National Consumer Disputes Redressal
Mullangie Spintex Pvt. Ltd. vs New India Assurance Co. Ltd. on 23 February, 2007
NCDRC NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI ORIGINAL PETITION NO.10 OF 1999 Mullangie Spintex Pvt. Ltd. 87/A, Andhral Road Bellary. (Karnataka) Complainant Versus .1. New India Assurance Co. Ltd. Post Box No.4 Arya Ediga Hostel Complex (1st floor) Double Road Bellary 583 101. .2. Karnataka State Industrial Investment Development Corporation Ltd. MSIL House 36 Cunningham Road Bangalore 560 052. .3. Syndicate Bank Main Branch Bangalore Road Bellary 583 101. Opp. Parties BEFORE : HONBLE MR.JUSTICE M.B. SHAH, PRESIDENT MRS. RAJYALAKSHMI RAO, MEMBER For the Complainant : Mr.Dhruv Mehta, Mr.Ashish Wad, Mr.Neeraj Kumar and Mr.Harshwardhan Jha, Advocate For the Opp. Party : Mr.P.K. Seth, Advocate Dated: 23rd February , 2007 O R D E R
M.B. SHAH, J., PRESIDENT In the past, it was the village money lenders who used to exploit the needy borrowers. Today, it appears that the financial institutions are stepping into their shoes. May be, for various reasons or because of intervening other agencies. This case illustrates how the Surveyors can ruin the industry or the firm by under-estimating the loss suffered due to contemplated peril.
Facts:
The say of the complainant company is that it is engaged in the business of manufacturing cotton yarn which started commercial production in September 1996. It is contended that the monthly production of the company in September was between 40,000 to 50,000 Kgs. of cotton yarn. In order to start the project, the complainant had obtained a loan of Rs.295 lakhs from Opp.Party No.2, Karnataka State Industrial Investment Development Corporation [hereinafter referred to the KSIIDC]. On 4.4.1998, representative of the Syndicate Bank, Bellari, which had sanctioned a working loan of Rs.60 lakhs, inspected the stock of raw material lying in the factory premises of the Complainant and estimated its value at Rs.2,42,38,192/- as on 31.3.1998. It is pointed out that during the year 1997 and for the first part of 1998, the complainant had obtained 7 insurance policies from New India Assurance Company Ltd. (hereinafter referred to as the Insurance Company), Opp.Party No.1, to cover stock of cotton & yarn, machinery & stores and spares for a sum of Rs.3,26,10,000/-, Rs.3,64,20,000/- and Rs.6 lakhs respectively. On 9.4.1998, at about 3.40 AM fire broke-out in the company premises due to spark from overhead power line of Karnataka Electricity Board.
On 9.4.1998, a letter was written by the Managing Director of the complainant company to the insurance company informing about the fire stating that property worth Rs.2 crores of cotton bales, yarn etc. was destroyed. For loss of machinery, the damage was estimated at Rs.50 lakhs.
Immediately on 9.4.1998 at 3.30 PM, the insurance company sent one Mr.Man Mohan Samuel to visit the factory premises and to conduct preliminary survey. Thereafter, on 12.4.1998, the Managing Director of the complainant company wrote another letter to the insurance company bringing to their notice that the fire in the premises continued on 10th, 11th and 12th April 1998, despite efforts made by the fire-fighting personnel and requested the insurance company to arrange surveyors for final assessment of the damage and to expedite the matter.
It is to be noted that on 16.4.1998 the Divisional Manager of the Insurance Company informed the Complainant that the Insurance Company was satisfied with the efforts made for controlling the fire, and that (a) the Complainant can dismantle the machinery for repair/replacement; and (b), remove the totally burnt cotton to a distant place in order to reduce the chances of spread of fire to other stocks. The partly damaged stocks have to be stored separately in a safe place for deciding the salvage value.
On 13.4.1998 preliminary survey report was submitted by Mr.Man Mohan Samuel. In the said report, Mr.Samuel made the following observations:
(i) As the yarn is excisable item, the sales of the yarn is completely monitored by the Excise Department.
(ii) As observed, at the time of preliminary survey, the insured has got totally 39 numbers fire extinguishers, they utilized the same but the fire could not be controlled.
(iii) During his visit, some of the fire engines were in action.
(iv) The stocks kept in this fire affected Mullangie Spintex Mill are exciseable goods and as per excise registers the accounts are maintained.
(v) As physically verified, at the time of preliminary survey, lint in bales in the open yard on northern side were completely burnt.
The second and third row of lint bales on eastern side of the mill were also burnt and still some bales were burning. At a distance from the bales, it was observed that the bales packing gunny was also burning. The lint in process inside the mill, stock of the lint inside the mill, cotton yarn under process was also burnt, waterlogged and damaged. The cotton waste was semi burnt and waterlogged.
Thereafter, the Insurance Company appointed M/s.Asawa & Company and M/s. J.B.Boda Surveyor Ltd., as Surveyors to submit final surveyor report . The Surveyors assessed the loss at Rs.41,22,549/-. On the basis of the aforesaid survey report the Insurance Company paid in all Rs.33,15,104/- in full and final settlement.
Being aggrieved by the said payment made on 11.11.1998 by the Insurance Company, the Complainant has filed this complaint praying that the Insurance Company be directed to pay a further sum of Rs.2,07,74,925/- towards compensation for the actual loss suffered by the Complainant with interest @ 19% per annum from the date of the filing of the complaint. It is also prayed that Rs.18 lakhs be awarded towards loss of reasonable business profits from 9.4.1998 till the final disposal of the complaint.
It is contended that the acceptance of the sum of Rs.33,15,104/- by the Complainant was under
financial compulsion and coercion by the Insurance Company.
Learned Counsel Mr.Seth appearing on behalf of the Insurance Company raised a preliminary contention that the complaint is not maintainable, because in full and final settlement, the Complainant has accepted the amount. Hence, before dealing with the contention on merits, we would decide the preliminary submission.
