CANARA BANK versus M/S UNITED INDIA INSURANCE CO. LTD. & ORS. on 6 February 2020

498

SUPREME COURT REPORTS

[2020] 7 S.C.R.

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CANARA BANK

v.

M/S UNITED INDIA INSURANCE CO. LTD. & ORS.(Civil Appeal No. 1042 of 2020)

BFEBRUARY 06, 2020

[S. ABDUL NAZEER AND DEEPAK GUPTA, JJ.]

Consumer Protection Act, 1986 – s.2(d) – “Beneficiary” underthe insurance policy availed by the insured, if “consumer” underCthe Act – Tripartite agreement between farmers, Bank and cold store– Farmers’ agricultural produce was stored in cold store – Coldstore got the stocks insured from an insurance company – Farmershypothecated agricultural produce to the Bank – Bank issued loans– Agricultural produce destroyed by fire – Farmers claimed that theinsurance company was liable to pay the value of the agriculturalDproduce as on the date of fire – Insurance company contended thatthe fire was not accidental and farmers were not consumers – Stateand National Commission concurrently held that fire was accidental;farmers were held consumers – On appeal, held:Whether the firetook place by a short circuit or any other reason, as long as insuredEis not the person who caused the fire, the insurance company cannotescape its liability in terms of the insurance policy – Contention ofthe insurance company that the fire was ignited by the use of keroseneand hence it is not liable, rejected – Tripartite agreement read alongwith the terms of the insurance policy make it clear that the intentionof the parties was that they would be compensated by the insuranceFcompany in case of any untoward loss – Definition of consumerunder the Act is very wide and includes beneficiaries taking benefitof the insurance availed by the insured – Thus, the farmer is abeneficiary under the policy and therefore, definitely a consumer –Orders of both the Commissions that the complaint under the Act ismaintainable, upheld – Value of the goods as reflected in theGwarehouse receipts be taken to be the value on the date of fire –Insurance company to indemnify the cold store with regard to thevalue of goods – Farmers to get the amount payable under thepolicy, subject to the bank clause – Further directions issued –Insurance – Contract.

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Consumer Protection – Insurance Policy – Principles ofinterpretation – Discussed.

Consumer Protection Act, 1986 – s.2(1)(d)(i) – Insurancepolicy – Privity of contract between insurance company andclaimants – If required – Held: As far as the Act is concerned, it isnot necessary that there should be privity of contract between theinsurance company and the claimants – It is not necessary thatthose beneficiaries should be parties to the contract of insurance.

Contract – Bailor and bailee relationship – Farmers’ goodsstored in a cold store was destroyed by fire – Cold store had got itinsured from the insurance company – Insurance companycontended that since the cold store held the goods in trust, theywere not liable – Held: Rejected – Farmers paid consideration tothe cold store and, therefore, the goods were not held in trust per se– Possession of the farm produce was handed over by the bailor,i.e. farmer to the cold store i.e. the bailee, in terms of the contract –This is not a case envisaged under Exclusion Clause 5 of theinsurance policy – Goods were neither held on commission –Insurance.

Doctrines/Principles– Principle of uberrima fides – When notapplicable – Discussed.

Consumer Protection – Insurance policy – Non-disclosure ofmaterial facts – Effect of – Held: To make a contract void the non-disclosure should be of some very material fact – Misrepresentationor misdescription only makes the policy voidable –If the insurancecompany while accepting the proposal form does not ask the insuredto clarify any ambiguities then after accepting the premium it cannoturge that a wrong declaration was made by the insured.

Consumer Protection – Insurance Policy – Tripartite agreementbetween farmers, Bank and cold store – Farmers’ goods were storedin cold store – Goods insured with insurance company – Farmershypothecated goods to the Bank – Bank issued loans – Tripartiteagreement not disclosed to the insurance company – Goods destroyedby fire – Held: When the Bank issues loans against thehypothecation of goods, as in the present case, and insists that thegoods should be insured to safeguard its outstandings then a dutylies upon the Bank to inform the insurance company of the policy –

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AIn the present case, matter was dragged only because names of thefarmers were not mentioned in the policy or the tripartite agreementwas not handed over to the insurance company – Some level ofdeficiency on behalf of the Bank – Thus, it cannot claim interest atthe contractual rate and is entitled to charge simple interest fromthe date of grant of loan at the rate of 12% p.a.B

Disposing of the appeals, the Court

HELD: 1. Neither in the report of M/s. Truth Labs (reliedupon by insurance company) nor in the other reports by theinsurance company is there anything to show that the insuredChad set the cold store on fire. Whether the fire took place by ashort circuit or any other reason, as long as insured is not theperson who caused the fire, the insurance company cannot escapeits liability in terms of the insurance policy. The contention of theinsurance company that the fire was ignited by the use of keroseneand hence it is not liable is rejected. [Para 16][512-C-D]D

2. The principles relating to interpretation of insurancepolicies are well settled and not in dispute. At the same time, theprovisions of the policy must be read and interpreted in such amanner so as to give effect to the reasonable expectations of allthe parties including the insured and the beneficiaries. It is alsoEwell settled that coverage provisions should be interpretedbroadly and if there is any ambiguity, the same should be resolvedin favour of the insured. On the other hand, the exclusion clausesmust be read narrowly. The policy and its components must beread as a whole and given a meaning which furthers theFexpectations of the parties and also the business realities. Theentire policy should be understood and examined in such a mannerand when that is done, the interpretation becomes a commerciallysensible interpretation. The tripartite agreement read along withthe terms of the policy it is obvious that the Bank insisted thatthe stock be insured. The farmers were told that they would payGthe premium. The cold store while fixing the rent obviouslyfactored the premium into the rent. It was obvious that theintention of the parties was that they would be compensated bythe insurance company in case of any untoward loss. [Para 21][513-G; 514-A-C]H

3. As far as the Consumer Protection Act, 1986 isconcerned, it is not necessary that there should be privity ofcontract between the insurance company and the claimants. Thedefinition of consumer under Section 2(d) is in 2 parts. Sub-clause(i) of Section 2(1)(d) deals with a person who buys any goods andincludes any user of such goods other than the person who buyssuch goods as long as the use is made with the approval of suchperson. Therefore, the definition of consumer even in the 1[st] partnot only includes the person who has purchased but includes anyuser of the goods so long as such user is made with the approvalof the person who has purchased the goods. The definition of theconsumer in relation to hiring or availing of services is muchwider. In this part of the section, consumer includes not only theperson who has hired or availed of the services but also includesany beneficiary of such services. Therefore, an insured could bea person who hires or avails of the services of the insurancecompany but there could be many other persons who could bethe beneficiaries of the services. It is not necessary that thosebeneficiaries should be parties to the contract of insurance. Theyare the consumers not because they are parties to the contractof insurance but because they are the beneficiaries of the policytaken out by the insured. The definition of consumer under theAct is very wide and it includes beneficiaries who can take benefitof the insurance availed by the insured. Under the tripartiteagreement entered between the Bank, the cold store and thefarmers, the stock of the farmers was hypothecated as securitywith the Bank and the Bank had insisted that the said stock shouldbe insured with a view to safeguard its interest. The penultimateclause of the tripartite agreement in unambiguous terms bindsthe cold store to insure the goods, to indemnify the produce, tocover the risk and cover the loan amount. This insurance policyhad to be taken at the cost of the second party which is the farmer.Therefore, there can be no manner of doubt that the farmer is abeneficiary under the policy. The farmer is, therefore, definitelya consumer and the orders of both the Commissions that thecomplaint under the Act is maintainable are upheld.[Paras 26-28][515-H; 516-A-H]

