Consumer Protection Act, 1986: Fire and Special Peril policy – Insurance claim – Repudiation of claim – On the ground of suppression of material fact of not being duly licensed for storage and use of Hexane at the factory – Held: In terms of either Article
3 or 7 of the Petroleum Rules, 1976, the Appellant was required to obtain a license for the purposes of storing Hexane in excess of 20 kilolitres – The quantity of Hexane stored by the Appellant was more than 20 kilolitres – In the absence of a license, the Appellant could not have lawfully stored Hexane – Non-disclosure of nonpossession of a licence was of a material nature, and constituted a violation of Condition 1 of the insurance policy – Insurer was justified 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 below 23°C. As per the records of physical properties of selected chemicals prepared by the NFPA, the flash point of n-Hexane is -23°C. Admittedly, the substance being stored by the Appellant was n-Hexane, or normal Hexane. Since the flash point of the substance is well below 23°C, it can safely be said that it falls under 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 for the storage of petroleum Class A less than 30 litres in quantity, no licence is required under the Petroleum Act or rules thereunder. As per Article 3, a licence issued by the District Authority is required for importing and storing petroleum Class A in a quantity not exceeding 300 litres. Thus, the Respondent may be justified in arguing that for storage of petroleum Class A ranging from 30 litres to 300 litres in quantity, a licence under Article 3 may be required. However, in the instant case, the Appellant had stored much more than 300 litres of Hexane, and therefore, 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 a tank irrespective of the quantity of petroleum contained therein. The term ‘tank’ is defined in clause (xxii) of rule 2 as a receptacle for petroleum exceeding 1000 litres in capacity. From the definitions, it becomes evident that irrespective of the quantity of petroleum, when petroleum is stored in a tank, it is referred to as “petroleum in bulk” under the 1976 Rules. Article 7 deals with the grant of a licence for storage of petroleum otherwise than in bulk, i.e. otherwise than in a tank. In other words, for petroleum Class A exceeding 300 litres, a licence under Article 7 is required when it is not being stored in receptacles exceeding 1000 litres in capacity. [Para 14, 14.1, 15][852-B-F]
1.4 A store shed, is a building where petroleum is stored otherwise than in bulk, i.e., otherwise than in receptacles with a capacity of over 1000 litres. Clause (xxi) of Rule 2 states that a store shed may be a part of an “installation”. This term is also defined under the 1976 Rules, in clause (xiv) of Rule 2. Upon reading the definitions of “store shed” and “installation” together, it becomes clear that “installation” carries a much broader meaning. In order for any premises to be an “installation” under the 1976 Rules, it must necessarily contain a place specially prepared to store petroleum in bulk. At the same time, an installation may also have the capacity to store petroleum otherwise than in bulk. An installation, therefore, may consist of both 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 stated that 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 the term “tank” was assigned the same meaning as under the 1976 Rules. If the tanks referred to by the second surveyor were receptacles that could not store more than 1000 litres of petroleum, then they would not constitute “tanks” under the 1976 Rules, and the petroleum stored in such tanks would fall under the category of petroleum stored “otherwise than in bulk”. In such a case, a licence would be required under Article 7. [Para 18][853F-H]
2.2 The application preferred by the Appellant to obtain a licence under Article 6 of the First Schedule to the 1976 Rules, which pertains to the import and storage of petroleum in an installation, vide letter dated 22.10.2001. In its response to the said application, the Controller of Explosives, Nagpur noted by letter dated 05.11.2001, that the drawings of the site and layout of the proposed installation had been approved, subject to the condition that the pump/motor to be incorporated were flame proof, in accordance with IS:2148. The communication clearly indicated that even the Controller of Explosives was of the opinion that the premises where the Appellant was storing Hexane amounted to an “installation”. For a premises to be considered as an installation, it must contain a place prepared to hold “tanks” as defined under the 1976 Rules. This strongly suggested that the “tanks” referred to by the second surveyor were indeed “tanks” as envisaged under the 1976 Rules. This shows that the Appellant may well have been required to obtain a licence under Article 6 itself. It was not the case of the Appellant that it provided the documents stipulated by the Controller of Explosives. There was nothing on record to show that a licence under Article 6 was granted to the Appellant. The Appellant was required to obtain a licence under the 1976 Rules for the storage of Hexane, be it under Article 6 or 7, and has failed to show that it possessed any such licence. [Paras 19-22][854-A-B; E-H]
3.1 The Central Government has the power to pass orders under the Essential Commodities Act to provide for licensing regimes governing the storage of an essential commodity, in pursuance of the three objectives set out in Section 3(1). The 2000 Order is one such order, providing for a licensing regime regulating the acquisition, sale, storage and prevention of use in automobiles of solvents, raffinates and slops, particularly for the purposes of the Essential Commodities Act. There is nothing in the said order to suggest that it intends to replace or modify any other existing licensing regime under any other law in force, including the Petroleum Act and the rules formulated thereunder. [Para 28][856-F-H]
3.2 There cannot be any dispute that the licence issued under the Essential Commodities Act and control orders are for a different purpose altogether compared to the Petroleum Act. The direction of the Controller of Explosives by letter dated 05.11.2001 to comply with the requirements under the 2000 Order is an additional requirement to be complied with in order to obtain a licence under the Petroleum Act. It cannot be said that an exemption from obtaining a licence under the 2000 Order would amount to an exemption to obtain a licence under the Petroleum Act. Hence, even assuming that the Appellant was exempt from obtaining a licence under the 2000 Order by virtue of the said exemption, the Appellant was still required to obtain a licence in accordance with the 1976 Rules. The quantity of Hexane stored by the Appellant was more than 20 kilolitres. Hence, the Appellant was required to obtain a licence under the 2000 Order as well. It is evident that the 1976 Rules prescribed that a licence had to be obtained for the purposes of storing Hexane of the quantity involved in the instant case, and the Appellant has failed to comply with this requirement. In the absence of such a licence, the Appellant could not have lawfully stored Hexane. Therefore, the non-disclosure of the non-possession of a licence was of a material nature, and constituted a violation of Condition 1 of the insurance policy. The Respondent was justified in repudiating the claim of the Appellant on this ground. [Paras 30, 31][857-B-G]
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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