M/S BASPA ORGANICS LIMITED versus UNITED INDIA INSURANCE COMPANY LTD. on 14 February 2020

M/S BASPA ORGANICS LIMITED

v.

UNITED INDIA INSURANCE COMPANY LTD.

(Civil Appeal No. 13401 of 2015)

FEBRUARY 14, 2020

[MOHAN M. SHANTANAGOUDAR ANDR. SUBHASH REDDY, JJ.]

Consumer Protection Act, 1986: Fire and Special Peril policy– Insurance claim – Repudiation of claim – On the ground ofsuppression of material fact of not being duly licensed for storageand use of Hexane at the factory – Held: In terms of either Article3 or 7 of the Petroleum Rules, 1976, the Appellant was required toobtain a license for the purposes of storing Hexane in excess of 20kilolitres – The quantity of Hexane stored by the Appellant wasmore than 20 kilolitres – In the absence of a license, the Appellantcould not have lawfully stored Hexane – Non-disclosure of non-possession of a licence was of a material nature, and constituted aviolation of Condition 1 of the insurance policy – Insurer wasjustified in repudiating the claim of the Appellant on this ground –Petroleum Rules, 1976 – rr.3 and 7 – Petroleum Act, 1934 – s.2(b).

Dismissing the appeal, the Court

HELD: 1.1 As per Section 2(b) of the Petroleum Act, 1934,petroleum Class A means petroleum having a flash-point below23°C. As per the records of physical properties of selectedchemicals prepared by the NFPA, the flash point of n-Hexane is-23°C. Admittedly, the substance being stored by the Appellantwas n-Hexane, or normal Hexane. Since the flash point of thesubstance is well below 23°C, it can safely be said that it fallsunder the category of petroleum Class A. [Paras 9, 10][849-G-H;850-A-D]

1.2 Section 8 of the Petroleum Act makes it clear that forthe storage of petroleum Class A less than 30 litres in quantity,no licence is required under the Petroleum Act or rulesthereunder. As per Article 3, a licence issued by the District

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AAuthority is required for importing and storing petroleum ClassA in a quantity not exceeding 300 litres. Thus, the Respondentmay be justified in arguing that for storage of petroleum Class Aranging from 30 litres to 300 litres in quantity, a licence underArticle 3 may be required. However, in the instant case, theAppellant had stored much more than 300 litres of Hexane, andBtherefore, a licence under Article 3 was not sufficient. [Para 13,13.1][851-D; G-H; 852-A]

1.3 The expression “petroleum in bulk” as defined in clause(xv) of Rule 2 of the 1976 Rules means petroleum contained in atank irrespective of the quantity of petroleum contained therein.CThe term ‘tank’ is defined in clause (xxii) of rule 2 as a receptaclefor petroleum exceeding 1000 litres in capacity. From thedefinitions, it becomes evident that irrespective of the quantityof petroleum, when petroleum is stored in a tank, it is referred toas “petroleum in bulk” under the 1976 Rules. Article 7 deals withDthe grant of a licence for storage of petroleum otherwise than inbulk, i.e. otherwise than in a tank. In other words, for petroleumClass A exceeding 300 litres, a licence under Article 7 is requiredwhen it is not being stored in receptacles exceeding 1000 litresin capacity. [Para 14, 14.1, 15][852-B-F]

E1.4 A store shed, is a building where petroleum is storedotherwise than in bulk, i.e., otherwise than in receptacles with acapacity of over 1000 litres. Clause (xxi) of Rule 2 states that astore shed may be a part of an “installation”. This term is alsodefined under the 1976 Rules, in clause (xiv) of Rule 2. Uponreading the definitions of “store shed” and “installation” together,Fit becomes clear that “installation” carries a much broadermeaning. In order for any premises to be an “installation” underthe 1976 Rules, it must necessarily contain a place speciallyprepared to store petroleum in bulk. At the same time, aninstallation may also have the capacity to store petroleumGotherwise than in bulk. An installation, therefore, may consist ofboth tanks and storage sheds, or it may consist only of tanks.[Paras 16, 17][853-B-F]

