National Consumer Disputes Redressal
Jaipur Ceramics Pvt. Ltd. vs New India Assurance Co. Ltd. on 26 May, 2008
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI. CONSUMER COMPLAINT NO. 05/2006 Jaipur Ceramics Pvt. Ltd. Complainant Versus New India Assurance Co. Ltd. Opp. Party BEFORE: HONBLE MR. JUSTICE M.B. SHAH, PRESIDENT. HONBLE MRS. RAJYALAKSHMI RAO, MEMBER HONBLE MR. ANUPAM DASGUPTA, MEMBER For the Complainant Mr. Swadeep Singh Hora, Advocate For the Respondent Mr. Kishore Rawat, Advocate Dated:26.05.2008 ORDER
M.B. SHAH, J PRESIDENT Heard Ld. Counsel for the parties.
Undisputedly, the complainant took insurance policy from the respondent for a large sum of Rs. eight crore. Unfortunately, a fire took place in the factory of the complainant in the intervening night of the 1st 2nd April, 2003 at 11.40 p.m. Eleven fire tenders continuously worked for more than 12 hours and 80 tankers of water were used in controlling the fire. Undisputedly, during the last stage of fire videography and photography of the fire were carried out. The same video record and photographs were supplied to the surveyor and the CD thereof was produced before us for re-play.
It is also undisputed that in the morning of 02.04.2003, M/s Ritz Surveyors & Adjusters (P) Ltd., along with some officers of insurer, visited the site. They observed that the finished goods kept in the godown had been extensively damaged.
M/s Ritz Surveyors & Adjusters (P) Ltd. submitted their status report on 08.04.2003. In the said report, they inter alia stated as under:-
3) The crockery (finished goods) was all found lying loose on the floor (either on ground floor or mezzanine floor). Apparently cardboard cartons of the finished goods were all burnt in the fire. Even the records of finished goods, kept there, were all burnt.
7) The insured, being accredited with ISO certificate, was found to have updated records. Besides the various stock registers the accounting records are all maintained on the computer.
8) We have taken physical quantities of the following from the various stock registers:
Opening balances (quantities as on 1.4.2002) of all raw materials Closing balances of all the raw materials Opening balances of various category of finished goods/aggregate quantities Closing balances of various category of finished goods aggregate quantities Crockery and decorative items enjoy a high reputation in the market. Their plant was established in Sept. 1996 at an outlay of about Rs. 7.00 crore. The unit had a turnover of Rs. 11,09,24,354.00 in 2k1-2k2 and Rs. 9,36,34,415.00 in 2k-2k
1. The unit has a Term Loan of Rs. 61,66,678.00 from Bank of Baroda and C.C. limit of Rs.
1,49,49,468.00 from the same bank.
It is an ISO-9002 company and hence believes in total quality concept. It also maintains necessary records. Main Directors of the company have already been mentioned above.
In the last paragraph with regard to the provisions to be made by the underwriters, it has been stated as under:-
We are yet to receive the estimates from the insured. The detailed assessment exercise could be done only thereafter. The insured had verbally communicated a loss of Rs. 2.0 crore. However based on the data collected so far by us we, at this stage, suggest that the insurers make a provision of Rs. 1.0 crore in this claim.
This would mean that at the initial stage the insured verbally claimed that the loss was for a sum of Rs. 2 crore and, thereafter, a suggestion was made by the surveyors that the insurer should make a provision for Rs. 1 crore, at least.
Thereafter, they submitted preliminary survey report on 24.04.2003. After checking the various records, they stated as under:-
Following trial balance entries were checked by us and found to be in accordance with books of Account:-
1) Opening Stock Rs. 1,82,76,546.00
2) Purchases Rs. 6,84,41,772.35
3) Sales less sales return Rs. 12,01,94,856.00 However, at this stage it would be necessary to reproduce the entire observations made by the surveyors for arriving at the said conclusion. They made the following observations after checking the records:-
1. As already communicated in our Status Report we had obtained the following information from the insureds records:-
1.1 Quantities of opening and closing balances of all the raw materials and finished goods from stock registers.
1.2 Monthly sale pieces and the billed value of finished goods as recorded in RG-1 records.
1.3 Trial balance as on 31.03.03; There were no transactions on 1.4.03 (being a holiday).
2. We had also obtained complete balance sheet set for the year 01-02 along with basis of valuation of closing stocks in the balance sheet. The insured had conveyed the following basis to us:
2.1 Raw materials in balance sheet were valued at current costs and 2.2 Finished goods in balance sheet were valued at rates in the stock statement submitted to the bank less the Gross Profit. Gross Profit ratio was taken as 16.5%.
