National Insurance Company Limited vs M/S Kunal Stone Crusher on 10 August, 2023

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Jammu & Kashmir High Court - Srinagar Bench

National Insurance Company Limited vs M/S Kunal Stone Crusher on 10 August, 2023

1. The present petition has been filed against the order dated 24.10.2019 passed by Jammu & Kashmir State Consumer Disputes Redressal Commission (SCDRC), Srinagar in complaint No. 43/2011, titled "M/S Kunal Stone Crusher V. National Insurance Company Limited"

2. It is the case of the complainant that the complaint was filed by M/S Kunal Stone Crusher through Manzoor Ahmad Naikoo after the machine one Tata Hitech Excavator which was purchased by him and insured with the National Insurance Company which was valid from 17.07.2009 to 16.07.2010, for an amount of Rs. 20.00 lacs. The said machine was used for excavation works on being hired by various contractors.

3. It is the case of the complainant that on 20.08.2009 during the subsistence of the insurance, the said Excavator met with an accident at Mihi Mangil Road Banihal while undertaking excavation work after falling into the deep

1|Page Nallah and was totally damaged. The said accident was duly reported and, accordingly, FIR was registered with the Police Station Banihal vide FIR No. 179/2009. The complainant also duly informed, about the said accident, to the Insurance Company which was duly acknowledged by the insurance company. After the said intimation, the insurance company deputed one Surveyor for preliminary survey and spot inspection and accordingly to submit the report.

4. The complainant also submitted his own claim to the tune of Rs. 32,26,072/- . The surveyor after examining and discussing, settled the claim for Rs. 14.20 lacs on the basis of, total loss net of salvage basis, which was acceptable to the complainant, but the Insurance Company without proper reasons did not entertain the claim leading to filing of the complaint before the Consumer Commission alleging deficiency in services. The said complaint before the Commission was registered,

5. The Insurance Company taking the plea that complainant has no insurable interest in the property, inasmuch as, the said machine earlier belonged to one M. C. Chopra who had sold to Ab. Qayoom and Ghulam Ahmad Dar on 08.06.2007 prior to the commencement of the insurance without intimating any such transfer to the Insurance Company and thereafter, the complainant along with Khursheed Ahmad and Mehraj Din purchased the machine from Ab. Qayoom and the Ghulam Ahmad Dar, as such, the complainant is not the consumer and there was no contract between the complainant and Insurance Company, as such, there cannot be any deficiency of service on the part of the Company towards the claimant.

6. Learned Commission after considering the issue of insurable interest of the property held that in terms of the Surveyor's report which was not being

2|Page denied by the Insurance Company, the complainant is entitled to a sum of Rs. 14.20 lacs along with interest @ 9% from the date of complaint.

7. The aforesaid award has been challenged by the Insurance Company on two grounds; one that the Insurance Company has taken a specific plea as mentioned in the objection filed before the Commission that the policy did not cover any accident arising out of the operational use of the Excavator and it has been specifically mentioned in the policy that the policy is subject to IMT 47 and as per the commercial vehicle package policy of the Insurance Company, IMT 47 provides that the insurance policy shall not be liable for loss of damage resulting from overturning arising out of the operation as a tool of a vehicle and in the present case the complainant choose not to subscribe.

8. It has been said that though the insurance was in respect of the said machine, but it was not covered for loss of damage resulting from overturning arising out of operation and it has been clearly mentioned in the policy and in fact no additional payment which is required to be paid on account of loss of damage resulting from overturning arising out of the operation was paid by the insured and, as such, since the policy did not cover any such loss on account of overturning arising out of the operation, the Commission could not have passed the said award. Unfortunately though the specific plea was taken by the Company before the Commission, the said plea was never discussed nor considered and the Commission merely on the basis of the finding that the complainant had an insurable interest in the property proceeded to pass the award in favour of the complainant. Accordingly, it has been submitted that the impugned award of the Commission is liable to be set aside only on that ground.

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9. Learned counsel for the appellant as second limb of his argument has submitted that even this finding by the Commission that the complainant had an insurable interest in the property is also not tenable in view of the decision of Hon'ble Supreme court in AIR 1996 SC 586 wherein it has been held that if there is a change in the ownership of the property, the same has to be informed to the Company and the necessary changes be effected in the policy, the same has not been done and the award is not sustainable in law.

