National Consumer Disputes Redressal
Nasikroad Devlali Vyapari vs United Insurance Co. Ltd. & 4 Ors. on 31 January, 2024
NATIONAL CONSUMER DISPUTES REDRESSAL COMMISSION NEW DELHI FIRST APPEAL NO. 134 OF 2016 (Against the Order dated 29/09/2015 in Complaint No. 284/2013 of the State Commission Maharashtra) 1. NASIKROAD DEVLALI VYAPARI SAHAKARI BANK LTD., HEAD OFFICE AT " KALPAVRUKSHA" ASHANAGAR, NASIK ROAD,-422101 MAHARASHTRA ...........Appellant(s) Versus 1. UNITED INSURANCE CO. LTD. & 4 ORS. NASIK ROAD DIVISIONAL OFFICE, SAUBHAGYA CHAMBERS, OPP. BYTCO TALKIES, NASHIK ROAD-422101 MAHARASHTRA 2. DIVISIONAL MANAGER, UNITED INDIA INSURANCE CO. LTD., NASIK ROAD, DIVISIONAL OFFICE, SAUBHAGYA CHAMBERS, OPP. BYTCO TALKIES, NASIK ROAD-422101 MAHARASHTRA 3. SHRI J.C. BHANSALI SURVEYOR/LOSS ASSESSOR, CHARTERED ACCOUNTANTS, 418, NARAYAN PETH, 1ST FLOOR, UMBRYA GANPATI CHOWK, LAXMI ROAD, PUNE-411030 MAHARASHTRA 4. UNITED INDIA INSURANCE CO. LTD., PUNE REGIONAL OFFICE, BHARATI VIDYAPEETH BHAVAN, LBS ROAD, PUNE-30 MAHARASHTRA 5. UNITED INSURANCE CO. LTD. REG. OFFICE, 24, WHITED ROAD, CHENNAI-600014 TAMIL NADU ...........Respondent(s)
BEFORE: HON'BLE AVM J. RAJENDRA, AVSM VSM (Retd.),PRESIDING MEMBER
FOR THE APPELLANT : FOR THE APPELLANTS : MR. M. VEERA RAGAVAN, PROXY COUNSEL FOR
MR. SUDHANSHU S. CHOUDHARI, ADVOCATE FOR THE RESPONDENT : FOR THE RESPONDENT : MR. RAJESH K. GUPTA, ADVOCATE
Dated : 31 January 2024 ORDER
1. The present First Appeal has been filed under Section 19 of the Consumer Protection Act, 1986 ("the Act") against the Order dated 29.09.2015 passed by the learned State Consumer Disputes Redressal Commission, Maharashtra ("the State Forum"), in No. RBT/CC/13/284, wherein the Complaint of the Complainant (Appellant) was dismissed.
2. There was a delay of 26 days in filing the present Appeal by the Appellant. For the reasons stated in IA/1713/2016, the delay is condoned.
3. For the sake of Convenience, the parties involved in the case are referred as per their identification in the Complaint before the State Commission. The Complainant, Nasik Road Devlali Vyapari, a cooperative bank entrusted with accounts and assets, procured a Banker's Indemnity Insurance Policy valued at Rs. 25,00,000/- from United India Insurance Co. Ltd. United India Insurance Co. Ltd. and four others are herein referred to as the Opposite Parties/Insurer (OPs).
4. Brief facts of the case are that the Complainant, a Cooperative Bank, had obtained an insurance policy from the OPs as precaution against potential losses from various causes. The policy in question specifically covered loss of money due to dishonest acts of the bank's employees, contingent upon the Complainant/bank adhering to certain specified conditions. During the policy period, cash embezzlement occurred, leading to loss exceeding Rs. 21.65 Lakhs for the Complainant/ Bank. Subsequently, the Complainant invoked the insurance policy to recover this loss, but the OP insurer declined the claim, citing the non-observance of a mandatory condition stipulated in the policy by the Complainant/bank. Being aggrieved, the complainant filed Complaint No. 141/2005 (RBT/CC/13/284) before the State Commission, seeking a claim of Rs. 21,65,808.75/- and compensation amounting to Rs. 10 lakhs.
5. In their reply, the OPs contested the claim of the Complainant and contended that the Complainant failed to comply with the terms and conditions outlined in the insurance policy. This purported non-adherence to the stipulated terms and conditions was asserted as the basis for the repudiation of the insurance claim.
