Karnataka High Court
The Karnataka Bank Ltd vs M/S Venkateshwara Distributors on 8 January, 2026
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NC: 2026:KHC:1144
RFA No. 864 of 2011
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 8TH DAY OF JANUARY, 2026
BEFORE
THE HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
REGULAR FIRST APPEAL NO. 864 OF 2011 (MON)
BETWEEN:
THE KARNATAKA BANK LTD.,
D DEVARAJ URS ROAD,
MYSORE - 570 001
REP HEREIN BY ONE OF ITS
PRINCIPAL OFFICERS AND
SENIOR MANAGER OF
DEVARAJ URS ROAD BRANCH
SRI. T.R. MANJUNATH.
...APPELLANT
(BY SRI. Y.V. PARTHASARATHY, ADVOCATE)
AND:
Digitally signed
by
SHARADAVANI 1. M/S. VENKATESHWARA DISTRIBUTORS
B
Location: High
NO. 82, MEZANINE FLOOR
Court of D. DEVARAJ URS ROAD
Karnataka
MYSORE - 570 001.
REPRESENTED BY ITS PROPRIETOR
SRI. K.N. VENKATSH.
2. M/S. ORIENTAL INSURANCE CO. LTD.,
HAVING ITS DIVISIONAL OFFICE AT
NO. 1, TEJAS COMPLEX,
I FLOOR, P.B. NO 27,
SAYYAJI RAO ROAD,
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NC: 2026:KHC:1144
RFA No. 864 of 2011
HC-KAR
MYSORE - 570 001
REPRESENTED BY ITS
SENIOR DIVISIONAL MANAGER .
...RESPONDENTS
(BY SRI. B.K. MOHAN, ADVOCATE FOR R1;
SRI. C. SHANKAR REDDY, ADVOCATE FOR R2)
THIS RFA IS FILED U/S 96 OF CPC, AGAINST THE
JUDGMENT AND DECREE DATED 28.01.2011 PASSED IN
O.S.NO.307/2004 ON THE FILE OF THE I-ADDL. JUDGE, SMALL
CAUSES AND ADDL. SENIOR CIVIL JUDGE, MYSORE, PARTLY
DECREEING THE SUIT FOR THE RECOVERY OF MONEY.
THIS APPEAL, COMING ON FOR HEARING, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. JUSTICE SACHIN SHANKAR MAGADUM
ORAL JUDGMENT
The captioned appeal is by the unsuccessful defendant No.2-The Karnataka Bank Ltd., (for short, 'Bank') assailing the judgment and decree rendered in O.S.No.307/2004.
2. For the sake of brevity, the ranks of the parties are referred as per their ranking before the Trial Court. -3-
NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR
3. The facts leading to the case are as under:
The plaintiff instituted the suit against the Oriental Insurance Company Limited (defendant No.1) and Karnataka Bank Limited (defendant No.2), seeking recovery of a sum of Rs.13,87,687.97/- together with interest at the rate of 18% per annum. The plaintiff claims to be the proprietor of Venkateshwara Distributors, engaged in the wholesale distribution of pharmaceutical and allied products. According to the plaintiff, he had availed an overdraft facility from defendant No.2 bank, and as a condition precedent for sanction of the said facility, the bank required him to secure insurance coverage for the hypothecated stock.
4. The plaintiff asserts that, in compliance with the said requirement, defendant No.2 bank arranged for insurance coverage of the hypothecated goods through defendant No.1 insurance company and ensured automatic debit of the insurance premium from the plaintiff's account. It is further contended that defendant No.2 had -4- NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR been consistently deducting insurance premiums every year towards renewal of the policy covering the hypothecated stock. According to the plaintiff, it was the obligation of defendant No.2 to ensure continuous insurance coverage for the goods to their full market value.
5. It is the further case of the plaintiff that on 07.12.2001, a theft occurred in the godown belonging to him. A complaint was lodged on the following day, i.e., 08.12.2001, and after securing the First Information Report, the plaintiff approached both defendants seeking indemnification under the insurance policy. However, defendant No.1 declined to settle the claim on the ground that the godown from which the theft had occurred was not covered under the insurance policy. According to the plaintiff, this repudiation was solely attributable to the failure of defendant No.2 bank to intimate defendant No.1 about the shifting of the godown and to secure appropriate insurance coverage. Despite issuance of a legal notice, the -5- NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR claim was not settled, compelling the plaintiff to file the present suit.
