Kdac Chem Pvt Ltd vs Oriental Insruance Company Ltd on 19 September, 2014

[Cites 8, Cited by 0]

Gujarat High Court

Kdac Chem Pvt Ltd vs Oriental Insruance Company Ltd on 19 September, 2014

1. In this petition filed under Articles 226 of the Constitution of India, the petitionerinsured has challenged the action of the respondentthe insurer of repudiating the claim of the petitioner for loss suffered by it in fire took place at its factory premises on 22.11.2010.

2. The petitioner has averred in the petition that the petitioner deals in the business of manufacturing and exporting aroma chemicals for perfume industry from the factory premises at GIDC Nandesari, Baroda. The respondent has issued a standard fire and special peril policy for the total sum of Rs.35,20,00,000/ for the period between 23.11.2009 to 22.11.2010, covering the risk for building, plant, machinery, accessories, FFF Stocks etc. within the factory premises. On 22.11.2012, incident of fire and explosion occurred at the factory premises of the petitioner at about 4:30 A.M. causing loss to the building, plant, machinery, stocks to the extent of Rs.18 Crore. The explosion was so severe that it caused human casualty and injury to 7 persons. Such incident was immediately reported to the various authorities including the respondent on the same day. Page 2 of 23

C/SCA/14058/2013 JUDGMENT There was also a police complaint lodged by the police person in connection of the incident of explosion. The respondent appointed its surveyor M/s. Rakesh Narula & Company before whom the petitioner provided all information and filed a final claim of Rs.17,17,43,113/. The surveyor submitted interim report dated 28.04.2011 and recommended payment of Rs.5 Crores to the petitioner. The surveyor thereafter filed final report dated 27.12.2012, assessing net loss of Rs.8,10,82,160/.

3. The petitioner has averred that Rs.19,91,800/ was not considered by the surveyor though the petitioner have provided sufficient material showing the expenses incurred by the petitioner and thus, the petitioners have claimed that it is entitled to Rs.8,30,73,916/ as total amount from the respondent under the fire policy. The petitioner repeatedly requested the respondent to pay the aforesaid amount, but, in stead of paying such amount, the respondent has repudiated the claim of the petitioner by impugned decision dated 31.12.2012 on the ground that the petitioner has failed to submit the report of the Inspectorate of the Factories.

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4. The petition is opposed by affidavit in reply contending that the petition is for enforcing private contract and is in the nature of the money claim and therefore the petition under Article 226 of the Constitution of India is not maintainable. The petition is also opposed on merits.

5. In the further parawise affidavit in reply it is stated that since the petitioner was dealing in aroma products/chemicals, the petitioner has to show by cogent and convincing evidence that the old and outdated machineries were not used and that the machineries used were maintained in proper condition. It is also stated that the petitioner is also to prove that skilled workers for distillation by vacuum pump were used and there was no additional extra stock pile of chemicals and their cylinders were not causing hazardous and perilous condition in the factory and that there was no negligence or voluntary act which caused explosion and consequent fire. It is stated that such facts could be established only before the competent civil Court by adducing evidence and petition for such purpose is wholly untenable. It is Page 4 of 23 C/SCA/14058/2013 JUDGMENT stated that though the petitioner has in his possession visit book and other documents, however, the petitioner untruthfully stated that they were burnt in fire. It is further stated that the assessment made by the surveyor is not final and the petitioner is to prove his final claim by leading evidence.

