M/S Super Label Mfg. Co. vs New India Assurance Company Limited

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.3673 OF 2015

M/s Super Label Mfg. Co. .…Appellant(s)

Versus

New India Assurance Company Limited…. Respondent(s)

JUDGMENT

A.S. Bopanna, J.

1. The appellant is a registered partnership firm

engaged in the business of printing high technology

labels used as adhesive labels mainly by Drug

Manufacturers and Other Companies on their packing

material. In order to carry on such business, the

appellant had imported highly sophisticated and costly Signature Not Verified

machinery and had installed the same in their premises. Digitally signed by R Natarajan Date: 2023.05.16 16:51:59 IST Reason: 1 Among the said machinery that was installed, it also

included the ‘Aquaflex’ brand of machinery from Canada

and ‘Gallus­Arsoma’ from Switzerland, which are

sophisticated printing machinery. In order to insure the

said machinery against any damage and loss, the

appellant had secured a ‘Standard Fire and Special Perils’

Policy from the respondent insurance company. The said

policy was for a total cover of Rs. 3,35,30,000/­ (Rupees

Three Crores Thirty­Five Lakhs Thirty Thousand only)

and was valid for the period 15.05.2003 to 30.08.2004.

2. When this was the position, as per the case of the

appellant, there was a fire mishap in the factory on

28.02.2004 at about 7.50 AM. The fire had damaged and

destroyed certain portions of the factory which included

the plant and machinery, building, raw material and

finished products. The appellant, therefore, invoked the

policy and filed a claim with the respondent insurance

company for a sum of Rs.3,02,75,000/­ (Rupees Three

Crores Two Lakh Seventy­Five Thousand only). The

appellant had also informed M/s Loss Prevention

2 Association of India Ltd. and requested them to

undertake an investigation.

3. As per procedure the insurance company

appointed a surveyor, M/s Prabha Associates, Mumbai

to assess the loss. The said surveyors were required to

submit a report in not more than six months as per the

regulations under the Insurance Regulatory and

Development Authority. The surveyor conducted the

inspection of the premises several times and, at the

instance of the surveyor, the appellant also called for an

Engineer from the manufacturers in Switzerland to

physically inspect the machine and to tender his opinion.

In this regard, the appellant had also to incur expenses

of about Rs.4,86,665/­ (Rupees Four Lakh Eighty­Six

Thousand Six Hundred Sixty­Five only). The appellant

contends, though the surveyor admitted the loss to the

tune of Rs.1,81,35,810/­ (Rupees One Crore Eighty­One

Lakhs Thirty­Five Thousand Eight Hundred Ten only)

and the assessment of loss was enhanced further based

on the letter dated 13.09.2004 and 07.10.2004, on

submission of the report the respondents limited the

3 reimbursement to Rs.16,15,606/­ (Rupees Sixteen Lakh

Fifteen Thousand Six Hundred and Six Only) by sending

a voucher dated 16.05.2005. The appellant declined to

accept the same and instead, filed a consumer complaint

before the National Consumer Disputes Redressal

Commission (for short, ‘NCDRC’) claiming a sum of

Rs.5,20,91,724/­ (Rupees Five Crores Twenty Lakhs

Ninety­One Thousand Seven Hundred Twenty­Four only)

including the amount of Rs.2,26,61,376/­ (Rupees Two

Crores Twenty­Six Lakhs Sixty­One Thousand Three

Hundred Seventy­Six only) which was the amount

assessed as a loss by the surveyor and also the interest

payable to the various banks.

4. The respondents filed their written statement

disputing the claim put forth by the appellant. According

to the respondent, the amount of Rs.16,15,606/­

(Rupees Sixteen Lakhs Fifteen Thousand Six Hundred

and Six only) offered by them was as assessed by the

surveyor, and as such the same would be the full and

final settlement of the claim by the appellant. It is alleged

by the respondent that the appellant had not cooperated

4 with the surveyors at the time of the assessment being

made by the surveyor. It is their case that in respect of

the imported machines, the local representative of the

manufacturers were unable to technically prove the

damage to the machinery since they had no technical

expertise or knowledge to attend to the same. The

engineer of M/s Gallus who visited from abroad declared

the machine to be a total loss based on the photographs

and had not stated categorically that the machine could

not be repaired. The respondents contended that the

Engineer could not explain as to how the damage had

occurred due to fire. In effect, the respondents had

disputed the reports tendered by the experts but had

sought to rely on the report of the surveyor appointed by

them and that of M/s. Material Technology Development

Centre (for short, ‘MTDC’). In that context, they sought to

justify the amount of Rs.16,19,209/­ (Rupees Sixteen

Lakhs Nineteen Thousand Two Hundred and Nine only)

offered by them. Insofar as the claim and the assessment

of loss to the extent of Rs.2,26,61,376/­ (Rupees Two

5 Crore Twenty­Six Lakhs Sixty­One Thousand Three

Hundred and Seventy­Six only) it was contended that it

is unsubstantiated.

