M/S.Suraj Mal Ram Niwas Oil Mills (P)Ltd vs United India Insurance Co. Ltd. & Anr

M/S SURAJ MAL RAM NIWAS OIL -- APPELLANT (S)

MILLS (P.) LTD.

VERSUS

UNITED INDIA INSURANCE CO. -- RESPONDENT (S)

LTD. & ANR.

J U D G M E N T

D.K. JAIN, J.:

1. This appeal, by special leave, is directed against the judgment and order

dated 12th July 2002, delivered by the National Consumer Disputes

Redressal Commission (for short "the National Commission") in First

Appeal No. 354 of 1996, whereby it set aside order dated 24th June, 1996

passed by the Consumer Disputes Redressal Commission, Rajasthan (for

short "the State Commission") and held that the respondents - insurance

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company was justified in repudiating the insurance claim of the

appellant.

2. Both the respondents are the same insurance company, the first being the

registered and head office and the second its local branch office.

3. Shorn of unnecessary details, the facts material for the purpose of

disposal of this appeal may be stated thus:

The appellant company is engaged in the business of manufacture and

sale of "Bhisham" brand mustard oil and cakes. They had obtained an open

transit insurance policy from the respondents covering "all types of edible

oils in tins..." transported by rail/road (which had to be declared) from

Jaipur to anywhere in India. Initially, the liability of the respondents was

limited to `10 lakhs but during the relevant period, the limit was enhanced to

`1 crore. The insurance policy was subject to certain conditions attached as

schedule to the policy. Additionally, the cover note also contained the

following special condition and warranty:

"Each & every consignment must be declared

immediately before dispatch of goods."

2 4. On 14th August 1992, the appellant dispatched 1194 tins of oil valued at `

5,84,790/- from Jaipur to Dharamnagar by rail and from Dharamnagar to

Agartala by road to one M/s Sree Sree Kaibalia Bhandar, Agartala.

5. The railway wagon carrying the said goods met with an accident on 28th

September 1992, resulting in extensive damage to the consignment.

6. It is an admitted fact that the appellant did not inform either of the two

respondents herein about the said accident till 30th September 1992 but

claims to have informed their Agartala office on 28th September 1992

itself, who had also appointed a surveyor. The consignment, in damaged

condition, was forwarded to Agartala by road on 29th September 1992.

The challans bearing Nos. 40336, 40337 and 40338 prepared by the road

carrier M/s Paul Brothers clearly mentioned the damaged state of the

goods. The said goods were received by the consignee on the same day.

7. On 30th September 1992, the consignee informed the Agartala branch

office of respondent No. 1 about the damage to the goods. The road

carrier, M/s Paul Brothers also reported the matter to the respondent No.

2, herein. Subsequently, on 3rd October 1992, the road carrier issued a

shortage/damage certificate stating that 153 tins were handed over in

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fully empty condition and in the remaining 1041 tins, there was shortage

of oil.

8. It appears from the report of the surveyor, one Mr. Tapan Kumar Saha,

that the Agartala branch of respondent No.1 had issued instructions for

survey on 28th November 1992. On 10th November 1992, he submitted his

report whereby he assessed the total loss at `4,39,178/- payable by the

respondents. The said report was also communicated to respondent No. 2.

9. On 6th August 1993, another surveyor, Mr. S.K. Bakliwal, was appointed

by respondent No. 2, who reported that during the period from 1st April

1992 to 14th August 1992, the appellant had only declared dispatches

worth `91,22,778/- whereas the total dispatches by the appellant during

that period were to the tune of `1,43,59,303/-.

10. Respondent No. 2 thereafter requested Mr. Tapan Kumar Saha to

segregate the damage caused to the goods at the place of accident, and

the subsequent damage that occurred during the transportation of the

damaged consignment to Agartala. In his report dated 22nd March 1994,

the surveyor observed that loss of oil due to the railway accident was

2,048 kgs. and from Dharamnagar to Agartala, it was 10,676 kgs.

