M/S OSWAL PLASTIC INDUSTRIES versus MANAGER, LEGAL DEPTT. N.A.I.C.O. LTD on 13 January 2023

M/S OSWAL PLASTIC INDUSTRIES

v.

MANAGER, LEGAL DEPTT. N.A.I.C.O. LTD.

(Civil Appeal No. 83 of 2023)

JANUARY 13, 2023

[M. R. SHAH AND C. T. RAVIKUMAR, JJ.]

Insurance – In case of damage of the plant and machinerydue to fire, whether the complainant entitled to reinstatement valueor depreciated value under insurance policy – Appellant subscribedto a Fire & Perils policy – A fire broke out and the surveyor assessedthe loss at Rs.29,17,500/- on reinstatement value and Rs.12,60,000/- on depreciated value – Insurance company despite the reports ofthe surveyor, repudiated the claim – State Commission relying onthe surveyor report, awarded Rs.29,17,500/- with 9% interest fromthe date of repudiation observing entitlement on reinstatement value– NCDRC set aside the order of State Commission and awardedRs.12,60,000/- along with 7% interest observing entitlement todepreciated value – On appeal, held: As per clause 9 of theinsurance policy, the complainant shall be entitled to reinstatementvalue and not depreciated value – The report of the surveyor wouldbe relevant to consider the sum required to reinstate or repair –NCDRC has mis-interpreted and mis-read the clause 9 – NCDRCerred in holding that insurance company is liable to pay depreciatedvalue only – Order of the NCDRC set side – The order passed bythe State Commission restored.

Allowing the appeal, the Court

HELD: 1. Considering second part of Clause 9 of theinsurance policy, in case company is unable to reinstate or repairthe property insured, the insurance company shall be liable topay such sum as would be requisite to reinstate or repair suchproperty if the same could lawfully be reinstated to its formercondition. For the aforesaid purpose, the report of surveyor woundbe relevant evidence to consider the sum required to reinstateor repair. Therefore, as per second part of Clause 9 of Section 2of the policy, the complainant shall be entitled to the reinstatementvalue and not the depreciated value. The NCDRC has mis-interpreted and mis-read the Clause 9. The NCDRC has seriouslyerred in observing and holding that the insurance company shall

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Abe liable to pay the depreciated value only and not thereinstatement value. The State Commission was absolutelyjustified in awarding the reinstatement value. The impugnedjudgment and order passed by the NCDRC awarding thedepreciated value and not the reinstatement value isunsustainable. The impugned judgment and order passed by theBNCDRC is hereby quashed and set aside. The order passed bythe State Commission is hereby restored. The complainant shallbe entitled to Rs. 29,17,500/- being the reinstatement value withinterest @ 7% from the date of order of the State Commission.[Paras 5.2 and 6][990-C-G]

Canara Bank vs. United India Insurance CompanyCLimited and Ors., 2020 (3) SCC 455 : [2020] 7SCR 498 – referred to.

Case Law Reference

[2020] 7 SCR 498referred toPara 3.4

CIVIL APPELLATE JURISDICTION : Civil Appeal No.83 ofD2023.

From the Judgment and Order dated 20.02.2019 of the NationalConsumer Dispute Redressal Commission, New Delhi in First AppealNo.207 of 2015.

Jay Savla, Sr. Adv., Dhananjay Garg, Abhishek Garg, D. K. Garg,EAkhil Dehlan, Sanjay Chhabra, Advs. for the Appellant.

Amit Kumar Singh, Mrs. K Enatoli Sema, Ms. Chubalemla Chang,Prang Newmai, Advs. for the Respondent.

The Judgment of the Court was delivered by

M. R. SHAH, J.F1. Feeling aggrieved and dissatisfied with the impugned judgmentand order dated 20.02.2019, passed by the National Consumer DisputesRedressal Commission, New Delhi (hereinafter referred to as theNCDRC) in First Appeal No. 207/2015, by which the NCDRC has setaside the order passed by the State Consumer Disputes RedressalCommission, Punjab (hereinafter referred to as the State Commission)Gand has modified the same to the extent that the insurance companyshall be liable to pay only Rs. 12,60,000/- instead of Rs. 29,17,500/-, theoriginal complainant has preferred the present appeal.