5. In the background of the contentions, the NCDRC

has taken into consideration the surveyor’s report and

based on the same has considered the aspect relating to

the heavy rusting of the machinery and concentrated on

as to whether the rusting within 4 to 5 hours is

technically feasible. In this regard, the NCDRC has

referred to the opinion in the website ‘Wikipedia’ with

regard to corrosion, as explained therein and has based

its decision on the same to arrive at the conclusion that

the rusting to the machinery had taken place over a

number of years and not due to one incident of fire and

the water sprayed for its extinguishment. In that view,

the NCDRC has not given credence to the contention of

the appellant that the surveyor had earlier assessed the

loss at Rs.2,26,61,376/­ (Rupees Two Crores Twenty­Six

Lakhs Sixty­One Thousand Three Hundred Seventy­Six

only) but on the other hand accepted the contention of

the respondents that the appellant is entitled to the sum

6 of Rs.16,19,209/­ (Rupees Sixteen Lakhs Nineteen

Thousand Two Hundred and Nine only) as offered by

them. The NCDRC, therefore, disposed of the complaint

through its order dated 24.02.2015 limiting the relief to

the said sum of Rs.16,19,209/­ (Rupees Sixteen Lakhs

Nineteen Thousand Two Hundred and Nine only) with

interest at 12 per cent per annum. The appellant

therefore claiming to be aggrieved is before this Court in

this appeal.

6. We have elaborately heard Mr. Arunabh

Chowdhury, learned senior advocate for the appellant

and Mr. S.L. Gupta, learned counsel for the respondent

and perused the appeal papers including the order dated

24.02.2015 passed by the NCDRC which is impugned

herein.

7. At the outset, it is necessary to note that insofar as

the respondent having issued the ‘Standard Fire and

Special Perils’ Policy which was valid for the period

15.05.2003 to 30.08.2004 covering the damages up to

Rs. 3,35,30,000/­ (Rupees Three Crores Thirty­Five

Lakhs Thirty Thousand only) is the accepted position.

7 The fact that during the validity of the policy, a fire

accident had occurred on 28.02.2004 is also undisputed.

The fire being the cause for having resulted in certain

loss which is covered under the policy for reimbursement

also cannot be disputed. The very fact that the

respondents have quantified the loss and offered to pay

the sum of Rs.16,19,209/­ (Rupees Sixteen Lakhs

Nineteen Thousand Two Hundred and Nine only) which

according to them was the loss/damage to the plant and

machinery and other articles would indicate that the

only issue which was to be determined by the NCDRC

and now by this Court is with regard to the extent of

damage caused and the amount of compensation

therefore, to be paid and reimbursed by the respondent

insurance company under the policy, within the amount

of coverage provided therein.

8. The report dated 28.03.2005 of M/s Prabha

Associates, the surveyor appointed by the respondent

insurance company shows that on the visit made on

28.02.2004, it records that the fire brigade vehicles had

arrived at 8.15 A.M. and had doused the fire using water

8 jets till 10.30 A.M. In this regard, it also records that

water was sprayed all over the place which caused

damage to the machineries, than the damage that was

caused by the fire itself. The observation recorded by the

surveyor is that the ‘Aquaflex’ printing press located

below the cables was found affected. Further the ‘Gallus’

Printing Machine, ‘Spengler’ machine and A.V. Flexo

plate counter were all water affected. It was also

observed in the report that the water marks were found

on all the machines and metal rollers on ‘Gallus’ and

‘Aquaflex’ machine which was rusted due to the water

being sprayed. In the report, it was also indicated that

the probable cause of fire is short circuit and it was

extinguished by the fire brigade by spraying water on all

the machines located in the premises. It is observed that,

when they visited the premises, all the iron parts were

rusted to varying degrees with regard to the ‘Gallus’

machine and that there was water on mechanical and

electric parts located on the operations side of the

machine. The rear side of the machine was found intact.

