Bombay High Court
Harsud Co-Operative Marketing Society ... vs United India Fire And General Insurance ... on 16 August, 1991
Equivalent citations: 1993ACJ899, AIR1992BOM341, 1992(1)BOMCR5, [1994]80COMPCAS834(BOM), AIR 1992 BOMBAY 341, (1993) 2 ACJ 899, (1994) 80 COMCAS 834, (1992) 1 BOM CR 5
ORDER
1. This is an action for recovery of compensation on the basis of a contract of insurance against the risk of damage by fire.
2. The pre-nationalisation Vulcan Insurance Co. (Vulcan) was in the business of general insurance. It had branch offices at Bombay and Jalgaon. The latter office was looking after operations in the adjacent district of Khandwa. That district was and is a part of the State of Madhya Pradesh. After nationalisation, Vulcan is part of the defendant. Plaintiff No. 1 is a co-operative society based at Harsud and Plaintiff No. 2 a co-operative bank with its head quarters at Khandwa. Plaintiff No. 1 was in the cotton business and plaintiff No. 2 was advancing money to it under different heads.
3. Plaintiff No. 1 -- hereinafter to be referred to as the society -- had in 1970-71 purchased raw cotton worth Rs. 10,00,000/-. The residue of the ginning operation left it with cotton seeds worth about Rs. 3,50,000/-. The said seeds were stored in a godown of the society near the Harsud Railway Station which the society had taken on rent from Ratilal Gujarathi. These goods were pledged with plaintiff No. 2 (bank) against certain credit facilities granted to it. In keeping with its usual practice the seeds were last insured with the Vulcan on 18-2-1972 -- the cover being for Rs. 3,00,000/-/. Mrs. K. L. Bansal an agent of Vulcan booked the business and after receipt of the premium issued a cover note bearing No. 77388. The same day seeds lying in the compound of the society's factory were insured through the same agent under cover note No. 77389. The day after taking out the insurance i.e. on 19-2-1972, a fire broke out in the godown and the goods stored there were considerably damaged. Vulcan's Jalgaon office was telegraphically informed of the mishap. As directed by the then Jalgaon Branch Manager, Bhandari, the damaged seeds were placed in separate heaps on 23-1-1972. The gradation was according to quality in preparation for further steps. Vulcan was called upon by letter dated 19-3-1972 to pay the sum of Rs. 3,00,000/- for the loss occasioned by the fire. Vulcan on April 1, 1972 repudiated the liability and maintained this stand till the very end. Thereupon plaintiffs notified Vulcan of their desire to auction the salvaged seeds. The sale was duly notified and took place between June and December 1972. The auction fetched a sum of Rs. 1,03,204.69 ps. Called upon to pay the balance of Rs. 1,96,910.31 ps. Vulcan declined, compelling plaintiff's to file this suit.
4. Defendant denies the correctness of any part of the factual narration of the claim summarised above. The cover note relied upon by plaintiffs was a fabricated document and the result of collusion between them and the husband and wife team of Bansals. Agents of Vulcan had no authority to collect premiums or issue cover notes. Inquiries made by Vulcan appeared to indicate that the fire which took place on 19-2-1972 was due to spontaneous combustion. Storage conditions were responsible for this and the same had not been disclosed by the society. Therefore, even if the goods had been insured and the cover note gave rise to a binding contract, the fire was due to a cause outside the cover note. Alternatively, the claim was much inflated. The claim if genuine had to be brought within a year or three months of its rejection by Vulcan. That not having been done, the suit was not maintainable. It was also barred by limitation. Lastly, no part of the cause of action had arisen within the jurisdiction of this Court.
