State Consumer Disputes Redressal Commission
Kassa Finvest Private Limited vs The New India Assurance Company Limited on 16 September, 2010
1 IN THE STATE COMMISSION : DELHI (Constituted under Section 9 clause (b)of the Consumer Protection Act, 1986 ) Date of Decision: 16-09-2010 Case No. C-08/61 M/S KASSA FINVEST PRIVATE LIMITED, - COMPLAINANT A COMPANY REGISTERED UNDER THE COMPANIES ACT 1956 HAVING ITS REGISTERED OFFICE AT: H-35/3, Ground Floor, Connaught Circus, New Delhi 110001; and CORPORATE OFFICE AT 17-A/53 (3rd Floor), WEA Karol Bagh, New Delhi 110005 THROUGH SHRI NEELESH KUMAR, ITS MANAGER Versus THE NEW INDIA ASSURANCE COMPANY LIMITED, - RESPONDENT Divisional office 112700, Cooperative Insuracne Building, Above Kashmir Art Emporium, 4th \floor, Sir P.M. Road, Fort, Mumbai 400 001. CORAM : JUSTICE BARKAT ALI ZAIDI - President SHRI M.L. SAHNI - Member 1. Whether reporters of local newspapers be allowed to see the judgment? 2. To be referred to the Reporter or not? SHRI M.L. SAHNI (ORAL) ORDER
1. The complainant is a company registered under the Companies Act, 1956 and carries on the business of stock broker, registered with the Securities and Exchange Board of India (SEBI), and is a member of National Stock Exchange NSE) since the formation of the NSE in the year 1995.
The complainant has been regularly obtaining Stock Brokers Indemnity Insurance Policy from the Respondent, which is compulsory as per SEBI guidelines. The policies are issued through the NSE and cannot be taken directly. The policies are issued by the Respondent year after year, initially on provisional basis, and later on premium is adjusted as per actual turnover of the Complainant during the year. One such policy, namely, Stock Brokers Indemnity Insurance Policy NO. 112700/46/07/51/00000300 was obtained by the Complainant from the Respondent for the period from 01-06-2007 to 31-05-2008 with the sum insured at Rs. 50,00,000.00.
2. As per Section-II of the policy dealing with Errors & Omissions (Liability), the Respondent agreed to indemnify the Complainant in respect of the Complainants legal liability to third parties for any third party claim for com pensatory damages, for financial loss caused by a negligent act, negligent error or negligent omission on the part of an Officer or Employee of the insured or a dishonest or fraudulent act or omissions on the part of an officer or employee of the insured, and any pecuniary loss suffered by the insured as a direct result of any negligent act, negligent error, negligent commission or omission by their employee(s) taking place in course of insureds business activity.
3. It is alleged that on 08-06-2007, Shri S.N. Mohta, one of the clients of the Complainant (Client Code CFD7) visited the Faridabad Branch office of the Complainant and placed an order to sell 100 shares of UFLEX at Rs. 149/- per share, with Shri Vijay Chandak, Branch Manager of the Complainant, on the trading terminal of NSE.
Either the tab key did not operate or he missed the use of tab key which resulted into the figure of price of 149 getting fed into the quantity field after 100 which was already there, making the quantity read as 100149. The other usual keys were pressed, and the order was put through by the system.
4. The complainant has large number of Branches throughout country,and to avoid losses on account of errors and omissions on the part of its officers/ employees such as the one stated above, it has installed sophisticated equipments at its Head Office by way of surveillance, at a heavy cost of approximately Rs. 25,00,000/- so that if the transactions exceed the parameters as provided therein, the same will not be fed into the NSE trading terminal. Thus, client exposure limit of Rs. One lakh and terminal quantity limit of 17000 shares, were provided in respect of the concerned Branch office at Faridabad, at the surveillance level. All equipments, however sophisticated they may be, are ultimately handled by human beings, and chances and likelihood of errors and omissions cannot be ruled out.