6. I have heard learned advocates for the parties. Learned advocate Mr.C.S.Joshi for the petitioner submitted that there is no dispute about the fact that the risk of loss by fire to the properties in the factory premises of the petitioner stood covered under the standard fire and special perils policy when the incident of explosion occurred in the factory premises of the petitioner on 22.11.2010. Mr.Joshi submitted that the surveyor appointed by the respondent found that the petitioner suffered damages on account of fire took place on 22.11.2010 and it accordingly assessed the damage suffered by the petitioner. Mr.Joshi submitted that it is not for the petitioner to prove that for no negligence or voluntary act of the petitioner, the fire took place. Mr.Joshi submitted that the respondent has repudiated the claim Page 5 of 23 C/SCA/14058/2013 JUDGMENT of the petitioner on a reverse theory of onus of proof by asking the petitioner to produce the inspection report of the factory inspector to satisfy itself whether the plants, machineries, etc. in the factory premises were properly maintained or not. Mr.Joshi submitted that on such ground the valid claim of the petitioner for insurance amount against the damage suffered by the petitioner cannot be repudiated. Mr.Joshi submitted that unless the respondent with concrete material established that it was the voluntary act of the petitioner to cause fire in the factory premises, the petitioner cannot be denied its legitimate claim of insurance amount under the insurance policy. Learned advocate Mr.Joshi has relied on the judgments in case of ABL International Ltd. And Another v. Export Credit Guarantee Corporation of India Ltd. and Others, reported in 2004 (3) SCC 553. Mr.Joshi thus urged to allow the petition.

7. As against the above arguments, learned advocate Mr.R.H.Mehta for the respondent submitted that since the petitioner has claimed to have suffered damages on account of fire took place in its factory premises, it Page 6 of 23 C/SCA/14058/2013 JUDGMENT is for the petitioner to prove by cogent and reliable evidence that such fire took place not on account of its negligence or its voluntary act. Mr.Mehta submitted that such facts could be proved only by leading evidence before the competent Civil Court and it is not open to the petitioner to invoke extraordinary jurisdiction of this Court under Article 226 of the Constitution of India.

8. Mr.Mehta submitted that the claim of the petitioner arise out of the private contract between the parties and since the claim is to be established under such contract, the remedy for the petitioner is before the appropriate alternative forum including the Civil Court and this Court cannot be called upon to decide the factual disputes between the parties in exercise of extraordinary powers under Article 226 of the Constitution of India. Mr.Mehta submitted that though the petitioner was time and again called upon to submit the inspector's report, who made several visits during the period covered by the fire policy, however, the petitioner avoided to produce either the visit book, which reflects the visits of the factory inspector or any other document showing the inspection Page 7 of 23 C/SCA/14058/2013 JUDGMENT made by the factory inspector. Mr.Mehta submitted that later on the petitioner himself produced the photocopy of the inspection report of the factory inspection, which shows that the petitioner had deliberately kept back the visit book with him in the false pretext that the visit book and other documents were burnt when the fire took place in the factory premises. Mr.Mehta submitted that it is for the insured to prove by cogent and reliable evidence that he suffered loss in fire not on account of his own negligence or his voluntary act. Mr.Mehta submitted that such could only be proved before the competent forum where the disputes on such aspects can be adjudicated on the basis of evidence to be led by the parties. Mr.Mehta submitted that here is a case where the petitioner has deliberately kept back the vital information as regards visit of its factory premises by the factory inspector with only intention to see that true facts as regards not maintaining the factory premises in proper condition may not come to the notice of the respondent. Mr.Mehta submitted that the surveyor though was not authorized to speak anything about legal entitlement of the petitioner under the Page 8 of 23 C/SCA/14058/2013 JUDGMENT fire policy, has still opined in his report that the petitioner has become entitled to claim for the loss suffered by it in his factory premises under the fire policy. Mr.Mehta submitted that it is for the respondent to accept the assessment made by the surveyor and therefore, the report of the surveyor cannot be a final proof as regards the entitlement of the petitioner to claim for loss under the fire policy. Mr.Mehta submitted that the reason given by the respondent in repudiating the claim of the petitioner is valid and germane for taking the decision on the claim of the petitioner and therefore it cannot be said that the action taken by the respondent in repudiating the claim of the petitioner is not supported by any valid reason. Mr.Mehta submitted that the decision relied on by learned advocate for the petitioner in the case of ABL International Limited (supra) shall have no application to the facts of the case. Mr.Mehta has relied on the judgment in the case of State of U.P. and Others v. Bridge & Roof Company (India) Ltd., reported in (1996) 6 SCC 22. Mr.Mehta thus urged to dismiss the petition.