3. The insured had conveyed that their actual stocks are in complete agreement with the stock statements submitted to the bank. He has accordingly valued his loss to finished goods on the basis of individual quantities of items updated and ascertained from stock statement dated 07.03.03.
4. The insured had not carried out segregation of stocks in finished goods godown. Further neither the quantity in stock registers have been cross-verified by us either by any material balance or through other records nor the rates have been exhaustively verified by us by bills. Hence we are reporting only the closing stocks quantities appearing in insureds stock registers. The actual quantities at the time of final survey may become different for the reasons stated above.
5. The closing quantities as on 31.03.03 as given in raw material stock register are given at Annexure-I to this report.
6. We have also given the aggregate month-wise billed value (on basic rates alone) of finished goods despatch in year 2002-03.
7. The insured had reported increased production capacities and hence value of WIP in his opinion ( not verified by us) had increased by about 15% over the last year.
Final Survey Report Thereafter, the second surveyors, i.e., C.P. Mehta & Co. Surveyors submitted final survey report on 17.11.2003. Ld. Counsel appearing on behalf of the Insurance Company heavily relied upon paragraph 2.3 of this report wherein it was stated that the first batch of documents were received only in June/July, 2003 and the last of the required documents were received in November, 2003.
Thereafter, the Surveyors discussed various other aspects. In paragraph 9.4 of their report it was stated under Surveyors Conclusion as under:
Having examined the site and all the above documents, having considered the circumstances of the case, and in the absence of any adverse features, we have concluded that the fire was accidentally caused, probably due to an electrical short-circuit.
Further, on the extent of damage they noted as under:
10.1 The loss due to the fire was severe.
10.2 Though the fire was confined to the finished stocks/packing materials godown and did not spread to the factory, the loss was heavy. In addition, there was damage by heat to transfer prints stored in a room behind the godown.
For the assessment of loss they mentioned that the entire godown building was badly damaged. Electrical wiring and fittings were severelly damaged, racks were damaged, wooden planks were burnt in fire, finished stocks were almost reduced to scrap, packing materials burnt away almost completely, etc. Thereafter, they stated that the details of all losses were examined in detail and physically verified to the extent possible and finally assessed the loss as under:-
12.6.3 The Insured had opted for their claim on the racks on a depreciated value basis and the loss was assessed accordingly.
12.7 Re: Stocks 12.7.1. The major part of the claim was in respect of stocks.
The Insured were able to submit their first batch of claim documents only in June 2003 and July 2003. The last documents were received in November 2003.
12.7.2 The details are described below:
12.8 Re: Finished stocks 12.8.1 The fire had occurred on 1st April, 2003, at the end of the day, when the year end inventory was being taken by the Insureds staff. The manual stock registers were lying in the godown and were burnt away.
12.8.2 Steps to build up the inventory records, from relevant peripheral records, were discussed at length with the Insured.
12.8.3 The preparation of the stocks claim started with opening Balances as on 1st April 2002, encompassed the transactions of the full financial year 2002/2003, to arrive at stocks as on the date of the fire, i.e. 1st April, 2003. This was an elaborate and a very time consuming exercise.
12.8.4 The stock registers for finished goods and for packing materials, were burnt. Available records such as Excise RG-1, Register for raw material stocks, daily production reports, invoices etc. were verified and correlated. The Insureds note on the methodology followed for reconstructing the records is described below:
12.8.4.1 As per the Regular procedure followed the Packed material from shop floor from 9.00 A.M. to 9.00 A.M. is taken out from shop floor to send to finished goods godown. The packing list is prepared by the packing department and after counting by godown staff, the goods are sent to finished goods department and total pieces, packed in one day is booked in excise records. At the time of dispatch, the godown people take out the material from finished goods godown and accounts staff checks the quantity and invoices is prepared.
Accordingly, the invoice itself is a excise gate pass and total pcs. issued is booked in excise records. We were having the physical verification sheet of closing stock as on 31.3.02 and packing list & invoices for the full year. Accordingly we have prepared the Stock Ledger by taking Quantity of physical verification as opening stock and receipt in boxes/pcs. From Packing report and issue from the invoices on daily basis.
