# CANARA BANK v. M/S UNITED INDIA INSURANCE CO. LTD. & ORS

- **Citation:** [2020] 7 S.C.R. 498
- **Court:** Supreme Court of India
- **Decided:** 2020-02-06
- **Case number:** Civil Appeal No. 1042 of 2020
- **Bench:** S. Abdul Nazeer, Deepak Gupta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/canara-bank-v-m-s-united-india-insurance-co-ltd-ors-34665
- **Pages:** 30

## Headnote

Consumer Protection Act, 1986 - s.2(d) - "Beneficiary" under
the insurance policy availed by the insured, if "consumer" under
the Act - Tripartite agreement between farmers, Bank and cold store
- Farmers' agricultural produce was stored in cold store - Cold
store got the stocks insured from an insurance company - Farmers
hypothecated agricultural produce to the Bank - Bank issued loans
- Agricultural produce destroyed by fire - Farmers claimed that the
insurance company was liable to pay the value of the agricultural
produce as on the date of fire - Insurance company contended that
the fire was not accidental and farmers were not consumers - State
and National Commission concurrently held that fire was accidental;
farmers were held consumers - On appeal, held:Whether the fire
took place by a short circuit or any other reason, as long as insured
is not the person who caused the fire, the insurance company cannot
escape its liability in terms of the insurance policy - Contention of
the insurance company that the fire was ignited by the use of kerosene
and hence it is not liable, rejected - Tripartite agreement read along
with the terms of the insurance policy make it clear that the intention
of the parties was that they would be compensated by the insurance
company in case of any untoward loss - Definition of consumer
under the Act is very wide and includes beneficiaries taking benefit
of the insurance availed by the insured - Thus, the farmer is a
beneficiary under the policy and therefore, definitely a consumer -
Orders of both the Commissions that the complaint under the Act is
maintainable, upheld - Value of the goods as reflected in the
warehouse receipts be taken to be the value on the date of fire -
Insurance company to indemnify the cold store with regard to the
value of goods - Farmers to get the amount payable under the
policy, subject to the bank clause - Further directions issued -
Insurance - Contract.
[2020] 7 S.C.R. 498
498
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499
Consumer Protection - Insurance Policy - Principles of
interpretation - Discussed.
Consumer Protection Act, 1986 - s.2(1)(d)(i) - Insurance
policy - Privity of contract between insurance company and
claimants - If required - Held: As far as the Act is concerned, it is
not necessary that there should be privity of contract between the
insurance company and the claimants - It is not necessary that
those beneficiaries should be parties to the contract of insurance.
Contract - Bailor and bailee relationship - Farmers' goods
stored in a cold store was destroyed by fire - Cold store had got it
insured from the insurance company - Insurance company
contended that since the cold store held the goods in trust, they
were not liable - Held: Rejected - Farmers paid consideration to
the cold store and, therefore, the goods were not held in trust per se
- Possession of the farm produce was handed over by the bailor,
i.e. farmer to the cold store i.e. the bailee, in terms of the contract -
This is not a case envisaged under Exclusion Clause 5 of the
insurance policy - Goods were neither held on commission -
Insurance.
Doctrines/Principles- Principle of uberrima fides - When not
applicable - Discussed.
Consumer Protection - Insurance policy - Non-disclosure of
material facts - Effect of - Held: To make a contract void the nondisclosure should be of some very material fact - Misrepresentation
or misdescription only makes the policy voidable -If the insurance
company while accepting the proposal form does not ask the insured
to clarify any ambiguities then after accepting the premium it cannot
urge that a wrong declaration was made by the insured.
Consumer Protection - Insurance Policy - Tripartite agreement
between farmers, Bank and cold store - Farmers' goods were stored
in cold store - Goods insured with insurance company - Farmers
hypothecated goods to the Bank - Bank issued loans - Tripartite
agreement not disclosed to the insurance company - Goods destroyed
by fire - Held: When the B