5. It is further alleged that on account of punching of the wrong figure by Shri Vijay Chandak, involved 100149 shares instead of 149 shares, and it failed at the surveillance in the Head Office of the Complainant, as it exceeded the client exposure limit of Rs. One lakh and the terminal quantity limit of 17000 shares.
The time was around 3.15 p.m., and there was heavy trading on the day, before the close of the market at 3.30 p.m. Shri Vijay Chandak received the message on his terminal that his order was stopped at the surveillance in the Head Office, and, therefore under pressure from Shri S.N. Mohta his client to complete the transaction of sale of 100 shares without any loss of time, he rang-up Shri Ashish Garg, Manager Surveillance in the Head Office of the complainant, and requested him to accept the order and to pass it on to NSE. Shri Vijay Chandak while making such request to the Executive at the surveillance in the Head Office, did not see any reason why the order for sale of 100 shares ought to have been stopped, as he was not aware of the mistake made by him on the NSE trading terminal, feeding in the figure of 100149. Shri Ashish Garg who was under pressure in the last half hour of working and also because the call came from the Branch Manager, pressed the acceptance keys without actually going into the details of the cause of holding up of the order by the system. Thus the order for sale of 100149 shares went through to NSE for execution, whereas only 100 shares were in fact intended to be sold @Rs.149/- per share.
6. The complainant, immediately upon noticing the error, made efforts to reverse the damage, and put buy orders into the system to cover the sales. However, the price of the share had already reached the freezing level, and therefore only 21702 shares could be purchased from the market out of the entire quantity of 100149 shares sold, leaving 78447 shares as sold blank. The complainant in this manner was able to make good some of the losses suffered on account of the negligent acts of its executives as stated above. On 08-06-2007 itself complainant intimated the Respondent Insurance Company regarding the incident. The OP vide letter dated 16-07-2007 informed the complainant that M/s R.G. Verma & Associates were appointed as surveyor to survey and assess the loss.
7. Complainant soon after the incident approached NSE and informed them of the error committed by its executives in feeding the figure of 100149 instead of 149 shares into the trading terminal. NSE was requested to approach the counter party to appreciate the genuine mistake and to cancel the trade. However, NSE informed the complainant subsequently that the counter party was unable to help, as their client was not agreeing to the cancellation of the trade. The Complainant therefore made sustained efforts to reduce the loss and collected further 606 shares including adjustment of 100 shares sold by Shri Mohta.
8. Ultimately, because the deliveries could not be given to NSE, auction of 77841 shares was done by NSE, and Rs.1,40,33,831.45 was debited to the Complainant. The Complainant in this manner suffered a loss of Rs. 23,93,746/-. The loss occurred on account of error and/or omission on the part of the officials of the Complainant while punching the number of shares on the NSE terminal and thereafter in clearing it beyond the surveillance level at the Head Office.
Such human errors or omissions that occurred on account of lack of reasonable care on the part of employees of the Complainant, were clearly covered under Section-II of the Policy, which provided indemnity in much worse situations, such as negligent, dishonest or fraudulent act, error or omission on the part of its officers and employees, and these were precisely the perils insured against under the policy in question.
9. The Surveyor submitted his final survey report dated 17-09-2007 to the Respondent Insurance Company, accepting therein that the Complainant suffered a loss of Rs. 23,93,082/- but after deducting compulsory excess of Rs. 25,000/- and additional excess @ 5% of the claim as per terms and conditions of the policy, assessed the net loss at Rs. 22,48,428/-.
The Surveyor, however, stated in the report that the loss occurred on account of lack of reasonable care on the part of the Complainants Officers/Employees and referred to Clause 11 of the General Conditions of the policy, which provided, inter alia, as under:
The policy is subject to the duty of care on the part of the insured and the insured shall extend all due diligence care and concern having due regard to the market practice to protect and safeguard the legitimate interest of the Insurers.
Duty of care as applicable to the insured shall be deemed to extend to their agencies and their employees also.