12.8.5 A detailed exercise was carried out at the site during a visit from 23rd June, 2003 to 30th June, 2003, ( about 8 days) when the damaged finished goods were inventoried on an overall basis, for weight correlation.
12.8.5.1 The standard weights of each item of claim were ascertained and the total weight of finished goods was determined. The damaged stocks were all filled in trucks and weighed. The results were as under:
Standard weight of claimed stocks of Bone Chine & stone ware 2,00,785.416 kgs.
Physical weighment 2,19,460.000 kgs.
Result = Surplus found +9.32% 12.8.5.2. Thus, the physical weighment was satisfactory. The Insured were contemplating revising their claim upwards, based on the physical findings, but after discussion, did not pursue the matter.
12.8.6 The volumetric parameters of the stocks were also determined. Carton sizes in which stocks were packed were ascertained and total volumes occupied by claimed stocks were worked out.
12.8.6.1. Available storage space in the godown was also worked out and determined. The findings were as under:
Volume of space required by claimed Stocks 25,335.65 cft.
Available storage space in finished Goods godown Ground floor level = 54000 cft.
Above loft = 25120 cft.
79120 cft 12.8.6.2 Thus, it was seen that storage space was adequate for the finished stocks.
12.8.6.3 The lay-out sketch showing the storage racks/positions in the finished stocks/packing materials godown is reproduced in the Annexure.
12.8.7 All the records/data pertaining to the saved items of finished stocks were examined and these items were physically checked.
12.8.8 All the relevant records, such as Bank stock statements, purchase and sales invoices, excise records, and registers production records, Balance sheets, costing details etc. were examined in detail, and were co-related. Pending orders on hand were also evaluated. The provisional balance sheet for 31st March 2003, certified by a Chartered Accountant, was studied.
12.8.9 Re: Bank statements 12.8.9.1 The Insureds stocks ( raw materials & finished goods) were hypothecated with the Bank of Baroda, Jaipur, to whom they were submitting detailed stock Hypothecation statements every month.
They also took into consideration the bank statements and hypothecated stock statements and the item-wise valuation was found to be satisfactory, on the basis of which the loss was assessed as under:
12.11 After taking into account all the factors, after discussing the extent of damage, cost of repairs/replacement, value of damaged items, value of salvave, underinsurance and deductible franchise, the Insureds claim has been worked out as under, on a depreciated value basis, to which they have agreed.
Net Loss Claim Before After Underinusance Underinusance IA Building Rs.
10,47,340/- Rs.
8,91,189/-
IB Furniture Fix- } IC Tures & fittings } (electricals/ } Racks) } Rs. 3,46,975/- Rs.
35,720/-
Rs. 13,94,315/- Rs.
9,26,909/-
II Stocks Rs.
1,42,39,370/- Rs. 1,31,08,836/-
Total Rs. 1,56,34,285/- Rs.
1,40,35,745/-
Less: Deductible franchise Rs.
10,000/-
The Insureds claim Rs.
1,40,25,745/-
12.11.1The details of the above workings are given in two Loss Assessment Statements.
13.00 NOTES 13.1 In our opinion, 13.1.1. All terms and conditions of the policies have been observed by the Insured.
13.1.2 We have not observed any Breach of Warranty.
13.1.3 The cause of the loss, as assessed, is one which has been specifically covered by the policies and does not fall under any exclusions.
It is to be stated that before submitting the final report, the Surveyors informed the complainant about the assessment and on 14.11.2003 on behalf of the complainant the calculation was confirmed and accepted.
Thereafter, on 26.12.2003 the Senior Divisional Manager recommended to the Regional Manager that the claim be settled on the basis of the loss assessed by the surveyor.
Despite the reasoned and detailed survey report, by letter dated 30.7.2004 the Insurance Company repudiated the claim on the ground that there was violation of condition Nos. 6 and 8 of the terms and conditions of the policy. It was stated in the repudiation letter that the fire took place on 01.04.2003 and the completed claim was submitted on 24.04.2003 and the documents sought by the Surveyors were only submitted in July 2003. It was also contended that the saleable crockery allegedly packed in the cartons in the said godown could not have been stored or accommodated in the space available in the godown; and further stated that the burnt cartons were not noticed in the CD.