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9. Having heard learned advocates for the parties and on perusal of the papers, it appears that insurance coverage was extended to the petitioner under the standard fire and special peril policy for the period between 23.11.2010 to 22.11.2011, covering the risk of fire loss. During this period, explosion occurred on 22.11.2010 causing fire in the factory premises of the petitioner. The surveyor appointed by the respondent initially submitted interim assessment report and then submitted final report. However, the respondent has repudiated the claim of the petitioner on the ground that the petitioner failed to submit the report of the inspectorate of the factories in spite of the repeated requests made by the respondent.

10. The first objection raised by Mr.Mehta for the respondent is against invoking of writ jurisdiction of this Court under Article 226 by the petitioner on the ground that the claim made by the petitioner in the petition arise out of the contract between the parties and disputed questions of facts will be required to be gone into to decide such claim, for which the proper remedy for the petitioner is either the consumer forum Page 10 of 23 C/SCA/14058/2013 JUDGMENT or Civil Court or any other appropriate forum.

11. Mr.Mehta however, could not dispute that the respondent is a State within Article 12 of the Constitution of India. Therefore in relation to a claim arising out of the contract with the State Authority, if the decision is found to be arbitrary or not meeting the test of reasonableness and hit by Article 14 of the Constitution of India, and no factual disputes are to be decided, the petition under Article 226 could be entertained.

12. In the case of Bridge and Roof Company (supra), Hon'ble Supreme Court has held and observed in para No.16, 17 and 21 as under:

"16. Firstly, the contract between the parties is a contract in the realm of private law. It is governed by the provisions of the contract Act or may be,also by certain provisions of the sale of Goods Act.Any dispute relating to interpretation of the terms and conditions of such a contract cannot be agitated, and could not have been agitated, in a writ petition. That is a matter either for arbitration as provided by the contract of for Civil court as the Page 11 of 23 C/SCA/14058/2013 JUDGMENT case may be. whether any amount is due to the respondent from the appellant Government under the contract and,if so, how much and the further question whether retention or refusal to pay any amount by the Government is justified, or not are all matters which cannot be agitated in or adjudicated upon in a writ petition. The prayer in the writ petition,viz.,to restrain the Government from deducting particular amount from the writ petitioner's bill(s) was not a prayer which could be granted by the High court under Article 226. Indeed, the High Court has not granted the said prayer.

17. Secondly, whether there has been a reduction in the statutory liability on account of a change in law within the meaning of subclause (4) of clause 70 of the contract is again not a matter to be agitated in the writ petition. That is again a matter relating to interpretition of a term of the contract and should be agitated before the arbitrator in the civil court,as the case maybe. If any amount is wrongly withheld by the Government, the remedy of the respondent is to raise a dispute as provided by the contract or to approach the civil court, as the case may be according to law.

Similarly if the Government says that any overpayment has been made to the respondent, Page 12 of 23 C/SCA/14058/2013 JUDGMENT its remedy also is the same.

21. There is yet another substantial reason for not entertaining the writ petition. The contract in question contains a clause providing inter a1ia for settlement of disputes by reference to arbitration [Clause 67 of the Contract]. The Arbitrators can decide both questions of fact as well as questions of law. When the contract itself provides for a mode of settlement of disputes arising from the contract, there is no reason why the parties should not follow and adopt that remedy and invoke the extra ordinary jurisdiction of the High Court under Article 226. Tree existence of an effective alternative remedy in this case, provided in the contract itself is a good ground for the court to decline to exercise its extraordinary jurisdiction under Article

226. The said Article was not meant to supplant the existing remedies at law but only to supplement them in certain well recognised situations. As pointed out above, the prayer for issuance of a writ of mandamus wastes wholly misconceived in this case since the respondent was not seeking to enforce any statutory right of theirs nor was it seeking to enforce any statutory obligation cast upon the appellants. Indeed, the very resort to Article 226 - whether for issuance of mandamus or any other writ, Page 13 of 23 C/SCA/14058/2013 JUDGMENT order or direction was misconceived for the reasons mentioned supra."

13. In the case of ABL International Ltd. and Another (supra), Hon'ble Supreme Court has held and observed in para No.8, 10, 28 and 53 as under:

"8. As could be seen from the arguments addressed in this appeal and as also from the divergent views of the two courts below one of the questions that falls for our consideration is whether a writ petition under Article 226 of the Constitution of India is maintainable to enforce a contractual obligation of the State or its instrumentality, by an aggrieved party.