9 It was therefore concluded that the rusting was due to

the water being sprayed.

9. As regards ‘Aquaflex’ machine, it was indicated

that the machine was located very close to the source of

fire and it was found that the plastic knobs had partly

melted; the electrical wirings had burnt and the main

control panel was void of water marks. Pursuant to such

report there was an exchange of correspondence between

the appellant and the surveyor wherein further details

were furnished relating to effort made by the appellant

towards the restoration of the machinery and M/s

Graphic Technology Inc. having informed the appellant

through the communication dated 17.04.2004 that the

cost of repairing the machine will exceed the reasonable

limit and may not be able to guarantee optimum printing

quality in spite of repairs as the metal deformation on

the main frame cannot be reverted. The very opening of

the machine requiring additional parts was also

highlighted. It is in that background, having taken note

of this aspect of the matter the surveyor who had on

06.09.2004 made an assessment of Rs.1,81,35,810/­

10 (Rupees One Crores Eighty­One Lakhs Thirty­Five

Thousand Eight Hundred Ten only) and had sent for

acceptance of the insured, namely the appellant so as to

finalise the report, on further exchange of

correspondence, the assessment of damage was revised.

10. The respondent, in that background, also sought

for a report from the Loss Prevention Association of India

Ltd., which on examination by visiting the site on

12.03.2004 along with the Divisional Manager and

Development Officer, apart from suggesting remedial

measures had noted with regard to considering the bill of

damage to the electric cables etc. It was noted that two

printing machines were found partly damaged due to

heat, smoke and fire fighting water. But, observation was

however made that heavy rusting was technically not

feasible within the time span of 4 to 5 hours under

conditions of fire and its extinguishment. The respondent

therefore taking into consideration the said reports had

limited the reimbursement to the extent as indicated

above.

11

11. While taking note of this aspect, what is also to be

kept in view is the report submitted by M/s

Gallus/Heidelberg India Pvt. Ltd. pursuant to the visit

made on 29.02.2004 within a few hours of the fire

accident. The said report indicated that the machine was

total loss and not repairable with reasonable costs.

Subsequently the Engineer who flew from Switzerland

also visited the site on 05.10.2004. As per the report

dated 06.10.2004, the machine was extensively damaged

as a result of fire and could neither be switched on, nor

be overhauled/repaired at the site. He was also of the

opinion that the machine would have to be dismantled in

order to inspect the damage and if any replacement is

required it would be highly expensive. The said report

was no doubt available before the surveyor and surveyor

had raised certain queries with regard to the print

precision and as to why the repairs cannot be carried out

in India. M/s Heidelberg India Pvt. Ltd. submitted its

reply on 05.01.2005 indicating that the premises was

gutted by fire and the medium used to extinguish the fire

12 was water. As such heavy film of rust had formed over

the heated steel component like plate and impression

cylinders, activation mechanism, machine sliding

surfaces, bearings at various locations throughout the

length and breadth of the press. It was indicated in

technical terms with regard to the machine not being

rectifiable.

12. As noted earlier, the respondent had also secured

reports from MTDC subsequent to the report of M/s

Heidelberg. MTDC vide its report dated 06.01.2005

observed that heavy rusting is not technically feasible

within the time span of 4 to 5 hours under conditions of

fire and its extinguishment. It was indicated, technically

they could not confirm significant amount of rusting

within 4 to 5 hours because of fire and its

extinguishment as valid.

13. The appellant on the other hand sought the

assistance of Indian Institute of Technology, Powai to

secure a report in the background of the existing report

including that of MTDC. The IIT, Powai through its report

dated 12.08.2006 observed that the simulation of the

13 conditions to test the feasibility of rusting within 4 to 5

hours was not proper and cannot be considered as

reliable. The report of MTDC suggesting that rusting

existed prior to break out of fire was commented upon

and was indicated that it was misinterpretation on their

own observations. The Indian Institute of Technology

(IIT), Powai in their report had also indicated that the

seven conditions necessary for rusting and corrosion did

in fact exist. In that light, the report suggested that the

rusting and corrosion of machine occurred on account of

the fire accident. It was suggested that the surveyors

report is not scientific and that it is inconclusive.

14. Having noted the various reports that had been

secured at various stages, insofar as the fact that the

assessment by a surveyor is a requirement to arrive at a

conclusion to assess the loss is the accepted position.