A. Preliminary submission re. Maintainability of the claim. The learned Counsel for the Insurance Company submitted that in the present case the Insurance Company has settled the claim within the reasonable time and paid Rs.33 lakhs and odd against the loss suffered by the Complainant for which the Complainant has executed a discharge voucher dated 11.11.1998, in full and final settlement. Therefore, the present complaint is not maintainable.
As against this, the learned Counsel for the Complainant pointed out that the Complainant was coerced to accept the said amount because the creditors who supplied the cotton were insisting for payment of amount and the Bank also insisted for payment of the loan amount.
In this context, we would first refer to the letter dated 11.8.1998 written by the Complainant to the General Manager of the Insurance Company, wherein a complaint was made that instead of settling the claim quickly, the work for settlement is proceeding slowly. He has made grievance against the Surveyors and has pointed out that fire fighting continued for 34 hours, and, photographs were also given to the Surveyors. He has also made various grievances against the Surveyor. It was pointed out that before granting the increased insurance cover, stock was also verified. It was also pointed out that whenever they received more stock, the bankers were being informed and also the Divisional Manager, Ballary with a request to increase the cover. He also visited the work site a few times in this regard and inspected the stocks. It was further, pointed out that because of the delay a great injustice was being done and the Surveyors were drastically reducing the claim arbitrarily. The details of the bills shown are also mentioned. Finally, it was stated as under:
In spite of repeated requests both to Divisional Office and Regional Office and personal meeting with Regional Manager has not yielded in any state of settlement. Our spinning unit has already entered into deep financial trouble and the unit is likely to be closed at any moment, it was understood that unit cannot be declared as lockout nor layoff can be given as per the legal procedure. Hence, we do not have any option except to close the unit. Interest, other charges, salaries, wages, purchase tax and Government statutories will cause extra burden for the unit.
In view of the most critical position we request you to intervene and settle the claim at the earliest.
Further, even on 10.11.1998, before signing the voucher, the Complainant has written a letter on 10.11.1998 to the Divisional Manager, the New India Assurance Co. Ltd., Bellary, wherein he has stated that with reference to the discussion he had with the officers and the subsequent letter towards the settlement of the claim amount he was shocked to know that the claim for the sum of Rs.2.37 Crores was sought to be settled at Rs.33,15,104/-. Thereafter, he has stated:
I have also told you the way Financial Institutions, Banks and our Creditors are pressing for payment of the amount due to them our Debtors are refusing to pay the amount due to us unless we execute their orders which they have placed on us before happening of this tragedy. Due to all these our finance position is in big mess and if our claim is not settled immediately in a proper way as per the terms and conditions of the policy issued by you our business will get ruined, even otherwise you are not justified in settling our claim only for Rs.33,15,104/- (Rupees thirty three lakhs fifteen thousand one hundred and four only). When we have lost Rs.3 Crores.
This information of settling our claim for Rs.33,15,104/- (Rupees thirty three lakhs fifteen thousand one hundred and four only) has demoralized the management and even the workers. Further, if our claim is really settled for Rs.33,15,104/- (Rupees thirty three lakhs fifteen thousand one hundred and four only) our unit definitely become sick unit because of your this unjustified action.
Again your action of pressuring me to accept the amount as full and final payment is not correct when we are already under great pressure and particularly when I am in great mental agony, because of this fire tragedy your statement that if I do not accept the offered amount right now as full and final payment, we may not get any claim at all, is illegal. You are coercing me to accept this amount and discharge you from all liabilities immediately whereas you have taken such a long time to communicate with us and you have not bothered to answer any of our previous number of letter written to you.
Moreover, we would like to bring to your kind notice that we are a Private Ltd. Co. and the Board of Directors alone can take a decisions on any important matter and I am not authorized to accept your offer of Rs.33,15,104/- (Rupees thirty three lakhs fifteen thousand one hundred and four) as full and final settlement of our companys claim.
Therefore, we humbly request you to settle our claim as per the policy condition for Rs.2.37 Crores and oblige.
This letter unequivocally reveals that the Complainant was not prepared to accept Rs.33,15,104/-, in full and final settlement of its claim against the claim of Rs.2 Crores and more. It is nothing but exploitation of the situation by the Insurance Company which is required to give protection in case of contemplated peril. Previously it was thought that village money-lenders were exploiting the situation. Today, it appears that the financial institutions are also following the same lines. May be, for various reasons or because of intervening other agencies.
Thereafter, with regard to financial crisis it is to be stated that the A.G.M., Karnataka State Industrial Investment Development Corporation [the KSIIDC] wrote a letter dated 22.6.1998 requesting the Regional Manager of the Insurance Company, Bangalore, to settle the claim of the Complainant immediately and help the unit to bail out from financial crisis. In that letter the GAM of the KSIIDC has mentioned that the Complainants unit was one of the successful units promoted by the KSIIDC and was doing very well for the past one and half years. It had taken a loan of Rs.295 lakhs and was required to pay interest at Rs.1,500/- per day. It was very sad to know that it met the unfortunate fire accident and is in crisis. Yet, the promoters are making every effort to come out of the crisis. In that context it was pointed out that the Insurance Company may settle the claim immediately so as to bail out the unit from the financial crisis and save 400 workmen working in the Company Considering the financial crisis faced by the Complainant and the letter written on 10th November 1998 before accepting Rs.33,15,104/- it is clear that the Complainant has accepted under coercion as it has lost the bargaining power. The Complainant was also informed that if they do not accept the offer, they would not get the money.
Even in the case of United Indian Insurance Co. Ltd. Vs. Ajmer Singh Cotton & General Mills & Co. (1999) 6 SCC 400, the Apex Court dealt with similar contention and observed that mere execution of the discharge voucher and acceptance of insurance claim would not estop insured from making further claim from the insurer under the circumstances which can be termed as exercise of undue influence or coercion or the like. In case of coercive bargaining compelled by the circumstances, the Consumer Forum is justified in granting appropriate relief.