4. In the present case, the farmer had agreed to payconsideration to the cold store and, therefore, the goods were AB

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Anot held in trust per se but the goods were held by cold store asbailee of the goods for consideration. The possession of the farmproduce was handed over by the bailor, i.e. farmer to the coldstore i.e. the bailee, in terms of the contract. There may be interse rights and liabilities between the farmer and the cold store butit cannot be said that the goods were held ‘in trust’. The goodsBwere also not held ‘on commission’. No commission was payableand only rental was paid. [Para 33][518-B-D]

5. The insurance policy itself envisaged that there wereinterest of other parties and not only the Bank and the insured.Therefore, it was for the insurance company to verify and findCout who was the owner of the goods. It could not presume that allthe goods belong to the cold store. The assumption of theinsurance company that it had insured the goods belonging tothe cold store itself has no factual basis. Cold stores areconstructed in such a way that there are many compartments inDthe cold store. Any person can deposit a small or large amount ofgoods to be kept in cold store. Normally, it is the goods of thirdparties which are stored in a cold store and, therefore, the Courtis dealing with a policy of insurance whereby the premises andthe stock and goods in a cold store have been insured. The naturalcorollary would be that the insurance company should have knownEthat the goods belong to the third parties. From the policy ofinsurance, it is found that in respect of description of risk, theinsurance covers “Stock of Guntur Chillies/Byadigi Chillies/Othervariety Chillies, Jawar Seeds, Bengal Garam, Red Gram,Tambrind, Coriander Seeds & Other pulses.” This stock in trade Fwas covered for a sum of Rs.30 crores and premium was chargedaccordingly. A prudent insurance company before issuing a policyof such a heavy amount, must or at least should have ascertainedthe value and the nature of the goods. The insurance companyherein is one of the largest nationalised insurance companies and a presumption has to be drawn that it must have verified theGdetails before insurance policy was issued. In case, the insurancecompany has chosen not to verify the stock it cannot takeadvantage of its own negligence. The principle of uberrima fideshas no application because the cold store had declared allnecessary facts. The bank clause clearly indicated that the goodsH

were hypothecated/pledged to the Bank. Therefore, the insurancecompany now cannot turn around and claim that the names of theowners were not supplied to it at the time of insurance.Theinsurance policy was renewed at least twice. Therefore, the policywas in existence for 3 years and it is in the 3[rd] year that the firetook place. [Paras 36, 37][519-E-H; 520-A-E]

6. Further, as long as the parties to the tripartite agreementi.e. the Bank, the farmer and the cold store, are not disputing thecorrectness of the agreement, there is no reason why the Courtshould not accept the same to be a genuine document.[Para 40][521-B]

7. If the insurance company while accepting the proposalform does not ask the insured to clarify any ambiguities then theinsurance company after accepting the premium cannot now urgethat there was a wrong declaration made by the insured. To makea contract void the non-disclosure should be of some verymaterial fact. In the peculiar facts of this case, not disclosing thetripartite agreement or the names of the owners cannot be saidto be such a material fact as to make the policy void or voidable.There is no fraudulent claim made. There is no false declarationmade and neither is the loss and damage occasioned by any wilfulact or connivance of the insured. The insurance company underthe insurance policy is liable to indemnify the cold store withregard to the value of goods and since the farmers are thebeneficiaries, they are entitled to get the amount payable underthe policy, subject to the bank clause. [Paras 43, 44][522-C-F]

8. When the Bank issues loans against the hypothecationof goods, as in the present case, and insists that the goods shouldbe insured to safeguard its outstandings then a duty lies uponthe Bank to inform the insurance company of the policy. Thematter has dragged to this stage only because the names of thefarmers were not mentioned in the policy or because the tripartiteagreement was not handed over to the insurance company. TheBank, as a prudent financial institution, should have insisted thatthe tripartite agreement should also be handed over to theinsurance company. Therefore, there is some level of deficiencyon behalf of the Bank. The Bank cannot claim interest at thecontractual rate. It would be entitled to charge simple interest AB

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Aright from the date of grant of loan at the rate of 12% per annum.[Paras 48 & 49][523-G-H; 524-A-D]

9. The decision of the National Commission that the valueof the goods as reflected in the warehouse receipts should betaken to be the value on the date of fire is affirmed. Bank shall beBentitled to recover the principal amount advanced by it to eachone of the farmers along with the simple interest at the rate of12% per annum from the date of advancing of loan till repaymentthereof. The insurance company is liable to pay the value of goodsas reflected in the warehouse receipts of each farmer along withsimple interest at the rate of 12% per annum from the date ofCfire till payment of the amount. The dues of the Bank till the dateof fire will have to be first determined and, thereafter, the excesswill be payable to the farmer along with the interest. Furtherdirection issued. [Paras 54, 55][526-B, D-E]

United India Insurance Co. Ltd. v. Harchand Rai ChandanDLal (2004) 8 SCC 644 : [2004] 4 Suppl. SCR 662; RaghunathRai Bareja v. Punjab National Bank (2007) 2 SCC 230 :[2006] 10 Suppl. SCR 287; Suraj Mal Ram Niwas Oil Mills(P) Ltd. v. United India Insurance Co. Ltd. (2010) 10 SCC567 : [2010] 13 SCR 138 – referred to.EM. C. Chacko v. The State Bank of Travancore, Trivandrum(1969) 2 SCC 343 : [1970] 1 SCR 658; Satwant Kaur Sandhuv. New India Assurance Co. Ltd. (2009) 8 SCC 316 : [2009]10 SCR 560 – held inapplicable.

Case Law Reference

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CANARA BANK v. M/S UNITED INDIA INSURANCE CO.LTD. & ORS.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1042of 2020.

From the Judgment and Order dated 08.06.2018 of the NationalConsumer Disputes Redressal Commission, New Delhi in First AppealNo. 2327 of 2017.

With

Civil Appeal Nos. 1043-1051, 1052-1059, 1060-1071, 1072-1081,1082-1090, 1091-1097, 1098-1106, 1107-1117, 1118-1126, 1127-1133, 1134-1203 of 2020.

P.P. Malhotra, Dr. (Mr.) Rajeev Dhavan, GopalShankaranarayanan, Sajan Poovayya, Dhruv Mehta, Sr. Advs., VineetMalhotra, Vishal Gohri, Ms. Sunaina Phul, Yasir Rauf, ShubhenduKaushik, Mohit Paul, Pratibhanu Singh Kharola, Mahesh Choudhary,Sabarish Subramanian, Y. William Vinoth Kumar, Vishnu Unnikrishnan(for K. Paari Vendhan), Rajesh Kumar-I, Anant Gautam, Ms. SakshiGaur, Sorabh Dahiya, Ms. Khushboo Aggarwal, Vibhu Sharma, AnmolMehta, Deepak Anand, Advs. for the appearing parties.

The Judgment of the Court was delivered by DEEPAK GUPTA, J.