10. According to the complainants the said general condition amounted to obliterating and rendering wholly ineffective the nature of indemnity as provided in Section- II of the policy, with regard to a negligent, dishonest or fraudulent act or omission of the employees of the complainants. There is no such clause regarding requirement of reasonable care in the terms and conditions of Section-II of the policy dealing with Errors & Omission (Liability). In fact no such provision is also contained in the General Exclusions clause (A) of the policy in question, or for that matter under exclusions specific to Sections II and III under clause (D) of the General Exclusions of the policy. The surveyor himself stated in the report that there are no breach of policy terms and conditions.
11. It is contended by the complainants that the degree of care or the lack of it under clause 11 of the General Conditions of the Policy, would be very negligible or trivial, as compared to a negligent act or omission. On the other hand, a dishonest or fraudulent act is in fact not a case of lack of reasonable care at all, but in the nature of a malicious act, intended to cause harm to others. That OP accepting the observations of the surveyor rejected the claim of the complainant vide letter of repudiation dated 10-12-2007, illegally and without any justification.
12. It is further, the case of the complainants that the OP in the letter of repudiation dated 10-12-2007 clearly admitted that Shri Vijay Chandak the Branch Manager had committed a punching error, and, that Shri Ashish Garg, the Surveillance Manager also committed a negligent act/omission, resulting in the loss. It stands fully indemnified against under Section-II of the Policy, and clause 11 of the General Conditions of the Policy by no stretch of imagination could have applied. The complainant vide a letter dated 06-02-2008 to the Head Office of the OP, requested them to reconsider the matter and to pay the claim. But to no relief.
13. The complainant then filed present complaint praying for compensation of loss of Rs. 22,48,428.00 with interest @18% per annum with effect from 08-06-2007 i.e. date of loss till realization besides Rs. 2,00,000/- as damages and Rs. 1,00,000/- as cost of litigation.
14. The OP Insurance Company have not disputed the Insurance Policy and on facts stated that it is the cardinal principle of law of insurance that the insured has to take all reasonable steps to check and minimize the loss. It is denied that all losses on account of errors and omissions of officers and employees of the complainant are fully covered under the Stock Brokers Indemnity Policy. The policy excludes gross negligence, total lack of care and diligence of the employees/officers of the complainant.
15. They submitted that the Surveillance Manager of the complainant acted in a grossly negligent manner in accepting the order despite the fact that the entry was held-up at the system. He ought to have verified the same thoroughly as a prudent person before finally pressing keys on the system. He did not verify that the order was for 100149 shares whereas the quantity limit was only 17000 shares. The value of the order was about 1.50 crores against the limit of Faridabad Office being 50 lakhs only and the client limit of Rs. 1 lakh. This act of the officer of the complainant is highly negligent and casual which has resulted into loss.
16. They contended that claim of the complainant was found not payable after due application of mind to the facts and circumstances of the case in a proper and fair manner after perusing the report of the Surveyor, hence it does not give rise to consumer dispute and the same is not maintainable under the Consumer Protection Act and is liable to be dismissed.
17. The claim was repudiated as not admissible under condition No.11 of the terms and conditions of the insurance policy, as no due care and diligence had been taken by the surveillance manager while punching the number of shares on NSE terminal and thereafter in learing it at the surveillance level.
18. They further pleaded that the insurance policy is a contract between the parties and both the parties are bound by the contract. The insurance policy has to be strictly construed to determine the liability of the insurer having reference only to the stipulations contained in it and no artificial far-fetched meaning could be given to the words appearing in it.
19. We have heard the Ld. Counsel for the parties at length. We have thoughtfully examined the material on record.
20. The issue involved in the present complaint is only with regard to interpretation of the terms and conditions of the Insurance Policy ExC-2.
21. The complainants rely upon Section II of the Policy regarding errors and omissions (Liability). Para A of this Section, states inter-alia that in respect of the Insureds legal liability to third parties for any third party claim must:-
(ii) (a) be for financial loss caused by a negligent act, negligent error or negligent omission on the part of an officer or employee of the insured:
or
(b) be for financial loss caused by a dishonest or fraudulent act or omission on the part of an officer or employee of the insured;
22. Conversely, the OP have repudiated the claim taking shelter under general conditions of the policy. Condition No. 11 reads as follows :
The policy is subject to the duty of care on the part of the insured and the insured shall extend all due diligence care and concern having due regard to the market practice to protect and safeguard the legitimate interest of the insurer. Duty of care as applicable to the insured shall be deemed to extend to their agencies and their employees also. The insured shall initiate disciplinary or legal action as and when warranted on his own initiative and/or as advised by the insurer. The insured shall also cooperate with the insurer in all legitimate manner in all criminal or civil proceedings that are so warranted. In case of losses arising out of demat shares or cash, steps should be taken to freeze the amount lying in the culprits account.