Further, in Central Inland Water Transport Corporation Ltd. & Anr. Vs. Brojo Nath Ganguly and Anr. & Central Inland Water Transport Corporation Ltd. & Anr. Vs. Trun Kanti Sengupta &Anr., (1986) 3 SCC 165, the Court discussed at length the concept of coercive bargaining and held that where a man has no choice, or rather no meaningful choice, but to give his consent to a contract or to sign on the dotted line in a prescribed or other form or to accept a set of rules as part of contract, however unfair, unreasonable and unconscionable a clause in that contract may be the courts will not enforce and will, when called upon to do so, strike down an unfair and unreasonable contract or an unfair or unreasonable clause in a contract entered into between the parties who are not equal in bargaining power. The Court visualised different situations such as where the inequality of bargaining power is the result of the great disparity in the economic strength of the contracting parties or the inequality may be the result of circumstances whether of the creation of the parties or not. Or a situation in which the weaker party is in a position in which he can obtain goods or services or means of livelihood only upon the terms imposed by the stronger party or go without them.
In this view of the matter, the preliminary contention raised by the learned Counsel that the complaint is not maintainable requires to be rejected.
Now we would deal with the matter on merits and refer to the relevant part of the final survey report:
FINAL SURVEY REPORT On 27.8.1998, final survey report was given jointly by M/s. J.B. Boda Surveyors Ltd. and M/s. Aswa & Company. They have assessed the loss at Rs.41,22,549/-. The relevant figures are as under :
ADJUSTMENT OF THE INSUREDS LOSS Based on our survey the Adjustment of the Insureds loss is given below :
i) Amount allowed for Plant & Machinery (Ann.B) Rs. 2,01,035.00
ii) Amount allowed for repairs to Building (Ann.C) Rs. 6,774.00
iii) Amount allowed for loss to spares (Ann.D) Rs. 4,18,777.00
iv) Amount allowed for loss to stock in process as per para Stock in Process of this report Rs. 3,54,285.00
v) Loss in respect of Fully pressed cotton bales stored in open yard as per para Value of Damaged Stocks of this report Rs. 39,78,597.00
vi) Hence total value of property affected in fire Rs.49,59,468.00
vii) Less : Salvage value for the damaged items Rs. 8,26,919.00
viii) Hence Nett Assessed Loss Rs. 41,32,549.00
ix) Less : Policy excess Rs. 10,000.00
x) Hence Nett Adjusted Claim payable Rs.41,22,549.00 On the basis of the said report, the insurance company has assessed the loss at Rs.41,22,549/-.
The Insurance Company has further reduced the said amount and paid a sum of Rs.33,15,104/- to the complainant on 11.11.1998 and, the say of the Complainant that it has received the amount under coercion.
In this Final Survey Report, the Surveyors have accepted the fact that the fire which has occurred, was accidental in nature and falls within the purview of the policy issued. However, they have assessed the loss by reducing various items and is not in accordance with the report submitted by Mr.Man Mohan Samuel, Preliminary Surveyor, and the other evidence which is produced before the Surveyors. The relevant discussion of the Final Surveyors in their that is as under:
.I. Stock of Yarn in Packing Section :
i) The insured had claimed an amount of Rs.6,65,400/- towards a reported loss of 8,872 Kgs of Yarn as follows:
Count Kgs.
20s 7,800 16s 360 10s 112 6s 360 Total 8,872
ii) According to them, the stock of yarn was packed in HDPE Bags and stored in the packing section of the mill. We were informed that the entire stock of yarn was gutted in the fire.
iii) At the time of our survey we did not find any trace of soot deposits or other evidence to suggest that the fire had spread to the packing section of the insureds mill. There was also no sign of any debris of the burnt material lying in the packing section.
We have also had discussions with Mr.Manmohan Samuel, the surveyor who had carried out the preliminary survey, at which time we had asked him whether he had seen any evidence of damaged yarn and if so why no photographs of the same were taken.
We had also asked him as to why no comment was made regarding this yarn in his report. Mr.Samuel has vide his letter dated 11.5.98 addressed to the insurers stated that I clarify that during the course of my survey I have not commented on the stocks of yarn in the packing section of the insureds factory, because no stocks of yarn was available.
iv) Under these circumstances, as there was no evidence of fire damage in the packing section where the yarn was reportedly kept and as the surveyor who has carried out the preliminary survey has also stated that he did not find evidence of any yarn, we are not admitting the insureds claim in respect of yarn.
.II. Cotton Waste:
i) The insured had claimed a sum of Rs.2,00,000/- towards loss of 5000 Kgs of Cotton waste at the rate of Rs.4/- per Kg. At the time of our survey we observed that there was a heap of burnt cotton which was lying outside the mill premises. We had asked the insured what this heap of cotton was and were told that it was waste cotton admixed with the burnt cotton from the FP bales that were affected in the fire.
ii) The insured have not submitted to us any records in respect of the waste cotton that they are supposed to have. We were also informed that no such records were being maintained and all the waste cotton was being kept outside the mill. In view of the fact that the waste cotton was lying outside the mill premises and as the insured have not been maintaining any records pertaining to this we are not admitting their claim in respect of the waste cotton.
.III. Stock in process:
i) The insured have claimed a sum of Rs.10,17,036/- for 23,652 Kgs. of stock in process. At the time of our survey, we observed that there was a heap of Cotton Mixing in the blow room. Soot marks were observed on the walls of the blow room where this mixing was reportedly stacked. In addition to this, we also observed that there were 69 lap rods in a burnt condition lying in the blow room and carding section of the mill which was indicative of the fact that the cotton in these laps must have been burnt.
ii) We have taken the measurements of the Mixing Section of the Blow Room where the Cotton Mixing was stacked and after converting the volumetric measurements into Kgs of cotton, we have observed that there would have been around 6400 Kgs of cotton in this area. In addition to this, the stock of cotton in the blow room machinery would have been around 300 Kgs, which also would have been affected in the fire. We have also carried out test weighment of the cotton that can be stored on each Lap Rod and have observed that each rod can hold 17 Kgs of cotton. Hence, the stock in process of cotton in laps was affected in the fire would work out to 1173 Kgs.
iii) Thus, the total quantity of stock in process affected works out to 7873 Kgs. The insured have preferred their claim in respect of these stocks at Rs.45/- per Kg, which considering the cost of raw-materials and processing charges appears to be reasonable. Hence, their total claim in respect of stock in process works out to Rs.3,54,285/-.
