New India Assurance Co. Ltd. vs M/S. Mudit Roadways

2023 INSC 1022 REPORTABLE IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 339 OF 2023

NEW INDIA ASSURANCE CO. LTD. & ORS. APPELLANTS

VERSUS

M/S. MUDIT ROADWAYS RESPONDENT

JUDGMENT

Hrishikesh Roy, J.

1. Heard Mr. Aditya Kumar, learned counsel appearing for the

appellants. Also heard Mr. Parthiv K. Goswami and Mr. Mrinal

Kumar Choudhury, learned Senior Counsel for the respondent.

2. This appeal challenges the 10.8.2022 order of the National

Consumer Disputes Redressal Commission (hereinafter referred to

as, ‘the NCDRC’ for short), which partially allowed the consumer Signature Not Verified

complaint Digitally signed by Jayant Kumar Arora directing the Insurance Company to pay Date: 2023.11.24 18:06:42 IST Reason:

Rs.6,57,55,155/- for a fire insurance claim with 9% interest from

Page 1 of 33 claim denial date within 8 weeks, or face 12% interest beyond the

stipulated 8 weeks.

INSURANCE POLICIES & CLAIM PROCESS

3. The respondent purchased the following insurance policies:

Sr. Description Date Duration of Sum No. Premium Policy Insured Paid

1 Standard Fire 19.06.2017 19.06.2017 Rs. 6 and Special to Crores Perils Policy 18.06.2018 17080011170 100000734

2 Customs Duty 30.09.2017 30.09.2017 Rs. 20 Package Policy to Crores 11140046172 29.09.2018 480000017

3 Standard Fire 30.11.2017 30.11.2017 Rs. 150 and Special to Crores Perils Policy 29.11.2018 11140011170 100001014

4 Additional 29.12.2020 - Rs. 75 Endorsement Crores to Customs Duty Package Policy

4. These insurance policies covered premises of 106750 sq. ft.

(covered area) and 15000 sq. ft. (open area) at Survey No. 09, Hissa

No. 03, at Village – Veshvi, Taluka – Uran, District – Raigad, Page 2 of 33 Maharashtra. The claimant leased the premises from M/s.

Platinum Logistics for warehousing purpose. Claimant paid

Rs.44,02,562/- to New India Assurance for safeguarding the

custom bonded goods and for covering the risk against fire, etc.

5. During the pendency of the insurance policies, on

14.03.2018, a fire broke out at the insured warehouse. The

respondent then informed the Insurance Company and the

Custom authorities about the same. The Insurance Company

appointed M/s. J.C. Bhansali and Co. as Surveyors to assess the

loss. On 03.10.2018, the insured raised a claim for a sum of Rs.

6,57,55,155/-. Of the total claim, Rs. 5,54,17,891/- was against

Policy No. 17080011170100000734; Rs.18,73,984/- under Policy

No.11140011170100001014 and Rs. 2,15,18,802/- under Policy

No.11140046172480000017 respectively.

REPORTS ON THE FIRE ON 14.03.2018

6. On the day of the fire incident, the matter was also reported

to the police, resulting in the FIR No. 03/2018 on 15.03.2018.

Police investigation prima facie concluded an electrical short

circuit as the cause, which was relayed to the Insurance Surveyor.

7. Another report (dated 23.04.2018), addressed by the

Inspection Division of Department of Industry Energy and Labour Page 3 of 33 of the Maharashtra Government, recorded that the fire accident in

a portion of the warehouse was on account of electrical sparks

since the area had an electrical setup and stored combustible

materials like boxes, papers and chemicals.

8. The Jawaharlal Nehru Port Trust's investigation, conducted by

on-site firefighters revealed in their report (09.05.2018) that the

probable cause was an electrical short circuit.

9. Two additional reports (07.08.2018 & 31.08.2018) prepared

by independent surveyors appointed by the claimant's clients were

submitted. Both reports indicated that a short circuit was the

likely cause of the fire.

10. M/s. Screen Facts Services Pvt. Ltd., the Forensic Examiner

hired by the Insurance Company, inspected the portion of the fire-

affected warehouse and in their report (10.12.2018) stated that

combustible materials were stored where the fire occurred but

ruled out short circuit as the cause, due to the absence of electrical

wiring. The Forensic Examiner highlighted that welding work on

the roof, carried out until 16:04 hrs. on the incident day, was a

possible cause. It recorded that negligence during welding work in

the secure warehouse caused the fire due to sparks and

inflammable materials.

Page 4 of 33

11. The Investigator, M/s. J. Basheer & Associates, appointed by

the appellants, concluded in their 11.04.2019 report that fire was

due to an electrical short circuit, contradicting the Forensic

Examiner's findings. They also noted that the insurance policy did

not cover the warehouse at Survey No. 9/3 because it was not

affected by the fire.