1. Leave granted.

2. All these appeals are being decided by one common judgmentsince they arise out of a common order dated 08.06.2018 of the NationalConsumer Disputes Redressal Commission, New Delhi, hereinafterreferred to as ‘the National Commission’.

3. Briefly stated the facts of the case are that most of the claimants,hereinafter referred to as ‘the farmers’, had grown Byadgi Chilli Cropduring the year 2012-2013. Some of the farmers had some other crops.These farmers had stored their agricultural produce in a cold store runby a partnership firm under the name and style of Sreedevi Cold Storage,hereinafter referred to as ‘the cold store’. These farmers also obtainedloans from Canara Bank, hereinafter referred to as ‘the Bank’. Theloan was advanced by the Bank to each one of the farmers on securityof the agricultural produce stored in the cold store. The cold store wasinsured with the United India Insurance Company Limited, hereinafterreferred to as ‘the insurance company’. A fire took place in the cold A

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Astore on the night intervening 13.01.2014 and 14.01.2014. The entirebuilding of the cold store and the entire stock of agricultural producewas destroyed.

4. After the fire, the cold store, which had taken out acomprehensive insurance policy, raised a claim with the insuranceBcompany but the claim of the cold store was repudiated by the insurancecompany mainly on the ground that the fire was not an accidental fire.

The farmers had also issued notice to the insurance company in respectof the plant, machinery and building but this claim was repudiated by theinsurance company on the additional ground that the farmers had nolocus standi to make the claim as the insured was the cold store andCnot the farmers. It was further pleaded that Condition No.8 of theinsurance policy had been violated, and that there was no privity ofcontract between the farmers and the insurance company. Since theclaims of the farmers were either rejected or not answered, they filedclaim petitions against the cold store, the Bank and the insurance companyDin which the primary relief claimed was the value of the agriculturalproduce as on the date of fire and interest thereupon and each of thefarmers also claimed damages of Rs.1,00,000/- per head. There were91 claim petitions filed and in most of them the agricultural produce wasByadgi Chilli. In a few petitions, the agricultural produce was DabbiChilli, Guntur Chilli, Bengal Gram, Coriander (Dhania), Jwar etc.EHowever, this will not have any material impact on the decision of thesecases. The details containing the name of the claimants, the nature ofthe produce, number of bags and quantity thereof, rate, and number ofkilograms have been set out in Para 7 of the judgment of the NationalCommission which we are not reproducing for the sake of brevity.F

5. In the claims filed it was pleaded that the cold store whilelevying the general charges had also charged the insurance premiumpaid by it. It would be pertinent to mention that a tripartite agreementhad been entered into by each one of the farmers while taking a loanfrom the Bank and hypothecating the agricultural produce which wasGstored in the cold store. The farmer, the Bank, and the cold store wereparties to the tripartite agreement. The cold store issued a warehousereceipt giving the particulars of the crop stored, the value thereof andalso the date of the tripartite agreement. For the period in question i.e.from 2012-2013 till the occurrence of fire, the cold store was admittedlyinsured with the insurance company. The plant and machinery of theH

cold store was insured for Rs.5 crores and the stocks were insured forRs.30 crores.

6. The case of the farmers was that in terms of the tripartiteagreement, the cold store had got the stocks insured from the insurancecompany. The fire was an accidental fire and, therefore, in terms of thepolicy, the insurance company was liable to pay the amount of value ofthe agricultural produce stored with the cold store as on the date of fireand was also liable to pay interest on the amount payable. The insurancecompany resisted the complaint mainly on the ground that the ‘farmers’were not ‘consumers’ within the meaning of Consumer Protection Act,1986, hereinafter referred to as ‘the Act’. It was also claimed that therewas no privity of contract between the farmers and the insurancecompany because the policy was taken by the cold store and not by thefarmers. It was alleged that the entire story of loans was a false story.On merits, any conceivable objection which could be taken was taken.The insurance company went to the extent of denying that the claimantswere farmers or they had produced the agricultural produce or that theyhad stored it in the cold store. It was also alleged that the Bank wasnegligent as it did not take any step to recover the amount due for morethan two years. The case of the insurance company is that nobody in hisright mind would store agricultural produce for such a long period oftime. Therefore, the very genuineness of the tripartite agreement waschallenged. The other main ground taken was that the fire was not anaccident and there was no spontaneous combustion on account ofelectrical short circuit. According to the insurance company, there wasan element of arson involved and the cold store seems to have beendeliberately set on fire.

7. The stand of the cold store was that the fire was accidentaland that since the stock was insured, the amount was payable by theinsurance company. The Bank supported the claim of the farmers withthe caveat that the amount should be paid to it so that it could set it offagainst the loans advanced to the farmers.

8. The Karnataka State Consumer Disputes RedressalCommission at Bangalore, hereinafter referred to as ‘the StateCommission’ vide judgment dated 28.04.2017 held that the farmers hadproved that the fire took place on account of electrical short circuit andno element of human intervention or use of kerosene was found. TheState Commission also found that as per the tripartite agreement entered AB

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Ainto between the farmers, the Bank and the cold store, it was mandatoryfor the cold store to insure the goods so hypothecated by the farmerswith the Bank. The insurance company was held liable to pay the amountto the farmers. The State Commission assessed the value of the goodsby taking the value as reflected in the warehouse receipts issued at thetime of taking of loan and did not accept the plea of the farmers thatBthey should get the market value of the goods as on the date of fire. TheBank was also held deficient in service. The cold store and the insurancecompany were held jointly and severely liable and were directed to paythe value of the agricultural produce hypothecated with the Bank to thefarmers/claimants as on the date of tripartite agreement together withCthe interest at the rate of 14% per annum payable from six months fromthe date of the incident till the date of realisation. One complaint beingComplaint No.597 of 2015 was dismissed. In some of the complaints,the Bank was also held jointly and severely liable to pay the costs ofRs.10,000/- whereas in a large number of cases the complaint againstthe Bank was dismissed.D

9. Aggrieved by the aforesaid judgment dated 28.04.2017 of theState Commission, an appeal was filed before the National Commission.By the impugned judgment, the National Commission concurred withthe findings of the State Commission and held that the farmers areconsumers. It held that the insurance company was aware of the factEthat the goods were held in trust. It further held that there is no evidenceto show that the fire was not an accidental fire or that the fire had beenstarted by the owner of the cold store. However, it partly allowed theappeal of the insurance company and reduced the interest from 14%per annum to 12% per annum. The farmers had also filed appeal claimingFthat in terms of the insurance policy they should have been paid thevalue of the goods as on the date of fire. However, this claim was rejectedbasically on the ground that the farmers had failed to show that the chilliand/or other produce stored is of the same class and characteristics asreflected in the Variety-wise Periodic Report of the Bengaluru Market for different commodities. As far as the appeals filed by the Bank wereGconcerned, the National Commission held that in the peculiar facts ofthe case where the farmers had suffered substantial losses, the principalamount of loan advanced by the Bank would be remitted by the insurancecompany to the Bank but the other amount i.e. interest and damages,would be given to the farmers. It was also held that there was noH

deficiency of service on behalf of the Bank and the costs imposed onthe Bank in some of the cases were set aside.