.IV. Fully Pressed Cotton Bales in Open:
i) The insured has claimed a sum of Rs.1,83,79,748 towards 2686 fully pressed cotton bales stored in the open yard of the mill premises, which were reportedly gutted. As has been mentioned in our First Interim Joint Report, these stocks of FP bales were reportedly stored in three stacks in open yard, within the mill premises.
ii) At the time of our first visit on 19th & 20th April 1998, we observed that the insured had already segregated the sound cotton from the fire affected bales. After the segregation, only a small quantity of sound cotton lint (packed in borahs) was presented to us as recovered salvage. This cotton was weighed and it was observed to be only 1343 Kgs. Two samples of the saved cotton was drawn and sent for fibre testing to The South India Textile Research Association at Coimbatore. The outcome of the test result is given in Annexure J of this report. A copy of the report is enclosed for reference.
iii) The insured had also informed us that there were some stocks of FP Bales accounted for in the Form IV register which were lying in a godown within the mill premises as well as in another godown of the adjacent Ginning and Pressing Factory. We have verified the details of these stocks and have observed that there were a total of 665 Bales in the Mill godown and 232 bales in a godown of the adjacent Ginning and Pressing factory.
The detail of the saved FP Bales is given in the Annexure E of this report.
iv) In addition to these sound stocks, we observed a heap of steel hoop iron strips used to pack the fully pressed cotton bales lying in open yard of the Mill.
We had asked the insured where these hoop iron strips had come from and we were informed that these were from the stocks FP Bales which had been gutted. These were weighed and found to be 5780 Kgs. The average weight of hoop iron strips in each FP bale of cotton is 2.7 Kgs and therefore, if as the insured claimed, all the hoop iron strips were from the fire affected fully pressed bales, at least 2140 FP bales would have been affected in the fire.
v) During the course of our survey, however, we had noticed that a major portion of the hoop irons appeared to be unaffected by heat and fire. Therefore, to ascertain the effect of fire on these hoop iron strips we decided to send a few samples for Metallurgical testing.
vi) Accordingly, we took 5 samples at random from the lot of hoop iron strips said to have been recovered from the fire damaged bales. These were sent for testing to M/s.Geological & Metallurgical Laboratories, Bangalore. After conducting several tests, the laboratory has concluded as follows :
The study reveals that one of the samples show clear evidence for exposure to heat/fire. In the case of other 4 samples, there are no metallurgical evidences for having been subjected to heat/fire.
vii) Thus it is seen that out of 5 samples of hoop iron, selected at random and sent for testing, only one was from the fire-damaged bales & the rest were from sound bales.
This would probably have come from sound stocks of FP Bales used for normal production purpose. Hence, we are of the opinion that the method of ascertaining the number of bales involved in the fire, by counter checking the weights of hoop iron collected from the open yard of the mill will not reflect the true picture of the number of FP bales affected in the fire.
viii) The Insured had also informed us that they had arranged to take photographs of the stocks, which were affected in the fire on 09/04/98. Copies of these photographs were handed over to us. Some of these photographs had been taken before the fire affected FP Bale stacks had been disturbed.
ix) A scrutiny of these photographs revealed that the stocks of fully pressed cotton bales, were stacked at three places in the open yard within the mill premises. These bales were observed to be charred externally, indicating that they would have been on fire. The stacks at these three places are clearly identifiable, and it is also possible to count the total number of bales in these stacks with a reasonable degree of accuracy.
x) Form the photographs we have identified the location where the bales would have been stacked and have also arrived at the quantity of bales that would have been present in each of these stacks. The same is as follows:-
Stack No No of Modules and Bales/Module Total No of Bales
1. 44 Modules of 8 Bales : 352
2. 22 Modules of 8 Bales : 176
3. 16 Modules of 8 Bales : 128 Hence Number of Bales visible as per photographs 656
xi) Scrutiny of the Insureds records by a Chartered Accountant:(1)
In view of the large difference between the amount claimed by the Insured and what was apparent from the photographs taken after the fire, we decided to appoint a chartered Accountant, M/s. R. Srivatsan & Company., Chartered Accountants from Madras to verify the various records being maintained by the Insured.(2)
Mr. R. Srivatsan of M/s. R. Srivatsan & Company visited Bellary along with us on 7th & 8th May 1998 in order to carryout a complete verification of the Books of Accounts of the Insured.(3)
The following records were scrutinized:-
(a) Purchase bills for cotton lint in loose and FP bales and cotton kappeas from April96 to April98.
(b) Central Excise From RG 1 Register (Daily Stock Account) from April96 to April98.
(c) Central Excise From IV Register (Raw Material Stock Account) from April96 to April98.
(d) Central Excise Monthly Returns in Form RT- 12 from September96 (from commencement of production ) of April98.
(e) Day book and Ledger for the year ended 31st March 1998.
(f) Audited accounts for the year ended 31st March 1997.
(g) Cotton Mixing Register from September96 to April98.
(h) Bought Notes and Agricultural Market Committee (AMC ) Cess Payments for purchase of cotton lint from farmers.(4)
After scrutinizing the various records submitted by the Insured, Mr. R.Srivatsan has reported that of the purchase bills submitted, bills for 1,641 bales and bills for purchase of cotton lint from farmers appeared to be doubtful and have been inserted in the books of accounts for the purpose of boosting the stock figures without any purchases being actually made by the insured. The bills pertained to the following suppliers:-
(a) M/s. Sree Virupaksha Traders, Bellary.
