyor revised his report and submitted Revised Report dated 02.02.2008, assessing the loss of the Stock to Rs.40796231/-. The surveyor J.P. Mistry submitted Final Survey Report dated 26.02.2007, assessing of loss of Building to Rs.13447000/- and Plant & Machinery to Rs.203900939/-. The competent authority of the Insurer examined Final Survey Report dated 26.02.2007 and find various discrepancies in it, namely that the Insured had purchased second-hand machineries, manufactured in the year 1972, 1980 and 1994 and some of the machineries were 30 years old, 33 years old and 50 years old. The surveyor J.P. Mistry, in his final survey report assessed the value of these machineries on current market value basis, giving depreciation of 25% uniformly on all these machineries for up-gradation of technology. Some of these machines have completed its life and more than 75% depreciation ought to have been given. In particular (i) Extrusion Coating Machine was purchased second hand in 1980 for Rs.42/- lacs. This machine was actually manufactured in 1958-60. Market value of this machine was determined to Rs.3.52/- crores, on current value basis giving depreciation of 25%. (ii) Rotogravure Printing Machine was 1972 make. Market value of this machine was determined to Rs.1.90/- crores, on current value basis giving depreciation of 25%. (iii) SAM Rotogravure Printing Machine with Auto Registration Control Camera was 1995 make. Market value of this machine was determined to Rs.8.56/- crores, on current value basis giving depreciation of 25%. In spite of various letters, the surveyor J.P. Mistry refused to revise his final survey report. The Insurer took opinion of Bhatawadekar & Company, Mumbai, on the final survey report dated 26.02.2007, who submitted his report dated 17.09.2007, stating that import of second hand machinery was permitted by the government as such determination of valuation of the machines purchased in second hand, on the basis of value of new machines, deducting 25% for technology up-gradation was illegal. The Insurer then appointed Bhatawadekar & Company, Mumbai as Joint Surveyor with J.P. Mistry on 10.01.2008 and wrote a letter to the surveyor J.P. Mistry, for re-survey, which was refused by him vide letter dated 14.01.2008. Bhatawadekar & Company, Mumbai submitted his Final Survey Report dated 31.01.2008, assessing loss of Plant & Machinery to Rs.129236678/. The competent authority, in exercise of its power under Proviso to Section 64UM (2) of Insurance Act, 1938, revised final survey reports and approved the claim for Rs.169909909/- as full and final settlement. Rs.7.50/- crores was paid as ‘on account payment’, the Insured was asked to sign settlement voucher for Rs.94909909/ as full and final remaining claim, which was voluntarily signed by the Insured on 27.02.2008 and payment was done on 28.02.2008. The Insured voluntarily signed discharge voucher and accepted settlement amount as such the complaint is not maintainable. The Insurer is custodian of public money and bound to act diligently, due to which delay has occurred in settlement of the claim. There was no deficiency in service on the part of the Insurer.

The Insured filed Rejoinder Reply on 29.08.2008, in which, the facts stated in the complaint were re-iterated. The Insured filed Affidavit of Evidence of Pranav R. Patel and various documentary evidence. The Insurer filed Affidavit of Evidence of Lalit Tirga, Manager and Affidavit of Evidence of R. Srivatsan, the surveyor. Both the parties filed their written synopsis.

We have considered the arguments of the counsel for the parties and examined the record. So far as preliminary objection of the Insurer regarding maintainability of the complaint is concerned, Insurance Regulatory and Development Authority of India has issued a Circular dated 24.09.2015, directing the Insurance Companies not to insist to sign discharge voucher, if the claim was legally payable. If for payment of legal claim under the Insurance Policy, the Insurer insists to execute ‘discharge voucher’ and making it a condition precedent for payment, then it itself is coercion and violative of Section-28 of Contract Act, 1872. As such by signing ‘discharge voucher’ the Insured is not debarred from challenging the inadequacy of the settlement.