2. That the appellant herein obtained Standard Fire and SpecialPerils Policy with effect from 02.07.2009. The sum insured was Rs.2.50 crores. According to the appellant, the policy was on reinstatementHvalue. The policy was enhanced to Rs. 4.50 crores. That during the validity period of policy i.e., on 17.10.2009 fire broke out in the factorypremises resulting into loss of material, stock, and machinery of the valueof Rs. 76,64,000/-. The surveyor appointed by the insurance companyobserved/assessed as such the loss on reinstatement value basis at Rs.29,17,500/- and on depreciated value at Rs. 12,60,000/-. The insurancecompany despite the reports of the surveyor and investigator repudiatedthe claim. The appellant herein – original complainant filed the complaintbefore the State Commission, inter-alia, seeking a claim of Rs. 76,64,000/- together with interest. It was the case on behalf of the complainantthat the complainant had purchased the machinery to replace the damagedmachinery at the cost of Rs. 1,34,07,836/-. The State Commission videorder dated 10.11.2014 relying upon the surveyor report and the lossassessed by the surveyor on the basis of the reinstatement value awardeda sum of Rs. 29,17,500/- together with 9% interest from the date ofrepudiation letter dated 28.10.2010. The State Commission also awardedRs. 1 lakh as compensation and Rs. 11,000/- as litigation expenses. Atthis stage, it is required to be noted that though the original complaintwas for Rs. 76,64,000/-, however, in view of surveyor report and onreinstatement value determined at Rs. 29,17,500/-, the State Commissionawarded Rs. 29,17,500/- being reinstatement value. The order passedby the State Commission was the subject matter of appeal by theinsurance company before the NCDRC. By the impugned judgmentand order, the NCDRC has allowed the said appeal and has modifiedthe order passed by the State Commission awarding Rs. 12,60,000/-along with interest @ 7% from Rs. 29,17,500/- by observing that thecomplainant shall be entitled to the depreciated value and not thereinstatement value. The NCDRC also set aside the award ofcompensation of Rs. 1 lakh.

2.1 Feeling aggrieved and dissatisfied with the impugned judgmentand order passed by the NCDRC awarding Rs. 12,60,000/- only insteadof Rs. 29,17,500/- i.e., awarding depreciated value and not thereinstatement value, the original complainant has preferred the presentappeal.

3. Shri Jay Savla, learned Senior Advocate appearing on behalf ofthe appellant herein – original complainant has vehemently submittedthat the impugned judgment and order passed by the NCDRC awardingdepreciated value and not the reinstatement value is just contrary toClause 9 of Section 2 of the insurance policy.

3.1 It is submitted that as such the surveyor assessed the loss onreinstatement basis at Rs. 29,17,500/-. It is submitted that therefore, assuch the repudiation was rightly held to be improper.

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A3.2 It is submitted that as such the complainant had purchased thenew machinery in view of five machines being gutted in fire and therefore,the State Commission was absolutely justified in awarding Rs. 29,17,500/- being reinstatement value on the basis of the surveyor report.

3.3 Relying upon Clause 9 of Section 2 of the policy, it isvehemently submitted that the complainant shall be entitled to theBreinstatement value. It is submitted that the NCDRC has wrongly reducedthe claim to Rs. 12,60,000/- by mis-interpreting Clause 9 of Section 2 ofthe policy. It is submitted that as such the said clause 9 shall not haveany relevance. It is submitted that it only gives option to the insurancecompany to reinstate or replace the damaged/destroyed property. It issubmitted that as the company has not reinstated the property, the clauseCitself was not applicable.

3.4 It is submitted that as observed and held by this Court in thecase of Canara Bank Vs. United India Insurance Company Limitedand Ors.; 2020 (3) SCC 455, provisions of the policy must be readand interpreted in such a manner so as to give effect to the reasonableDexpectations of all the parties. It is submitted that it is further held thatcoverage provisions should be interpreted broadly and if there is anyambiguity, the same should be resolved in favour of the insured.

3.5 Making the above submissions and relying upon the abovedecision, it is prayed to allow the present appeal by quashing and settingaside the impugned judgment and order passed by the NCDRC and toErestore the order passed by the State Commission.

4. Present appeal is vehemently opposed by the learned counselappearing on behalf of the insurance company.

4.1 It is submitted that in the facts and circumstances of the caseand on true interpretation of Clause 9 of Section 2 of the insurancepolicy, the NCDRC has not committed any error in awarding theFdepreciated value and not awarding the reinstatement value as claimedby the complainant.

4.2 It is submitted that as rightly observed by the NCDRC thatthe goods insured were to be replaced on “as is basis” i.e., if themachinery is an old machinery, it is to be replaced by an old machineryGand therefore, as the actual reinstatement has not been done by thecomplainant or by the insurance company and the money is to be paid tothe insured on reinstatement basis, one has to find out the value of themachinery on replacement basis i.e., the value of the old machinery,which can be calculated only through deducting the value of thedepreciation from the current value of the machinery.