10. On the other hand, learned counsel for the respondent herein has submitted that the said judgment has been duly taken into account by the Commission and held to be not applicable in the present case. Learned counsel for the respondent also submits that it was a duty of the Company to have pointed out any such exclusion clause which was not done and, as such, the insured cannot be made to suffer. In this connection, learned counsel for the respondents has relied on the decision of Hon'ble Supreme Court in Texco Marketing Pvt. Ltd. Vs. Tata AIG General Insurance Company Ltd. and Ors reported in (2023) 1 SCC 428 has laid down at para 11,12,21, 22 & 27 as under:

11. An exclusion clause in a contract of insurance has to be interpreted differently. Not only the onus but also the burden lies with the insurer when reliance is made on such a clause. This is for the reason that insurance contracts are special contracts premised on the on the notion of good faith. It is not a leverage or a safeguard for the insurer, but is meant to be pressed into service on a contingency, being a contract of speculation. An insurance contract by its very nature mandates disclosure of all material facts by both parties.

12. An exclusion clause has to be understood on the touch-stone of the doctrine of reading down in the light of the underlining object and intendment of the contract. It can never be understood to mean to be in conflict with the main purpose for which the contract is entered. A party, who relies upon it, shall not be the one who committed an act of fraud, coercion or mis- representation, particularly when the contract along with the exclusion clause is introduced by it. Such a clause has to be understood on the prism of the main contract. The main contract

4|Page once signed would eclipse the offending exclusion clause when it would otherwise be impossible to execute it. A clause or a term is a limb, which has got no existence outside, as such, it exists and vanishes along with the contract, having no independent life of its own. It has got no ability to destroy its own creator, i.e. the main contract. When it is destructive to the main contract, right at its inception, it has to be severed, being a conscious exclusion, though brought either inadvertently or consciously by the party who introduced it. The doctrine of waiver, acquiescence, approbate and reprobate, and estoppel would certainly come into operation as considered by this court in N. Murugesan v. Union of India (2022) 2 SCC 25.

21. On a discussion of the aforesaid principle, we would conclude that there is an onerous responsibility on the part of the insurer while dealing with an exclusion clause. We may only add that the insurer is statutorily mandated as per Clause 3(ii) of the Insurance Regulatory and Development Authority (Protection of Policy Holder's Interests, Regulation 2002) Act dated 16.10.2002 (hereinafter referred to as IRDA Regulation, 2002) to the effect that the insurer and his agent are duty bound to provide all material information in respect of a policy to the insured to enable him to decide on the best cover that would be in his interest. Further, sub-clause (iv) of Clause 3 mandates that if proposal form is not filled by the insured, a certificate has to be incorporated at the end of the said form that all the contents of the form and documents have been fully explained to the insured and made him to understand. Similarly, Clause 4 enjoins a duty upon the insurer to furnish a copy of the proposal form within thirty days of the acceptance, free of charge. Any non-compliance, obviously would lead to the irresistible conclusion that the offending clause, be it an exclusion clause, cannot be pressed into service by the insurer against the insured as he may not be in knowhow of the same.

Doctrine of Blue Pencil

22. In such a situation, the doctrine of "blue pencil" which strikes off the offending clause being void ab initio, has to be pressed into service. The said clause being repugnant to the main contract, and thus destroying it without even a need for adjudication, certainly has to be eschewed by the Court. The very existence of such a clause having found to be totally illegal and detrimental to the execution of the main contract along with its objective, requires an effacement in the form of declaration of its non- existence, warranting a decision by the Court accordingly. The aforesaid principle evolved by the English and American Courts has been duly taken note of by this Court in Beed District Central Coop. Bank Ltd. v. State of Maharashtra, (2006) 8 SCC 514, "10. The "doctrine of blue pencil" was evolved by the English and American courts. In Halsbury's Laws of England, (4th Edn., Vol. 9), p. 297, para 430, it is stated:

5|Page "430. Severance of illegal and void provisions- A contract will rarely be totally illegal or void and certain parts of it may be entirely lawful in themselves. The question therefore arises whether the illegal or void parts may be separated or 'severed' from the contract and the rest of the contract enforced without them. Nearly all the cases arise in the context of restraint of trade, but the following principles are applicable to contracts in general."