10. Before this Court, appeals have been filed by the insurancecompany, the farmers, the cold store and the Bank.

11. We have heard Shri P.P. Malhotra, learned senior counselappearing for the insurance company, Dr. Rajeev Dhavan and Shri GopalShankaranarayanan, learned senior counsel appearing for the farmers,Shri Sajan Poovayya, learned senior counsel appearing for the cold storeand Shri Dhruv Mehta, learned senior counsel appearing for the Bank.

Appeals of the Insurance Company

12. Shri P.P. Malhotra, learned senior counsel appearing for theinsurance company raised several issues for consideration of this Court.One of the contentions raised by him is that the fire in question was notan accidental fire. It is also contended that the farmers were notconsumers and therefore the consumer fora have no jurisdiction to decidethe dispute. He next contends that there is no privity of contract betweenthe farmers and the insurance company. According to him, a contract ofinsurance is to be strictly construed between the parties to the contract.He submits that there was no insurable interest of the farmers and thetripartite agreement entered between the Bank, the farmers and thecold store was never disclosed to the insurance company. He furthersubmits that there is non-disclosure of important facts by the cold store(insured) and, as such, the insurance company is not liable. He alsourged that the liability of the insurance company is excluded by virtue ofGeneral Exclusion Clause 5 and General Condition no.1 and GeneralCondition no.8 of the insurance policy.

Whether the fire was an accident?

13. As far as this issue is concerned, both the State Commissionand the National Commission have come to the conclusion that the firewas an accidental fire and occurred due to a short circuit. These arepure findings of fact which, in our view, cannot be challenged in theseproceedings. However, since lengthy arguments were addressed by ShriP. P. Malhotra in this behalf, we shall deal with the same. At the outset,we may note that the electrical inspector, the police investigation teamand the forensic science laboratory (FSL) have all come to the conclusionthat the fire took place due to a short circuit. The concluding portion ofthe report of the FSL reads as follows:- A

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A“From the above examination, the following observations havebeen made

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A“From the above examination, the following observations havebeen made

1. Presence of combustible materials like thermocol (which areused to insulate the walls) pillars, wooden partitions and the grainsstored inside the building could have enhanced the spread of fire.

B2. The congested space in the building might have acceleratedthe smoldering fire.

3. The fire might have originated at the sixth floor front side of thebuilding. But it was not possible to locate the exact place of originof fire since the complete building was involved in fire.

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4. An electrical short circuit may have initiated the fire.”

The insurance company relies upon the findings given by acompany namely Truth Labs and those of Rank Surveyors Private Limited,which read as follows:- D“Based on a thorough and in-depth inspection of the incident site,forensic examinations, field investigations, documentary evidenceanalysis and personal evidence obtained, it is concluded that thefire occurred in M/s. Sree Devi Cold Storage, Billary on theintervening night of 13/14th January 2014.

Ea. Was not due to spontaneous combustion on account of bacterial/chemical fires.

b. Was not due to electrical failure caused by short circuit.

c. And was on account of extraneous ignitable fire accelerantssuch as kerosene used deliberately for ignition, initiation,Fpropagation and burning of stocks in the cold storage through humanintervention.

d. Based on the motive, means and opportunity to carry out suchmalicious acts the possibility of the involvement of managementin such a nefarious act cannot be ruled out.”G

14. We may note that it is not disputed that in the construction ofthe cold store, the temperature was maintained by insulating the walls ofthe cold store. Bitumen (coal tar) and Thermocol were used for providinginsulation. The FSL found that in a fire which takes place in a buildingwhere such material is used for construction, hydro carbons would H

obviously be present. On the other hand, M/s. Truth Labs mainly reliedupon the presence of hydro carbons to come to the conclusion that thefire had not occurred spontaneously and on account of electrical shortcircuit but occurred on account of extraneous ignitable fire accelerantssuch as kerosene. The conclusions of M/s. Truth Labs were based onsome inspection and chemical analysis carried out by a team headed byDr. R. Srinivas. Admittedly, this report of Dr. R. Srinivas was neverfurnished to the parties nor was placed before the State Commission.Interestingly, when Mr. G. V. H. V. Prasad, Director of M/s. Truth Labswas put a specific query whether the walls of the ground floor and thetop floor and the inside portion of the cold store along with 169 pillarswere constructed by sandwiching bitumen and thermocol between theconcrete in order to raise the level of insulation, he replied that ‘he wasnot aware of how the Cold Storage was built’. This clearly shows theshoddy manner in which M/s. Truth Labs conducted the investigation.There can be no proper investigation of a fire if the investigating agencydoes not even try to find out what is the nature of construction of thebuilding which has been destroyed in the fire. M/s. Truth Labs has clearlystated that the observation that fire took place on account of extraneousignitable fire accelerants, is based on the chemical analysis report whichshows presence of hydro carbons in the debris. It is apparent thatM/s. Truth Labs, for reasons best known to it, did not analyse the materialused for construction because if it had done so, it would have realisedthat hydro carbons would be present when thermocol or bitumen areburnt. Thermocol is basically a rigid plastic foam material which is derivedfrom petroleum and natural gas by-products. Bitumen is a semi-solidhydrocarbon product produced from crude oil. Both thermocol and bitumenare derivatives of petroleum products and hence are hydrocarbons bytheir very nature. Therefore, presence of hydrocarbons would be naturalwhen a fire takes place. The presence of hydro carbon could not lead toa conclusion that kerosene oil had been used to ignite the fire.

15. The National Commission has also dealt in detail with thisissue and has come to the conclusion that M/s. Truth Labs visited theburnt cold store on two occasions and collected samples on both theoccasions. It, however, decided to send 12 samples collected only in thesecond visit for analysis. Interestingly, the controlled samples werecollected from a plastic bag containing (fresh unaffected) chillies foundin the burnt stock of the affected premises. The controlled samples did AB

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Anot show presence of hydro carbons and hence, the assumption that thepresence of hydro carbons in the remaining samples was not relatable tothermocol and tar. There is no explanation why the samples taken on thefirst visit were not sent for analysis. It is also difficult to believe that in abuilding which has been totally gutted in a fire, there would be one plasticbag containing (fresh unaffected) chillies found in the burnt stock. It isBpossible that these unburnt chillies may have been introduced later on.Therefore, we cannot place any reliance on the report of M/s. TruthLabs.

16. In any event, neither in the report of M/s. Truth Labs nor inthe other reports by the insurance company is there anything to showCthat the insured had set the cold store on fire. Whether the fire tookplace by a short circuit or any other reason, as long as insured is not theperson who caused the fire, the insurance company cannot escape itsliability in terms of the insurance policy. We reject the contention of theinsurance company that the fire was ignited by the use of kerosene andDhence it is not liable.

Rule of Strict Interpretation

17. It has been submitted on behalf of the insurance companythat the terms of the insurance policy should be construed strictly andsince only the insurance company and the cold store (insured) wereEparties to the contract of insurance, the insurance company will not beliable to pay any claim to the farmers. Various authorities were cited byboth sides.

18. In United India Insurance Co. Ltd. v. Harchand RaiChandan Lal[1] this Court held as follows:-F

“9….It is settled law that terms of the policy shall govern thecontract between the parties, they have to abide by the definitiongiven therein and all those expressions appearing in the policyshould be interpreted with reference to the terms of policy andnot with reference to the definition given in other laws. It is aGmatter of contract and in terms of the contract the relation of theparties shall abide and it is presumed that when the parties haveentered into a contract of insurance with their eyes wide open,they cannot rely on the definition given in other enactment….”