12. M/s. J.C. Bhansali & Co., the Insurance Company's

Surveyor, in their report (15.04.2019) concluded the following:-

“1. Cause of Fire is due to the negligence on the part of the management in not taking adequate precautions when the construction work was going on;

2. Almost 18000 to 20000 sq. ft. area of the roof of bonded Warehouse which is custom bonded Warehouse was uncovered, i.e., there were no roof sheets at the time of loss, due to which circumstances affected the building insured or containing the insured property were changed, in such a way which increased the risk of loss or damage by insured perils and;

3. The Survey Numbers of the fire affected Warehouse have not been declared/covered under the Policy.

4. Policy covers location at survey No. 9/3, but the office of the insured and a Warehouse located at the Surveyor No. 9/3 were not fire affected and they were safe;

5. Hence, claim under reference is out of the scope of relevant policy & liability under the claim does not arise.”

Page 5 of 33

13. After receiving the Survey and Investigation Reports, the

Insurance Company, with their 15.07.2019 communication,

rejected the respondent's claim. In their subsequent

communication (14.12.2019), the following two reasons were

stated: 1) The insured premises at Survey No. 9/3 was unaffected

by the fire, and 2) The fire resulted from the insured's negligence

during roof construction in a secure customs-bonded warehouse

with hazardous chemicals. Construction work in the warehouse

increased the risk, causing insurance coverage to cease under

Clause 3 of the policy's terms and conditions. Following are the

details of the repudiation letters issued by the Insurance

Company:

Sr No Date Letter of Repudiation

1. 28.06.19 Insurance Company’s letter repudiating the claim with respect to policy no. 1114046172480000017 (Customs duty package policy)

2. 15.07.19 Insurance Company’s letter repudiating the claim with respect insurance policy no.

17080011170100000734 (Standard Fire and Special Perils Policy- Goods Held in Trust)

3. 14.12.19 Insurance Company’s letter repudiating the claim with respect insurance policy no.

17080011170100000734 (Standard Fire and Special Perils Policy)

Page 6 of 33 CONSUMER COMPLAINT

14. The respondent, dissatisfied with the aforesaid repudiation of

claim, filed Complaint No. 765 of 2020 under the Consumer

Protection Act, 1986, citing service deficiencies and unfair trade

practices by New India Assurance Co. Ltd. In their response, the

Insurance Company referred to the Investigation Report

(11.04.2019) from M/s. J. Basheer & Associates and the Final

Survey Report (15.04.2019) from M/s. J.C. Bhansali & Co. They

contended that the fire occurred during roof welding work

undertaken by the insured without adequate precautions. It was

also stated that the insured warehouse at Survey No. 9/3 was not

affected by the fire. Furthermore, the roof work in the warehouse

increased the risk, violating general condition 3 of the Insurance

Policy, justifying the repudiation.

15. In the impugned order, the NCDRC considered two vital issues

to arrive at its decision:

(i) Whether the Complainant’s Warehouse located at Survey

No. 9 Hissa 3 (9/3) Village Veshvi, Tal-Uran, District - Raigad

was insured by the Opposite Party;

(ii) What was the cause of fire incident that occurred on

14.03.2018?

Page 7 of 33 16. The NCDRC ruled in favour of the complainant concluding

that the insurance policy covered the complainant's warehouse.

On the second issue, NCDRC noted the time lag between the

welding work and the fire incident and observed that the Forensic

report is inconclusive. The other reports suggesting an electrical

short circuit as the cause of the fire was found to be more

acceptable.

17. Adverting to the roofing work done by the insured, NCDRC

held that it did not significantly increase the risk, and therefore

Clause no. 3 was inapplicable. Referring to the ratio in New India

Assurance Co. Ltd. vs. Pradeep Kumar1; NCDRC highlighted that

the approved Surveyor's report, though important, is not absolute

and not binding on the parties. The NCDRC accordingly ruled in

favour of the insured finding deficiency in service of the insurance

company. Thus, direction was issued for payment of the specified

sum, with interest.

ARGUMENTS

18. Mr. Aditya Kumar, the learned counsel for the appellants,

contended that the cause of the fire was negligence on the part of

1 (2009) 7 SCC 787.

Page 8 of 33 the insured. Reports of the forensic investigator (M/s Screen Facts

Services Pvt. Ltd.) dated 10.12.2018 (Annexure A-10) were relied

upon, which found that electrical short-circuit was not the cause

of the fire incident. Instead, the fire could have occurred due to

sparks that may have fallen on flammable chemicals stored in the

adjoining area, during welding. Surveyor’s Report (M/s Bhansali

& Co.) dated 15.04.2019 (Annexure A-12) was relied upon to

further suggest that the fire occurred due to negligence on the part

of the insured in not taking adequate precautions during the roof

repair work. By undertaking such repair work without

precautions, the insured property was altered in a way that

increased the risk of loss or damage. Additionally, storing

hazardous chemicals during construction or repair work was itself

a negligent act and amounted to violation of policy conditions.