6. Upon service of summons, both defendants entered appearance and contested the suit. Defendant No.1 insurance company contended that the insurance policy covered only the shop premises situated at No.82, Mezzanine Floor, D. Devaraj Urs Road, Mysore, and not the godown where the alleged theft occurred. It was specifically pleaded that the policy did not extend coverage to the new godown and, therefore, defendant No.1 was not liable to indemnify the plaintiff for the alleged loss.
7. Defendant No.2 bank also filed a written statement contesting the claim. While admitting that the plaintiff had executed an agreement of hypothecation in respect of the stock, defendant No.2 contended that it was the exclusive responsibility of the plaintiff to insure the hypothecated goods, particularly upon shifting the godown. It was specifically pleaded that there was no -6- NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR obligation on the part of the bank to secure insurance coverage for the goods stored in the newly shifted godown.
8. On completion of pleadings, the Trial Court framed the necessary issues and the parties were called upon to adduce their respective oral and documentary evidence.
9. The plaintiff examined himself as P.W.1 and relied upon documentary evidence marked as Exs.P.1 to P.35. On behalf of the defendants, the insurance company examined its official as D.W.1, while defendant No.2 bank examined D.W.2. The defendants collectively produced documents marked as Exs.D.1 to D.45.
10. Upon an overall appreciation of the oral and documentary evidence on record, the Trial Court answered Issue No.1 in the affirmative, holding that the plaintiff had established that defendant No.2 bank had undertaken the responsibility of effecting insurance coverage for the hypothecated goods. Issue Nos.2 and 3 were answered -7- NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR partly in the affirmative, with the Trial Court holding that defendant No.2 was primarily liable to compensate the plaintiff, having failed to intimate defendant No.1 about the shifting of the godown and to ensure appropriate insurance coverage. Consequently, the suit was decreed in part, directing defendant No.2 bank to pay a sum of Rs.8,12,572/- with interest at 6% per annum from the date of the suit till realization.
11. Heard the learned counsel appearing for defendant No.2 bank and the learned counsel for the plaintiff. Perused the records.
12. The following points arise for consideration:
i. Whether the judgment and decree passed by the Trial Court, fastening liability on defendant No.2 bank and directing payment of Rs.8,12,572/- with interest at 6% per annum from the date of the suit till realization, suffers from perversity or illegality warranting interference by this Court?-8-
NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR ii What order?
13. Finding on point No.i.
Before this Court adverts to the case on hand, it would be absolutely necessary to advert to Ex.D.12, which is a communication addressed by the second defendant bank to the first defendant Oriental Insurance Company Limited. The communication would have a direct bearing on as to who is liable to compensate the plaintiff against the theft of stock. Therefore, this Court deems it fit to extract Ex.D.12, which reads as under:
"DATE: 12/7/2002 D.DEVARAJ URS ROAD, MYSORE-1.
KB/MYS/PF460/OR /02-03 THE BRANCH MANAGER, ORIENTAL INSURANCE CO, LTD, CHAMRAJA DOUBLE ROAD, MYSORE.
Dear sir, Reg: working capital facility of M/s Venkateshwar Distributors of our branch.
With reference to the subject matter we write to inform you the that above cited customer is enjoying OD facility -9- NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR with us and we have taken the policy with you for the goods hypothecated to us. an 7th December 2001 a theft was taken place in the godown of the borrwer and this we have already informed to you vide our letter dated 8/12/2001. Furhter we inform you that the address given to at the time of taking policy was No. 82 Mozanine your office floor D. Devaraj urs road, Mysore. All the bank correnspondence were with this address only and stock statement submitted by the is also shwoing the same address. But the borrower had borrower changed the godown to No.500/3 B.K. street Devaraj mohalla Mysore the borroweг 570 001 but and the same had been intimated to us by by oversight it was not informed to you and the theft taken place in this godown only. This is for your kind information."