2.1 In the instant case, the second surveyor clearly statedthat the Hexane had leaked from the tanks in which it was stored.HHowever, it is not clear from the material on record whether or not the term “tank” was assigned the same meaning as underthe 1976 Rules. If the tanks referred to by the second surveyorwere receptacles that could not store more than 1000 litres ofpetroleum, then they would not constitute “tanks” under the 1976Rules, and the petroleum stored in such tanks would fall underthe category of petroleum stored “otherwise than in bulk”. In sucha case, a licence would be required under Article 7. [Para 18][853-F-H]

2.2 The application preferred by the Appellant to obtain alicence under Article 6 of the First Schedule to the 1976 Rules,which pertains to the import and storage of petroleum in aninstallation, vide letter dated 22.10.2001. In its response to thesaid application, the Controller of Explosives, Nagpur noted byletter dated 05.11.2001, that the drawings of the site and layoutof the proposed installation had been approved, subject to thecondition that the pump/motor to be incorporated were flameproof, in accordance with IS:2148. The communication clearlyindicated that even the Controller of Explosives was of the opinionthat the premises where the Appellant was storing Hexaneamounted to an “installation”. For a premises to be consideredas an installation, it must contain a place prepared to hold “tanks”as defined under the 1976 Rules. This strongly suggested thatthe “tanks” referred to by the second surveyor were indeed“tanks” as envisaged under the 1976 Rules. This shows that theAppellant may well have been required to obtain a licence underArticle 6 itself. It was not the case of the Appellant that it providedthe documents stipulated by the Controller of Explosives. Therewas nothing on record to show that a licence under Article 6 wasgranted to the Appellant. The Appellant was required to obtain alicence under the 1976 Rules for the storage of Hexane, be itunder Article 6 or 7, and has failed to show that it possessed anysuch licence. [Paras 19-22][854-A-B; E-H]

3.1 The Central Government has the power to pass ordersunder the Essential Commodities Act to provide for licensingregimes governing the storage of an essential commodity, inpursuance of the three objectives set out in Section 3(1). The2000 Order is one such order, providing for a licensing regimeregulating the acquisition, sale, storage and prevention of use in A

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Aautomobiles of solvents, raffinates and slops, particularly for thepurposes of the Essential Commodities Act. There is nothing inthe said order to suggest that it intends to replace or modify anyother existing licensing regime under any other law in force,including the Petroleum Act and the rules formulated thereunder.[Para 28][856-F-H]B

3.2 There cannot be any dispute that the licence issuedunder the Essential Commodities Act and control orders are fora different purpose altogether compared to the Petroleum Act.The direction of the Controller of Explosives by letter dated05.11.2001 to comply with the requirements under the 2000 OrderCis an additional requirement to be complied with in order to obtaina licence under the Petroleum Act. It cannot be said that anexemption from obtaining a licence under the 2000 Order wouldamount to an exemption to obtain a licence under the PetroleumAct. Hence, even assuming that the Appellant was exempt fromDobtaining a licence under the 2000 Order by virtue of the saidexemption, the Appellant was still required to obtain a licence inaccordance with the 1976 Rules. The quantity of Hexane storedby the Appellant was more than 20 kilolitres. Hence, the Appellantwas required to obtain a licence under the 2000 Order as well.It is evident that the 1976 Rules prescribed that a licence had toEbe obtained for the purposes of storing Hexane of the quantityinvolved in the instant case, and the Appellant has failed to complywith this requirement. In the absence of such a licence, theAppellant could not have lawfully stored Hexane. Therefore, thenon-disclosure of the non-possession of a licence was of a material Fnature, and constituted a violation of Condition 1 of the insurancepolicy. The Respondent was justified in repudiating the claim ofthe Appellant on this ground. [Paras 30, 31][857-B-G]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 13401of 2015.GFrom the Judgment and Order dated 21.07.2015 of the NationalConsumer Disputes Redressal Commission, New Delhi in OriginalComplaint No. 48 of 2004.