5. Pleadings set out above have occasioned the issues given below with my findings:--
Issues. Findings (1) Whether the suit cotton seeds were covered against fire risk by a contract of insurance No. 77388 dated 18-2-1972? Yes. (2) Whether the cover note for the contract was issued and premium accepted by a person authorised to do so on behalf of Vulcan Insurance Co.? Yes. (3) Whether the suit cotton-seeds were destroyed in a fire which took place on 19-2-1972? Yes. (4) Was the fire one covered by the contract of insurance set up by the plaintiffs? Yes. (5) Whether the claim not having been preferred within one year Not so;It is of the alleged fire is not maintainable? maintainable. (6) What compensation - if any - are plaintiffs entitled to? Sum claimed. (7) Is plaintiffs' claim within limitation? Yes. (8) Has this Court territorial jurisdiction to try the suit? Yes. (9) Relief and costs? See order.
6. A brief summary of the evidence --documentary and oral -- has to be given. Plaintiffs have examined PW1 Jain the then Manager of the Society. He has proved the execution of the cover notes at Exhibits P-2 and P-3 and the receipt Exhibits P-1 by Mrs. Bansal. The admitted documents are Exhibits P-6, P-8, P-9, P-10; P-11 and P-14. These represent the correspondence between parties. The remaining plaintiffs' series of documents have been duly proved by Jain. The deposition of the witness is by and large a reiteration of the plaint. Defendant has not tendered any documents, but has examined 2 witnesses Bhandari and Mukati. The former was the Secretary of the Vulcan's branch at Jalgaon. Bhandari has tried to tread the difficult path mapped out in the written statement. This has not been possible for the compulsions of the situation have led him to make admissions or give evasive answers. Mukati professes to be an expert. His testimony has been of no consequence to the determination of issues arising in the suit.
7. It will be advisable to begin with the technical defences. The first question is whether plaintiffs' claim is within limitation. This suit was initiated by the lodging of the plaint on 17-2-1975. The fire which is proved but not admitted by defendant is alleged to have occurred on 19-2-1972. Article 44(b) of the Limitation Act, 1963, which deals with suits based on a policy of insurance enforceable for recovery of sums insured prescribes a period of three years. Time begins to run from (he date (i) of the occurrence causing the loss or (ii) the date of denial of a claim by the insurer. Considered either way, the plaintiffs' claim is within 3 years of the occurrence which took place on 19-2-1972 or 2-4-1972 when the society was intimated of Vulcan's repudiation of the claim. Defendant however relies upon clauses appearing in Vulcan's standard fire policies. This clause is said to stipulate the raising of a claim by the assured within 12 months of the occurrence of the event leading to loss. Another clause requires the institution of a claim within 3 months of its rejection by the insurer. Plaintiffs were hit by both the clauses. No insurance policy incorporating terms and conditions was issued. Ex. P-2 which is the cover note bearing No. 77388 makes no reference to any standard fire policies. The written statement makes a reference to "previous insurance policies issued by defendant". The clauses curtailing limitation are said to be found in these previous policies. How these previous policies will govern a transaction incorporated in Ex. P-2 remains an enigma. The written submissions given by defendant make an attempt to bind plaintiffs by the terms and conditions set out in Vulcan's standard fire policies. First, it is said that DW1 Bhandari has spoken of cover notes always being followed by insurance policies. Cover notes at Exhs. P-2 and P-3 were to be in force pending the issuance of policy documents. DW1 was forced to concede that Ex. P-2 gave the impression of an unqualified cover note. Reliance is placed upon PW1 Jain's admission that cover notes are followed by policy documents. This answer does not prove that where cover notes are not followed by policies, the terms of the latter will still be operative. It is said that Jain had worked as Vulcan's agent in the past and must or could have known that cover notes were provisional in scope and that insurance taken was subject to clauses appearing in policy documents. Then it is suggested that the society itself had taken policies in the past from Vulcan and therefore knew of the clauses appearing therein binding all contracts of insurance. The short answer to this contention is that Ex. P-2 itself gave no indication of the to-be-issued policy terms governing the business booked. It cannot be assumed that the assured knew what all would bind it or him when the insurer endorsed no caveat to that effect on the cover note. Bhandari points to the prefix 'interim' to words 'cover note' on Ex. P-2. This does not bring about any difference in the liability of the defendant. The position in law is that the cover note is in itself a contract of insurance governing the rights and liabilities of the parties in the event of a loss taking place during its currency. As rightly urged by plaintiffs the assured is entitled to enforce the contract contained in the cover note, provided