19. The learned counsel points out that the forensic inspector

and the surveyors were specifically tasked to investigate the fire

incident. Since short-circuit as the cause of fire was ruled out, Mr.

Kumar argues that the negligence theory on the part of the

insured (in undertaking roof construction work in the vicinity of

stored combustible materials), ought to be accepted.

Page 9 of 33

20. For the appellants, Mr. Kumar also reads the Surveyor’s

Report (M/s Basheer & Associates) dated 11.04.2019 (Annexure

A-11) which concluded that the insurance policy did not cover the

premises of the fire-affected warehouse. And as such, repudiation

is justified since the insurance coverage was limited to the office

of the insured and the warehouse which suffered no burning

incident.

21. Since Rs. 2,15,18,802.45/- was claimed towards custom

duty liability, the appellants argue that compensating the insured

warehouse is erroneous as custom duty liability rests only upon

the importer under Sections 12 and 46 of the Customs Act, 1962.

The counsel relies on Section 23 of the Customs Act, 1962 to argue

that granting of compensation for destroyed imported goods

stored in the warehouse, is unjustified. Additionally, it is also

contended that the Customs Department’s demand letter lacked

a statutory basis. It is therefore submitted that the insured

cannot seek indemnification for the fire loss as any such

compensation would amount to unjust enrichment.

22. The learned counsel submits that the doctrine of waiver as

applied in Galada Power & Telecommunication Ltd. vs. United India

Page 10 of 33 Insurance Co. Ltd.2, had been overruled. Moreover, a legal

submission can be urged at any stage of proceedings. Therefore,

grounds of unjust enrichment and customs duty could still be

argued before the court although they were not argued earlier.

23. Per contra, Mr. Parthiv K. Goswami, the learned senior

counsel appearing for the claimant contends that the insurance

company cannot be permitted to urge additional grounds beyond

those mentioned in the letter of repudiation. The appellants must

therefore limit their submissions to the grounds mentioned in the

repudiation letter.

24. The learned counsel then submits that it is clear from the

Leave & License Agreement dated 04.07.2015 that M/s Platinum

Logistics had leased out land situated on Survey No.9/3 in Village

– Veshvi, Taluka – Uran, Raigad to the claimant. Further, approval

was sought & obtained from the Customs Department for a

bonded warehouse on the same land. The insurance policy

mentions the location of the insured premises as Mudit Roadways,

Survey No.9/3 CPP Forbes CFS, Chirner Road, Village - Veshvi,

Uran, MH1369, Maharashtra-400702. For justifying the claim,

Mr. Goswami reads the two communications from the Tehsildar,

2 (2016) 15 SCC 161.

Page 11 of 33 Uran, Raigad dated 25.03.2018 (Annexure R-18) and 23.03.2018

(Annexure R-20) and also relies upon the telephone connection

(Annexure R-16), electricity connection (Annexure R-17) and other

communications from the Executive Magistrate (Annexure R-10)

to point out that the fire incident occurred in the same address of

the insured ware-house. Besides, the customers who appointed

their own independent surveyors (M/s Kannan & M/s Proclaim)

noted that the warehouse where the stock got burnt, was located

at Survey No. 9/3 (Annexure R-8). Accordingly, it is argued that

there was no basis for the insurance company to contend that the

fire in the warehouse was outside the purview of the premises,

covered by the insurance policy.

25. Specifically on the aspect of cause of fire, Mr. Goswami

contends that the welding machine & cylinders were taken away

from the field of view at 11.56.16 hours and the roof welding work

did not continue in any case, beyond 16.04 hours on 14.03.2018.

Therefore, if the sparks from the welding work were the cause of

the fire, it would not go un-noticed for 26 minutes since

combustible chemicals, papers, etc. would have instaneously

caught fire. Because of the conspicuous gap of around 26 minutes

between the end of the welding work and the occurrence of fire, it

Page 12 of 33 would be illogical according to Mr. Goswami to attribute the

welding work to be the cause for the fire. With this projection, the

claimants contend that there was no negligence on the part of the

insured and the cause of fire was rightly attributed to an electrical

short-circuit.

26. It was further argued that multiple reports from different

govt. departments as well as independent surveyors supported the

conclusion that the fire had occurred on account of a short-

circuit. In addition, it was also pointed out that no welding took

place during the GI sheet roofing work as those would melt during

welding. Instead, nuts & bolts were used in the GI roofing work.

