Consumer Protection Act, 1986 – s.2(d) – “Beneficiary” under the insurance policy availed by the insured, if “consumer” under the Act – Tripartite agreement between farmers, Bank and cold store – Farmers’ agricultural produce was stored in cold store – Cold store got the stocks insured from an insurance company – Farmers hypothecated agricultural produce to the Bank – Bank issued loans – Agricultural produce destroyed by fire – Farmers claimed that the insurance company was liable to pay the value of the agricultural produce as on the date of fire – Insurance company contended that the fire was not accidental and farmers were not consumers – State and National Commission concurrently held that fire was accidental; farmers were held consumers – On appeal, held:Whether the fire took place by a short circuit or any other reason, as long as insured is not the person who caused the fire, the insurance company cannot escape its liability in terms of the insurance policy – Contention of the insurance company that the fire was ignited by the use of kerosene and hence it is not liable, rejected – Tripartite agreement read along with the terms of the insurance policy make it clear that the intention of the parties was that they would be compensated by the insurance company in case of any untoward loss – Definition of consumer under the Act is very wide and includes beneficiaries taking benefit of the insurance availed by the insured – Thus, the farmer is a beneficiary under the policy and therefore, definitely a consumer – Orders of both the Commissions that the complaint under the Act is maintainable, upheld – Value of the goods as reflected in the warehouse receipts be taken to be the value on the date of fire – Insurance company to indemnify the cold store with regard to the value of goods – Farmers to get the amount payable under the policy, subject to the bank clause – Further directions issued – Insurance – Contract.
Consumer Protection – Insurance Policy – Principles of interpretation – Discussed.
Consumer Protection Act, 1986 – s.2(1)(d)(i) – Insurance policy – Privity of contract between insurance company and claimants – If required – Held: As far as the Act is concerned, it is not necessary that there should be privity of contract between the insurance company and the claimants – It is not necessary that those beneficiaries should be parties to the contract of insurance. Contract – Bailor and bailee relationship – Farmers’ goods stored in a cold store was destroyed by fire – Cold store had got it insured from the insurance company – Insurance company contended that since the cold store held the goods in trust, they were not liable – Held: Rejected – Farmers paid consideration to the 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 the insurance policy – Goods were neither held on commission – Insurance.
Doctrines/Principles– Principle of uberrima fides – When not applicable – Discussed.
Consumer Protection – Insurance policy – Non-disclosure of material facts – Effect of – Held: To make a contract void the nondisclosure should be of some very material fact – Misrepresentation or misdescription only makes the policy voidable –If the insurance company while accepting the proposal form does not ask the insured to clarify any ambiguities then after accepting the premium it cannot urge that a wrong declaration was made by the insured. Consumer Protection – Insurance Policy – Tripartite agreement between farmers, Bank and cold store – Farmers’ goods were stored in cold store – Goods insured with insurance company – Farmers hypothecated goods to the Bank – Bank issued loans – Tripartite agreement not disclosed to the insurance company – Goods destroyed by fire – Held: When the Bank issues loans against the hypothecation of goods, as in the present case, and insists that the goods should be insured to safeguard its outstandings then a duty lies upon the Bank to inform the insurance company of the policy – In the present case, matter was dragged only because names of the farmers were not mentioned in the policy or the tripartite agreement was not handed over to the insurance company – Some level of deficiency on behalf of the Bank – Thus, it cannot claim interest at the contractual rate and is entitled to charge simple interest from the date of grant of loan at the rate of 12% p.a. Disposing of the appeals, the Court
HELD: 1. Neither in the report of M/s. Truth Labs (relied upon by insurance company) nor in the other reports by the insurance company is there anything to show that the insured had set the cold store on fire. Whether the fire took place by a short circuit or any other reason, as long as insured is not the person who caused the fire, the insurance company cannot escape its liability in terms of the insurance policy. The contention of the insurance company that the fire was ignited by the use of kerosene and hence it is not liable is rejected. [Para 16][512-C-D]
2. The principles relating to interpretation of insurance policies are well settled and not in dispute. At the same time, the provisions of the policy must be read and interpreted in such a manner so as to give effect to the reasonable expectations of all the parties including the insured and the beneficiaries. It is also well settled that coverage provisions should be interpreted broadly and if there is any ambiguity, the same should be resolved in favour of the insured. On the other hand, the exclusion clauses must be read narrowly. The policy and its components must be read as a whole and given a meaning which furthers the expectations of the parties and also the business realities. The entire policy should be understood and examined in such a manner and when that is done, the interpretation becomes a commercially sensible interpretation. The tripartite agreement read along with the terms of the policy it is obvious that the Bank insisted that the stock be insured. The farmers were told that they would pay the premium. The cold store while fixing the rent obviously factored the premium into the rent. It was obvious that the intention of the parties was that they would be compensated by the insurance company in case of any untoward loss. [Para 21] [513-G; 514-A-C]