(b) M/s. G.K.Traders, Bellary.
(c) M/s. Anand Traders, Bellary.
(d) M/s. Lavanya Traders, Bellary.
(e) M/s. P. Honnur Sahib & Company, Bellary.
(f) Various farmers who are said to have supplied Cotton Lint which the Insured reportedly pressed into 330 FP Bales in his Ginning & Pressing factory.(5)
The details of these bills are given in Annexure F of this report.
(6)The following are the reasons that our Chartered Accountant had to doubt the genuineness of these bills:-
(a) Although the 1641 bales accounted for in these bills were procured as early as Sept.1997 and Jan.1998 not even a single bale had been taken for production till the date of occurrence of fire whereas the lots which were received after Sept.97 & Jan.98 were being consumed. The insured used to mainly take up the bales for production, immediately after the receipt in the mills. The insured did not offer any explanation for this abnormality.
(b) For these purchases made in the month of Sept.97 and January 1998, the insured had either made only part payments or has not made any payments at all.
(c) The insured had shown a purchase of around 54,498 Kgs. of loose lint from ryots during the period 23.1.98 to 26.1.98. No payment has been made by the insured towards these purchases. Normally ryots sell only kapas not loose lint.
(d) On going through the purchases of cotton from April 1997 to March 1998, it is observed that the purchases made in the months of Sept.1997 and Jan.1998 were abnormal and out of tune with production requirements.
(e) The average monthly production was of the order of 45,000 Kgs. of yarn during the period from 1.4.1997 to 9.4.1998, whereas the purchase of cotton during the same period was of the order of 1,049,244 Kgs., which is nearly twice the production of yarn. The insured could not justify holding of nearly 1 year & 8 months inventory of cotton, which is quite abnormal.
(f) On going through Central Excise Form IV Register it was observed that there was no issue of cotton to production from 11.3.98 to 2.4.98, but the production of yarn continued for these 22 days. The Insured could not furnish any reasonable explanation for this.
xii) In order to verify the genuineness of the various bills that were doubtful our surveyors once again visited Bellary on 3.7.98. At the time of our visit our findings were as follows:-
(1)Most of the proprietors of the firms who had issued these bills were untraceable and except for Lavanya Traders do not normally trade in cotton as per the Certificate of Registration issued to the firms. It also appears that there is only one accountant for most of the firms.(2)
Even though the firms had been registered in the year 1994-95 none of the firms had filed sales tax returns till May 1998 and only after our meeting with the Insured on 3rd and 4th June 1998, did the firms submit their Sales Tax Returns on June 9th & 16th 1998.(3)
Our inquires with the Sales Tax Authorities revealed that they had been sending notices to these parties to file their returns but the postal authorities used to return the letters with a remark Parties address not found.(4)
According to the accountant, whom our surveyor met, the firms have reportedly received almost 80% of the payment in cash from Mullangie Spintex (P) Ltd., however no corresponding entries were found in the books of the Insured Moreover such huge sums are required to be paid by cheque and not in cash.(5)
The various documents and other records pertaining to M/s. Sri Virupaksha Trader, G.K.Traders & Anand Traders were found with one person by name Mr. S.Ramachandra Reddy who is running a pesticides shop near Rayadurga Bus Stand, Bangalore Road, Bellary. The proprietors of these firms were not available for discussions.
SUBMISSIONS:
It is the contention of the learned counsel for the complainant that the surveyor committed error apparent on the face of record in under-estimating the loss suffered by the complainant. It is pointed out that for the loss of 2686 bales of fully pressed cotton stored in the open yard of the mill premises, the claim was for a sum of Rs.1,83,79,748/-. In support of the said claim, the following documents have been relied upon :
i)
(a) Inventory Report (Stock Verification Report) dated 4.4.1998 prepared by the Syndicate Bank valuing the stock at the rate of Rs.2,42,38,192/- as on 31.3.1998.
(b) In support thereof, there is an affidavit of Mr.H.R. Ramesh, Sub-Manager, Syndicate Bank who visited the premises on 4.4.1998.
ii) Affidavit dated 8.8.1995 of Mr.T.C. Gowda, Chartered Accountant which shows the closing stock as on 31.3.1998 at Rs.2,60,64,306/-.
iii) Affidavits dated 18.9.2001 and 23.7.2005 filed by Mr.R.Venkatanarayana, Asstt. Administrative Officer (D) in the Opp.Party No.1 stating that he visited the premises on 9.3.1998 and found Lint 4,30,000 Kgs. (approx.) Cotton Yarn and Lint in process 23,000 Kgs. (approx.) Cotton Waste 50,000 Kgs. (approx.) and further estimated the loss at Rs.2,50,00,000/-.
iv) Letter dated 9.4.1998 by the Managing Directors assessing the loss at Rs.2.5 core.
v) Preliminary Survey Report by Mr.Man Mohan Samuel, Insurance Surveyor and Loss Assessor wherein the loss has been estimated at Rs.2,52,62,184/-. Mr.Samuel has also filed an affidavit.
vi) Form IV Register (under Central Excise Rules; R 173-G) showing daily stock of raw material, manufactured yarn & waste which shows number of cotton bales in stock to be 5,74,543 Kgs. as on 9.4.1998. The same was initialled by Mr.Samuel and the Divisional Manager of the insurance company on 11.4.1998 when they visited the premises during fire.
vii) Purchase Tax Paid by the petitioner on entire amount of Rs.2.6 crores (opening stock for the year 1998-99) as reflected in its balance sheet. In the assessment Rs.1.93 crores have been shown towards burnt cotton and tax paid on the same.
viii) Mr.Ramaiah, Station Officer of the Fire Station in his report and affidavit stated that properties involved in fire were 3582 cotton bales, 8872 Kgs. yarn, 23652 Kgs. Lint Cotton and machineries and equipment.