27. On the aspect of the violation of insurance policy conditions,

it was argued that roof repair work was being carried out to

address the water leakage issue from the warehouse roof. Thus,

there was no alteration of the insured premises which would have

increased the fire risk. The insured therefore never violated the

general condition.

28. On the issue of remission of customs duty, it is argued that

the benefit of Sections 22 & 23 of the Customs Act 1962 was only

available to importers and not those who hold such goods in trust

for their clients. In addition, undertaking obtained from the

Page 13 of 33 claimant stating that they would not claim a remission or

abatement on the customs duty payable (Annexure R-4) was also

placed on record. It is accordingly submitted that the remission

and abatement of duty available does not benefit the claimants

and the said amount (Rs. 2,13,00,061/-) may directly be paid to

the Customs Department.

29. The learned counsel for the claimants relied on Canara Bank

vs. United India Insurance Company3 to contend that the

insurance company cannot escape its liability if there is nothing

to prove that the fire was caused by the insured itself, irrespective

of what the cause of fire was. Reliance was also placed on

Khatema Fibres Ltd. vs. New India Assurance Co. Ltd. & Anr.4 to

argue that the surveyor’s report was not sacrosanct and therefore,

could be departed from, if needed.

DISCUSSION AND CONCLUSION

30. We have reviewed both parties' arguments and carefully

examined the multiple reports from various agencies, civic

authorities, the insurance company, and surveyors.

CONTENTIONS BEYOND THE LETTER OF REPUDIATION

3 (2020) 3 SCC 455.

4 2021 SCC OnLine SC 818.

Page 14 of 33

31. The relevant portion of the letter of repudiation is reproduced

below:

“... ... ... ... the insured premises not affected due to alleged fire. The above mention premises where the loss occurred due to alleged fire is not insured under the Policy. Thus the alleged loss dogs (sic) not fall within the purview of the policy... ... ... ...

The root cause of the fire incident was due to the negligence on the part of the Management in not taking adequate precautions when the construction work was going on that too in a secured customs bonded warehouse where many hazardous chemicals were stored: The alleged cause of fire is hot (sic) covered under the policy... ... ... ...”

The insurance company in their letter mentioned two specific

grounds to repudiate the claim: (i) that the location of fire was part

of the premises not covered under the insurance policy, and (ii)

that there was negligence on the part of the insured in carrying out

repairs at the roof of the warehouse which caused the fire.

32. Notably, in earlier cases like Galada Power and

Telecommunication Ltd. vs. United India Insurance Co. Ltd. & Anr.5

and Saurashtra Chemicals Ltd. vs. National Insurance Co. Ltd.6, it

was declared that new grounds for repudiation cannot be

introduced during the hearing if they were not included in the

5 (2016) 14 SCC 161.

6 (2019) 19 SCC 70

Page 15 of 33 repudiation letter. This legal principle was reiterated in JSK

Industries Pvt. Ltd. vs. Oriental Insurance Co. Ltd.7:

“10. Mr. Gopal Shankarnarayan, learned senior counsel for the appellants has argued both on substantive and procedural points to assail the aforesaid orders. His first submission is that the insurance company cannot resist a claim petition on grounds beyond those cited by them while repudiating a claim. In support of this argument, a decision of this Court in the case Saurashtra Chemicals Ltd. v. National Insurance Co. Ltd. [(2019) 19 SCC 70] has been cited. In this judgment, it has been held:

— “23. Hence, we are of the considered opinion that the law, as laid down in Galada [Galada Power & Telecommunication Ltd. v. United India Insurance Co. Ltd., (2016) 14 SCC 161: (2017) 2 SCC (Civ) 765] on Issue (2), still holds the field. It is a settled position that an insurance company cannot travel beyond the grounds mentioned in the letter of repudiation. If the insurer has not taken delay in intimation as a specific ground in letter of repudiation, they cannot do so at the stage of hearing of the consumer complaint before NCDRC.”

33. Canvassing supplementary arguments during the hearing,

(beyond those in the insurer's repudiation letter), is explicitly

prohibited. Consequently, it is held that the insurer cannot

introduce additional reasoning beyond those detailed in their

letter, to justify the repudiation.

LOCATION OF FIRE IF COVERED UNDER THE POLICY

7 2022 SCC OnLine 1451

Page 16 of 33

34. Let us now analyse whether the burnt site was covered under

the insurance policy. The Leave & License Agreement dated

04.07.2015 identifies all three warehouses functioning within the

compound operated by M/s Platinum Logistics, with the same

Survey No. i.e., 9/3. In fact, the policy documents as well as the

License issued under Section 57 of Customs Act 1962 refers to the

warehouse situated at Survey No. 9/3, Village – Veshvi, Gavan

Phata, Chirner Road, Opp. Forces CFS, Taluka – Uran, Raigad.