19. Reliance was placed on Raghunath Rai Bareja v. PunjabNational Bank[2] wherein it was held:

“58. We may mention here that the literal rule of interpretation isnot only followed by judges and lawyers, but it is also followed bythe layman in his ordinary life. To give an illustration, if a personsays “this is a pencil”, then he means that it is a pencil; and it isnot that when he says that the object is a pencil, he means that itis a horse, donkey or an elephant. In other words, the literal ruleof interpretation simply means that we mean what we say andwe say what we mean. If we do not follow the literal rule ofinterpretation, social life will become impossible, and we will notunderstand each other. If we say that a certain object is a book,then we mean it is a book. If we say it is a book, but we mean itis a horse, table or an elephant, then we will not be able tocommunicate with each other. Life will become impossible. Hence,the meaning of the literal rule of interpretation is simply that wemean what we say and we say what we mean.”

20. Reliance was also placed on the following paragraph in SurajMal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co.Ltd.[3]:

“26. Thus, it needs little emphasis that in construing the terms ofa contract of insurance, the words used therein must be givenparamount importance, and it is not open for the court to add,delete or substitute any words. It is also well settled that sinceupon issuance of an insurance policy, the insurer undertakes toindemnify the loss suffered by the insured on account of riskscovered by the policy, its terms have to be strictly construed todetermine the extent of liability of the insurer. Therefore, theendeavour of the court should always be to interpret the words inwhich the contract is expressed by the parties.”

21. The principles relating to interpretation of insurance policiesare well settled and not in dispute. At the same time, the provisions ofthe policy must be read and interpreted in such a manner so as to giveeffect to the reasonable expectations of all the parties including the insuredand the beneficiaries. It is also well settled that coverage provisions 2 (2007) 2 SCC 230

3 (2010) 10 SCC 567

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Ashould be interpreted broadly and if there is any ambiguity, the sameshould be resolved in favour of the insured. On the other hand, theexclusion clauses must be read narrowly. The policy and its componentsmust be read as a whole and given a meaning which furthers theexpectations of the parties and also the business realities. According tous, the entire policy should be understood and examined in such a mannerBand when that is done, the interpretation becomes a commercially sensibleinterpretation. As far as the present case is concerned, if we read thetripartite agreement along with the terms of the policy it is obvious thatthe Bank insisted that the stock be insured. The farmers were told thatthey would pay the premium. The cold store while fixing the rent obviouslyCfactored the premium into the rent. It was obvious that the intention ofthe parties was that they would be compensated by the insurancecompany in case of any untoward loss.

Whether the farmers are consumers and the issue of privityof contract D22. One of the main grounds of attack to the judgments of boththe State Commission and the National Commission on behalf of theinsurance company is that the farmer is not a consumer insofar as theinsurance company is concerned. The contention is based on the groundthat the insurance policy is admittedly only between the insuranceEcompany and the cold store. It is further urged by Shri Malhotra that theclaim of the cold store for damage to the building, plants and machinerywas repudiated by the insurance company on 16.09.2015. The cold storehas not challenged the repudiation. Thereafter, all the complaints havebeen filed through one counsel which indicates that they have beenorchestrated by the cold store itself. It is also submitted that the tripartiteFagreement is not relevant as far as the insurance company is concernedsince the insurance company is not a signatory to the tripartite agreement.It is further contended that the coverage for the goods was only for thegoods owned by the cold store and not by the farmers who are in thenature of third parties. It is contended that in some cases the tripartiteGagreement has not even been signed by the Bank.

23. On the other hand, on behalf of the farmers, it is submittedthat they paid rent to the cold store which included the element ofinsurance. It is submitted that the crops were given on contractualbailment to the cold store for a valuable consideration and, therefore, theHcold store held the goods as a bailee on behalf of the farmers. It is also submitted that in terms of the tripartite agreement, the cold store wasbound to take out an insurance policy and the crops and the premiseswere separately insured and the insurance was renewed every time fora period of 3 years. It is also submitted that insurance company wasaware that the insurance policy had been taken for the benefit of thereal owners i.e. farmers.

24. To decide these issues, it would be apposite to refer to thedefinition of ‘consumer’ under Section 2(d) of the Act, which reads asfollows:- “2 Definitions. - (1) In this Act, unless the context otherwiserequires,- xxxxxxxxx (d) “consumer” means any person who, -

(i) buys any goods for a consideration which has been paid orpromised or partly paid and partly promised, or under any systemof deferred payment and includes any user of such goods otherthan the person who buys such goods for consideration paid orpromised or partly paid or partly promised, or under any systemof deferred payment, when such used is made with the approvalof such person, but does not include a person who obtains suchgoods for resale or for any commercial purpose; or

(ii) hires or avails of any services for a consideration which hasbeen paid or promised or partly paid and partly promised, or underany system of deferred payment and includes any beneficiary ofsuch services other than the person who hires or avails of theservices for consideration paid or promised, or partly paid andpartly promised, or under any system of deferred payment, whensuch services are availed of with the approval of the first mentionedperson…;”

25. The definition of consumer under the Act is very wide and itnot only includes the person who hires or avails of the services forconsideration but also includes the beneficiary of such services whomay be a person other than the person who hires or avails of services.

26. Taking the issue of privity of contract, we are of the consideredview that as far as the Act is concerned, it is not necessary that thereshould be privity of contract between the insurance company and the A

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Aclaimants. The definition of consumer under Section 2(d) quotedhereinabove is in 2 parts. Sub-clause (i) of Section 2(1)(d) deals with aperson who buys any goods and includes any user of such goods otherthan the person who buys such goods as long as the use is made with theapproval of such person. Therefore, the definition of consumer even inBthe 1[st] part not only includes the person who has purchased but includesany user of the goods so long as such user is made with the approval ofthe person who has purchased the goods. As far as the definition of theconsumer in relation to hiring or availing of services is concerned, thedefinition, in our view, is much wider. In this part of the section, consumerincludes not only the person who has hired or availed of the services butCalso includes any beneficiary of such services. Therefore, an insuredcould be a person who hires or avails of the services of the insurancecompany but there could be many other persons who could be thebeneficiaries of the services. It is not necessary that those beneficiariesshould be parties to the contract of insurance. They are the consumers not because they are parties to the contract of insurance but becauseDthey are the beneficiaries of the policy taken out by the insured.

27. The definition of consumer under the Act is very wide and itincludes beneficiaries who can take benefit of the insurance availed bythe insured. As far as the present case is concerned, under the tripartiteagreement entered between the Bank, the cold store and the farmers,Ethe stock of the farmers was hypothecated as security with the Bankand the Bank had insisted that the said stock should be insured with aview to safeguard its interest. We may refer to the penultimate clause ofthe tripartite agreement which reads as follows:- “WHEREAS the Third Party has agreed to insure the produce/Fgoods stored in the cold storage to indemnify the produce in caseof any casualty or accident by any means to cover the risk andalso to cover the loan amount to avoid loss at the cost of theSecond Party till the release order or repayment of the loanamount.”