S.S. Naphade, Sr. Adv., Rajiv Raheja, Vipul Raheja, Ms. LakshmiIyer, Ms. Aishwarya Dash, Advs. for the Appellant.H

P.P. Malhotra, Sr. Adv., Vineet Malhotra, Mohit Paul, Ms. SunainaPhul, Advs. for the Respondents.

The Judgment of the Court was delivered by MOHAN M. SHANTANAGOUDAR, J.

1. The present appeal arises out of the judgment dated 21.07.2015passed by the National Consumer Disputes Redressal Commission, NewDelhi (“National Commission”) dismissing the consumer complaint(Original Petition No. 48 of 2004) filed by the Appellant herein.

2. The facts giving rise to this appeal are as follows:

2.1 One M/s Shrirang Agro Chemical Pvt. Ltd., having its factorypremises in Tarapur, Thane District, was engaged in the business ofmanufacturing a chemical called Cyper Methnic Acid Chloride(“CMAC”), an intermediate product used in growing cash crops. Thesaid factory premises had become a sick unit, and was auctioned off bythe Maharashtra State Financial Corporation (“MSFC”). The biddingtook place on 14.03.2001, and on 15.03.2001, the Appellant was declaredthe highest bidder, having quoted a price of Rs. 4 crores.

2.2 The Appellant commenced production of CMAC in November2001. The previous company (Shrirang Agro Chemical Pvt. Ltd.) hadtaken an insurance coverage from the Respondent, and the Appellantcontinued this coverage. To this end, after inspecting the plant andmachinery, a Fire and Special Perils Policy was issued by the Respondentfrom 12.11.2001 to 11.12.2001 insuring the subject premises for a totalInsured Declared Value of Rs.12.5 crores. The said policy was continuedfor the period between 12.12.2001 and 11.01.2002 as well.

2.3 On 03.01.2002, a fire broke out at the factory premises, basedon which the Appellant filed a claim with the Respondent. On 30.01.2004,based on reports from the three surveyors, the Respondent repudiatedthe claim of the Appellant on two grounds. It was held, firstly, that theAppellant had purchased the factory premises for only Rs. 4 crores, buthad overvalued it and taken a policy for an excessive value of Rs. 12.5crores, and secondly, that the Appellant suppressed the material fact ofnot being duly licensed for the storage and use of Hexane at the factory.Aggrieved by such repudiation, the Appellant filed a consumer complaintbefore the National Commission.

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A3. The National Commission dismissed the Appellant’s complaint,holding that the repudiation was justified on both the above counts, i.e.,that the Appellant had overstated the value of the factory while takinginsurance, and that the Appellant was operating without obtaining therequisite licence for the storage of Hexane. It is against this dismissalthat the Appellant has approached this Court by way of an appeal underBSection 23 of the Consumer Protection Act, 1986.

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4. Learned Senior Counsel appearing on behalf of the Appellant,Shri S.S. Naphade, argued against the appointment of the third surveyor,S.B. Nalluri & Associates (“third surveyor”). He contended that oncethe second surveyor, Mehta and Padamsey Surveyors Pvt. Ltd. (“secondCsurveyor”), had clearly assessed the loss and submitted a detailed reportwherein it had ruled out any mala fides on part of the Appellant, therewas no occasion to appoint the third surveyor. Learned Senior Counselalso relied on the notification dated 21.11.2001 issued by the Ministry ofPetroleum and Natural Gas in exercise of its powers under the EssentialCommodities Act, 1955 (“the Essential Commodities Act”), to argueDthat the Appellant was exempt from obtaining a licence for storage ofHexane, since according to him, the Appellant had stored less than 20kilolitres of Hexane. It was submitted that the said notification clearlystipulated that there was no requirement of a licence for storing up to 20kilolitres of Hexane.

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5. On the other hand, learned Senior Counsel appearing on behalfof the Respondent, Shri P.P. Malhotra, contended that repudiation of theclaim was justified, inasmuch as the Appellant had not disclosed that itwas not in possession of the requisite licence for storing Hexane. It wascontended that the Appellant was required to obtain a licence as perFeither Article 3 or Article 7 of the First Schedule to the Petroleum Rules,1976 (“1976 Rules”).