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 Mills, (2020) 12 SCC 105, held that Section 64UM of Insurance Act, 1938, does not restrict the Insurer to appoint second surveyor. In this case, it has been stated that Mr. Narendra L. Moorjani, Ex-G.M. of the Insured made a complaint dated 27.06.2006 to the Insurer that claim in respect of Stock was exaggerated. The Insurer then appointed Srivatsan Surveyor Private Ltd., Mumbai, on 19.07.2006 a second surveyor for assessment of loss of Stock. The surveyor J.P. Mistry, in his final survey report assessed the value of 30, 33 and 50 years old machines purchased on second hand on current market value basis, giving depreciation of 25% uniformly on all these machineries for up-gradation of technology. Bhatawadekar & Company, Mumbai gave his opinion, on the final survey report dated 26.02.2007, vide letter dated 17.09.2007, stating that import of second hand machinery was permitted by the government as such for determination of valuation of the machines purchased in second hand, on the basis of value of new machines, deducting 25% for technology up-gradation was illegal. Then Bhatawadekar & Company, Mumbai was appointed for re-assessment of loss of Building & Plant & Machinery, who submitted his Final Survey Report dated 31.01.2008. In these circumstances appointment of second surveyors was for valid reasons.

Supreme Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Ltd., (2009) 8 SCC 507, held that the surveyor report is not a sacrosanct. Its validity can be challenged on the basis of evidence on record. The dispute between the parties is in respect of quantum of the loss/claim. The surveyor J.P. Mistry, in his Final Survey Report dated 26.02.2007, assessed loss of Building to Rs.13460000/- and loss of Plant & Machinery to Rs.203900939/-. Srivatsan Surveyor, in his Final Survey Report dated 24.04.2007, assessed loss of Stock to Rs.77842057/- and in Revised Report dated 02.02.2008, assessed the loss of the Stock to Rs.40796231/-. The Insurer, in exercise of power under Proviso to Section 64UM (4) of Insurance Act, 1938, determined loss of Building to Rs.13447000/-, loss of Plant & Machinery to Rs.115799608/- and loss of Stock to Rs.40796231/- and paid this amount. In the complaint, the Insured does not dispute loss of Building and Stock nor made any claim in this respect. The Insured claimed Rs.75893911/- as deficient amount for loss of Plant & Machinery.

The Insurer has stated that in Final Survey Report dated 26.02.2007, second-hand machineries purchased by the Insured, manufactured in the year 1972, 1980 and 1994 and some of the machineries were 30 years old, 33 years old and 50 years old, were valued on current market value basis, giving deduction of 25% uniformly on all these machineries for up-gradation of technology. Some of these machines have completed its life and more than 75% depreciation ought to have been given. In particular (i) Extrusion Coating Machine was purchased second hand in 1980 for Rs.42/- lacs. This machine was actually manufactured in 1958-60. Market value of this machine was determined to Rs.3.52/- crores, on current value basis giving depreciation of 25%. (ii) Rotogravure Printing Machine was 1972 make. Market value of this machine was determined to Rs.1.90/- crores, on current value basis giving depreciation of 25%. (iii) SAM Rotogravure Printing Machine with Auto Registration Control Camera was 1995 make. Market value of this machine was determined to Rs.8.56/- crores, on current value basis giving depreciation of 25%. Bhatawadekar & Company, in his Final Survey Report assessed the loss of Plant & Machinery to Rs.129236678/-. Neither the survey J.P. Mistry nor the Insured could give any specific reply to these objections of the Insurer. Finding apparent error in Final Survey Report dated 26.02.2007, the Insurer determined the loss in exercise of power under Proviso to Section 64UM (4) of Insurance Act, 1938. The Insured could not show any illegality in the assessment of the Insurer.

So far as delay in settlement of the claim is concerned, the surveyor J.P. Mistry submitted Final Survey Report on 26.02.2007. Srivatsan Surveyor submitted his Final Survey Report on 24.04.2007. After receiving Final Survey Reports, the Insurer had to take decision within one month under Regulation-9 of The Insurance Regulatory and Development Authority (Protection of Policyholder’s Interest) Regulations, 2002. The Insurer took unreasonable time in settlement of the claim after, receiving Survey Reports and made settlement on 26.02.2008. As such the Insurer is liable to pay interest @9% per annum on Rs.94909909/- from June 2007 to February, 2008. The Insurer is liable to be further interest @9% per annum on the amount of the interest so calculated from March, 2008 till its payment.

ORDER

In view of the aforesaid discussion, the complaint is partly allowed. The opposite party is directed to pay interest @9% per annum on Rs.94909909/- from June 2007 to February, 2008 and further interest @9% per annum on the amount of the interest so calculated from March, 2008 till its payment, within a period of two months from the date of this judgment.