G28. The aforesaid clause in unambiguous terms binds the coldstore to insure the goods, to indemnify the produce, to cover the risk andcover the loan amount. This insurance policy has to be taken at the costof the second party which is the farmer. Therefore, there can be nomanner of doubt that the farmer is a beneficiary under the policy. TheHfarmer is, therefore, definitely a consumer and we uphold the orders ofboth the Commissions that the complaint under the Act is maintainable.

29. Shri Malhotra in support of his argument relied upon thejudgement of this Court in M. C. Chacko v. The State Bank ofTravancore, Trivandrum[4] wherein the appellant as Manager of HighLand Bank, Kottayam, had an overdraft account with the Bank. Thefather of the appellant had executed letters of guarantee in favour ofBank agreeing to pay the amounts due to the Bank under the overdraftagreement subject to a limit of Rs.20,000/-. The Court held:- “10. Even if it be granted that there was an intention to create acharge, the Kottayam Bank not being a party to the deed couldenforce the charge only if it was a beneficiary under the terms ofthe contract, and it is not claimed that the Bank was a beneficiaryunder the deed Ext. D-1. The suit against M.C. Chacko musttherefore be dismissed.”

30. We are of the view that this judgment has no relevance to thecase before us. This Court held that the Kottayam Bank was not onlynot a party to the deed but was also not a beneficiary under the contract.In our opinion, the Consumer Protection Act clearly provides that abeneficiary of the services, other than the insured is a consumer underthe Act.

General Exclusion Clause No.5

31. It has been urged that there is violation of Clause 5 of thepolicy under the heading of General Exclusion wherein losses of certaintypes have not been covered. The said clause reads as follows:- “5. Loss, destruction or damage to bullion or unset precious stones,any curios or works of art for an amount exceeding Rs.10000/-goods held in trust or on commission, manuscripts, plans, drawings,securities, obligations or documents of any (illegible) stamps, coinsor paper money, cheques, books of accounts or other businessbooks, computer systems records, explosives unless otherwiseexpressly stated in the policy.”

32. The argument raised by Shri Malhotra is that since the goodswere held in trust by the cold store, the insurance company is not liable.We are not at all impressed with this argument. This is not a case wherethe goods were deposited only on the basis of trust. The goods werekept in the cold store on payment of rent by the farmer. This is not a AB

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Acase envisaged under Exclusion Clause 5 quoted hereinabove. Thesegoods were also not held on commission. Shri Rajeev Dhavan, learnedsenior counsel appearing for the farmers submits that the relationshipbetween the farmer and the cold store was of bailor and bailee. Hesubmits that the crops were given on contractual bailment to the coldstore for consideration.B

33. In the present case, as pointed out above, the farmer hadagreed to pay consideration to the cold store and, therefore, the goodswere not held in trust per se but the goods were held by cold store asbailee of the goods for consideration. The possession of the farm producewas handed over by the bailor, i.e. farmer to the cold store i.e. the bailee,Cin terms of the contract. There may be inter se rights and liabilitiesbetween the farmer and the cold store but it cannot be said that thegoods were held ‘in trust’. The goods were also not held ‘on commission’.No commission was payable and only rental was paid. Therefore, wereject this argument on behalf of the insurance company.DGeneral Condition Nos. 1 & 8:

34. Shri Malhotra has placed reliance on Condition Nos. 1 & 8 ofPart B of the General Conditions of the Insurance Policy:- “(B) GENERAL CONDITIONS:E1. This policy shall be voidable in the event of misrepresentation,mis-description or non- disclosure of any material particular.

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8. If the claim be in any respect fraudulent, or if any falsedeclaration be made or used in support thereof or if any fraudulentFmeans or devices are used by the insured or anyone acting on hisbehalf to obtain any benefit under the policy or if the loss or damagebe occasioned by the willful act, or with the connivance of theinsured, all benefits under this policy shall be forfeited.”

35. The contention of Shri Malhotra is that the insurance companyGwas not informed by the Bank, the cold store or the farmers that thefarm produce or the insured goods belong to the farmers and thereforethe policy is voidable. At the outset, we may note that misrepresentationor misdescription only makes the policy voidable. The insurance companynever chose to declare the policy void for 3 long years when it was inHexistence and, at this stage, cannot be permitted to wriggle out of its liability by taking this objection. Even otherwise, we are of the view thatthe submission made on behalf of the insurance company is without anysubstance. The policies of insurance clearly show that the premises wasseparately insured for Rs.5 crores and the stock in trade were insuredfor Rs.30 crores. This insurance was taken not only for the year whenthe fire took place but was renewed for 3 long years. The insurancepolicy had an Agreed Bank Clause which reads as follows:- “(1) AGREED BANK CLAUSE:

It is hereby declared and agreed:-

(i) That upon any monies becoming payable under this policy thesame shall be paid by the company to the bank and such part ofany monies so paid as may relate to the interests of other partiesinsured hereunder shall be received by the Bank as Agents forsuch other parties.

(ii) That the receipts of the Bank shall be complete discharge ofthe company thereon and shall be binding on all the parties insuredhereunder.”

36. The aforesaid clause itself clearly indicates that it was agreedby the insurance company that upon any amount being payable underthe policy in question, the same would be paid to the Bank and the amountso paid “may relate to the interests of other parties”.The said amountwould be received by the Bank as agentfor other parties. Therefore,the insurance policy itself envisaged that there were interest of otherparties and not only the Bank and the insured. Therefore, it was for theinsurance company to verify and find out who was the owner of thegoods. It could not presume that all the goods belong to the cold store.The assumption of the insurance company that it had insured the goodsbelonging to the cold store itself has no factual basis. It is a well-knownfact that cold stores are constructed in such a way that there are manycompartments in the cold store. Any person can deposit a small or largeamount of goods to be kept in cold store. Normally, it is the goods ofthird parties which are stored in a cold store and, therefore, we aredealing with a policy of insurance whereby the premises and the stockand goods in a cold store have been insured. The natural corollary wouldbe that the insurance company should have known that the goods belongto the third parties. From the policy of insurance, we find that in respectof description of risk, the insurance covers “Stock of Guntur Chillies/

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AByadigi Chillies/Other variety Chillies, Jawar Seeds, Bengal Garam, RedGram, Tambrind, Coriander Seeds & Other pulses.”

37. This stock in trade was covered for a sum of Rs.30 croresand premium was charged accordingly. A prudent insurance companybefore issuing a policy of such a heavy amount, must or at least shouldBhave ascertained the value and the nature of the goods. The insurancecompany before us is one of the largest nationalised insurance companiesand a presumption has to be drawn that it must have verified the detailsbefore insurance policy was issued. If verification had been done by avisit to the cold store, it could have been easily found out who are theowners of the stock. In case, the insurance company has chosen not toCverify the stock it cannot take advantage of its own negligence. Theprinciple of berrima fides has no application because the cold store haddeclared all necessary facts. The bank clause clearly indicated that thegoods were hypothecated/pledged to the Bank. Therefore, the insurancecompany now cannot turn around and claim that the names of the ownersDwere not supplied to it at the time of insurance. We also cannot losesight of the fact that the insurance policy was renewed at least twice.Therefore, the policy was in existence for 3 years and it is in the 3[rd] yearthat the fire took place. If the insurance company chooses not to evenwrite a letter to the insured or take any steps to verify the value of thegoods and ownership of the goods, it cannot now turn around and urgeEthat it was not aware about the nature or ownership of the goods.