(EMPHASIS SUPPLIED BY ME)
14. On a careful reading of the extracted portion of the evidence, it becomes manifest that the plaintiff had duly intimated the second defendant bank regarding the shifting of his godown from No.82, Mezzanine Floor, D. Devaraj Urs Road, Mysore, to No.508/3, B.K. Street, Devaraj Mohalla, Mysore-570001. The communication addressed by the Branch Manager of the second defendant bank to the first defendant insurance company clearly acknowledges the fact that the bank was fully aware of the shifting of the godown. Significantly, the said communication also contains an unequivocal admission
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NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR that the bank, due to an oversight, failed to intimate the insurance company about the change in location of the insured premises.
15. This admission, emanating from the official records of the bank itself, completely demolishes the defence sought to be raised by the second defendant that the plaintiff had failed to inform the bank about the shifting of the godown. On the contrary, Ex.D.12 conclusively establishes that the plaintiff had discharged his obligation by intimating the bank about the change in location, and that the failure lay squarely at the doorsteps of the bank in not transmitting this vital information to the insurer.
16. The significance of Ex.D.12 cannot be understated. It constitutes a clear acknowledgment of lapse and negligence on the part of the second defendant bank and furnishes contemporaneous evidence that the repudiation of the insurance claim was not attributable to
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NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR any omission on the part of the plaintiff, but was the direct consequence of the bank's failure to communicate the material change in risk to the insurance company. Such an admission, being voluntary and unequivocal, binds the second defendant bank and decisively answers the controversy regarding liability.
17. In view of this crucial admission, this Court has no hesitation in holding that the plaintiff had duly intimated the second defendant bank regarding the shifting of the godown, and that the subsequent non-coverage of the godown under the insurance policy arose solely on account of the bank's admitted oversight. Ex.D.12, therefore, clinches the issue and forms the fulcrum for fastening liability on the second defendant bank for the loss suffered by the plaintiff.
18. In the backdrop of such categorical admission, the crucial question that arises for consideration is whether the second defendant bank can escape liability after
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NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR having admittedly failed to communicate the shifting of the godown to the insurance company. The Hypothecation Agreement executed by the plaintiff, marked as Ex.D.4, assumes considerable significance in this regard. A plain reading of the said agreement demonstrates that once the stock stood hypothecated, the bank was under an obligation to safeguard its own security interest, including the duty to promptly communicate any change or shifting of the godown where the hypothecated stock was stored.
19. It is not in dispute that by virtue of the hypothecation, the second defendant bank had a subsisting charge and general lien over the hypothecated stock. It is also an admitted position that the bank had extended an auto-debit facility towards payment of the insurance premium and that the plaintiff had duly informed the bank about the shifting of the godown. Despite such intimation and despite the premium having been auto-debited from the plaintiff's account and remitted to the first defendant insurance company, the
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NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR bank failed to communicate the change of address of the godown. This omission, in the considered view of this Court, constitutes a clear breach of the obligation cast upon the bank under the hypothecation arrangement.
20. The evidence of D.W.2, the official examined on behalf of the second defendant bank, further fortifies the plaintiff's case. In his cross-examination, D.W.2 has admitted in unequivocal terms that the insurance premium payable towards coverage of the hypothecated stock was auto-debited from the plaintiff's account. He has also admitted that the policy was renewed on a year-to-year basis and that, as early as in the year 1999, the bank records reflected that the plaintiff had shifted his godown to No.508/3, B.K. Street, Devaraj Mohalla, Mysore. These admissions clearly establish that the bank had complete knowledge of the change in location well prior to the theft in question.
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21. The plaintiff, having availed an overdraft facility, executed the hypothecation deed to secure the interest of the bank. The bank, in turn, had insisted upon insurance coverage over the hypothecated stock and had consistently ensured renewal of the policy by auto-debiting the premium every year. Once the premium stood debited and remitted to the insurance company, and particularly when the bank was admittedly aware of the shifting of the godown, the responsibility to intimate the insurer about the change in location squarely rested upon the bank. The Branch Manager's admission that the failure to intimate the insurer was due to oversight, as evidenced by Ex.D.12, conclusively establishes negligence on the part of the second defendant bank.
22. Though ordinarily it is the insurance company, having issued the policy, that would be liable to indemnify the insured for loss caused due to theft, the peculiar facts of the present case demonstrate that the repudiation of the claim by the insurer was directly attributable to the
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NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR lapse on the part of the bank. Having auto-debited the premium, having renewed the policy year after year, and having full knowledge of the shifting of the godown, the second defendant bank cannot be permitted to shirk its responsibility by shifting the burden onto the plaintiff.