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4.3 Making the above submissions, it is prayed to dismiss thepresent appeal.

5. The short question which is posed for consideration of thisCourt is whether in the facts and circumstances of the case and on trueinterpretation of relevant clause of insurance policy, in case of damageof the plant and machinery due to fire, the complainant shall be entitledto the reinstatement value or the depreciated value?

5.1 While dealing with the aforesaid issue, relevant clause 9 ofSection 2 of the policy is required to be considered, which reads asunder: - “9. If the Company at its option, reinstate or replace the propertydamaged or destroyed, or any part thereof, instead of paying theamount of the loss or damage, or join with any other Company orInsurer(s) in so doing the Company shall not be bound to reinstateexactly or completely but only as circumstances permit and inreasonably sufficient manner, and in no case shall the Companybe bound to expend more in reinstatement than it would have costto reinstate such property as it was at the time of the occurrenceof such loss or damage nor more than the sum insured by theCompany thereon. If the Company so elect to reinstate or replaceany property the insured shall at his own expense furnish theCompany with such plans, specifications, measurements, quantitiesand such other particulars as the Company may require, and noacts done or caused to be done, by the Company with a view toreinstatement or replacement shall be deemed an election by theCompany to reinstate or replace.

If in any case the Company shall be unable to reinstate or repairthe property hereby insured, because of any municipal or otherregulations in force affecting the alignment of streets or theconstruction of buildings or otherwise, the Company shall, in everysuch case, only be liable to pay such sum as would be requisite toreinstate or repair such property if the same could lawfully bereinstated to its former condition.”

5.2 On true interpretation and on fair reading of above clause,firstly the option is given to the insurance company to reinstate or replaceproperty damaged or destroyed instead of paying the amount of loss ordamage. If the insurance company exercises the option of reinstatementor replaces the property damaged, the company shall not be bound toreinstate completely or partly but only as circumstances permit and inreasonably sufficient manner, and in no case shall the company be boundto expend more in reinstatement than it would have cost to reinstate A

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Asuch property as it was at the time of the occurrence of such loss ordamage not more than the sum insured by the company thereon. However,in any case the company is unable to reinstate or repair the propertyinsured, because of any municipal or other regulations in force affectingthe alignment of streets or the construction of buildings orOTHERWISE, in that case, the company shall be liable to pay suchBsum as would be requisite to reinstate or repair such property if thesame could lawfully be reinstated to its former condition. Present is thecase dealing with second eventuality, namely, the company was unableto reinstate or repair the property. The surveyor in its report determinedthe loss on the basis of reinstatement value at Rs. 29,17,500/- and on thebasis of depreciated value at Rs. 12,60,000/-. Though, the complainantCclaimed Rs. 76,64,000/- being the value of the new machinery, however,as rightly observed by the State Commission as well as the NCDRC, thecomplainant shall not be entitled to the said amount. However, at thesame time considering second part of Clause 9 reproduced hereinabove,in case company is unable to reinstate or repair the property insured, theinsurance company shall be liable to pay such sum as would be requisiteDto reinstate or repair such property if the same could lawfully be reinstatedto its former condition. For the aforesaid purpose, the report of surveyorwound be relevant evidence to consider the sum required to reinstate orrepair. Therefore, as per second part of Clause 9 of Section 2 of thepolicy, the complainant shall be entitled to the reinstatement value andnot the depreciated value. The NCDRC has mis-interpreted and mis-readEthe Clause 9. The NCDRC has seriously erred in observing and holdingthat the insurance company shall be liable to pay the depreciated valueonly and not the reinstatement value. The State Commission wasabsolutely justified in awarding the reinstatement value. The impugnedjudgment and order passed by the NCDRC awarding the depreciatedvalue and not the reinstatement value is unsustainable for the reasonsFstated hereinabove.

6. In view of the above and for the reasons stated above, thepresent appeal succeeds. The impugned judgment and order passed bythe NCDRC is hereby quashed and set aside. The order passed by theState Commission is hereby restored. The complainant shall be entitledGto Rs. 29,17,500/- being the reinstatement value with interest @ 7%from the date of order of the State Commission i.e., 10.11.2014 till theactual payment. The present appeal is accordingly allowed. No costs.

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Ankit Gyan(Assisted by : Abhishek Pratap Singh, LCRA)

Appeal allowed.