that he has complied with its conditions e.g. as to payment of premium, (see p. 115 of General Principles of Insurance Law by F. R. Hardy Ivamy 4th Edn.). Defendant relies on a recital in the same authority about "the insurer being entitled to rely upon the terms of a policy if it can be shown that the assured knew them or to have had the opportunity of knowing them". Defendant's written submissions in reproducing the contention take a liberty by seeking to give the impression that the words following the above are "and/or had agreed to be bound by them." The text which fortunately has been annexed to plaintiffs' written submissions does not have the stroke sign and the "or" set out, in defendant's written submissions. Defendant had therefore to establish not only the. awareness of the society and Jain to the clauses relied upon by it, but also that they had expressly agreed to abide by them while entering into the transaction recited in Ex. P-2. Of such an agreement there is not the faintest evidence. Lastly 1 entertain great doubts about the validity of clauses of a contract which fetter or cut down a period of limitation prescribed by statute. The doubt is enhanced when the said clauses form part of the "small print" of a closely written document making it difficult for the ordinary layman to locate them, much less understand their implications. To conclude neither the statute nor the terms of a contract disqualify the plaintiffs from reliefs vis-a-vis the time factor.
8. Defendant has not pressed the plea of this Court not having jurisdiction to try the suit. On merits also, defendant's branch office is at Bombay. They work for gain in this city. That suffices for upholding plaintiffs' choice of this forum for redress.
9. Defendant contends that the fire which damaged the cotton seeds as claimed by the plaintiffs was not one covered by the contract of insurance. Ex. P-2, the cover note which is the only document for spelling out the terms of insurance does not specify which type of fire is excluded from the cover given to the assured. That being the case, one need not go into the standard policy clauses or the evidence in support of the plea of spontaneous combustion. But to give completeness to the judgment I will look into these aspects also. The reverse of the policy document (Ex. P-4) issued in regard to cover note No. 77389 contains only one clause dealing with spontaneous combustion. That, bearing No. 7, reads as follows:--
"Unless expressly stated in the policy this insurance does not cover 'coal, against loss or damage occasioned by its own spontaneous combustion."
Assuming that an identical policy would have been issued for cover note 77388, the excluded loss by fire even if caused by spontaneous combustion would not have assisted defendant. That is because the goods covered were not coal but cotton seeds and the relevant clause covers loss flowing from spontaneous combustion fires only where the affected goods are coal. This apart let us turn to the evidence on the subject.
10. The written statement goes into some details of what defendant learnt pursuant to an inquiry allegedly carried out by its agents. The findings were thus : Cotton seeds stored in the godown had been damaged by rains in May and June of 1971. A week prior to 19-2-1972, an overpowering smell from the godown wafted through the locality. People residing in the locality complained to the manager of the society. Because the stored bags containing the seeds had not been given a proper airing, the rain-soaked seeds got heated up and there occurred a spontaneous combustion. That such spontaneous combustion is possible is not disputed. Defendant along with its written submissions has given Exh. A which is literature on the subject issued by the National Fire Protection Association of Massachusetts. A table prepared by this Association lists cotton seed as being susceptible to spontaneous heating. But the susceptibility is categorised as "low". Precautions advised against spontaneous ignition are to keep the goods "cool and dry". In the last column it is mentioned that heating is possible if filled "wet and hot". Jain's evidence shows nothing to indicate that any of these conditions existed to explain the fire of 19-2-1978 (1972). To make good the deficiency defendant has examined DW2 Mukati. This witness comes in as an expert. Significantly, no one has been examined from the locality even about the stink which worried the people residing in the vicinity of the godown. No contemporaneous writing contains this accusation. Defendant's letter dated 7-4-1972 at Ex. P-10 makes no reference to the stink or fire being occasioned by poor storage conditions. The society's letter of 19-3-1972 at Ex. P-8 gives details of the response of the Manager of the Jalgaon branch of defendant. Not a word about the poor storage conditions is, said in defendant's reply dated 7-4-1972 at Ex. P-10. Again on 15-4-1972, the Bank gave a notice to defendant which is at Ex. P-9. Ex. P-11 is the defendant's cryptic reply saying they had nothing further to add to their telegram and letter at Ex. P-10. Ex. P-10 refutes the liability saying the cover note is "invalid and void since inception" without any particulars. In this significant void (sic) defendant examines Mukati.