23. The Ld. Counsel for the complainant has submitted that while interpreting the terms of the insurance policy, if two views are possible, one which is favourable to the policy holder has to be accepted. In this respect he has placed reliance on celebrated judgment of Honble Supreme Court in case of United Insurance Co. Ltd., vs Great Eastern Shipping Co. Ltd., (AIR 2007 SC 2556).
24. We have gone through the ruling thoroughly and have found that it squarely deals with the issue involved in present dispute before us. Following observations quoted from a decision laid in General Assurance Society Ltd. vs Chandanmall Jain & anrs are quite apposite for our purpose:
In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e. good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity or doubt. A contract is formed where there is an unqualified acceptance of the proposal. Acceptance may be expressed in writing or it may even be implied if the insurer accepts the premium and retains it. In the case of the assured, a positive act on his part by which he recognizes or seeks to enforce the policy amounts to an affirmation of it.
This position was clearly recognized by the assured himself, because he wrote, close upon the expiry of the time of the cover notes, that either a policy should be issued to him before that period had expired or the cover note extended in time. In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the courts to make new contract, however reasonable, if the parties have not made it themselves. (Stress supplied).
25. It is further observed in the cited judgment that after considering the ratio with regard to the construction of the terms of the policy it transpires that while interpreting the policy the courts should keep in view the intention of the parties as well as the words used in the policy. If the intention of the parties subserves the expression used therein then the expression used in that context should be given its full and extended meaning. (Stress supplied).
26. It is admitted case of the OP themselves that the Surveillance Manager of the complainant acted in a grossly negligent manner and the liability clauses categorically provide for indemnification in respect of the insureds legal liability to third parties for any third party claim if the financial loss is caused by a negligent act, negligent error or negligent omission on the part of an officer or employee of the insured.
27. In the present case since the loss has been caused to the complainant - insured due to admitted negligence of employee of the complainant, therefore, the complainant are entitled to be indemnified for the loss occurred. The general conditions will come into play only if the case of the complainant does not fall within section II i.e. Errors and Omissions. The OP cannot be allowed to take shelter under general conditions especially when the purpose is covered under Section II as stated above of the policy taken with the sole intention to cover situations as prevailed in the present case.
28. In this view of the matter, we find no justification for the OP to repudiate the claim for loss duly assessed by their own surveyor to the tune of Rs. 22,48,428/-.
29. Hence, allowing the complaint, we hold the OP guilty of indulging in Unfair Trade Practice as well as for deficiency-in-service in rejecting the genuine claim of the complainant without just cause. OP have also deprived the complainant of the money of claims since the date of lodging the claim with the OP. Yet, we find it equitable if the complainant is allowed interest on the claim amount at least with effect from the date of filing the complaint before us. It was filed on 26-03-2008. Hence we pass the following order in this complaint:-
i) That OP shall pay to the complainant a sum of Rs.
22,48,428/- (Rupees Twenty Two Lakhs Fourty Eight Thousand Four Hundred and Twenty Eight only) with simple interest @5% per annum with effect from 26-03-2008 till realization;
ii) No separate order for compensation or cost of litigation because award of interest will amply meet the ends of justice.
30. Bank Guarantee/FDR, if any, be returned to the appellant after completion of due formalities.
31. A copy of this order as per the statutory requirements be forwarded to the parties free of charge and thereafter the file be consigned to Record Room.
32. Announced on 16th August 2010.
(JUSTICE BARKAT ALI ZAIDI) PRESIDENT (M.L. SAHNI) MEMBER AV