The policy document specified the address of the insured as

‘Mudit Roadways, Survey No. 9/3, Opp. Forbes CSF, Chirner

Road, Village - Veshvi, Uran, MH1369, MH-4000702.’ In addition,

the impugned order rightly points out that the warehouse was

physically verified by the Customs Authorities after which

telephone and electricity connections were provided to the insured

at the same address. All communication addressed to the

claimants, including letters of repudiation from the insurance

company, admit to having insured the premises located at the

given address.

35. Therefore, looking at the policy documents, the Leave &

License Agreement and various communications received from the

customs, police, fire & electricity departments, it is reasonable to

Page 17 of 33 conclude that the insured premises was the one that was

identified and insured at Survey No. 9/3, by the insurance

company. Needless to say, there is nothing to conclude that the

area where the fire occurred on 14.03.2018 was not covered by

the said insurance policy.

ALTERATION TO INSURED PREMISES & RISK INCREASE

36. To consider this aspect, Clause 3 in the insurance policy is

relevant which reads as below:

“3. Under any of the following circumstances the insurance ceases to attach as regards the property affected unless the insured, before the occurrence of any loss or damage, obtains the sanction of the Company signified by endorsement upon the policy by or on behalf of the Company:-

(a) If the trade or manufacture carried on be altered, or if the nature of the occupation of or other circumstances affecting the building insured or containing the insured property be changed in such a way as to increase the risk of loss or damage by Insured Perils.

(b) If the building insured or containing the insured property becomes unoccupied and so remains for a period of more than 30 days.

(c) If the interest in the property passes from the insured otherwise than by will or operation of law.”

37. Clause 3(a) indicates that the insurance policy would cease

to be applicable or cover the insured premises in certain cases Page 18 of 33 where there is an increased risk of loss or damage to the insured

premises or goods within it. In this case, the insured had

undertaken repairs on the rooftop to prevent water leakage to the

warehouse. Such essential repair work on the rooftop by itself,

cannot be reasonably construed to be an alteration that would

increase the risk of loss or damage, as has been urged by the

insurance company. In our assessment, the said repair work

would not fall in the category of an alteration which would increase

the risk insured for the warehouse premises. Therefore, no

infirmity is seen with the view taken by the NCDRC on the same.

CAUSE OF THE FIRE & NEGLIGENCE – MULTIPLE REPORTS

38. While dealing with the 14.03.2018 fire incident, several

agencies, authorities and organisations have reported on the

warehouse fire accident. Those are summarized as follows:

S.NO. REPORT DATE FINDINGS APPOINTED BY 1. Electrical 23.04.2018 Sparks created from Under Section Inspector the Short Circuit of 161(2)(a), The the Electrical setup at Electricity Act, the corner of the Go- 2003 by the down. Appropriate Government. 2. Asst. 09.05.2018 Probable cause of Claimant Manager, incident reported as Jawaharlal Electrical Short Nehru Port Circuit. Trust’s

Page 19 of 33 3. Independent 07.08.2018 Sparks from Electrical Bajaj Allianz Sy. – M/s H Short Circuit ignited Gen. Insurance Kannan inflammable Co. – Insurers chemicals stored. to M/s. Global Exim (M/s Mudit Roadway’s Clients) 4. Independent 31.08.2018 Probable Cause of TATA AIG Gen. Sy. – M/s incident determined Insurance Co. – Proclaim as Short Circuit based Insurers to on the police report & Expanded fire brigade. Polymer System (M/s Mudit Roadway’s Clients) 5. Police 03.11.2018 Electrical short circuit Investigation could be the cause of (Not fire annexed) 6. Order of the 03.11.2018 IO concluded that the Section 21 Executive accidental fire was CrPC, Rule 105 Magistrate caused pursuant to of Bombay Short Circuit Police Manual, 1959. 7. M/s. J 11.04.2019 Relied on Police Insurance Co. Basher & Report (3.11.18) to Associates conclude cause of fire as Short Circuit. Observed that fire affected warehouse survey nos. are not the risk location as per insurance policy. 8. M/s Screen 10.12.2018 Sparks from the Insurance Co. Facts ongoing welding work Services ignited the flammable Pvt. Ltd. chemicals b/w A & D. Forensic Cause not electrical in Investigatio nature as there was n Report no electrical wiring equipment near the area of incident.

Page 20 of 33 9. M/s. J.C. 15.04.2019 Negligence by Insurance Co. Bhansali & management in not Co taking adequate Investigatio precautions while n Report construction work was underway leading to sparks falling during wielding. (Based on M/s Screen & J Basheer).