11. The basic data in relation to Mukati's opinion vis-a-vis the probable cause of the suit fire is non-existent. The chances of spontaneous ignition increase (sic) when wet cotton seeds are (i) packed in gunny bags, (ii) these bags are stacked from floor to ceiling in tight rows, (iii) the place of storage is a structure with a roof of tin sheets, (iv) the duration of the storage is from May to February, and (v) a proper airing is not given to the goods. Some questions have been put to Jain and as was to be expected he has not obliged defendant with answers that could furnish a foundation for the plea. Assuming the opinion to be wholly correct, one fails to see how defendant's case is improved. Jain's failure to give a cause for the fire does not mean that the fire was due to spontaneous heating.
12. This takes me to the authority of the lady who booked the insurance contract relied upon. The specific stand taken in the written statement is that premium was not paid to an authorised agent of the defendant and the cover note bearing No. 77388 was not issued by a duly authorised agent of defendant. Mrs. K. L. Bansal was an agent of Vulcan. DW1 Bhandari has admitted that agents of Vulcan were issuing cover notes. Premium was taken by agents -- if collected by them -- to the branch office concerned. The implication is that the premium's payment could be acknowledged only through a receipt issued by a branch office. Ex. P-2itself contains a printed recital negativing the indirect attempt to show that agents could not collect premium directly, or, having done so, issue receipts therefor. The cover note contains recitals entitling the issuer to recover premia and stamp charges. If agents could issue cover notes, it follows that they had the authority to accept premium. In fact cover notes could not issued unless premia had been paid by the assured. Cross-examined, Bhandari was forced to admit that Mrs. Bansal as an agent was entitled to book insurance policies, issue cover notes, collect premia and that Ex. P-2 appeared to bear her signature. Ex. P-1's original i.e. receipt showing plaintiff paying the total of the premiums for Exs. P-2 and P-3, also appeared to bear Mrs. Bansal's signature. Bhandari realising the slip went on to assert that no agent was entitled to issue a receipt. Yet he does not have the courage to say that the premium under Ex. P-2 was not received by the Jalgaon branch. -Defendant has not filed the cash register of the branch showing daily receipts of premiums. In letter dated 7-4-1972 (Ex. P-10) an offer was made to refund the premium, provided the society established having paid the same. In the face of these evasive tactics one cannot but believe PW1 Jain who proves the execution of Exs. P-1, P-2 by Mrs. Bansal and the payment of the premium to her. The 2nd issue therefore merits an affirmative answer.