5.1 It was further argued that even assuming that theaforementioned notification dated 21.11.2001 exempted the Respondentfrom obtaining a licence for storing Hexane up to 20 kilolitres, the secondsurveyor’s report, against which the Appellant had not raised anyGobjection, was categorical in its finding that the factory premises heldover 90 kilolitres of Hexane, out of which 79.152 kilolitres of Hexanehad suffered damage. Thus, no reliance could be placed on the exemptionunder this notification in the instant facts and circumstances.

5.2 Learned Counsel also argued in favour of the finding of theNational Commission with respect to overvaluation of the subject factoryby the Appellant while taking insurance.

6. At the outset, we must observe that we are at a loss to understandwhy the insurance policy was taken by the Appellant for only one monthand extended thereafter, again, for only one more month. It is also quiteperplexing as to why the Respondent agreed to issue a policy for such ashort period of time, and no plausible reasons are forthcoming from therecords to explain the peculiar nature of this transaction.

7. Be that as it may, upon perusing the material on record andafter hearing the learned counsel, we find that two issues arise in theinstant case, to determine whether repudiation of the claim was justifiedfor breach of policy terms:

(i) whether the Appellant was not duly licensed to store Hexane,and therefore had suppressed a material fact, thus breaching Clause 1of the policy, and

(ii) whether the Appellant overvalued the subject factory whiletaking insurance, amounting to fraud under Clause 8 of the policy.

8. In this regard, we find it relevant to reproduce the said clausesof the insurance policy:

“1. This policy shall be voidable in the event of mis-representation,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 fraudulentmeans or devices are used by the insured or any one 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.”

9. With respect to the question of licensing, the Respondent’s caseis that the Appellant had not disclosed that it had stored Hexane withouthaving obtained a licence for the same, as required under the 1976 Rules.In this respect, the Respondent has relied on Articles 3 and 7 of the FirstSchedule to the 1976 Rules. Articles 3 and 7 specifically refer to petroleumClass A, which is defined as follows under Section 2(b) of the PetroleumAct, 1934 (“the Petroleum Act”):

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A“(b) “petroleum Class A” means petroleum having a flash-pointbelow twenty-three degree centigrade”.

10. To show that Hexane falls within Class A, learned Counselfor the Respondent has drawn our attention to literature from the NationalFire Protection Association (“the NFPA”), an international non-profitorganisation working towards eliminating death, injury, property andBeconomic loss due to fire. As per the records of physical properties ofselected chemicals prepared by the NFPA, the flash point of n-Hexaneis -23°C.[1] Admittedly, the substance being stored by the Appellant wasn-Hexane, or normal Hexane. Indeed, as per nomenclature adopted bythe International Union of Pure and Applied Chemistry, the substanceCcarrying the molecular formula C6H14 is known as “Hexane” or “n-Hexane”.[2] This is also supported by Bretherick’s Handbook of ReactiveChemical Hazards, referred to by the Respondent, which notes thatHexane, having the formula C6H14,has a flash point of -23°C.[3] Since theflash point of the substance is well below 23°C, it can safely be said thatit falls under the category of petroleum Class A.

D11. Against this backdrop, we find it useful to refer to the relevantArticles of the First Schedule to the 1976 Rules, which were the rules inforce as on the date of the incident:

FIRST SCHEDULE

ArticleFormPurposeAuthorityFeeoffor whichempoweredElicencegrantedto grantlicence123453XTo import and storeDistrictRs. 20 for everypetroleum Class A inAuthoritycalendar year orquantity not exceedingpart thereof.300 litresFxxxxxxxxxx6XIITo import and storeChief ControllerRs. 20 for everypetroleum in anor a Controllercalendar year orinstallation.of Explosivespart thereof.authorised in thisbehalf by theChief Controller.

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1 NFPA 497, Recommended Practice for the Classification of Flammable Liquids, Gases,or Vapors and of Hazardous (Classified) Locations for Electrical Installations inChemical Process Areas (2017 edition).