38.1 The above tabulated summary of reports reveals multiple and

conflicting findings. Seven of the reports suggest short-circuit as

the cause for fire. The 23.04.2018 report of the Electrical Inspector

highlighted that a short-circuit around 4:30 pm on 14.03.2018, led

to sparks in M/s. Mudit Roadways' warehouse. Consequently, the

falling electrical sparks ignited the boxes, papers, and chemicals.

The Assistant Manager of the Jawaharlal Nehru Trust also affirmed

that the fire was triggered by an electrical short-circuit, as observed

by the fire-fighting teams at site.

38.2 Likewise, M/s. J. Basheer & Associates' 11.04.2019 report

suggest that the fire's exact cause is inconclusive but a short-

circuit could be the spark for the incident. The Special Executive

Magistrate-cum-Assistant Police Commissioner in the Navi

Mumbai Port Division accepted the police investigation report and

Page 21 of 33 concluded (on 03.11.2018) that the accidental fire resulted from a

short-circuit.

38.3 The forensic investigation report dated 10.12.2018 analysed

various aspects, including the chemical analysis of debris and

CCTV footage from the 17 cameras installed in the insured

premises. It determined that a short-circuit was not the cause but

rather sparks from rooftop welding work may have triggered the

fire. The surveyor’s report from M/s. Bhansali & Co. dated

15.04.2019 also aligned with such conclusion. Investigators found

that substantial welding work was conducted that day and pointed

towards sparks igniting the stored flammable chemicals in the

warehouse. According to them, the insured's negligence during

construction work in a warehouse with numerous hazardous

chemicals, was the root cause for the fire.

38.4 Although the footage from Camera No. 3 and video from

Camera No.9 were not available, the forensic team analysed the

available CCTV footage. They observed that welding equipment

with cylinders were being brought to the rooftop at 11:51:17 hrs

and the welding work being carried out from 11:51:17 hrs to

11:56:16 hrs, after which the equipments were removed from the

vicinity. At 12:10:17 hrs., a worker was observed removing the

Page 22 of 33 welding red boxes. This is noteworthy as it indicates that the

welding equipments were taken away by the workers around four

hours before the fire occurred. Subsequently, the workers were

seen transporting GI roofing sheets as head loads to the roofing

work site, which continued until 16:04 hrs. The CCTV footage

showed workers also using a crane to move GI roofing sheets and

MS Roofing Trusses to the roof repair area post-welding. A

substantial time gap of 4 hours, 19 minutes, and 43 seconds

separated the end of welding work from the fire itself. Even if

rooftop repair continued until 16:04 hrs., a significant 26-minute

time lag existed before the fire started.

38.5 The Forensic Investigator's conclusion that sparks from

rooftop welding caused the fire appear to be illogical, as they

overlooked other potential causes like short-circuit. Negligence

despite workers not being involved in welding-related tasks near

the time of the fire, was wrongly attributed to the insured.

Moreover, evidence was not available that sparks fell on flammable

chemicals attributable to activities, undertaken by workers.

39. Of the nine reports, seven suggest short-circuit as the likely

fire cause, while two infer negligence on the insured's part, for in-

adequate precautions, during warehouse construction.

Page 23 of 33

40. Logically if it were the welding sparks which caused the fire,

it should have occurred shortly after 11:54:27 during the welding

works or around 16:04 hours during rooftop repair. The 4 hours

19 minutes 43 seconds time gap is startlingly significant. The 26-

minute time lag after roofing work ended and the fire does not have

any rational explanation. There is no evidence of welding during

the roofing work at 16:04 or closer to the fire time, which explains

the inconclusive forensic report stating sparks “could have” caused

the fire at 16:30.

41. The repudiation as noted is based on two reports (i) the

forensic report of Screen Facts Service Pvt. Ltd. and of (ii) M/s

Bhansali & Co. The first one notably was inconclusive. The other

reports suggest short-circuit as the likely cause, not negligence.

The significant time gap that exists between the welding work and

the fire at 16:30 has no logical explanation. The basis of the

repudiation accordingly appears to be un-reasonable and is not

acceptable.

VALUE OF A SURVEYOR’S REPORT

42. According to the Insurance Act 1938, an approved surveyor's

assessment is necessary for a claim. The claimant however

contends that the surveyor's report is not definitive. The key

Page 24 of 33 question is the extent to which the report is binding and under

what conditions can it be overridden in. To address this, Section

64(UM)(4) of the Insurance Act, 1938 can be usefully read which

concerns surveyors and loss assessors:

64-UM. (4) No claim in respect of a loss which has occurred in India and requiring to be paid or settled in India equal to or exceeding twenty thousand rupees in value on any policy of insurance, arising or intimated to an insurer at any time after the expiry of a period of one year from the commencement of the Insurance (Amendment) Act, 1968, shall, unless otherwise directed by the Authority, be admitted for payment or settled by the insurer unless he has obtained a report, on the loss that has occurred, from a person who holds a licence issued under this section to act as a surveyor or loss assessor (hereafter referred to as “approved surveyor or loss assessor”):

Provided that nothing in this sub-section shall be deemed to take away or abridge the right of the insurer to pay or settle any claim at any amount different from the amount assessed by the approved surveyor or loss assessors”."