Fraudulent Claim

38. The insurance company also contends that the whole schemeis fraudulent and that no farmer in his right senses would store agriculturalFproduce for such a long time. This argument is totally baseless.

39. Byadgi Chilli is the major component of the goods that werestored in the cold store. It is a very famous variety of chilli and is producedin two types – dabbi and kaddi. One of the main uses of this chilli is notonly as an item of food but as an item to extract red colour pigmentGwhich is used in the manufacture of lipsticks, nail polishes, and othercosmetics etc. The material extracted is called oleoresin, which is a redoil extracted from the pods. Many cold stores have been constructed inthe area where this chilli is grown because if these chillies are stored ata low temperature of 4 to 6 degree Celsius, the colour and purity ismaintained and it also increases the amount of oleoresin which can beHextracted from chilli by about 30% to 40%. As such the farmers took a commercial decision to store the chillies because after storing it, thevalue would go higher.

40. The insurance company also urged that some of the tripartiteagreements are not signed by the officials of the Bank. It is urged thatthis shows that the agreements cannot be relied upon. We are not at allin agreement with this submission. As long as the parties to the tripartiteagreement i.e. the Bank, the farmer and the cold store, are not disputingthe correctness of the agreement, there is no reason why we should notaccept the same to be a genuine document.

Non-disclosure of material facts:

41. It has been urged on behalf of the insurance company thatwhile submitting the proposal form on 21.03.2013, the cold store had notlisted out the names of the parties who had an insurable interest includingthe financial institutions. It is, therefore, submitted that the cold storedeliberately did not disclose the fact that the produce belonged to thefarmers. Shri Malhotra placed reliance on the judgment in Satwant KaurSandhu v. New India Assurance Co. Ltd.[5] wherein it was held that:

“25. The upshot of the entire discussion is that in a contract ofinsurance, any fact which would influence the mind of a prudentinsurer in deciding whether to accept or not to accept the risk is a“material fact”. If the proposer has knowledge of such fact, he isobliged to disclose it particularly while answering questions in theproposal form. Needless to emphasise that any inaccurate answerwill entitle the insurer to repudiate his liability because there isclear presumption that any information sought for in the proposalform is material for the purpose of entering into a contract ofinsurance.”

42. At the outset, we may mention that the initial insurance policywas taken in the year 2011, if not earlier, and that proposal form wasvery material. The same has not been produced by the insurance companybefore us. Thereafter, it was only renewal of the policy. Furthermore, ifa column is left blank, again the insurance company should have askedthe insured to fill in the column. There is no wrong information given inthe proposal form though it may be true that all the requisite informationwas not supplied. The column requires listing out the parties who havean insurable interest including financial institutions. Since the policy had 5 (2009) 8 SCC 316

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Aa bank clause, the name of Canara Bank should have been mentioned incolumn 5. That was not there. If the insurance company while acceptingthe proposal form does not ask the insured to clarify any ambiguitiesthen the insurance company after accepting the premium cannot nowurge that there was a wrong declaration made by the insured. In casethe insured had written that there were no persons who had an insurableBinterest, the position may have been different but leaving out the columnblank does not mean that there was some misdeclaration of facts. Weare, therefore, clearly of the view that the judgment of this Court inSatwant Kaur Sandhu’s case (supra) is not applicable to the facts ofthe present case.

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43. As already held above, the insurance company itself couldhave also taken some initiative in the matter. To make a contract voidthe non-disclosure should be of some very material fact. No doubt, itwould have been better if the Bank and the insured had given at least 1tripartite agreement to the insurance company but, in our view, in theDpeculiar facts of this case, not disclosing the tripartite agreement or thenames of the owners cannot be said to be such a material fact as tomake the policy void or voidable. We are clearly of the view that there isno fraudulent claim made. There is no false declaration made and neitheris the loss and damage occasioned by any wilful act or connivance ofthe insured.E

44. In view of the above discussion, we are clearly of the viewthat the insurance company under the insurance policy is liable to indemnifythe cold store with regard to the value of goods and since the farmersare the beneficiaries, they are entitled to get the amount payable underthe policy. However, this will obviously be subject to the bank clauseFwhich we have already referred to above.

Appeal of the Bank

45. The Bank has raised objections to the interest portion of theamount being given to the farmers. Otherwise it supports the case of theGfarmers. Reliance has been placed on the bank clause already quotedabove and it is submitted that the direction of the National Commissionto pay the interest to the farmers is against the Agreed Bank Clause interms of which the money is to be paid to the Bank till the outstandingsof the Bank are covered. Shri Dhruv Mehta, learned senior counsel forthe Bank submits that since the farmers are claiming benefit of the policy,H

they cannot urge that the bank clause is not applicable. It is furthersubmitted by him that the National Commission has to decide questionson the basis of legal considerations and equitable considerations or equityhas no role to play in such matters. On the other hand, it has been urgedby Dr. Rajeev Dhavan that the bank clause is only a processual clause.

46. We cannot accept the submission of Dr. Dhavan that the bankclause lays down only a process. The insurance policy is a contract andthe amount has to be paid as per the terms of the contract. In our view,the National Commission could not have ordered that the interest on theamount payable to the farmers should not be paid to the Bank till theliabilities of the Bank are paid out. Arguments have been addressedbefore us that this Court may exercise its power under Article 142 of theConstitution of India to ensure that justice is done to the farmers. Wefeel that there is no need to invoke the jurisdiction under Article 142because even after paying off the dues of the Bank, some amount of thevalue of the goods along with interest thereupon will be payable to thefarmers.

Whether there was a deficiency in service on the part ofthe Bank

47. It was urged on behalf of the insurance company that there isdeficiency of service by the Bank and, in fact, it was argued that theBank connived with the farmers because it did not get the valuation ofthe products done properly and further, it took no steps to sell theagricultural produce after one year which liberty it had in terms of thetripartite agreement. We find no force in this argument. As already pointedout above, the value of Byadgi chillies which was the major agriculturalproduce stored in the cold store rises the longer it is kept in the coldstore. Therefore, the Bank could have taken a commercial decision notto sell the produce because the product was not deteriorating in anymanner and its value was not diminishing.

48. The State Commission had held that there was deficiency onbehalf of the Bank in rendering services but the National Commissionheld otherwise. We are of the view that the Bank was remiss to a limitedextent. When the Bank issues loans against the hypothecation of goods,as in the present case, and insists that the goods should be insured tosafeguard its outstandings then a duty lies upon the Bank to inform theinsurance company of the policy. If both the Bank and the insurance A

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524SUPREME COURT REPORTS

Acompany had done what would be expected of good financial institutions,there would have been no needless litigation. The matter has dragged tothis stage only because the names of the farmers were not mentioned inthe policy or because the tripartite agreement was not handed over tothe insurance company. The Bank, as a prudent financial institution, shouldhave insisted that the tripartite agreement should also be handed over toBthe insurance company. Therefore, we feel that there is some level ofdeficiency on behalf of the Bank.