2 National Center for Biotechnology Information, PubChem Compound Database,available at https://pubchem.ncbi.nlm.nih.gov/compound/Hexane.

3 BRETHERICK’S HANDBOOK OF REACTIVE CHEMICAL HAZARDS, Vol. I, 2032 (PG Urben ed.,H7[th] edition, 2006).

M/S BASPA ORGANICS LIMITED v. UNITED INDIA INSURANCECOMPANY LTD. [MOHAN M. SHANTANAGOUDAR, J.]

7XIVTo import and storePetroleum Class B –Aotherwide than in bulk (a)When stored in bulkpetroleum Class A inor with any otherquantities exceeding 300class oflitres, (b) petroleum ClassB in quantities exceeding25,000 litres (C)petroleum Class C inBquanties exceeding45,000 litres or (d) partlyone class and partly twoclass of petroleum.

12. Before looking into whether the Appellant was required toobtain a licence under the provisions reproduced above, it is relevant tonote that the Appellant has not challenged the second surveyor’s report,or its finding that the factory premises contained over 90 kilolitres ofHexane, out of which 79.152 kilolitres were damaged. On the contrary,the Appellant seeks to rely on the report heavily.

13. The Respondent has contended that the Appellant was requiredto obtain a valid licence under the Petroleum Act and the 1976 Rules. Inthis regard, it is pertinent to note that Section 8 of the Petroleum Actmakes it clear that storage of small quantities of petroleum Class A doesnot require any licence. It reads:

“8. No licence needed for import, transport or storage ofsmall quantities of petroleum Class A.

(1) Notwithstanding anything contained in this Chapter, a personneed not obtain a licence for the import, transport or storage ofpetroleum Class A not intended for sale if the total quantity in hispossession does not exceed thirty litres.

(2) Petroleum Class A possessed without a licence under thissection shall be kept in securely stoppered receptacles of glass,stoneware or metal which shall not, in the case of receptacles ofglass or stoneware, exceed one litre in capacity or, in the case ofreceptacles of metal exceed twenty-five litres in capacity.”

13.1 Therefore, it is evident that for the storage of petroleumClass A less than 30 litres in quantity, no licence is required under thePetroleum Act or rules thereunder. As per Article 3, a licence issued bythe District Authority is required for importing and storing petroleumClass A in a quantity not exceeding 300 litres. Thus, the Respondentmay be justified in arguing that for storage of petroleum Class A ranging C

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Afrom 30 litres to 300 litres in quantity, a licence under Article 3 may berequired. However, in the instant case, it is clear that the Appellant hadstored much more than 300 litres of Hexane, and therefore, a licenceunder Article 3 would not be sufficient.

14. The Respondent also drew our attention to Article 7 of theB1976 Rules to further its argument on the requirement of the licence.Article 7 deals with storage of certain forms of petroleum otherwisethan in bulk. The expression “petroleum in bulk” is defined in clause(xv) of Rule 2 of the 1976 Rules as follows:

“(xv) “petroleum in bulk” means petroleum contained in a tankCirrespective of the quantity of petroleum contained therein”(emphasis supplied)

14.1 In turn, the term “tank” is defined in clause (xxii) of Rule 2in the following manner:

“(xxii) “tank” means a receptacle for petroleum exceeding 1000Dlitres in capacity”

15. From the definitions reproduced above, it becomes evidentthat irrespective of the quantity of petroleum, when petroleum is storedin a tank, it is referred to as “petroleum in bulk” under the 1976 Rules.As mentioned earlier, Article 7, on which the Respondent seeks to placeEreliance, deals with the grant of a licence for storage of petroleumotherwise than in bulk, i.e. otherwise than in a tank. In other words, forpetroleum Class A exceeding 300 litres, a licence under Article 7 isrequired when it is not being stored in receptacles exceeding 1000 litresin capacity.