It is further contended that the second surveyor has doubted the supply of 1641 bales of cotton, made by the suppliers of the complainant and has disbelieved the fact that the complainant purchased cotton from the said suppliers. The said suppliers have been disbelieved on the ground of (i) untraceability of bills and (ii) that no sales-tax was paid.
The said finding is contrary to the affidavits filed by all suppliers along with the bills raised and the tax-returns.
In response to the findings of the Chartered Accountant, which was appointed by the Surveyor, in the Final Survey report, the Complainant submits that :
.(i). Cotton is a seasonal crop. Cotton purchases between September and January are of the best quality and therefore is consumed first;
.(ii). Against the purchases made in September, 1997 and January, 1998 the insured had paid cash as well as by way of cheques. The purchases are shown in the Statutory Form IV Register. The stock is also verified as per the scrutiny report by the Syndicate Bank prior to the fire;
.(iii). For the purchase of 54,498 kgs. of cotton, the Ryots (farmers) had been paid in cheque and in cash.
.(iv). The purchases made in the months of September, 1997 to January, 1998 were abnormal because cotton production started in September, 1997; proper entry in the Form IV Register was made everyday and at the end of every month the same was submitted to the Excise Department. As the best quality of cotton is available during this period, the purchases are usually higher between September to January.
.(v). the capacity of the unit was 1,20,000 kgs. per month. Therefore, assuming that there is no increase in production, the figure given by the Chartered Account could only account for 6 months requirement instead of one year or 8 months as stated by the Chartered Accountant.
.(vi). During the period 11.3.1998 to 2.4.1998 cotton waste was utilised, though the cotton was not issued for production, as is being revealed from the Central Excise Form IV Register.
Findings:
The question which would require consideration is: Whether the Final Surveyors report is to be accepted, or the unimpeachable evidence brought on record? The evidence which has been brought on record is as under:
(i) PRELIMINARY SURVEY REPORT:
Firstly, we would refer to the Preliminary Survey Report dated 13.4.1998. The said report is given by Mr.Man Mohan Samuel, the Insurance Surveyor and Loss Assessor, as he was instructed to carry out the survey by the insurance company on 9.4.1998. He had verified the policy numbers and the sum assured. It is his say that the factory was started in September 1996 in an area admeasuring 1 acre 24 cents. He had noted that the complainant was supplying yarn to various places and was also exporting the same. The said production and sales of yarn was completely monitored by the Excise Department. He has noted that the cause of fire was sparkling in and from 11 KV K.E.B. power-line passing over the cotton lint bales which were stored in the open yard. The fire was devastating and 39 fire extinguishers were utilized. As per his personal verification, he has stated that the stock kept in open yard on the northern side of the mill was completely burnt.
The lint bales stock on eastern side of the mill was also burnt and some bales were burning. The entire cotton yarn was burnt and was damaged due to waterloging.
For the machinery, he has stated that four carding machines were affected and other parts of the machinery were also affected. With regard to the details of the record, he has stated that the accounts in respect of the goods were maintained as per the Excise Register. In conclusion, he estimated the loss approximately at Rs.2,52,62,184/-. Along with the said report, he has sent 87 photographs and paper cuttings.
(ii). INVENTORY REPORT OF SYNDICATE BANK:
The complainant has produced the Inventory Report dated 4.4.1998 given by the authorized representative of Syndicate Bank, Bellary, who visited the site and prepared statement of stock in trade as on 31.3.1998. He has taken into consideration the quantity and value of raw materials, stock in process and finished goods. In all, he has valued it at Rs.2,42,38,192/-.
In support of the said statement of stock, Mr.H.R. Ramesh, Sub-Manager working in the Syndicate Bank at Bellary has filed an affidavit wherein he has stated that Syndicate Bank had sanctioned a working loan of Rs.60 lakhs on 30.3.1997 to the complainant. He visited the factory premises on 4.4.1998 to inspect and verify the stock in trade lying at the premises of the complainant. For this, he has prepared the stock verification report.
There is nothing on record to indicate that the said report was not properly prepared by the concerned officer of the bank before disbursing the Working Capital Loan.
(iii). AFFIDAVIT OF MR.T.C. GOWDA, CHARTERED ACCOUNTANT:
In his affidavit, Mr.T.C. Gowda has stated that he was practicing since last 30 years as a Chartered Accountant in Bellary and has fully scrutinized and audited the balance-sheet of the company for the year 1997-98. For the year 1997-98, the complainant has earned profit of Rs.27,18,127/-. On 31.3.1998, he has verified the complete raw material stock, stock in process, yarn stock and other inventories and the balance-sheet was prepared after thorough verification. On 9.4.1998, the complainant met with a major fire accident due to which the raw material and other stocks were completely damaged. Thereafter, as the factory was closed for a long time, due to non-settlement of the insurance amount, it was declared as a sick unit. He has also pointed out that if the factory had worked according to the projected balance-sheet, the profit would have been Rs.80 lakhs for a period of 8 months. As per the balance-sheet, the closing stock was for a sum of Rs.2,60,64,306/-.
(iv). AFFIDAVIT OF R.VENKATNARAYANA, ASSISTANT ADMINISTRATIVE OFFICER OF THE INSURANCE COMPANY:
Another important affidavit is that of Mr.R.Venkatnarayana, who was working as an Assistant Administrative Officer (D) in the New India Assurance Co. Ltd., Bellary. He has stated that in the year 1998, he was posted as a Development Officer at Raichur Branch and the complainant had insured their factory, stocks and machinery with their insurance company. He had visited the factory premises prior to the fire to inspect the levels of raw material maintained by the complainant. On 9.3.1998, he visited the said factory premises as he was asked to inspect the raw materials and stock levels for the purpose of additional insurance coverage sought by the complainants.
After physical verification, he found that the stock of Lint was 4,30,000 Kgs. (approx.), Cotton Yarn and Lint in process was 23,000 Kgs. (approx.) and the Cotton Waste was 50,000 Kgs. (approx.). He estimated the total stock affected due to fire accident was approximately Rs.2,50,00,000/-. This affidavit is filed on 23.7.2005.