43. The above provision mandates that claims above Rs. 20,000

must be initially assessed by an approved surveyor. It is

noteworthy that the insurer has the discretion to settle the claim

for a different amount, than what is assessed by the surveyor.

44. In New India Assurance Co. Ltd. v. Pradeep Kumar (supra),

the court addressed whether one had to accept payment based on

the surveyors' assessment or could provide independent evidence

Page 25 of 33 to support higher costs for replacement and repairs. The court's

pertinent conclusion is as follows:

“22. In other words 1although assessment of loss by approved surveyor is a prerequisite for payment or settlement of claim of twenty thousand rupees or more by insurer, yet surveyor's report is not the last and final word. It is not that sacrosanct that it cannot be departed from; it is not conclusive. The approved surveyor’s report may be 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.”

45. Guided by the above ratio, the situation in the present case

is found to be similar. The surveyor’s report cannot be considered

a sacred document and contrary evidence, including an

investigation report, is subject to rebuttal. The key question is

whether the investigation report is indispensable, or if the survey

report alone is sufficient, to determine the cause of the fire.

46. The analysis of the forensic examiner is reproduced below for

ready reference: -

“19.01. Insured has claimed for loss due to fire. Cause of fire as claimed-fire due to short circuit. 19.02. Cause of fire was investigated by M/s Screenfacts Services Pvt Ltd.

19.03. M/s Screenfacts Services Pvt. Ltd. have concluded cause of fire as under:-

19.04. Taking into consideration the construction of roofing in the gap between E & F segments of the warehouse on that day. which involved considerable welding working it is opined that during welding at the

Page 26 of 33 rooflevel sparks could have fallen on the adjoining flammable chemicals stored between A & D indicating the fire.

19.05. The root cause of the fire incident was due to the negligence on the part of the management in not taking adequate precautions when the construction work was going on, that too in a secured customs bonded warehouse where many hazardous chemicals were stared.”

47. The surveyor’s abovementioned report, although

comprehensive otherwise, is inconclusive on the aspect identifying

the actual cause of fire. Given that the surveyor’s report only relies

on the Forensic Examiner, i.e., M/s Screen Facts Services Pvt.

Ltd.’s findings, it would be unsafe in this Court’s opinion to rely on

the said report.

EXTENT OF LIABILITY WHEN CAUSE OF FIRE INDETERMINABLE

48. Multiple survey reports suggesting different causes of fire

present a perplexing conundrum on the insurance claim. The

reports provided by the insurer, though submitted with intent,

were found to be inconclusive and also contradictory. The reports

furnished by the claimant, which include assessments by

government departments and two independent surveyors, have

however consistently identified the cause of the fire as a short-

circuit. While it is difficult to go by the reports relied upon by the

Page 27 of 33 insurance company, the reports furnished by the claimants being

consistent and logical are more acceptable in ascertaining the true

cause of the fire.

49. On the above aspect, the NCDRC has rightly placed reliance

on Canara Bank v. United India Insurance Co. Ltd.8, wherein the

Court decided to not place reliance on the surveyor’s report

conducted by M/s Truth Labs, for lack of sufficient analysis & held

that:

“In any event, neither in the report of M/s Truth Labs nor in the other reports by the Insurance Company is there anything to show that the insured had set the cold store on fire. Whether the fire took place by a short circuit or any other reason, as long as insured is not the person who caused the fire, the Insurance Company cannot escape its liability in terms of the insurance policy. We reject the contention of the Insurance Company that the fire was ignited by the use of kerosene and hence it is not liable.”

50. Therefore, it was unequivocally declared that the precise

cause of a fire, whether attributed to a short-circuit or any

alternative factor, remains immaterial, provided the claimant is not

the instigator of the fire. This case underscored the fundamental

principle that an insurance company’s obligation to the insured is

8 (2020) 3 SCC 455.

Page 28 of 33 of much greater import. The NCDRC’s judicious application of this

binding precedent appears to be well-merited.