16. In this regard, we may also refer to Condition 2 of Form XIVof the Second Schedule to the 1976 Rules. Form XIV corresponds tothe licence granted under Article 7 of the First Schedule, and Condition2 of the said Form reads as follows:

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“2. The petroleum shall be stored only in the storage shedwhichGshall be constructed of suitable non-combustible materials, providedthat when no petroleum Class A is stored, the beams, rafters,columns, windows and doors may be of wood.”

(emphasis supplied)

16.1 In turn, the term “store shed” is defined in clause (xxi) ofRule 2 as follows:

“(xxi) “store shed” means a building used for the storage ofpetroleum otherwise than in bulk, whether forming part of aninstallation or not, but does not include a building used for thestores of petroleum exempt from licence under Sections 7,8 or 9of the Act”

16.2 A store shed, therefore, is a building where petroleum isstored otherwise than in bulk, i.e., otherwise than in receptacles with acapacity of over 1000 litres. Most significantly, clause (xxi) of Rule 2states that a store shed may be a part of an “installation”. At thisjuncture, it is relevant to note that this term is also defined under the1976 Rules, in clause (xiv) of Rule 2:

“(xiv) “installation” means any premises wherein any place hasbeen specially prepared for the storage of petroleum in bulk, butdoes not include a well-head tank or service station”

17. Upon reading the definitions of “store shed” and “installation”together, it becomes clear that “installation” carries a much broadermeaning. In order for any premises to be an “installation” under the1976 Rules, it must necessarily contain a place specially prepared tostore petroleum in bulk. In other words, such a place must have thecapacity to hold receptacles with a capacity of 1000 litres or more (whichwould be nothing but a “tank” as defined under the 1976 Rules). At thesame time, an installation may also have the capacity to store petroleumotherwise than in bulk. An installation, therefore, may consist of bothtanks and storage sheds, or it may consist only of tanks.

18. In the instant case, the second surveyor had clearly statedthat the Hexane had leaked from the tanks in which it was stored.However, it is not clear from the material on record whether or not theterm “tank” was assigned the same meaning as under the 1976 Rules.If the tanks referred to by the second surveyor were receptacles thatcould not store more than 1000 litres of petroleum, then they would notconstitute “tanks” under the 1976 Rules, and the petroleum stored insuch tanks would fall under the category of petroleum stored “otherwisethan in bulk”. In such a case, a licence would be required underArticle 7.

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A19. At this stage, we may fruitfully refer to the application preferredby the Appellant to obtain a licence under Article 6 of the First Scheduleto the 1976 Rules, which pertains to the import and storage of petroleumin an installation, vide letter dated 22.10.2001. In its response to theabove application, the Controller of Explosives, Nagpur noted vide letterdated 05.11.2001, that the drawings of the site and layout of the proposedBinstallation had been approved, subject to the condition that the pump/motor to be incorporated were flame proof, in accordance with IS:2148.Further, the Appellant was asked to submit certain documents that werenecessary in connection with the grant of the licence applied for, such asan application under Form VIII (which is an application for the grant,Camendment, renewal, or transfer of a licence to import and storepetroleum), a Safety and Test Certificate required under Rule 130 and126 of the 1976 Rules issued by a competent person, a No-ObjectionCertificate from the Local District Authority along with the site planduly endorsed by such authority, and so on. Additionally, the Appellantwas directed to comply with the provisions of the Solvent, Raffinate andDSlop (Acquisition, Sale, Storage and Prevention of Use in Automobiles)Order, 2000 (“the 2000 Order”).

20. The above communication clearly indicates that even theController of Explosives was of the opinion that the premises where theAppellant was storing Hexane amounted to an “installation”. As weEhave discussed supra, for a premises to be considered as an installation,it must contain a place prepared to hold “tanks” as defined under the1976 Rules. This strongly suggests that the “tanks” referred to by thesecond surveyor were indeed “tanks” as envisaged under the 1976 Rules.In our considered view, this shows that the Appellant may well haveFbeen required to obtain a licence under Article 6 itself.