6. The State Commission, dismissed the complaint, and directed as follows:
"18. In view of above discussed facts and evidence, we are not of the view to hold the opponent/Insurance Company guilty for deficiency of service. Therefore,
ORDER
1. The consumer complaint stands dismissed
2. Parties to bear their own costs.
3. Upon retaining original set of complaint compilation, other sets of complaint compilation shall be returned to the Complainant forthwith.
4. Copies of the order be furnished to the parties."
7. Being aggrieved by the impugned order dated 29.09.2015 passed by the State Commission, the Complainant (Appellant herein) filed the present Appeal No. 134 of 2016 seeking following:
(a) The order dated 29.09.2015 passed by the State Consumer Disputes Redressal Commission, Maharashtra, Mumbai in Complaint Case No. RBT/CC/13/284 may please be quashed and set aside.
(b) Pass such other or further orders or orders as this Hon'ble Court may deem fit and proper in the facts and circumstances of the case.
8. The Appellant/Complainant mainly raised the following grounds:
The State Commission failed to consider that Respondent No.2 approached the Appellant Bank in 2003-2004, offering a Bankers Indemnity Insurance Policy promising to indemnify the Appellant against any direct loss to its money and securities. Relying on the assurance, they obtained the policy, covering misappropriation or loss on the premises or in transit, forgery, alteration, or criminal acts by an employee resulting in the loss of money or security.
The State Commission overlooked that Subhash Bhikaji Kulkarni, a Head Cashier of the Bank misappropriated Rs.21.65 Lakhs before retiring in February 2004. The Bank, on advice of the Divisional Joint Registrar, Cooperative Societies, Nashik, discovered the same.
The State Commission failed to acknowledge that the Bank promptly lodged an FIR (Crime No. 58/2004) on 17.02.2004, informing Nashik Police Station about the misappropriation. The Respondent No.1 was notified, and the incident was not disputed by Surveyor of OPs.
The State Commission failed to consider that the OPs unlawfully repudiated the claim after one year, citing unfounded reasons wrt to the establishment and maintenance of joint custody, lack of key and code security, no job rotation, inadequate internal control reviews.
The State Commission overlooked the Appellant's records indicating joint custody of money and security, job rotation, and key custody practices, as per Appellant's specific statements in the complaint.
The State Commission failed to note assertions that they maintained two keys for strong room, with custody given to different individuals, including a Head Cashier and a day officer responsible for activating day end in the day book and signing the cash summary.
The State Commission failed to consider RBI guidelines on custody and keys, crucial in this context that they adhered to the guidelines by taking necessary precautions.
9. Upon notice on the memo of appeal, the Respondents have not filed any reply/objections to the present appeal. However, vide Order dated 19.09.2018 of this Commission, the learned Counsel for Respondents No. 1,2,4 and 5 (United India Insurance Co. Ltd) stated that notice was not served on Respondent No. 3. It was clarified that, being a surveyor, Respondent No. 3 bore no liability. The Respondents filed written submission, reiterating the facts of the case.
10. The Learned Counsel for Appellant/Complainant reiterated the grounds of appeal and asserted that the insurance policy obtained by the Bank covered the loss due to dishonest or criminal act of the employees. As per him, the Policy is a blend of various sections of coverage to protect the bank from loss of money and/or securities on-premises and in transit due to various threats such as loss due to forgery, fraud, and dishonesty. The bank employee (Subhash Bhikaji Kulkarni), who was about to retire in February, 2004 did not attend the bank on the verge of his retirement. On suspicion, based on the advice of Divisional Joint Registrar, Co-operative Bank, the Manager broke open the vault and found that the said employee misappropriated money to the tune of Rs. 21.65 Lakhs. Immediately, an FIR was registered on 17.02.2004 u/s. 406 of IPC and the OPs were informed. The same was not disputed by the surveyor appointed by the OPs. He asserted that, the happening of the incident was an established fact. It happened during the subsistence of policy, which covered the losses due to dishonesty. The dishonest employee was prosecuted under criminal law and dismissed from service for misappropriation of Rs. 21.65 Lakhs during his tenure as Head Cashier. He argued that the State Commission has not considered the records produced by bank showing the Joint custody of money and security. The cash was counted by the cashiers and handed over daily to the head cashier shows the joint handling of cash by the cashiers. He asserted that there were two keys of strong room, one key was with Head Cashier and another with branch officer. The bank followed the guidelines of the RBI in this regard, which ought to be read in conjunction with the terms of policy. The learned Counsel contended that the claim was responded after one year, that too after following up with several remainders. OPs repudiated the claim on the ground that joint custody and maintenance for safeguarding money and securities in safe was not established and review of internal controls was not done. This is baseless. The OPs indulged in unfair trade practice causing huge loss to the bank. The surveyor and loss assessor of the OPs was not even lawfully empowered and capable to be a surveyor. This was also observed by the State Commission. The Banker's Indemnity Insurance policy was availed by the bank was to safeguard the public money and not for the benefit of the Bank. He asserted that the Complaint filed by the Appellant bank deserves to be allowed.
