ORIENTAL INSURANCE CO. LTD. versus NATIONAL BULK HANDLING CORPORATION PVT. LTD. on 12 February 2020

1. This civil appeal is filed under Section 23 of the ConsumerProtection Act, 1986, by the opposite party, in Consumer Case No. 2 of2010, filed before the National Consumer Disputes RedressalCommission, New Delhi, aggrieved by the judgment and order dated22.06.2016. The above said complaint is disposed of by impugned order,directing the appellant-opposite party to pay a sum of Rs. 3,46,87,113/-(Rupees Three Crores Forty Six Lakhs Eighty Seven Thousand OneHundred and Thirteen) to the respondent-complainant as per theinsurance policy with interest @ 9% per annum with effect from sixmonths from the date of lodgement of the claim, till the date of payment.

2. The respondent-complainant is a Collateral ManagementCompany, which undertakes to store the commodities pledged by thefarmers, traders and manufacturers etc., in availing loan from lendingbanks and other institutions. In case of any loss of the pledgedcommodities, the respondent-complainant is liable to make good the lossto the lending bank. The respondent-Collateral Management Company,took Fidelity Guarantee Insurance Policy from the appellant-oppositeparty, in respect of the pledged commodities stored in warehouses/godowns at several places.

3. The three firms namely S.K. Sales Corporation, NavbharatCommodities and Navbharat Agro Products, entered into agreements A

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Awith the respondent-complainant for storing commodities including uradand mentha oil in their warehouse at Gadarpur in District Udham SinghNagar, Uttarakhand. The respondent-Company was appointed as theCollateral Manager for the said commodities, which has deployed securityguards hired by it from the security agency, besides its own field staff.Coming to know that on 06.11.2008, the stored commodity of urad wasBunauthorizedly removed from the godown, which was pledged to HDFCBank, the respondent dispatched a team of its officers to investigate thesame. The report dated 16.11.2008 of the investigating agency revealedcertain omissions and commissions by the concerned employees of therespondent in connivance with the borrowers. Coming to know of suchCunauthorized removal of urad, the respondent has taken steps to preventfurther possible loss to oil and wheat. 601 barrels of oil were shifted to agodown at Bazpur, where a quality check was conducted. On makingsuch quality check, laboratory report revealed that the mentha oil wassubstituted by water in the barrels. Thereupon, claim was lodged by therespondent with the appellant on 08.11.2008 and further a complaintDwas also lodged at the Police Station upon which, an FIR was registeredon 19.11.2008.

4. The respondent-complainant made a claim with appellant,alleging that the commodities were removed/substituted in connivancewith the employees which was an act of infidelity covered by the insuranceEpolicy taken by it. It is alleged that the employees have committed criminalbreach of trust, with a view to cause loss to the banks and the complainant.When the claim was not accepted, the respondent-complainantapproached the National Commission, claiming an amount ofRs. 4,17,84,213/-(Rupees Four Crores Seventeen Lakhs Eighty FourFThousand Two Hundred and Thirteen). The said claim included loss ofstock of urad payable to HDFC Bank for an amount of Rs. 70,97,100/-(Rupees Seventy Lakhs Ninety Seven Thousand One Hundred) andfurther loss of Rs. 3,46,87,113/-(Rupees Three Crores Forty Six LakhsEighty Seven Thousand One Hundred and Thirteen Only) payable toState Bank of India for the stock commodity of mentha oil. The saidGclaim was contested and opposed by the appellant- opposite party. Byconsidering the submissions on both sides and other relevant materialplaced on record, the National Commission, by impugned order, allowedthe claim of Rs.3,46,87,113/- along with interest @ 9% per annum towardsthe loss of mentha oil but at the same time rejected the claim so far asHurad is concerned.

5. We have heard Sri. Vishnu Mehra, learned counsel appearingfor the appellant-Company and Sri. C.U. Singh, learned senior counselappearing for the respondent-complainant. Learned counsel for theappellant, by taking us to the material placed on record and the impugnedorder, mainly contended that the respondent-complainant has failed toprove that any employee is involved in removing/substituting mentha oilwith water in 601 barrels, which was stored in the godown. It is submittedthat even as per the investigation reports, seals were intact, as such, inabsence of any finding with regard to tampering of seals, there is nobasis for the claim of the respondent-complainant. Further it is statedthat as per the terms of the contract of insurance, the claim was notmade immediately. As such, respondent has violated the terms andconditions of the contract of insurance. It is submitted that NationalCommission fell in error in allowing the claim of Rs. 3,46,87,113/-towardsthe loss of mentha oil, as claimed by the respondent- complainant. It isfurther submitted that even in the impugned order, the NationalCommission did not name any employee of the respondent, who wasallegedly involved in substituting the mentha oil with water. Thus, it issubmitted that the impugned order is fit to be set aside, by allowing theappeal.

6. On the other hand, Sri. C.U. Singh, learned senior counsel, byreferring to the survey report of the appellant-Company and othermaterial, has submitted that even as per the survey report of the appellant-Company, the commodity of mentha oil was removed, by substitutingwith water, by the borrowers, in connivance with employees. Further, itis submitted that on the complaint made by the respondent, the ownersof the commodity who have pledged the goods to the bank and also theemployees of the respondent, were charge-sheeted for offences underSections 420, 406, 405, 415, 427 of the Indian Penal Code and the caseis pending trial. It is submitted that the survey report itself indicatesinvolvement of the employees of the respondent, as such, claim is coveredby the insurance policy. It is submitted that after filing of the complaint,when the claim is repudiated, such rejection order also is questioned byway of amendment. It is submitted that when the impugned order isread in entirety with regard to urad and mentha oil, it is clear that thewarehouse Supervisor Mr. Narender Yadav and security guard Mr. RamSingh were involved in removal/substitution of mentha oil with water.