13. Surviving now are the crucial issues regarding the factum of (i) storage of cotton seeds worth about Rs. 3 lakhs in the godown, (ii) the occurrence of a fire in that godown on 19-2-1972, (iii) that fire damaging the seeds stored, and (iv) the monetary loss sustained to the society being of the magnitude of the sum claimed in suit. The basic suspicion arises from the fact of the contract of insurance taking place just a day prior to the fire. Defendant argues that the suspicion is fortified by the society being in a none-too-good financial position, plaintiffs' failure to examine Mrs. Bansal and the marked dissimilarities in the signatures of the lady in Exs. P-2, P-3 and P-1. These contentions have been pressed with great vigour. But the other side of the picture is totally destructive of the contention. Ex. P-2 bears cover note 77388. This number precedes Ex. P-3's number which is 77389. DW1 Bhandari admits the genuineness of Ex. P-3. The premium therefor was received and a policy document issued in relation thereto. Ex. P-3 was drawn up on 18-2-1972 and that date was unquestioningly accepted by the Jalgaon branch. Defendant has kept back its records which may have shown that the premium for both the policies was sent on the same day. If the matter was shrouded in suspicion and collusion defendant would have said so through its Jalgaon Manager the father of DW No. 1. The society's letters of 6-3-1972 and 19-3-1972 at Ex. P-8 together with Advocate's notice dated 15-4-1972 at Ex. P-9 recite in detail the role played by DWI's father, the advice he gave and the non-fulfilment of promises to return to the scene. In reply, defendant could say nothing more than that the repudiated contract was "invalid and void since its inception". Whatever this expression means, it certainly does not amount to establishing fraud and collusion. Strangely enough, defendant has chosen to examine Bhandari fils when the documents required the examination of Bhandari pater. Defendant was noticed of the auction. It kept its silence maintaining an aloofness totally consistent with the caution expected of an experienced litigant knowing that a fight was on hand and that the option of legalese (sic) was better than saying anything meaningful. But this very attitude falsifies the doubts now expressed by defendant. At the earliest stage defendant had the opportunity to investigate into the matter. It says it did so and yet no evidence is revealed. DW1's answer are in keeping with defendant's stand i.e. say nothing definite and keep back the most vital witness. When faced with inconvenient questions, DW1 has taken recourse to the usual 'don't knows', 'can't says' and 'don't remembers'.
14. Insurance frauds are perpetrated and it is difficult to book the guilty ones. These are farts of life and cannot be disputed. The factors relied upon to create a suspicion regarding Ex. P-2 are there. But this does not mean that there cannot be coincidences seemingly suspicious but entirely due to happenstance. Here defendant's silence, inaction and caution show that it has pounced upon innocent coincidences to prop up an unsubstantiated suspicion. It is argued that the goods lay uninsured between 1st December 1971 and 17th February 1972. This may have been due to the society's straitened circumstances or the laxity of P.W. 1 Jain, The fire of 19-2-1972 created a panic and Bansal was caught hold of to concoct documents and get the society or Jain out of a difficult situation. But this could have been said so in the replies of defendant to letters addressed by it to the society. Insurance frauds are not unknown and insurance companies do not hesitate to use investigative agencies to find out the truth. In this case nothing seems to have been done except for one hurried visit of Manager Bhandari on 23-2-1972. A fraud with serious financial consequences to defendant was left un-investigated and the obvious reason must be because of the suspicion being found to be groundless. It is said that plaintiff should have examined Mrs. Bansal. I cannot see why Exs. P1 and P2 are admitted by no less a person than Bhandari to be under her apparent signatures. It is not possible to disbelieve Jain's version about Mrs. Bansal passing Ex. PI merely because of an alleged difference in the signature, thereon. That Vulcan terminated Mrs. Bansal's agency, that she continues to work as an insurance agent for other companies or that the society has given her business after Exs. P2 and P3 does not mean that she is colluding with plaintiffs. One has to be careful in assessing a charge of fraud. Where the charge is dispelled prima facie it is not permissible to expect the exonerated party to remove every alleged vestige of suspicion by evidence right up to the hilt. A preponderance of probabilities retains the measuring rod albeit with a slightly heavier onus on the seemingly guilty party.
15. The quantum of damages factor presents no difficulty in this case. Plaintiff's claim the difference between the insured price of the seeds and that fetched at the auction. Defendant was intimated of but kept away from the auction and cannot now be heard to say that proper steps for mitigating the damages were not taken.
16. To sum up defendant is liable to pay the sum claimed in suit with interest at 6% p.a. to be computed from date of suit till realisation. The party entitled to this relief and costs will be (paid to) plaintiff No. 1 as the bank is a mere pledgee. Hence the order :
ORDER
17. Decreed that defendant do pay to plaintiff No. 1 society a sum of Rupees 1,96,910.00 together with interest at 6% per annum from date of suit till realisation. Plaintiffs shall get their costs from defendant who shall in addition bear its own costs.
18. Order accordingly.