11. On the other hand, the learned Counsel for Respondent reiterated the facts and evidence filed before the State Commission and argued that the Report of the Surveyor report revealed that there was no job rotation of the Head Cashier from the date he joined the branch. Mr SB Kulkarni continuously worked as Head Cashier for nine years in the same branch. No cash verification was conducted after 20.09.2003 for over four months. Mr SB Kulkarni was single custodian cash and no joint custody was established and maintained for safeguarding cash. It is condition precedent towards the liability of the relevant policy that the insured shall comply with establishment and maintenance of Joint Custody towards safeguarding of Money and or securities while and safe or vaults, all keys to safe and vaults and Codes, ciphers and keys. There should be job rotation of employees handling money or securities. In addition to normal audit of books of accounts by the auditor, there shall be review of internal controls at least once in two years. The surveyor brought out that the conditions with respect to liability in respect of joint custody, job rotation and review of internal controls were not complied with. The claim was repudiated vide letter dated 15.06.2005 as no joint custody was established and maintained for safeguarding of money and securities while in the safe or vaults and the keys to shelves and vaults, Codes, Ciphers and test keys were not secured. No job rotation of staff handling money or securities was ensured. In addition to normal audit of books of business no review of internal controls was undertaken as prescribed. Necessary no dual control or joint custody to be maintained was not ensured. He relied on the following judgments to support his arguments:-
a. Sri Venkateswara Syndicate Vs. Oriental Insurance Company Limited and Another, (2009) 8 SCC 507.
b. Khatema Fibers Ltd. Vs. New India Assurance Company Ltd. and Anr., 2021 SCC OnLine SC 818.
12. I have examined the pleadings and associated documents placed on record and rendered thoughtful consideration to the arguments advanced by learned counsels for both the parties.
13. The main issue at hand is the whether the Appellant's claim against United India Insurance Co. Ltd, under the Bankers Indemnity Insurance Policy is liable to be paid. The Appellant, a cooperative bank, alleged to have suffered loss of Rs. 21.65 lakhs due to the dishonest conduct of its head cashier, Mr. SB Kulkarni. The insurance claim was repudiated by the Respondents based on certain alleged failures to adhere to the prescribed condition precedents outlined in the policy. The key contentions include the non-establishment and maintenance of joint custody for safeguarding of money and securities, the absence of job rotation for the head cashier, and the failure to conduct internal control reviews as required by the policy. The observations of surveyor in assessing the admissibility of the claim indicated lack of dual control or joint custody.
14. Undisputedly, the contracts of insurance are essentially based on the principle of, "utmost good faith" and both parties are obliged to exhibit good faith and disclose material facts. While the claims with respect to losses to firms, individuals etc are decided as per policy and facts of the case, on the other hand, the same wrt Banks and Financial Institutions are required to reasonably establish that the policies, procedures are followed in letter and spirit, towards securing interests of customers.