4 11. On 23rd August 1993, the appellant requested the respondents to honour

their claim, followed by a reminder on 12th May 1994. On 1st August

1994, the respondents, vide letter No. UIIC:DOII:JPR:1994-95,

repudiated the claim of the appellant on the following grounds:

"i) As per the terms and conditions of the policy, you were

supposed to declare each and every dispatch. From 10-4-1992

to 14-8-1992, you have dispatches goods worth `1,43,59,303/-

while you have only declared as per your record, goods worth

`91,22,778/-. Out of these declarations, a number of

declarations have not reached the company's office. Even

considering it to be correct as the dispatched have exceeded

rupees one crore long back, the policy has not continued to

cover the dispatch in question, and thus your claim cannot be

entertained.

ii) You have further violated the terms and conditions of the

policy by removing goods from the rail accident site without

survey of the loss having been done by the Insurance

Company's Surveyor immediately after the accident, and

without the permission of the Insurance Company. You have

not given any information or sought any permission before

removing the goods from the rail accident site to Agartala.

iii) You have aided in increasing the losses knowingly that the

goods dispatched from the rail accident site to Agartala were

not properly packed, and carrying of the oil in damaged tins is

clear violation of the terms and conditions of the policy and the

normal conduct of behaviour. From the Surveyor's Report, it is

evident that the losses which have been quantified on the basis

of the certificates while the rail authorities are to the tune of

`71,130/- while the rest of the damages have occurred during

the transshipment from the rail accident site to Agartala in

damaged tins by M/s Paul Brothers, the Road carriers. It is also

not disputed that during the carriage of the goods by road from

rail accident site to Agartala, there was no accident and these

losses are contributed to your own fault, negligences and want

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of proper care to carry the oil only after transferring the oil from

tins damaged as a result of the rail accident into new tins."

12. Being aggrieved with the rejection of their claim, the appellant filed a

complaint before the State Commission, preferring a claim of `5,50,798/-

along with interest at the rate of 24% payable from 10th November 1992

till its payment against the respondents.

13. The State Commission, vide its order dated 24th June 1996, allowed the

complaint of the appellant and directed the respondents to pay `4,39,178/-

with interest at the rate of 12% per annum from 1st January 1993 till

payment, and `2,000/- as costs. In relation to the grounds of repudiation

pressed into service by the respondents, the State Commission, inter alia,

observed that firstly, the effect of non-declaration of the consignments

could only be that they were not covered by the insurance policy, and the

appellant company having not crossed the limit of `1 crore in relation to

consignments which were desired to be covered by insurance, the

consignment in question would be covered by the insurance policy as

declaration was duly made in regard to it; secondly, the liability of the

respondents would not be affected by the reason that the assessment of

loss was not done immediately after the unloading of goods at

Dharamnagar; and thirdly, it did not matter that the loss or damage to the

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consignment was remotely caused by the negligence of the insured unless

the loss was due to the wilful act of the insured.

14.Aggrieved by the said order of the State Commission, the respondents

preferred an appeal before the National Commission. As aforestated, the

National Commission allowed the appeal of the respondents, observing

thus:

"The insured's failure to report the loss caused by Rail accident

and removal of consignment without giving Surveyor a chance

to assess the loss at first hand and on the contrary aggravating

the loss on account of improper care while transporting it by

Road after the initial damage as well violating the terms of the

policy by not reporting each and every dispatch as per terms of

the policy prejudices the interest of the appellant and in our

view repudiation by the appellant was in order."

15.Being dissatisfied with the said order, the appellant is before us in this

appeal.

16. Mr. A.K. Ganguli, learned senior counsel appearing for the appellant,

strenuously urged that admittedly the respondents were informed of the

accident on 28th September 1992 by the consignee through their Agartala

office and this fact has been overlooked by the National Commission

while recording the finding that the surveyor was not given a chance to

assess the real loss. To buttress the contention that intimation of loss of

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subject matter of insurance even by the consignee was sufficient and

appellant's claim could not be rejected for want of intimation about the

accident by the insured themselves, learned counsel commended us to the

decision of the Court of Appeal in Barratt Bros. (Taxis), Ltd. Vs.

Davies1, wherein it was held that if the insurance company receives all

material knowledge from another source so that they are not prejudiced at

all by the failure of the insured himself to inform them, then they cannot

rely on such a condition in the insurance contract to defeat the claim. It

was pleaded that in the present case the surveyor had also surveyed the

consignment as soon as the goods reached their destination and had

assessed the loss at `4,39,178/-. It was contended that since insurance

contracts are a different species of contract, their interpretation is

governed by different principles and in the event of any ambiguity in any

clause or where two interpretations are possible, an interpretation which

favours the policy holders should be given. In support of the proposition,

learned counsel relied on the decisions of this Court in General

Assurance Society Ltd. Vs. Chandumull Jain & Anr.2, Polymat India

(P) Ltd. & Anr. Vs. National Insurance Co. Ltd. & Ors.3, Shashi Gupta

1 [1966] 2 Lloyd's Rep.1

2 (1966) 3 SCR 500

3 (2005) 9 SCC 174

8

Vs. Life Insurance Corporation of India & Anr.4 and Life Insurance

Corporation of India Vs. Raj Kumar Rajgarhia & Anr.5.