10. It is clear from the above observations of this Court in the said case though a writ was not issued on the facts of that case, this Court has held that on a given set of facts if a State acts in an arbitrary manner even in a matter of contract, an aggrieved party can approach the court by way of writ under Article 226 of the Constitution and the court depending on facts of the said case is empowered to grant the relief. This judgment in K.N. Guruswamy Vs. The State of Mysore and others was followed subsequently by this Court in the case of The D.F.O, South Kheri & Ors. Vs. Ram Sanehi Singh [ 1971 (3) SCC Page 14 of 23 C/SCA/14058/2013 JUDGMENT 864] wherein this Court held:

"By that order he has deprived the respondent of a valuable right. We are unable to hold that merely because the source of the right which the respondent claims was initially in a contract, for obtaining relief against any arbitrary and unlawful action on the part of a public authority he must resort to a suit and not to a petition by way of a writ. In view of the judgment of this Court in K.N. Guruswamy's case (supra), there can be no doubt that the petition was maintainable, even if the right to relief arose out of an alleged breach of contract, where the action challenged was of a public authority invested with statutory power."

28. However, while entertaining an objection as to the maintainability of a writ petition under Article 226 of the Constitution of India, the court should bear in mind the fact that the power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provisions of the Constitution. The High Court having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. The Court has imposed upon itself certain restrictions in the exercise of this power [See: Whirlpool Corporation vs. Registrar of Trade Marks, Mumbai & Ors. [1998 (8) SCC 1]. And this plenary right of the High Court to issue a prerogative writ will not normally be exercised by the Court to the exclusion of Page 15 of 23 C/SCA/14058/2013 JUDGMENT other available remedies unless such action of the State or its instrumentality is arbitrary and unreasonable so as to violate the constitutional mandate of Article 14 or for other valid and legitimate reasons, for which the court thinks it necessary to exercise the said jurisdiction.

53. From the above, it is clear that when an instrumentality of the State acts contrary to public good and public interest, unfairly, unjustly and unreasonably, in its contractual, constitutional or statutory obligations, it really acts contrary to the constitutional guarantee found in Article 14 of the Constitution. Thus if we apply the above principle of applicability of Article 14 to the facts of this case, then we notice that the first respondent being an instrumentality of State and a monopoly body had to be approached by the appellants by compulsion to cover its export risk. The policy of insurance covering the risk of the appellants was issued by the first respondent after seeking all required information and after receiving huge sums of money as premium exceeding Rs.16 lacs. On facts we have found that the terms of the policy does not give room to any ambiguity as to the risk covered by the first respondent. We are also of the considered opinion that the liability of the Page 16 of 23 C/SCA/14058/2013 JUDGMENT first respondent under the policy arose when the default of the exporter occurred and thereafter when Kazakhstan Government failed to fulfil its guarantee. There is no allegation that the contracts in question were obtained either by fraud or by misrepresentation. In such factual situation, we are of the opinion, the facts of this case do not and should not inhibit the High Court or this Court from granting the relief sought for by the petitioner."

14. In light of the above settled principles of law, a decision in relation to a claim arising out of the contract with the State Authority may be amenable to the writ jurisdiction under Article 226 of the Constitution of India, if such decision is challenged as arbitrary or unreasonable.

15. When the claim for loss suffered by the insured is due to fire and when the risk of loss due to fire is covered under the fire policy, in ordinary course, such claim is available to the insured, subject to acceptance of assessment made by the surveyor appointed by the insurance company.

16. The contract of Insurance is utmost of good Page 17 of 23 C/SCA/14058/2013 JUDGMENT faith. The insured is therefore required to disclose all material facts. In fire insurance contract, the claim is personal as regards the loss suffered to the properties insured. The claim for loss under such policy could be denied when the fraud is alleged and proved against the insured. Cause of fire is immaterial for accepting the claim for loss due to fire if the risk of fire is covered under the policy. Such claim, also cannot be denied, simply on assumption that the insured was negligent in not taking proper care of the properties insured. The burden cannot be on insured that he is not negligent for causing the fire or that it is not his voluntary act due to which the fire took place. If the claim for loss due to fire is to be repudiated by the company, the onus is on the company to prove either the fraud committed by the insured, or any deliberate act on the part of the insured for sustaining loss by him.