3. As far as the Consumer Protection Act, 1986 is concerned, it is not necessary that there should be privity of contract between the insurance company and the claimants. The definition 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 and includes any user of such goods other than the person who buys such goods as long as the use is made with the approval of such person. Therefore, the definition of consumer even in the 1st part not only includes the person who has purchased but includes any user of the goods so long as such user is made with the approval of the person who has purchased the goods. The definition of the consumer in relation to hiring or availing of services is much wider. In this part of the section, consumer includes not only the person who has hired or availed of the services but also includes any beneficiary of such services. Therefore, an insured could be a person who hires or avails of the services of the insurance company but there could be many other persons who could be the beneficiaries of the services. It is not necessary that those beneficiaries should be parties to the contract of insurance. They are the consumers not because they are parties to the contract of insurance but because they are the beneficiaries of the policy taken out by the insured. The definition of consumer under the Act is very wide and it includes beneficiaries who can take benefit of the insurance availed by the insured. Under the tripartite agreement entered between the Bank, the cold store and the farmers, the stock of the farmers was hypothecated as security with the Bank and the Bank had insisted that the said stock should be insured with a view to safeguard its interest. The penultimate clause of the tripartite agreement in unambiguous terms binds the cold store to insure the goods, to indemnify the produce, to cover the risk and cover the loan amount. This insurance policy had 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 a beneficiary under the policy. The farmer is, therefore, definitely a consumer and the orders of both the Commissions that the complaint 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 pay consideration to the cold store and, therefore, the goods were not held in trust per se but the goods were held by cold store as bailee of the goods for consideration. The 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. There may be inter se rights and liabilities between the farmer and the cold store but it cannot be said that the goods were held ‘in trust’. The goods were also not held ‘on commission’. No commission was payable and only rental was paid. [Para 33][518-B-D]
5. The insurance policy itself envisaged that there were interest of other parties and not only the Bank and the insured. Therefore, it was for the insurance company to verify and find out who was the owner of the goods. It could not presume that all the goods belong to the cold store. The assumption of the insurance company that it had insured the goods belonging to the cold store itself has no factual basis. Cold stores are constructed in such a way that there are many compartments in the cold store. Any person can deposit a small or large amount of goods to be kept in cold store. Normally, it is the goods of third parties which are stored in a cold store and, therefore, the Court is dealing with a policy of insurance whereby the premises and the stock and goods in a cold store have been insured. The natural corollary would be that the insurance company should have known that the goods belong to the third parties. From the policy of insurance, it is found that in respect of description of risk, the insurance covers “Stock of Guntur Chillies/Byadigi Chillies/Other variety Chillies, Jawar Seeds, Bengal Garam, Red Gram, Tambrind, Coriander Seeds & Other pulses.” This stock in trade was covered for a sum of Rs.30 crores and premium was charged accordingly. A prudent insurance company before issuing a policy of such a heavy amount, must or at least should have ascertained the value and the nature of the goods. The insurance company herein is one of the largest nationalised insurance companies and a presumption has to be drawn that it must have verified the details before insurance policy was issued. In case, the insurance company has chosen not to verify the stock it cannot take advantage of its own negligence. The principle of uberrima fides has no application because the cold store had declared all necessary facts. The bank clause clearly indicated that the goods were hypothecated/pledged to the Bank. Therefore, the insurance company now cannot turn around and claim that the names of the owners were not supplied to it at the time of insurance.The insurance policy was renewed at least twice. Therefore, the policy was in existence for 3 years and it is in the 3rd year that the fire took place. [Paras 36, 37][519-E-H; 520-A-E]
6. Further, as long as the parties to the tripartite agreement i.e. the Bank, the farmer and the cold store, are not disputing the correctness of the agreement, there is no reason why the Court should not accept the same to be a genuine document. [Para 40][521-B]
7. If the insurance company while accepting the proposal form does not ask the insured to clarify any ambiguities then the insurance company after accepting the premium cannot now urge that there was a wrong declaration made by the insured. To make a contract void the non-disclosure should be of some very material fact. In the peculiar facts of this case, not disclosing the tripartite agreement or the names of the owners cannot be said to be such a material fact as to make the policy void or voidable. There is no fraudulent claim made. There is no false declaration made and neither is the loss and damage occasioned by any wilful act or connivance of the insured. The insurance company under the insurance policy is liable to indemnify the cold store with regard to the value of goods and since the farmers are the beneficiaries, they are entitled to get the amount payable under the policy, subject to the bank clause. [Paras 43, 44][522-C-F]
8. When the Bank issues loans against the hypothecation of goods, as in the present case, and insists that the goods should be insured to safeguard its outstandings then a duty lies upon the Bank to inform the insurance company of the policy. The matter has dragged to this stage only because the names of the farmers were not mentioned in the policy or because the tripartite agreement was not handed over to the insurance company. The Bank, as a prudent financial institution, should have insisted that the tripartite agreement should also be handed over to the insurance company. Therefore, there is some level of deficiency on behalf of the Bank. The Bank cannot claim interest at the contractual rate. It would be entitled to charge simple interest right 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 value of the goods as reflected in the warehouse receipts should be taken to be the value on the date of fire is affirmed. Bank shall be entitled to recover the principal amount advanced by it to each one of the farmers along with the simple interest at the rate of 12% per annum from the date of advancing of loan till repayment thereof. The insurance company is liable to pay the value of goods as reflected in the warehouse receipts of each farmer along with simple interest at the rate 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 determined and, thereafter, the excess will be payable to the farmer along with the interest. Further direction issued. [Paras 54, 55][526-B, D-E]
United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal (2004) 8 SCC 644 : [2004] 4 Suppl. SCR 662; Raghunath Rai 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 SCC
567 : [2010] 13 SCR 138 – referred to.
M. C. Chacko v. The State Bank of Travancore, Trivandrum (1969) 2 SCC 343 : [1970] 1 SCR 658; Satwant Kaur Sandhu v. New India Assurance Co. Ltd. (2009) 8 SCC 316 : [2009]
10 SCR 560 – held inapplicable.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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