11. In P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd Edn. 2005, Vol. 1, pp. 553-54, it is stated:

"Blue pencil doctrine (test)- A judicial standard for deciding whether to invalidate the whole contract or only the offending words. Under this standard, only the offending words are invalidated if it would be possible to delete them simply by running a blue pencil through them, as opposed to changing, adding, or rearranging words. (Black, 7th Edn., 1999 This doctrine holds that if courts can render an unreasonable restraint reasonable by scratching out the offensive portions of the covenant, they should do so and then enforce the remainder. Traditionally, the doctrine is applicable only if the covenant in question is applicable, so that the unreasonable portions may be separated. E.P.I. of Cleveland, Inc. v. Basler [12 Ohio App 2d 16 : 230 NE 2d 552, 556].

Blue pencil rule/test.--Legal theory that permits a judge to limit unreasonable aspects of a covenant not to compete. Severance of contract; 'severance can be effected when the part severed can be removed by running a blue pencil through it without affording the remaining part'. Attwood v. Lamont [(1920) 3 KB 571 : 1920 All ER Rep 55 (CA)] . (Banking) A rule in contracts a court may strike parts of a covenant not to compete in order to make the covenant reasonable. (Merriam Webster) Phrase referring to severance (q.v.) of contract. 'Severance can be effected when the part severed can be removed by running a blue pencil through it' without affording the remaining part. Attwood v. Lamont [(1920) 3 KB 571 : 1920 All ER Rep 55 (CA)] . (Banking)"

12. The matter has recently been considered by a learned Judge of this Court while exercising his jurisdiction under sub-section (6) of Section 11 of the Arbitration and Conciliation Act, 1996 in Shin Satellite Public Co. Ltd. v. Jain Studios Ltd. [(2006) 2 SCC 628]"

6|Page The Indian Contract Act, 1872 "2. Interpretation-clause.- In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context:-

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(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract;

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10. What agreements are contracts.- All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void. Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witnesses, or any law relating to the registration of documents.

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17.'Fraud' defined.- 'Fraud' means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract:-

(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

(2) the active concealment of a fact by one having knowledge belief of the fact:

(3) a promise made without any intention of performing it; (4) any other act fitted to deceive;

(5)any such act or omission as the law specially declares to be fraudulent.

Explanation.-Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence, is, in itself, equivalent to speech.

18. "Misrepresentation" defined.- "Misrepresentation" means and includes-

(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true' (2) any breach of duty which, without an intent to deceive, gains an advantage of the person committing it, or any one claiming under him, by misleading another to his prejudice, or to the prejudice of any one claiming under him;

(3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.

19. Voidability of agreements without free consent.- When consent to an agreement is caused by coercion, [***] fraud or

7|Page misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party to contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.

Exception.- If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.

Explanation.- A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practised, or to whom such misrepresentation was made, does not render a contract voidable.

(c) A fraudulently informs B that A's estate is free from incumbrance. B thereupon buys the estate. The estate is subject to mortgage. B may either avoid the contract, or may insist on its being carried out and mortgage-debt redeemed,"

27. When a court of law is satisfied that a fraud, or misrepresentation resulted in the execution of the contract through the suppression of the existence of a mutually destructive clause facilitating a window for the insurer to escape from the liability while drawing benefit from the consumer, the resultant relief will have to be granted.

Consumer Protection Act, 1986:

"2. Definitions.- (1) In this Act, unless the context otherwise requires,-

(g) "deficiency" means any fault, imperfection, shortcoming or inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law for the time being in force or has been undertaken to be performed by a person in pursuance of a contract or otherwise in relation to any service;

(r) "unfair trade practice" means a trade practice which, for the purpose of promoting the sale, use or supply of any goods or for the provision of any service, adopts any unfair method or unfair or deceptive practice including any of the following practices, namely:--

(1) the practice of making any statement, whether orally or in writing or by visible representation which,--

(iv) represents that the goods or services have sponsorship, approval, performance, characteristics, accessories, uses or benefits which such goods or services do not have.

(vi) makes a false or misleading representation concerning the need for, or the usefulness of, any goods or services."

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3. Act not in derogation of any other law.- The provisions of this Act shall be in addition to and not in derogation of the provisions of any other law for the time being in force.