Prior to that, he has also filed an affidavit on 18.9.2001 to the same effect and stated that as a Development Officer, he was required to visit the factory premises of the complainant as additional insurance coverage was sought because of increase in raw material stock levels by the complainant and after examining the physical stock levels stored in the northern and eastern side and the mill godown, he found that the stock levels were matching nearer to the insurance made by them.
(v). FORM-IV AS PER RULE 173 G OF THE EXCISE RULES:
The complainant has produced on record the Xerox copy of the stock register which was required to be maintained in Form-IV as per the Excise Rules for the month of April 1998. The said stock register is initialled by Mr.Man Mohan Samuel and the Divisional Manager of the insurance company on 11.4.1998. In support thereof, the complainant has produced the affidavit of Mr.Samuel, the Preliminary Surveyor appointed by the insurance company, who has initialled the said stock register. In the affidavit, Mr.Man Mohan Samuel, has specifically stated that on 9th, 10th, 11th, 12th and 13th April 1998, he had conducted an extensive survey of the complainants factory premises on the instructions of the Divisional Manager, New India Assurance Company. He had submitted his Preliminary Survey Report on 13.4.1998 wherein he has estimated the loss at Rs.2,52,62,184/-. He had signed the stock register required to be maintained under Excise Rules along with the Divisional Manager of the New India Assurance Company at the time of survey. He has also signed 90 photographs which were taken by him at the time of fire accident. He has stated that as per his observation, the Blow Room line of machinery panel, 4 carding machines, main cylinder wires, duffer wire, all control systems of feeder chamber, respective auxiliary machines and their respective motors had been severely affected by fire. The fire continued for over 34 hours.
.(vi). Report of Station Officer, Fire Station, Bellari:
The Complainant has filed the report of the Station Officer at Fire Station, Bellary, Karnataka. He has stated that the fire raged strongly and it took 34 hours to completely extinguish the same. He has pointed out that Fire Call Report was prepared and as per the report, property involved in the fire were : 3,582 cotton bales, 8,872 Kgs. Yarn; 23,652 kgs. of lint cotton and machineries and electrical equipment. Out of the said items 2,686 cotton yarn and electric equipments were burnt. The Fire Call Report is exhaustive.
.(vii). The Complainant has paid the purchase tax on the entire stock of Rs.2.6 Crores as reflected in the balance sheet and in the final assessment. Rs.1.93 Crores is shown towards burnt cotton and tax paid on the same.
.(ix). Even in the final survey report, the Surveyors have observed that heap of steel hoop iron stripes used in packing the fully pressed cotton bales weighing 5780 Kgs.
.(x). In the final survey report purchase of the 1,641 bales of cotton was disbelieved on the grounds: (i) that the bills were issued by the persons who are untraceable, and, (ii) no sales tax was paid. The aforesaid grounds relied upon by the Insurance Company are contrary to the affidavits filed by all the suppliers and those affidavits are produced on record of this case along with bills and the tax returns.
(xi). Further, we have to state that, as mentioned above, even the Assistant General Manager, KSIIDC vide his letter dated 22.6.1998 addressed to the Regional Manager of the Insurance Company, that the unit was one of the successful units promoted by the KSIIDC and was doing very well, but for the unfortunate fire accident. The unit has taken a loan of Rs.295 lakhs as term loan and was having 400 workers who were likely to lose jobs if the claim was not settled immediately. This would reveal that the grievances of the Complainant are genuine as noted by an independent body.
(xii) As regards purchase of raw material in bulk the surveyor was totally wrong in approaching the question with regard to purchase of the cotton.
A business man is the right person to decide how much quantity of goods he has to purchase, during which period he has to purchase and from whom he has to purchase. Therefore, his judgment cannot be called doubted. It is his discretion depending upon various business factors. More so, the Complainant would not have imagined that there would be an accidental fire and therefore, he should not purchase cotton. Such reasoning is totally unjustified by the Surveyor.
Conclusion:
In our view, the final survey report which ignores all the above relevant facts books of accounts, statutory registers which are required to be maintained under the Central Excise Rules, Rule 173-G, the statement of bank officers, the statement of the Chartered Accountant, the statement of the Assistant Administrative Officer of the Insurance Company, statement of the bank Manager
- requires to be ignored. Such report is nothing but arbitrary.
In a nutshell, as discussed above, the final survey report is based on assumptions and surmises; because (i) Preliminary Surveyor, Mr. Man Mohan Samuel visited the site, conducted extensive survey personally for 5 days during the fire, and saw the burnt premises and there is no reason to disbelieve his report and his evidence;
(iii) there is no reason to discard the books of accounts regularly maintained by the Complainant in due course of his business; (iv) there is no reason to discard the register maintained under the Central Excise Act and the Rules; Rule 173 G; (v) there is no reason to disbelieve the evidence of Mr.R.Venkatanarayana, Assistant Administrative Officer of the Insurance Company itself; (vi) there is no reason to disbelieve the evidence of the Mr. H.R.Ramesh, Sub-Manager, Syndicate Bank. His evidence also corroborated by the inventory report (stock verification report dated 4.4.1998 valuing the stock at Rs.2,42,38,182/-); (vii) There is no reason to doubt the bills produced by the Complainant and the payment of tax on the said amount.
Hence, we have to determine to what extent additional reimbursement is required to be paid.
The Complainant has not raised any dispute in respect of assessment of the following items:
Sl.
Items Claimed by the insured Allowed by the insurer
1.
Plant & Machinery 17,03,645.80 2,01,035
2. Buildings 4,46,000 6,774.00
3. Spares & Stores 4,82,270.00 4,18,777.00 The dispute is in respect of the following items as mentioned below:
Sl.