21. It is not the case of the Appellant that it provided the documentsstipulated by the Controller of Explosives. No further communicationbetween the Appellant and the said authority has been placed on recordeither. There is nothing on record to show that a licence under Article 6Gwas granted to the Appellant.

22. In light of the above discussion, we are of the view that theAppellant was required to obtain a licence under the 1976 Rules for thestorage of Hexane, be it under Article 6 or 7, and has failed to show thatit possessed any such licence.

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M/S BASPA ORGANICS LIMITED v. UNITED INDIA INSURANCECOMPANY LTD. [MOHAN M. SHANTANAGOUDAR, J.]

23. Having examined the scheme of the 1976 Rules with respectto licensing requirements, we may now turn to the Appellant’s contentionthat it was exempt from obtaining a licence under the said rules, byvirtue of the notification dated 21.11.2001 issued by the Ministry ofPetroleum and Natural Gas, amending the 2000 Order. The relevantclause of the amended order that is being relied upon by the Appellant isas follows:

“3. Restriction on sale and use of solvents, raffinates, slops-and other product:

(1) No person shall either acquire, store or sell solvents includedin the Schedule, without a licence issued by the State Governmentor the District Magistrate or any other Officer authorised by theCentral or the State Government; Provided that no such licence shall be required for consumptionof 50 KLs per month or less and storage of 20 KLs or less ofsolvents listed in the Schedule combined.”

24. Evidently, there is an exemption carved out in the provisodispensing with the need for a licence in the cases laid down thereunder.Significantly, Hexane is mentioned in the Schedule referred to in theabove clause, making it clear that the substance is governed by the same.The Appellant seeks to argue that pursuant to the above proviso, it wasnot required to obtain a licence under the 1976 Rules for the storage ofHexane on its premises. In order to determine whether the reference toa “licence” in the said clause includes licences under the PetroleumAct, it is essential to examine the background and scheme of the 2000Order.

25. A glance at the notification dated 21.11.2001, amending the2000 Order, as well as the said order itself, reveals that both were issuedin exercise of the powers of the Central Government under Section 3(1)of the Essential Commodities Act. This statute, as is evident from itsStatement of Objects and Reasons, was enacted to provide for the controlof the production, supply and distribution of and trade and commerce incertain commodities, in the interest of the general public. Further, Section3 empowers the Central Government to pass orders providing for theregulation or prohibition of the production, supply and distribution of anyessential commodity, and trade and commerce therein, under certainconditions. Section 3(1), in particular, reads as follows:

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A“3. Powers to control production, supply, distribution, etc.,of essential commodities.¯ (1) If the Central Government is ofopinion that it is necessary or expedient so to do for maintainingor increasing supplies of any essential commodity or for securingtheir equitable distribution and availability at fair prices, or forsecuring any essential commodity for the defence of India or theBefficient conduct of military operations, it may, by order, providefor regulating or prohibiting the production, supply and distributionthereof and trade and commerce therein.”

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26. Clearly, orders under Section 3(1) may pertain to the followingobjectives:C

(i) maintaining or increasing supplies of any essential commodity;

(ii) securing the equitable distribution and availability at fair pricesof such commodity; or,

(iii) securing any essential commodity for the defence of India orDthe efficient conduct of military operations.

27. Furthermore, Section 3(2) contemplates particular aspects withrespect to which orders may be passed in exercise of the power underSection 3(1). In this regard, it is relevant to refer to clause (d) of Section3(2):

E“(2) Without prejudice to the generality of the powers conferredby sub-section (1), an order made thereunder may provide—

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(d) for regulating by licences, permits or otherwise the storage,transport, distribution, disposal, acquisition, use or consumptionFof, any essential commodity”.

28. Thus, it is clear that the Central Government has the power topass orders under the Essential Commodities Act to provide for licensingregimes governing the storage of an essential commodity, in pursuanceof the three objectives set out in Section 3(1). The 2000 Order, in ourGconsidered view, is one such order, providing for a licensing regimeregulating the acquisition, sale, storage and prevention of use inautomobiles of solvents, raffinates and slops, particularly for the purposesof the Essential Commodities Act. There is nothing in the said order tosuggest that it intends to replace or modify any other existing licensingregime under any other law in force, including the Petroleum Act andHthe rules formulated thereunder.