APPLICABILITY OF CUSTOMS DUTY & UNJUST ENRICHMENT

51. In order to better appreciate and understand the argument

pertaining to unjust enrichment, the claim statement

(11.02.2019) needs to be perused. The claimant as can be noticed,

deducted Rs. 2,39,00,664.20 for covered losses and Rs. 19,75,388

for burnt cargo salvage. Notably, the final custom duty amount

under the policy was determined as Rs. 2,13,00,061.01. Customs

authorities communicated their intent to recover this precise sum,

Rs. 2,13,00,061, from the insured through the letters dated

06.02.2019 and 26.10.2020. In response to these

communications, the insured submitted an undertaking on

11.08.2015 (Annexure R-4), explicitly stating that they would not

seek any remissions related to customs duty under Sections 22

and 23 of the Customs Act 1962. This action rules out unjust

enrichment for the claimants on account of the customs duty.

52. Additionally, the Public Warehouse Licensing Regulations,

2016 mandate that public warehouse licensees must agree to pay

all duties, interest, fines, and penalties related to stored goods. It

Page 29 of 33 was for this reason that the customs duty package policy was also

obtained by the insured from the insurance company, so as to

indemnify themselves for the goods destroyed or damaged in the

warehouse. Needless to say, the said Regulations make the insured

duty-bound to pay all such necessary duties, fines or penalties. It

is in that context that the insured had specifically stated that the

insurance company may directly remit the said component of duty

to the authorities, instead of remitting it to the insured. This would

circumvent any unjust enrichment, towards the insured.

53. The key question here is whether the insurance claim should

include the customs duty amount of Rs. 2,13,00,061.01/- as

claimed by the respondent. The insurance company argued that

customs duty should not be included because the Customs Act,

1962 specifies that only the importer of goods is liable to pay

customs duty when they file a bill of entry.

54. The insurer anchored their stand on Section 15(1)(b) of the

Customs Act stating that duty rates for warehoused goods are

determined when a bill of entry for home consumption is filed, and

duty assessment (Section 17) only occurs when a bill of entry

(Section 46) is presented. In this case, no bills of entry were filed,

and no assessed goods were lost in the fire. According to the

Page 30 of 33 insurer, since the taxable event never happened, there is no

customs duty liability. The counsel also cited Section 23 of the

Customs Act, which required the Assistant Commissioner of

Customs to remit duty for lost or destroyed goods, before

clearance.

55. However, the counsel for the claimant rightly contended that

the privileges enshrined in Sections 22 and 23 of the Customs Act,

pertaining to abetment and remission, extend exclusively to those

classified as 'importers' of insured goods. The crux of the argument

revolves around the claimant's distinct position, as the claimant

neither assumes the role of importer nor owner; instead, they

function solely as a custodian entrusted with the goods on behalf

of their clients.

56. The upshot of the above discussion is that the reports

suggesting electrical short circuit as the trigger for the warehouse

fire, is found to fit in with the attendant circumstances. As a

corollary, the fire at the warehouse cannot be attributable to any

negligent act of the insured. Moreover, the fire is found to have

occurred within the insured warehouse and the appellant’s plea to

the contrary, is not believable. Therefore, it is a case of wrongful

repudiation by the appellants. No legal infirmity is thus seen with

Page 31 of 33 the impugned decision favouring the respondent’s insurance

claim.

57. In the realm of risk and uncertainty, individuals and

organisations seek solace in the bastion of insurance – a covenant

forged on the bedrock of trust. Trust serves as the cornerstone,

forming the essence of the insurer-insured relationship. The

fundamental principle is that insurance is governed by the

doctrine of uberrimae fidei – there must be complete good faith on

the part of the insured.9 The heart & soul of an insurance contract

lies in the protection it accords to those who wish to be insured by

it. This understanding encapsulates the foundational belief that

insurance accords protection & indemnification, preserving the

sanctity of trust within its clauses. Effectively, the insurer

assumes a fiduciary duty to act in good faith and honour their

commitment. This responsibility becomes particularly pronounced

when the insured, in their actions, have not been negligent. In light

of the vital role that trust plays in insurance contracts, it is

important to ensure that the insurer adequately fulfils the duty

that has been cast on it, by virtue of such a covenant.

9 MacGillivray on Insurance Law – 12th Ed., John Birds, Sweet and Maxwell (2012).

Page 32 of 33

58. Accordingly, the appeal of the Insurance Company deserves to

be dismissed. But even while dismissing the appeal, to avoid any

confusion, the customs duty component of the claim should, in the

given event, be discharged directly to the Customs Department. All

other legal consequences will follow on upholding the claim of the

insured against the appellants. It is ordered accordingly.

59. With the above, the appeal stands dismissed favouring the

insured. The parties to bear their own cost.

...……………………J. [HRISHIKESH ROY]

………….…………..J. [SANJAY KAROL] NEW DELHI NOVEMBER 24, 2023

Page 33 of 33