17. As regards the objection of the respondents about the non-disclosure of

dispatch of each and every consignment, as pointed by the second

surveyor, learned counsel submitted that the said condition has to be

understood in the context of the fundamental condition that the insurance

cover was intended to secure only the "insurable interest" of the appellant

in the dispatches. It was urged that the appellant had declared only those

consignments in which they had an "insurable interest" as in relation to

dispatches which had not been declared, the consignees had desired that

their consignments should be dispatched without an insurance cover. In

all such cases, the purchasers took the risk of loss to their goods, and

hence the appellant had no "insurable interest" in them, unlike in the

consignment in question for which due declaration was made. Reference

was made to the decisions of this Court in New India Assurance Co. Ltd.

Vs. G.N. Sainani6 and New India Assurance Company Limited Vs. Hira

Lal Ramesh Chand & Ors.7, wherein it was held that "insurable interest"

4 1995 Supp (1) SCC 754

5 (1999) 3 SCC 465

6 (1997) 6 SCC 383

7 (2008) 10 SCC 626

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over a property is "such interest as shall make the loss of the property to

cause pecuniary damage to the assured."

18. It was then contended by learned counsel for the appellant that in the

instant case the insurance policy covered all risks from the point of

loading at Jaipur till the final delivery and the appellant was only under a

duty to ensure that goods were in a properly packed condition when they

were handed over at Jaipur for transport by train. It was asserted that the

appellant had done everything possible to ensure that the goods reached

their destination in proper condition as the event that had occurred at

Dharamnagar station was beyond their control. In order to buttress the

contention that the goods were in transit till they reached their

destination, viz. Agartala, learned counsel relied on Kilroy Thompson,

Ltd. Vs. Perkins & Homer, Ltd.8 and United India Insurance Co. Ltd.

Vs. Great Eastern Shipping Co. Ltd.9 It was argued that in the instant

case the respondents have not led any evidence to prove negligence on

the part of the appellant.

19. Relying on the decisions rendered by the National Commission in

Divisional Manager, LIC of India Vs. Shri Bhavanam Srinivas Reddy10,

8 [1956] 2 Lloyd's Rep. 49

9 (2007) 7 SCC 101

10 (1991) CPJ 189

10

Divisional Manager, LIC India of India Vs. Smt. Uma Devi11 and M/s

Raj Kamal & Co. Vs. M/s United Insurance Company12, learned counsel

contended that the jurisdiction of a consumer forum has to be construed

liberally and it covers unilateral repudiation of a claim arising out of

insurance. It was also submitted that apart from the fact that the present

case does not involve any complicated issues of fact for which very

detailed evidence would have to be led, which the State or the National

Commission would not be able to do, mere complication either of facts or

of law cannot be a ground for shutting the doors of those fora to the

person aggrieved. To buttress the submission, reliance was placed on the

decisions of this Court in Dr. J.J. Merchant & Ors. Vs. Shrinath

Chaturvedi13 and CCI Chambers Coop. Hsg. Society Ltd. Vs.

Development Credit Bank Ltd.14

20. Per contra, Mr. Vineet Malhotra, learned counsel appearing for the

respondents, while supporting the judgment of the National Commission,

urged that the claim of the appellant could not be considered as the

appellant had violated the special condition of the policy by not

disclosing each and every consignment before it had left the factory

11 (1991) CPJ 516

12 (1992) CPJ 121

13 (2002) 6 SCC 635

14 (2003) 7 SCC 233

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premises. It was asserted that the said condition was the basic condition

of the policy and on its breach the liability of the respondents stood

repudiated. It was also pleaded that the moment goods worth Rs.1 crore

had been dispatched from the factory of the appellant, the policy ceased

to exist. It was argued that prior to the dispatch of the goods in question,

goods worth `1,43,59,303/- had already been dispatched, whereas the

appellant had declared dispatches of goods only worth `91,22,778/- and,

therefore, liability of the respondents under the policy ceased to exist

both on account of non-declaration of material facts, as also due to the

fact that the value of dispatches had exceeded the policy limit. In support

of his plea that it was not open to the insured to pick and choose the

consignments for the purpose of declaration, learned counsel relied on

the decision of the Kings Bench in Dunlop Brothers & Company Vs.

Townend15. Learned counsel contended that appellant had also violated

the terms of policy by not informing the respondents immediately about

the accident as well as not taking adequate steps to minimise the losses,

in as much as the goods dispatched from Dharamnagar to Agartala were

not properly packed. According to the learned counsel, the insurance

policy casts an obligation on the insured and its agents to take steps for

15 1919 (2) 127 (KB)

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minimizing losses, and the fact that the appellant permitted the carriage

of oil in broken tins clearly establishes that the appellant had violated the

terms of the policy and, therefore, the respondents cannot be made liable

for the losses.