In our view, both the aforesaid contentions are frivolous and unjustified because the preliminary Surveyor had himself noted the extensive fire on the 2.4.2003. Further, with regard to damage and the storage capacity, the final Surveyors noted in paragraph 12.8.6, as quoted above, that there was sufficient storage space and it was adequate to accommodate the finished stock. Further the Surveyors also specifically stated that all the relevant records such as bank stock statements, purchase and sales invoices, excise records, registers of production, balance-sheets, costing details, etc. were also examined in detail and were co-related. It was also specifically observed by the preliminary Surveyors that the insured being accredited with I.S.O. certificate was found to have updated records. In our view, when the surveyors did the entire exercise in detail there was no justifiable ground for the insurance company to repudiate the claim on the flimsy ground that there was breach of condition Nos. 6 and 8.
Secondly, with regard to the higher claim it was pointed out that at the initial stage also claimant has claimed a sum of Rs. 2 crore as the loss and that was noted by the Surveyors in his status report.
Further, in this complaint also Complainant claimed a large amount for the loss due to fire. The Complainant pointed out various infirmities with regard to the Survey report. It highlighted that the Excise Department levied excise duty for a sum of Rs.28,48,589/- and, in any case, that amount was required to be paid by the Insurance Company because that was part of the loss suffered by the Complainant. The Complainant admitted that against the order passed by the Appellate Authority of the Excise Department, Complainant had preferred second appeal before CESTAT which turned down the appeal. In this view of the matter, it cannot be said that there was breach of Condition No.6 and 8 of the insurance policy.
Learned counsel for the Complainant also contended that the Complainant was entitled to reimbursement of the excise duty amounting to Rs.28,48,589/- as well as other items in respect of which the Surveyor committed error in assessing the loss. In our view, it would be difficult for us to consider the said submission, because it might require further evidence to be led by the Complainant. The claim for excise amount is also rejected on the ground that after the Survey report, the Complainant confirmed and accepted the assessment made by the surveyor.
Considering the facts recorded by the Surveyors, in our view there was no justifiable ground for the insurance company to repudiate the claim. Hence we direct the insurance company to reimburse the complainant a sum of Rs. 1,40,25,745/- Out of this sum, the Insurance Company deposited a sum of Rs. 1 crore (Rupees one crore) with this Commission on the basis of our Order dated 23.8.2006. Therefore, the Insurance Company is required to pay a sum of Rs.40,25,745/-.
Ld. Counsel for the Complainant further pointed out that the complainant was required to pay interest at the rate of 15.77% to the Punjab National Bank for the loan taken by it for running the factory. For this purpose, Ld. Counsel for the complainant relied upon the statement dated 01.10.2003 given by the Senior Branch Manager, Bank of Baroda wherein it was stated that interest rate payable by complainant was 13.25% per annum with monthly rest. He further submitted that Bank of Baroda downgraded the credit rating of the complainant because of non-settlement of the claim by the insurance company. Therefore, they were required to shift their accounts to the Punjab National Bank. At present, Punjab National Bank was charging interest on their account at 14.75% calculated on monthly rests which yearly accounts to interest at the rate of 15.77%.
Ld. Counsel for the insurance company submitted that complainant cannot claim interest at the rate of 13 or 14% because that was not its claim. Ld. Counsel for the insurance company submitted that documents are unsubstantiated and, therefore, that should not be the basis for awarding interest at the rate of 14% per annum.
In the complaint, complainant has claimed Rs.3,63,35,861.96 along with interest @ 18% p.a. Further, it has also produced on record the statement of Bank of Baroda from where it has taken loan.
That statement reveals that complainant was paying interest at the rate of 13.25% with monthly rests which annually comes to 14.35%. Further, the complainant, at present, is required to pay interest at the rate of 15.77% per annum to the Punjab National Bank, the complainant is entitled to have the reimbursement of the loss suffered by it at least at the rate of 14% per annum.
The Insurance company is, therefore, directed to pay the said amount w.e.f. 1.12.2003 i.e. after six months from the date of the fire. Considering this aspect we direct the insurance company to reimburse the complainant for a total sum of Rs. 1,40,25,745/- with interest at the rate of 14% per annum from 1.12.2003.
The insurance company would adjust the amount of Rs. 1,00,00,000/- paid by it to the complainant on the basis of the interim order passed by this Commission on 23.08.2006.
The complaint is allowed to the aforesaid extent. There shall be no other as to costs.
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(M.B. SHAH, J) PRESIDENT Sd/-
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(RAJYALAKSHMI RAO) MEMBER Sd/-
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(ANUPAM DASGUPTA) MEMBER ar/25