14. Finding of the District Forum.-(1) If, after the proceeding conducted under section 13, the District Forum is satisfied that the goods complained against suffer from any of the defects specified in the complaint or that any of the allegations contained in the complaint about the services are proved, it shall issue an order to the opposite party directing him to do one or more of the following things, namely:--

(d) to pay such amount as may be awarded by it as compensation to the consumer for any loss or injury suffered by the consumer due to the negligence of the opposite party: Provided that the District Forum shall have the power to grant punitive damages in such circumstances as it deems fit;

(f) to discontinue the unfair trade practice or the restrictive trade practice or not to repeat them;

11.Learned counsel for the respondent also relied upon a judgment passed by the Hon'ble Supreme Court in Civil Appeal No. 1077 of 2013 titled M/S. Insar Aqua Farms Vs. United India Insurance Co. Ltd, wherein, in para 12 following has been laid down:-

Be it noted, in General Assurance Society Limited Vs. Chandumull Jain and another [AIR 1966 SC 1644], a Constitution Bench had observed, in the context of the insured, that uberrima fides, i.e., good faith, is the requirement in a contract of insurance. More recently, in Jacob Punnen and another Vs. United India Insurance Company Limited [(2022) 3 SCC 655], this Court affirmed and reiterated the edict laid down earlier in Modern Insulators Limited Vs. Oriental Insurance Company Limited [(2000) 2 SCC 734], that it is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties; that good faith forbids either party from non-disclosure of the facts which the party knows; and that the insured has a duty to disclose and similarly it is the duty of the insurance company to disclose all material facts within their knowledge since the obligation of good faith applies to both equally. This obligation and duty would rest on both parties not only at the inception of the contract of insurance but throughout its existence and even thereafter.

12. Accordingly, it has been submitted by learned counsel for the respondent that since the insurance company did not point out these exclusion clause, insured cannot be made to suffer in the light of the aforesaid decision.

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13. Having heard learned counsel for the parties, what we have noted is that the Commission, however, did not address this issue as to the scope of exclusion of clause as provided in Insurance Company i.e., IMT 47 and as to whether it was properly explained to the insured also and, as such, in absence of any discussion by the Commission in that regard and also lack of evidence, we are not able to give any opinion about the scope of the aforesaid exclusion clause and as to a consequence of not properly explaining to the insurer in terms of the decision of the Hon'ble Supreme Court referred to above.

14. It is also the case of the complainant that even the policy itself provides that the documents relating to IMT 47 is attached but it was never attached to the policy neither brought to the notice nor explained to the insured. This being the question of fact, in absence of necessary evidence in that regard, we are unable to give any definitive finding as regards the aforesaid plea and we deem it appropriate that the matter be remanded to the Commission for fresh determination on this issue as regards the "existence of any such exclusion clause and as to whether such exclusion clause was brought to the notice of the insured" and both the parties will be at liberty to file any such pleadings or evidence before the Commission for decision of this issue.

15. As regards the other issue that there is no insurable interest, we are of the view that the judgment cited by the learned counsel for the appellant is not applicable inasmuch as in the present case what we have noted the vehicle still remains in the name of the one M/S Kunal Stone Crusher who is the original owner also, and such, we do not feel that as far as this issue is concerned, this requires to be re-examined by the Commission, we are of the opinion that this issue is not be required to be reopened at the time of reconsideration by the Commission.

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16.Accordingly, we remand the matter for consideration of the above question, by the learned Commission. Having regard to the fact that the matter is pending since long as the accident took place in 2009 and claim was raised in 2011, we request the Commission to consider the issue, as expeditiously as possible, preferably, within a period of three months.

17.The impugned order dated 24.10.2019, accordingly, is interfered to the extent indicated above. The amount which has been deposited by the Company will be subject to the fresh decision of the Commission. Payment or refund of the money already deposited by the Company will depend on the decision of the Commission

18.Parties through their counsel are directed to appear before the Commission on 05.09.2023.

19.Record alongwith a copy of this judgment be forwarded to the J&K SCDRC, Srinagar for information and compliance

20.Pending application(s), if any, stand disposed of.

            (M. A. CHOWDHARY)                            (N. KOTISWAR SINGH)
                   JUDGE                                     CHIEF JUSTICE

    SRINAGAR
    10.08.2023
    Aadil



                       Whether the order is reportable       Yes/No.




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Jammu & Kashmir High Court - Srinagar Bench