49. In view of the aforesaid, we feel that the Bank cannot claiminterest at the contractual rate and is not entitled to claim interest at thecontractual rate because the farmers have been driven through a longCdrawn litigation which could have been easily avoided if the Bank haditself sent the copy of the tripartite agreement to the insurance companyor insisted that the insured should send the same to the insurancecompany. We accordingly hold that the Bank cannot claim interest atthe contractual rate. We are therefore, of the view that the Bank wouldDbe entitled to charge simple interest right from the date of grant of loanat the rate of 12% per annum.

The amount of claim payable:

50. The farmers in their appeal have claimed that in terms of thepolicy of insurance the value of the goods was to be assessed on theEdate of fire and the value was not to be assessed as mentioned on thedate when the goods were stored in the cold store. In this regard, wemay make reference to the opening portion of the insurance policy whereinthe insurance company has agreed to insure the goods. Relevant portionof the insurance policy reads as follows:-F“IN CONSIDERATION of the insured named in the schedule “IN CONSIDERATION of the insured named in the schedulehereto having paid to the United India Insurance Company Limited(hereinafter called the Company) the full premium mentioned inthe said schedule. The Company Agrees (Subject to the conditionsand exclusions contained herein or endorsed or otherwiseGexpressed hereon) that if after payment of the premium theproperty insured described in the said schedule or any part ofsuch property be destroyed or damaged by any of the perilsspecified hereunder during the period of insurance named in thesaid schedule or of any subsequent period in respect of which theinsured shall have paid and the Company shall have acceptedHthe premium required for the renewal of the policy, the Company shall pay to the insured the value of the propertyat the time of the happening of its destruction or the amountof such damage or at its option reinstate or replace such”property or any part thereof.

51. The highlighted portion of the aforesaid clause leaves nomanner of doubt that the insurance company in consideration of thepremium received had agreed to either reinstate the goods or replacethe same or pay to the insured the value of the property at the time ofhappening of its destruction or damage. The State Commission and theNational Commission had rejected the claim of the farmers in this regardon the ground that the variety-wise periodic report of the Bengalurumarket, produced by the farmers, showed that the range betweenminimum and maximum price for Byadgi and Guntur chillies etc. is veryvast and to arrive at an average price would mean construing that all thechillies are of standard quality. According to the National Commission,this would be a speculative exercise based on the assumption that theentire quantity of chillies is of the same class and characteristic.

52. At the time when the farmers deposited the goods with thecold store there were handed over warehouse receipts which not onlygave identity of the agricultural produce but also reflected the quantityof the agricultural produce and its market value on the date when thisproduce was stored in the cold store. However, the quality of the produceis not reflected in the warehouse receipts.

53. Though we hold that in terms of the clause discussed abovethe insurance company is liable to pay the value of the goods as on thedate of the fire, we feel that the National Commission was right when itcame to the conclusion that it was not possible to award an amountbased on the variety-wise periodic report of the Bengaluru market. Thisis the only evidence produced by the farmers and brought to our noticeto support their contention. The National Commission is right that thedifference between minimum price for which this product was sold duringthe period 14.12.2013 to 14.01.2014 and the maximum price for thesame agricultural produce during this period is so high that without exactlyknowing what was the quality of agricultural produce, it would not bepossible to ascertain what was the price on the date of fire. To give anexample, Byadgi chillies have a price range of Rs. 3,200 per quintal toRs. 17,300 per quintal i.e. Rs.32 per kilogram to Rs.173 per kilogram.There is no way for any Court to determine what the exact price would A

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Ahave been without having the benefit of the quality of produce.Unfortunately, even in the warehouse receipts there is no gradation orreflection of the quality of the produce.

54. We, therefore, affirm the decision of the National Commissionthat the value of the goods as reflected in the warehouse receipts shouldBbe taken to be the value on the date of fire. We may add that this valueis not very different from the median value for most of the products. Werely upon the value given in the warehouse receipts because that wasthe value which was given by the farmers, not knowing that their productis going to be burnt, and was accepted by the cold store, which musthave known the value of the product in the local market and acceptedCby the Bank, which on the basis of such surety advanced the loan.

55. In view of the aforesaid discussion, we are of the view thatthe Bank shall be entitled to recover the principal amount advanced by itto each one of the farmers along with the simple interest at the rate of12% per annum from the date of advancing of loan till repayment thereof.DThe insurance company is liable to pay the value of goods as reflected inthe warehouse receipts of each farmer along with simple interest at therate of 12% per annum from the date of fire till payment of the amount.The dues of the Bank till the date of fire will have to be first determinedand, thereafter, the excess will be payable to the farmer along with theEinterest.

56. To clarify the issue we take the example of the first farmer-Thippa Reddy at Sr. No.1, in whose Account No.1425844005736, theloan of Rs.10,00,000/- was sanctioned on 30.08.2011. The insurancecompany has worked out his outstanding on the date of incident atFRs.13,57,307/- whereas the value of the goods was 2,00,2000 as per thewarehouse receipt. If we calculate simple interest at the rate of 12%per annum on Rs.10,00,000/- from 30.08.2011 till 14.01.2014, it worksout to Rs.2,84,712/- approximately. Obviously, if the farmer has paid anyamount towards the loan that will also have to be adjusted but for thesake of clarification, we are assuming that no amount has been paid.GTherefore, with effect from 14.01.2014, the insurance company shall beliable to pay interest on 10,00,000/- at the rate of 12% per annum to theBank and shall also be liable to pay a sum of Rs.7,17,288/- along withinterest at the rate of 12% per annum from 14.01.2014 till payment tothe farmer.H

CANARA BANK v. M/S UNITED INDIA INSURANCE CO.LTD. & ORS. [DEEPAK GUPTA, J.]

57. In view of the above, we dispose of the appeals with thefollowing directions:

1. That the insurance company shall be liable to pay to each oneof the farmers the value of his goods to be assessed as per therate mentioned on the warehouse receipts when the goods werestored in the Cold Store in terms of our direction given hereinabovealong with interest at the rate of 12% per annum from the date offire till payment or deposit thereof.

2. That the Canara Bank shall file certified statements of accountsbefore the Karnataka State Consumer Disputes RedressalCommission showing the principal amount of loan advanced toeach farmer and the amount due to the Bank by calculating simpleinterest @ 12% p.a. up to 13.01.2014 i.e. payable by 14.01.2014after adjusting the payments which the Bank may have receivedin the loan account.

3. The Bank in the statement of accounts shall also set out theamount due with the aforesaid rate of interest up to 30.04.2020.

4. The aforesaid statement be filed before the State Commissionon or before 02.03.2020.

5. That thereafter, the State Commission in each appeal shalldetermine the amount payable to the farmer by calculating it interms of the clarification given above i.e. after adjusting the amountdue to the Bank as on 14.01.2014. This exercise be completed onor before 31.03.2020.

6. Out of the aforesaid amount, the Insurance Company shall paythe amount of loan along with simple interest at the rate of 12%per annum from the date of advancement of loan to the date ofpayment directly to the Bank.

7. Thereafter, the insurance company shall deposit the amountpayable to the farmers with the State Commission on or before30.04.2020.

58. All appeals are disposed of in the aforesaid terms. No orderas to costs. Pending application(s), if any, shall also stand(s) disposed of.

Divya Pandey

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