Items Claimed by the insured Allowed by the insurer
4. Stock of yarn in packing section 6,65,400 Nil
5. Cotton waste 2,00,000 Nil
6. Stock in process 10,17,036 3,54,285
7. Fully pressed cotton bales in open 1,83,79,748 39,78,597 Re. Item No. 7: Fully pressed cotton bales in open:
We would first take the last item No.7, fully pressed cotton bales kept in open. For this, the Complainant has claimed Rs.1,83,79,748/-.
As against that, the Surveyor, for one reason or the other, awarded only Rs.39,78,597/-. The assessment is made on the assumption that in all 706 bales were affected in the fire. It is the say of the Complainant that in all there were 2686 bales which were gutted due to fire and the said bales were kept in open where the fire broke out due to sparks from the over-head Karnataka State Electricity Board power line. For reducing the claim, the Surveyor has excluded 1,641 bales on the ground that the bills submitted by the insured in respect of these bales do not appear to be genuine. Further, instead of relying on the account books, the Surveyor has adopted an altogether circuitous method for holding that in all 706 fully pressed bales were gutted in the fire.
As stated above, the reasoning cannot be accepted, in view of: (i) the inventory report (stock verification report) dated 4.4.1998 of the Syndicate Bank; (ii) the affidavit of Mr.H.R.Ramesh, Sub-Manager, Syndicate Bank who had visited the spot on 4.4.1998; (iii) the report of T.C.Gowda, Chartered Accountant, which shows the value of closing stock as on 31.3.1998 at Rs.2,60,64,306/-; (iv) the affidavit of Mr.R.Venkatanarayana, AAO of the Insurance Company, lint of 4,30,000 kgs. (approx) was there; (v) the preliminary Surveyors report; (vi) Form IV Register (under Central Excise Rules : R-173-G); (vii) in view of the tax paid by the Complainant on the amount of Rs.2.6 Crores (opening stock for the year 1998-99) as reflected in the balance sheet; (viii) the report of Ramaiah, Station Officer who has stated that 3,582 cotton bales were involved in the fire. Therefore, in our view claim for 1,641 bales is arbitrarily excluded.
Further, if we add 1641 to 706 the total would be 2347. But, considering the aforesaid record, there is no reason to doubt the Complainants claim with regard to 2,686 fully pressed cotton bales stored in open which was gutted in fire. Hence, for the said bales, the claim made by the Complainant is required t be granted.
On this count, the Insurance Company has paid Rs.39,78,597/-. Therefore, the said amount is required to be reduced from the claimed amount of Rs.1,83,79,748/-. That means, the Complainant is entitled to have further amount of Rs.1,44,01,151/- (Rs.1,83,79,748 minus Rs.39,78,597/-) which is rounded at Rs.1,44,00,000/-.
Re.Item No.6: Stock-in-process:
The Complainant has claimed Rs.10,17,036/- for the loss of 23,652 kgs. of stock in process.
The Final Surveyors while assessing loss on this head, took into consideration (i) the measurements of the mixing section of the blow room where the cotton mixing was stacked and converted the volumetric measurements into Kgs. of cotton and found around 6,400 kgs of cotton in that area; (ii) they have also took into consideration the stock of cotton that would have been affected in blow room machinery at 300 kgs.; (iii) they have also took into consideration the cotton that was destroyed in the fire on each Lap Rod, at 17 kgs, which worked out to 1,173 kgs. Thus, the total quantity of stock in process affected was worked out at 7,873 kgs. The value of stock in process per kilogram was Rs.45/-, and hence, awarded Rs.3,54,285/-.
As against this, the Complainant claimed that there were 23,652 kgs of stock in process. In support of his contention, he has relied on:
(i). Form-IV of Central Excise Register which shows that the loss on this account is Rs.8,98,776/-, i.e. 23,652 kgs. of cotton lint at the rate of Rs.38/- per kg.
(ii). As per the report of the Syndicate Bank, the stock in process as on 31.3.1998 was 18,979 Kgs. worth Rs.7,21,202/-.
(iii). The affidavit dated 9.3.1998, i.e. one month before the fire accident, of Mr.R.Venkatanarayana, AAO of the Insurance Company, shows that the stock of cotton yarn and lint in process was 23,000 Kgs. (approximately);
(iv). According to Mr.Ramaiah, the stock-in-process was to the tune 23,652 kgs. Which is valued at Rs.8,98,776.
In view of the documentary evidence, especially Form-IV of Central Excise Register which is brought on record, we hold that there is no reason to doubt the Central Excise record. Therefore, on this count, the Complainant is entitled to have Rs.8,98,776/-. In this view of the matter, we direct the Insurance Company to pay the balance amount of Rs.5,44,491/-, i.e. Rs.8,98,776 minus Rs.Rs.3,54,285/-, which is rounded at Rs.5,44,000/-.
With regard to items Nos.4 and 5, i.e. stock of yarn in packing section and cotton waste, it would be difficult for us to reassess the loss suffered by the Complainant. Hence, we observe that for the said items, it would be open to the Complainant to approach the Civil Court, or take any other remedy, if so advised.
In the result, we allow this complaint partly; direct the Insurance Company to pay a sum of Rs.1,44,00,000/- (Rupees One Crore Forty Four lakhs) plus Rs.5,44,000/- i.e. Rs.1,49,44,000/- (Rupees One Crore forty nine lakhs forty four thousand only) with interest at the rate of 12% p.a. from 9th October, 1998, i.e. after 6 months from the date of occurrence of the fire till its payment. We have awarded interest at the rate of 12% p.a., because, the Complainant was required to take huge amount of loan from the KSIIDC and Banks including the persons to whom the amount was not paid for the purchase of cotton. The Insurance Company is also directed to pay Rs.50,000/- as costs. The costs shall be deposited with the Registrar of the National Consumer Disputes Redressal Commission who will credit the said amount in the Legal Aid Account maintained by it.
Sd/-J (M.B. SHAH) PRESIDENT .Sd/-..
(RAJYALAKSHMI RAO) MEMBER