However, as against the report of the surveyor appointed

by the insurance company if there is any other material

on record, the same cannot be ignored but is also

required to be noted for the purpose of settlement of

claim. In this regard, learned senior counsel for the

14 appellant has relied on the decision of this Court in

National Insurance Company Ltd. Vs. Hareshwar

Enterprises (P) Ltd. and Others (2021) SCC Online SC

628 wherein, inter alia it is observed as hereunder:­ “12. In the said decision, it is no doubt held that though the assessment of loss by an approved surveyor is a prerequisite for payment or settlement of the claim, the surveyor report is not the last and final word. It is not that sacrosanct that it cannot be departed from and it is not conclusive. The approved surveyor's report may be the basis or foundation for settlement of a claim by the insurer in respect of loss suffered by insured but such report is neither binding upon the insurer nor insured. On the said proposition, we are certain that there can be no quarrel. The surveyor's report certainly can be taken note as a piece of evidence until more reliable evidence is brought on record to rebut the contents of the surveyor's report.”

15. In that background, in the instant facts where no

oral evidence has been tendered by the parties and

ultimately the consideration is based on the reports

which are available on record, the nature of the reports

and the manner in which the fire accident had occurred

and the situation leading to the claim is to be assessed

in an objective manner by the adjudicatory forum. In

order to buttress his contentions in this regard, the

learned senior counsel has referred to the decision in the

15 case of New India Assurance Company Limited Vs.

Zuari Industries Limited and Others (2009) 9 SCC 70

wherein this Court having referred to the earlier decision

has arrived at the conclusion that the chain of events is

to be taken note while considering the claim for

damages. In this regard, it is stated therein as

hereunder:­

“14. Apparently there is no direct decision of this Court on this point as to the meaning of proximate cause, but there are decisions of foreign courts, and the predominant view appears to be that the proximate cause is not the cause which is nearest in time or place but the active and efficient cause that sets in motion a train or chain of events which brings about the ultimate result without the intervention of any other force working from an independent source.

16. Thus, in Lynn Gas and Electric Co. v. Meriden Fire Insurance Co. the Supreme Court of Massachusetts was concerned with a case where a fire occurred in the wire tower of the plaintiff's building, through which the wires of electric lighting were carried from the building. The fire was speedily extinguished, without contact with other parts of the building and contents, and with slight damage to the tower or its contents. However, in a part of the building remote from the fire and untouched thereby, there occurred a disruption by centrifugal force of the flywheel of the engine and their pulleys connected therewith, and by this disruption the plaintiff's building and machinery were damaged to a large extent.

17. It was held in Lynn Gas and Electric Co. that the proximate cause was not the cause nearest in time or place, and it may operate through successive instruments, as an article at the end of a chain may

16 be moved by a force applied to the other end. The question always is: was there an unbroken connection between the wrongful act and the injury, a continuous operation? In other words, did the facts constitute a continuous succession of events, so linked together as to make a natural whole, or there was some new and independent cause intervening between the wrong and the injury?

22. In the present case, it is evident from the chain of events that the fire was the efficient and active cause of the damage. Had the fire not occurred, the damage also would not have occurred and there was no intervening agency which was an independent source of the damage. Hence we cannot agree with the conclusion of the surveyors that the fire was not the cause of the damage to the machinery of the claimant. Moreover, in General Assurance Society Ltd. v. Chandmull Jain it was observed by a Constitution Bench of this Court that in case of ambiguity in a contract of insurance the ambiguity should be resolved in favour of the claimant and against the insurance company.”

16. In the above backdrop, in the instant case we note

that the entire consideration made by the respondent

before admitting only a portion of the claim and the

ultimate consideration made by the NCDRC appears to

be on the narrow issue with regard to the corrosion of

the machinery and in that regard as to whether the

corrosion can happen within a short duration of 4 to 5

hours. In our opinion, such consideration in the instant

17 facts was misdirected and therefore resulted in the

wrong conclusion.

17. We note that in the case on hand, the policy in

question is a ‘Standard Fire and Special Perils’ Policy

which is available at Annexures P­2 to P­5. The policy

includes the coverage in respect of destruction or

damage due to fire, save the exceptions provided therein.