29. In fact, we find that the notifications issued in pursuance ofthe 2000 Order set to rest any residual doubt in this regard. For instance,a perusal of G.R.S. 578(E), an order dated 30.06.2000 issued by theCentral Government under Clause 3 of the 2000 Order, clearly revealsthat the licence being referred to under the order is the Solvent, Raffinateand Slop Licence. The said notification reiterates that the said licence isto be issued by the State Government, District Magistrate, or the officerauthorised by the Central or State Government, as also mentioned inClause 3(1) of the 2000 Order.

30. There cannot be any dispute that the licence issued under theEssential Commodities Act and control orders are for a different purposealtogether compared to the Petroleum Act. Thus, it is clear that thelicensing regime envisaged in clause 3 of the 2000 Order, and theexemption granted thereto, is in addition to the licensing requirementsunder the Petroleum Act. The direction of the Controller of Explosivesvide letter dated 05.11.2001 to comply with the requirements under the2000 Order is an additional requirement to be complied with in order toobtain a licence under the Petroleum Act. It cannot be said that anexemption from obtaining a licence under the 2000 Order would amountto an exemption to obtain a licence under the Petroleum Act. Hence,even assuming that the Appellant was exempt from obtaining a licenceunder the 2000 Order by virtue of the said exemption, the Appellant wasstill required to obtain a licence in accordance with the 1976 Rules. Wehasten to add here that, as already mentioned supra, the quantity ofHexane stored by the Appellant was more than 20 kilolitres. Hence, theAppellant was required to obtain a licence under the 2000 Order aswell.

31. From the above discussion, it is evident that the 1976 Rulesprescribed that a licence had to be obtained for the purposes of storingHexane of the quantity involved in the instant case, and the Appellanthas failed to comply with this requirement. In the absence of such alicence, the Appellant could not have lawfully stored Hexane. Therefore,we are of the view that the non-disclosure of the non-possession of alicence was of a material nature, and constituted a violation of Condition1 of the insurance policy. As a result, we are inclined to affirm the findingof the National Commission that the Respondent was justified inrepudiating the claim of the Appellant on this ground.

32. The second issue, regarding the overvaluation of the subjectfactory, was not seriously argued by either party. Moreover, it is a question AB

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Aof fact, which this Court generally does not probe deeply. Thus, we shallrefrain from examining the merits thereof. The same is also unnecessaryin light of our above finding that the repudiation of the instant claim wasjustified on the ground pertaining to the Appellant lacking a licence forstoring Hexane under the Petroleum Act and 1976 Rules.

B33. Before we part with this matter, we may note that some objectionwas raised by the Appellant against the appointment of the third surveyorby the Respondent. Suffice it to state that the appointment of the thirdsurveyor was for the limited purpose of examining whether the Appellantwas in possession of the requisite licences for the storage of Hexane.Moreover, neither did the findings of the third surveyor disturb the findingsCof the second surveyor, nor were they material to the conclusion againstthe Appellant arrived at by the National Commission. The second surveyorhad given a categorical finding that about 90 kilolitres of Hexane werestored in the factory premises, and this finding has not been challengedby the Appellant. At the same time, while the findings of the third surveyorDsupplement the reasoning of the National Commission vis-à-vis theabsence of a licence under the Petroleum Act and 1976 Rules, they arenot crucial to this conclusion, inasmuch as the Appellant itself nevercontended that it was in possession of the requisite licences for the storageof Hexane. As a result, we find that irrespective of whether or not theappointment of the third surveyor was proper, the findings of the saidEsurveyor do not materially affect the outcome of the instant case.

34. In light of the above discussion, we find no reason to interferewith the conclusion in the impugned judgement of the NationalCommission that the repudiation of the claim was justified for breach ofClauses 1 and 8 of the insurance policy.F

35. The instant appeal is therefore dismissed. Ordered accordingly.

Devika Gujral

Appeal dismissed.

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