23. The Hon'ble Apex Court in Syndicate Bank v. Vijay Kuma (1992) 2 SCC 330 has conclusively held that a bank holding security and exercising control over insured property owes a duty of care and failure to protect the security interest, including insurance lapses, results in bank liability. Further the Hon'ble Apex Court in Canara Bank v. United India Insurance Co. Ltd. (2020) 3 SCC 455 held that where insurance is obtained pursuant to banking arrangements and premium is routed through the bank, the bank cannot disown responsibility and the bank is treated as an intermediary with fiduciary obligation. It also held that a bank that facilitates insurance as part of credit security cannot escape consequences of defective coverage.
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24. The Delhi High Court in Oriental Insurance Co. Ltd. v. Punjab National Bank 2009 SCC OnLine Del 2461 also emphasized that, if premium is deducted by the bank and remitted to insurer, the bank is responsible to ensure correctness of coverage particulars. Failure to intimate change in location fastens liability on the bank.
25. From the settled legal position emerging from the aforesaid authorities, it is no longer res integra that when insurance coverage is insisted upon by a bank as a condition precedent for sanctioning credit facilities, and when the bank itself undertakes the responsibility of ensuring payment of premium by auto-debit from the borrower's account and consistently facilitates renewal of the policy, the bank assumes a clear and enforceable duty of care. Such duty is not merely contractual in nature but flows from the fiduciary obligation arising out of the bank's control over the security and its conscious involvement in procuring and maintaining insurance coverage over the hypothecated stock.
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26. Once the premium stands debited from the borrower's account and is remitted to the insurance company through the bank, the bank cannot subsequently disown responsibility by contending that the borrower alone was required to ensure effective coverage. The act of auto-debiting premium, coupled with the bank's insistence on insurance and its role in renewal of the policy year after year, amounts to an assumption of responsibility to ensure that the coverage is valid, effective, and corresponds to the actual location and status of the hypothecated goods. Any lapse in communicating material particulars, such as shifting of the godown, when the bank admittedly had knowledge of such change, constitutes negligence attributable solely to the bank.
27. In the present case, the evidence on record clearly establishes that defendant No.2 bank had full knowledge of the shifting of the godown, had continued to auto-debit the insurance premium, and had renewed the
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NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR policy without intimating the insurer about the change in location. The repudiation of the claim by the insurance company is thus a direct consequence of the bank's omission and failure to discharge its duty of care. Having exercised control over the insurance process and having benefited from the protection of its secured interest through insurance, the bank cannot be permitted to shift the burden of its own lapse onto the borrower.
28. Accordingly, applying the settled principles laid down by the Supreme Court and the High Courts, this Court holds that defendant No.2 bank is principally liable to compensate the plaintiff for the loss suffered on account of theft of the hypothecated stock. The fastening of liability on the bank by the Trial Court is therefore legally sound, supported by evidence, and in consonance with the established principles governing banker's responsibility in matters of insurance of hypothecated goods. No perversity or infirmity is made out warranting interference.
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29. In these circumstances, this Court finds that the Trial Court has rightly fastened liability on the second defendant bank for compensating the plaintiff towards the loss suffered on account of theft of stock. The conclusion arrived at by the Trial Court is supported by the admissions elicited in the cross-examination of D.W.2 and the documentary evidence, particularly Ex.D.12, which clinches the issue beyond any pale of doubt.
30. On an overall appreciation of the oral and documentary evidence, this Court is of the considered view that the second defendant bank, having failed to communicate the shifting of the godown despite being fully aware of the same and despite having auto-debited the insurance premium, is principally liable to compensate the plaintiff. The findings recorded by the learned Trial Judge are neither perverse nor illegal. On the contrary, they reflect a proper appreciation of the evidence on record. Consequently, this Court finds no infirmity in the conclusions reached by the Trial Court while answering
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NC: 2026:KHC:1144 RFA No. 864 of 2011 HC-KAR Issue No.1 in the affirmative and Issue Nos.2 and 3 partly in the affirmative. Accordingly point no.1 is answered in Negative.
Finding on point no ii.
31. For the foregoing reasons, this Court passes the following:
ORDER The regular first appeal is devoid of merits and accordingly, stands dismissed.
Sd/-
(SACHIN SHANKAR MAGADUM) JUDGE HDK List No.: 1 Sl No.: 25