The fact that in the instant case the fire accident had

occurred during the subsistence of the policy and that

such accident was accidental and had caused damage to

the property of the appellants including to the machinery

in question is not in dispute. The photographs relating to

the machines along with report of the surveyor would

indicate that there is rusting on the machinery. The fact

that the said machinery is highly sophisticated imported

machinery for precision printing cannot be disputed. In

such situation, when, due to such accidental fire and to

extinguish such fire the assistance of the fire brigade

was called for and even as per the report of the surveyor

the fire brigade had sprayed water and such other fire

18 extinguishing material over the machinery which was

placed in the room which caught fire and the fire brigade

has made effort between 8.15 am to 10.30 am, the

damage to the machinery has occurred. From the report

of the experts it is indicated that the machinery was

beyond repair keeping in view the precision work to be

performed with the said machinery and there was no

guarantee that even if an attempt is made to repair the

same after opening the machine, it would give good

results.

18. Per contra the fact remains that the respondent

has not tendered any evidence to indicate that the same

machinery in fact is being used by the appellants

subsequent to the fire accident either in the same

manner in which it was being used prior to the fire

accident or being used after repairs. Further except for

the MTDC assuming that the corrosion has happened

over a period of time, all other reports suggest that the

corrosion has happened due to the spraying of water to

extinguish the fire. The fact that the appellant was a

19 going concern as on the date of the fire accident is not in

dispute. Further, the surveyors report in any event does

not suggest that the machineries were not in use as on

the relevant date. On the other hand, the appellants had

contended that the very same machines were being used

for printing the labels immediately prior to the fire

accident and there was no complaint with regard to the

quality of printed labels from its customers. The

respondents have not placed any contrary material to

controvert the said position. In such situation, we are of

the opinion that the emphasis in a fact of the present

nature to arrive at the conclusion as to whether the

corrosion could happen within a time period of 4 to 5

hours and in that regard, the NCDRC considering that

aspect based only on the definition of corrosion in

general terms is not justified.

19. In the overall assessment of the instant case, when

the accidental fire on 28.02.2004 is the accepted position

and in the very report of the surveyor dated 28.03.2005

recording the nature of the damage to the machinery is

20 also the accepted position, a narrow construction as

made by the NCDRC is unacceptable. On the other hand,

the chain of events will lead to the conclusion the fire

accident has caused the damage.

20. If that be the position, the issue would be with

regard to the extent to which the claim of the appellant is

required to be accepted and the respondent be directed

to reimburse the same. In this regard, though the claim

is made by the appellant for the sum of Rs.5,20,91,724/­

(Rupees Five Crores Twenty Lakhs Ninety­One Thousand

Seven Hundred Twenty­Four only), the learned senior

counsel for the appellant would indicate that the

appellant would presently limit the claim to

Rs.2,26,61,376/­ (Rupees Two Crores Twenty­Six Lakhs

Sixty­One Thousand Three Hundred Seventy­Six only).

In that background, if the nature of assessment made by

the surveyor at the first instance is taken into

consideration, the amount indicated therein was in a

sum of Rs.1,81,35,810/­ (Rupees One Crores Eighty­One

Lakhs Thirty­Five Thousand Eight Hundred Ten only).

21 However on the exchange of correspondence between

surveyor and the appellant who brought on record

additional material before the surveyor to indicate that

the machinery cannot be repaired, the amount assessed

was Rs.2,32,02,000/­ (Rupees Two Crores Thirty Two

Lakhs Two Thousand only).

21. Therefore, if all these aspects are taken into

consideration, the claim limited by the appellant at this

juncture is the actual loss suffered by the appellant. We

are therefore of the opinion that the appellant would be

entitled to the amount of Rs.2,26,61,376/­ (Rupees Two

Crores Twenty­Six Lakhs Sixty­One Thousand Three

Hundred Seventy­Six only) minus the sum of

Rs.16,19,209/­ (Rupees Sixteen Lakhs Nineteen

Thousand Two Hundred and Nine only) which was earlier

offered by the Insurance Company and was received

without prejudice during the pendency of the

proceedings, with interest if any that has been received.

The balance amount of Rs. 2,10,42,167/­ (Rupees Two

Crores Ten Lakhs Forty­Two Thousand One Hundred

22 Sixty­Seven only) shall be payable by the respondent

with interest at 6 per cent per annum from the date of

the complaint filed before the NCDRC. The same shall be

paid within 8 weeks from the date of receipt of a copy of

this judgment.

22. The appeal is accordingly allowed in part.

23. Pending application, if any, stands disposed of.

…………….…………….J. (A.S. BOPANNA)

….……………………….J. (DIPANKAR DATTA)

New Delhi;

May 16, 2023

23