21. Lastly, learned counsel urged that there must be strict compliance with

the terms and conditions of an insurance policy, and the appellant having

breached a fundamental condition of the policy, the respondent is not

liable to pay any amount to them. In support of the contention that in a

contract of insurance, rights and obligations are strictly governed by the

terms of the policy and no exception or relaxation can be given on the

ground of equity, learned counsel relied on the judgments of this Court in

Deokar Exports Private Limited Vs. New India Assurance Company

Limited16, United India Insurance Co. Ltd. Vs. Harchand Rai Chandan

Lal17 and Vikram Greentech India Limited & Anr. Vs. New India

Assurance Company Limited18.

22. Before embarking on an examination of the correctness of the grounds

of repudiation of the policy, it would be apposite to examine the nature

of a contract of insurance. It is trite that in a contract of insurance, the

16 (2008) 14 SCC 598

17 (2004) 8 SCC 644

18 (2009) 5 SCC 599

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rights and obligations are governed by the terms of the said contract.

Therefore, the terms of a contract of insurance have to be strictly

construed, and no exception can be made on the ground of equity. In

General Assurance Society Ltd. (supra), a Constitution Bench

of this Court had observed that:

"In interpreting documents relating to a contract of insurance,

the duty of the court is to interpret the words in which the

contract is expressed by the parties, because it is not for the

court to make a new contract, however reasonable, if the parties

have not made it themselves." (See also: Oriental Insurance

Co. Ltd. Vs. Sony Cheriyan19; Vikram Greentech (supra);

Sikka Papers Limited Vs. National Insurance Company

Limited & Ors.20; New India Assurance Company Limited Vs.

Zuari Industries Limited & Ors.21; Amravati District Central

Cooperative Bank Limited Vs. United India Fire and General

Insurance Company Limited.22)

23. Similarly, in Harchand Rai Chandan Lal's case (supra), this Court held

that:

"The terms of the policy have to be construed as it is and we

cannot add or subtract something. Howsoever liberally we may

construe the policy but we cannot take liberalism to the extent

of substituting the words which are not intended."

19 (1999) 6 SCC 451

20 (2009) 7 SCC 777

21 (2009) 9 SCC 70

22 (2010) 5 SCC 294

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24.Thus, it needs little emphasis that in construing the terms of a contract of

insurance, the words used therein must be given paramount importance,

and it is not open for the Court to add, delete or substitute any words. It is

also well settled that since upon issuance of an insurance policy, the

insurer undertakes to indemnify the loss suffered by the insured on

account of risks covered by the policy, its terms have to be strictly

construed to determine the extent of liability of the insurer. Therefore,

the endeavour of the court should always be to interpret the words in

which the contract is expressed by the parties.

25.Having considered the instant case on the touchstone of the aforenoted

broad principles to be borne in mind while examining the claim of an

insured, we are of the opinion that the claim of the appellant must fail on

the short ground that there was a breach of the afore-extracted special

condition incorporated in the cover note. The special condition viz.

"each and every consignment" must be declared before dispatch of goods

is clear and admits of no ambiguity. The appellant was obliged to declare

"each and every consignment" before it left the appellant's factory

premises and there is nothing in the policy to suggest that the insured had

the liberty to pick and choose the dispatches which they wanted to

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declare to the insurer, not even at the instance of the consignee, who

otherwise is a stranger to the contract between the insurer and the

insured. We have no hesitation in rejecting the plea of the appellant that

they were required to declare only those dispatches in which they had an

insurable interest. It bears repetition that notwithstanding any request by

the consignee, the policy of insurance postulated declaration in respect of

each and every dispatch by the appellant. Therefore, the fact that

purchasers did not want an insurance cover on certain dispatches had no

bearing on the obligation of the appellant to declare each and every

dispatch under the policy. It is a settled proposition of law that a stranger

cannot alter the legal obligations of parties to the contract.

26. We are in complete agreement with the National Commission that there

was a breach of the special condition in the cover note for the insurance

policy on the part of the appellant and, therefore, the repudiation of the

claim of the appellant by the respondents was justified.

27.Having come to the conclusion that the repudiation of the claim preferred

by the appellant on the aforestated ground was valid, we deem it

unnecessary to evaluate the correctness of the other rival submissions

made before us by the learned counsel.

16 28. Resultantly, the appeal being devoid of any merit deserves to be

dismissed. It is dismissed accordingly, leaving the parties to bear their

own costs.

............................................J.

[ D.K. JAIN ]

............................................J.

[ T.S. THAKUR ]

NEW DELHI,

OCTOBER 8, 2010.

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