17. By the impugned decision dated 31.12.2012 at Annexure:A, the claim for the loss sustained by the petitioner on account of the fire took place in its factory premises is repudiated on the ground that the Page 18 of 23 C/SCA/14058/2013 JUDGMENT insured has failed to submit report issued by the inspectorate of factories. Such report was asked for from the petitioner on account of serious adverse comments raised by the police authorities in FIR against the insured as stated in the impugned decision.

18. In support of the impugned decision, the stand taken in the affidavit in reply filed on behalf of the respondent is that it is for the petitioner to prove by cogent and convincing evidence that old and outdated machineries were not used and that the used machineries were properly maintained and were used by skilled workers. It is further stated that on account of hazardous and perilous condition in the factory, it was for the petitioner to prove that for no negligence or voluntary act of the petitioner, the explosion had taken place in the factory, which caused fire. It is further stated that the petitioner was asked to produce the visit book showing the visits of the factory inspector and another documents in connection with visit of factory inspectorate. However, the petitioner did not produce such documents on the ground that during fire all documents were burnt. The Page 19 of 23 C/SCA/14058/2013 JUDGMENT petitioner was repeatedly asked to produce such documents of factory inspectors' visit, but since it failed to produce such documents, the claim of the petitioner was repudiated. It is further stated that subsequently the petitioner got the copy of the inspection report of the factory inspector, wherefrom it could be found that the inspector made some suggestions for improving the condition in the factory premises.

19. Thus, the claim of the petitioner was repudiated on the ground that the petitioner did not produce the report of the factory inspector in spite of repeated requests made to it.

20. No other disputed questions of fact are involved to test the impugned decision. The criminal proceedings have ended in favour of the officers/directors of the petitioner. Though, it would not be a ground for accepting the claim of the petitioner, however, ground on which the claim is repudiated by the impugned order dated 31.12.2012 at Annexure:A cannot be said to be germane for repudiating the claim of the petitioner. If there are Page 20 of 23 C/SCA/14058/2013 JUDGMENT other grounds for not accepting the claim of the petitioner, it is always open to the respondent to provide such grounds by making reasoned order. However, presently the claim of the petitioner is repudiated only on the ground that the petitioner failed to supply the report of the inspectorate of factories.

21. The Court finds that such ground is not available to the respondent to repudiate the claim of the petitioner. In such view of the matter, the petitioner is justified in invoking the jurisdiction of this Court under Article 226 of the Constitution of India and is not required to be relegated to avail alternative remedy.

22. Considering the nature of insurance cover given to the petitioner in the policy issued by the respondent at Annexure:B, the claim of the petitioner for the loss sustained by it on account of the fire took place in its factory could not be denied unless there are valid reasons with the respondent as regards fraud or any voluntary act committed by the petitioner for such fire making it disentitle to have its claim Page 21 of 23 C/SCA/14058/2013 JUDGMENT accepted under the policy. But the action of the respondents of repudiating the claim of the petitioner on the ground that the petitioner failed to supply the copy of the report of the factory inspectorate is nothing but arbitrary and unreasonable action on the part of the respondent thus hit by Article 14 of the Constitution of India.

23. Since this Court finds that the claim of the petitioner could not have been repudiated for the grounds stated in the impugned decision, the impugned decision is required to be quashed and set aside. However, if for other reasons the claim of the petitioner is not acceptable, it is always open to the respondent to take appropriate decision. This Court has not gone into the merits of the claim of the petitioner based on the surveyors' assessment.

24. For the reasons stated above, the petition is partly allowed. The impugned decision dated 31.12.2012 at Annexure:A repudiating the claim of the petitioner for loss occurred to it due to fire is quashed and set aside. It is, however, left to the respondent to reconsider the matter as regards the claim of the Page 22 of 23 C/SCA/14058/2013 JUDGMENT petitioner under the fire policy. However, such reconsideration of the matter should not take more than 3 months from the date of receipt of this order. Rule made absolute to the aforesaid extent.

(C.L.SONI, J.) ANKIT Page 23 of 23

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Gujarat High Court