15. In the present case, it is an admitted fact that the Complainant Bank obtained the said Banker's Indemnity Insurance Policy and the said incident of criminal misappropriation has taken place. It is also undisputed that the loss was due to the conduct of an employee of the Bank. While the said employee was prosecuted departmentally and dismissed from the service, the loss of cash of Rs.21.65 Lakhs was sustained by Complainant bank. It is also a fact that the Insurance Policy issued by OPs covers losses due to dishonest conduct of the employees. An FIR was filed against the accused revealed that he, as the 'Head Cashier', misappropriated the said amount of over Rs.21.65 Lakhs from time to time. In normal course, the loss is covered under the policy, provided that the Complainant had adhered to certain conditions stipulated in the policy. These condition precedents under the policy include compliance with all material instructions in manual of instructions covering the procedure for handling money and/or securities kept on the premises. Joint custody shall be established and maintained for the safeguarding of (i) money and/or securities while in safe or vaults (ii) all keys to safe and vaults and (iii) codes, ciphers and test keys. Joint custody means handling of cash and valuable securities in the presence of or under the observation of at least one other person, who is equally accountable for physical protection and safeguarding of the various security items including money locks. The combinations on vaults and safes must be so arranged that no one person can open them alone. Dual control shall be established and maintained for the handling of all types of securities. There should be job rotation for employees handling money and/or securities. Further, in addition to a normal audit of books of accounts, there should be a review of internal controls at least once in two years. While records were presented to show that the statutory audits were held, and thus control has been exercised on all types of securities, but who was responsible to check and control the same was not established. Undisputedly, a single person was able to misappropriate very large amounts of cash over a period of nine years. The suspicion also arose after he stopped coming for work for a long time. This makes the absence of checks and balances to undertake regular cash checks, rotation of staff and ensure effective audit conspicuous. Mere fact that only one person was held accountable for misappropriation and embezzlement of such large amount in cash of Rs.21.65 Lakhs as Head Cashier for continuously for nine years is reflects system failure and non adherence to checks and balances which are essential in any business entity, that too one like a Complainant Bank. The survey report dated 10.12.2004 is comprehensive and based on facts.
16. The Hon'ble Supreme Court in Sri Venkateswara Syndicate Vs. Oriental Insurance Company Limited and Another, (2009) 8 SCC 507, decided on 24.08.2009, has held that:
"32. There is no disputing the fact that the surveyor / surveyors are appointed by the insurance company under the provisions of the insurance Act and their reports are to be given due importance and one should have sufficient grounds not to agree with the assessment made by them...
35. In our considered view, the Insurance Act only mandates that while settling a claim, assistance of a surveyor should be taken but it does not go further and say that the insurer would be bound by whatever the surveyor has assessed or quantified; if for any reason, the insurer is of the view that certain material facts ought to have been taken into consideration while framing a report by the surveyor and if it is not done, it can certainly depute another surveyor for the purpose of conducting a fresh survey to estimate the loss suffered by the insured."
37. The option to accept or not to accept the report is with the insurer. However, if the rejection of the report is arbitrary and based on no acceptable reasons, the courts or other forums can definitely step in and correct the error committed by the insurer while repudiating the claim of the insured. We hasten to add, if the reports are prepared in good faith, with due application of mind and in the absence of any error or ill motive, the insurance company is not expected to reject the report of the surveyors."
17. In Khatema Fibres Ltd. v. New India Assurance Company Ltd., 2021 SCC OnLine SC 818, decided on 28.09.2021 it was held that:
"32. It is true that even any inadequacy in the quality, nature and manner of performance which is required to be maintained by or under any law or which has been undertaken to be performed pursuant to a contract, will fall within the definition of the expression 'deficiency'. Butto come within the said parameter, the appellant should be able to establish (i) either that the Surveyor did not comply with the code of conduct in respect of his duties, responsibilities and other professional requirements as specified by the regulations made under the Act, in terms of Section 64UM(1A) of the Insurance Act, 1938, as it stood then; or (ii) that the insurer acted arbitrarily in rejecting the whole or a part of the Surveyor's Report in exercise of the discretion available under the Proviso to section 64UM(2) of the Insurance Act, 1938.
37. Two things flow out of the above discussion, They are (i) that the surveyor is governed by a code of conduct, the breach of which may give raise to an allegation of deficiency in service; and (ii) that the discretion vested in the insurer to reject the report of the surveyor in whole or in part, cannot be exercised arbitrarily or whimsically and that if so done, there could be an allegation of deficiency in service.
38. A Consumer Forum which is primarily concerned withan allegation of deficiency in service cannot subject the surveyor's report to forensic examination of its anatomy, just as a civil court could do. Once it is found that there was no inadequacy in the quality, nature and manner of performance of the duties and responsibilities of the surveyor, in a manner prescribed by the Regulations as to their code of conduct and once it is found that the report is not based on adhocism or vitiated by arbitrariness, then the jurisdiction of the Consumer Forum to go further would stop."
18. In view of the discussion above, I am in the considered view that the detailed and well reasoned order of the learned State Commission does not suffer from any illegality. The FA No. 134 of 2016 is, therefore Dismissed.
19. There shall be no order as to costs.
20. Pending applications, if any, stand disposed of accordingly.
................................................................................... AVM J. RAJENDRA, AVSM VSM (Retd.) PRESIDING MEMBER