7. Learned counsel by taking us to the survey report, has alsosubmitted that the survey report itself indicates for prosecuting borrowers A

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Aas well as employees of the respondent, as such, there is no basis for theallegation of the appellant that employees were not involved. It issubmitted that when it has come to light that mentha oil was substitutedby water, 100 per cent sampling was undertaken, which was completedon 12.11.2008 and the investigation report was submitted to therespondent-complainant on 14.11.2008 and the matter was reported toBthe insurer on 18.11.2008, as such, there is no violation of condition no.1of the policy. Learned counsel, explaining the scope of Fidelity GuaranteeInsurance Policy, has placed reliance on a judgment of this Court, in thecase of Food Corporation of India Vs. New India Assurance Co.Ltd. and Others[1] and a recent judgment of this Court dated 24.01.2020,Cin the case of Gurshinder Singh Vs. Shriram General Insurance Co.Ltd. & Anr.[2]

8. Upon hearing the learned counsels on both sides and on perusalof the impugned order and other material placed on record, we do notfind any merit in any of the contentions advanced by learned counsel forDthe appellant. The aforesaid judgments relied on by learned counsel forthe respondent, though relate to insurance claims, but the issues decidedin the aforesaid judgments, have no direct bearing on the issues whicharise for consideration in this case.

9. It is not in dispute that the insurance policy for fidelity guaranteeEwas in force during the relevant time, which was obtained by therespondent-complainant. Fidelity Guarantee is different from contingencyguarantee. The insurance under it, is for honesty, against negligence orfor being faithful and loyal to its employees. The protection afforded isdifferent than in normal insurance policies. Precisely, it is a contractwhereby, for a consideration, one agrees to indemnify another, againstFloss, arising from the breach of honesty, integrity or fidelity of an employeeor other person holding a position of trust. In Black’s Law Dictionary,fidelity insurance is explained as under:

“Fidelity Insurance- Form of insurance in which the insurerundertakes to guarantee the fidelity of an officer, agent or employeeGof the assured or rather to indemnify the latter for losses causedby dishonesty or a want of fidelity on the part of such person.” Assuch, the insurance policy of fidelity guarantee is to be construedas a policy, intended to protect the assured against the 1 (1994) 3 SCC 324H2 C.A. No. 653 of 2020

contingency of a breach of fidelity on the part of a person inwhom confidence has been placed.

10. The impugned order is assailed mainly on the ground that therespondent has failed to prove involvement of any of the employees ofthe respondent-Company, as such, there cannot be any liability on theappellant-insurance company. It is not in dispute that the pledged goodsof 601 barrels of mentha oil was stored in the warehouse. The surveyreport dated 26.03.2009, itself indicates the involvement of employeesof the respondent-Company in removing 601 barrels of mentha oil storedby the respondent-Company. Immediately, after confirmation and 100per cent sampling, it was disclosed that in all the barrels, the mentha oilwas substituted with water, a complaint was lodged by the respondent-complainant on 18.11.2008 before the Gadarpur Police Station. In thecomplaint filed, specific allegation is made about involvement of staff ofthe respondent-Company.

11. There is a specific observation in the survey report that thesecurity guard of the respondent-Company had allowed Mr. SanjeevChhabra(owner) to lift the stock. Referring to the complaint made bythe respondent-Company to the Police, a request is made to take actionagainst owners as well as the employees namely Mr. Narender SinghYadav, who was the Warehouse Supervisor, Cluster Head Mr. AnilSaxena, Warehouse Executive Mr. Aneesh Mohd. and Security GuardMr. Ram Singh for committing crime under various Sections of the IndianPenal Code. If the entire material is taken into consideration, it is clearthat there is a clear involvement of the employees of respondent andother contract employees in substituting the mentha oil barrels with water.It is also argued by learned counsel for the appellant that during theinspection, seals were found to be intact but it does not make anydifference in as much as 100 per cent sampling proved that all barrelswhich were earlier filled with mentha oil, were substituted with water.

12. There is yet another contention advanced by learned counselfor the appellant that there was a delay in lodging the complaint, as such,it is in violation of condition no.1 of the contract of insurance. It is clearfrom the impugned order and other material placed on record, when ithas come to the notice of the respondent, that mentha oil was substitutedby water in the barrels, respondent undertook 100 per cent sampling, bysending the samples drawn from the barrels to the laboratory and suchsampling was completed only on 12.11.2008 and the investigation report AB

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Acame to be submitted to the respondent-Company on 14.11.2008. Beforethat respondents were not aware of mentha oil substituted by water inall the barrels. Thereafter, claim was made before the appellant on18.11.2008.

13. In that view of the matter, it cannot be said that there is anyBdelay on the part of the respondent in lodging the claim, so as to acceptthat there is breach of condition no. 1 of the policy.

14. For the aforesaid reasons and in view of the findings recordedin the impugned order, we do not find any merit in this appeal, so as tointerfere with the same. The appeal is, accordingly, dismissed with noCorder as to costs.

Divya Pandey

Appeal dismissed.

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