## Text

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CANARA BANK
v.
M/S UNITED INDIA INSURANCE CO. LTD. & ORS.
(Civil Appeal No. 1042 of 2020)
FEBRUARY 06, 2020
[S. ABDUL NAZEER AND DEEPAK GUPTA, JJ.]
Consumer Protection Act, 1986 - s.2(d) - "Beneficiary" under
the insurance policy availed by the insured, if "consumer" under
the Act - Tripartite agreement between farmers, Bank and cold store
- Farmers' agricultural produce was stored in cold store - Cold
store got the stocks insured from an insurance company - Farmers
hypothecated agricultural produce to the Bank - Bank issued loans
- Agricultural produce destroyed by fire - Farmers claimed that the
insurance company was liable to pay the value of the agricultural
produce as on the date of fire - Insurance company contended that
the fire was not accidental and farmers were not consumers - State
and National Commission concurrently held that fire was accidental;
farmers were held consumers - On appeal, held:Whether the fire
took place by a short circuit or any other reason, as long as insured
is not the person who caused the fire, the insurance company cannot
escape its liability in terms of the insurance policy - Contention of
the insurance company that the fire was ignited by the use of kerosene
and hence it is not liable, rejected - Tripartite agreement read along
with the terms of the insurance policy make it clear that the intention
of the parties was that they would be compensated by the insurance
company in case of any untoward loss - Definition of consumer
under the Act is very wide and includes beneficiaries taking benefit
of the insurance availed by the insured - Thus, the farmer is a
beneficiary under the policy and therefore, definitely a consumer -
Orders of both the Commissions that the complaint under the Act is
maintainable, upheld - Value of the goods as reflected in the
warehouse receipts be taken to be the value on the date of fire -
Insurance company to indemnify the cold store with regard to the
value of goods - Farmers to get the amount payable under the
policy, subject to the bank clause - Further directions issued -
Insurance - Contract.
[2020] 7 S.C.R. 498
498
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499
Consumer Protection - Insurance Policy - Principles of
interpretation - Discussed.
Consumer Protection Act, 1986 - s.2(1)(d)(i) - Insurance
policy - Privity of contract between insurance company and
claimants - If required - Held: As far as the Act is concerned, it is
not necessary that there should be privity of contract between the
insurance company and the claimants - It is not necessary that
those beneficiaries should be parties to the contract of insurance.
Contract - Bailor and bailee relationship - Farmers' goods
stored in a cold store was destroyed by fire - Cold store had got it
insured from the insurance company - Insurance company
contended that since the cold store held the goods in trust, they
were not liable - Held: Rejected - Farmers paid consideration to
the cold store and, therefore, the goods were not held in trust per se
- Possession of the farm produce was handed over by the bailor,
i.e. farmer to the cold store i.e. the bailee, in terms of the contract -
This is not a case envisaged under Exclusion Clause 5 of the
insurance policy - Goods were neither held on commission -
Insurance.
Doctrines/Principles- Principle of uberrima fides - When not
applicable - Discussed.
Consumer Protection - Insurance policy - Non-disclosure of
material facts - Effect of - Held: To make a contract void the nondisclosure should be of some very material fact - Misrepresentation
or misdescription only makes the policy voidable -If the insurance
company while accepting the proposal form does not ask the insured
to clarify any ambiguities then after accepting the premium it cannot
urge that a wrong declaration was made by the insured.
Consumer Protection - Insurance Policy - Tripartite agreement
between farmers, Bank and cold store - Farmers' goods were stored
in cold store - Goods insured with insurance company - Farmers
hypothecated goods to the Bank - Bank issued loans - Tripartite
agreement not disclosed to the insurance company - Goods destroyed
by fire - Held: When the Bank issues loans against the
hypothecation of goods, as in the present case, and insists that the
goods should be insured to safeguard its outstandings then a duty
lies upon the Bank to inform the insurance company of the policy -
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS.
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In the present case, matter was dragged only because names of the
farmers were not mentioned in the policy or the tripartite agreement
was not handed over to the insurance company - Some level of
deficiency on behalf of the Bank - Thus, it cannot claim interest at
the contractual rate and is entitled to charge simple interest from
the date of grant of loan at the rate of 12% p.a.
Disposing of the appeals, the Court
HELD: 1. Neither in the report of M/s. Truth Labs (relied
upon by insurance company) nor in the other reports by the
insurance company is there anything to show that the insured
had set the cold store on fire. Whether the fire took place by a
short circuit or any other reason, as long as insured is not the
person who caused the fire, the insurance company cannot escape
its liability in terms of the insurance policy. The contention of the
insurance company that the fire was ignited by the use of kerosene
and hence it is not liable is rejected. [Para 16][512-C-D]
2. The principles relating to interpretation of insurance
policies are well settled and not in dispute. At the same time, the
provisions of the policy must be read and interpreted in such a
manner so as to give effect to the reasonable expectations of all
the parties including the insured and the beneficiaries. It is also
well settled that coverage provisions should be interpreted
broadly and if there is any ambiguity, the same should be resolved
in favour of the insured. On the other hand, the exclusion clauses
must be read narrowly. The policy and its components must be
read as a whole and given a meaning which furthers the
expectations of the parties and also the business realities. The
entire policy should be understood and examined in such a manner
and when that is done, the interpretation becomes a commercially
sensible interpretation. The tripartite agreement read along with
the terms of the policy it is obvious that the Bank insisted that
the stock be insured. The farmers were told that they would pay
the premium. The cold store while fixing the rent obviously
factored the premium into the rent. It was obvious that the
intention of the parties was that they would be compensated by
the insurance company in case of any untoward loss. [Para 21]
[513-G; 514-A-C]
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3. As far as the Consumer Protection Act, 1986 is
concerned, it is not necessary that there should be privity of
contract between the insurance company and the claimants. The
definition of consumer under Section 2(d) is in 2 parts. Sub-clause
(i) of Section 2(1)(d) deals with a person who buys any goods and
includes any user of such goods other than the person who buys
such goods as long as the use is made with the approval of such
person. Therefore, the definition of consumer even in the 1st part
not only includes the person who has purchased but includes any
user of the goods so long as such user is made with the approval
of the person who has purchased the goods. The definition of the
consumer in relation to hiring or availing of services is much
wider. In this part of the section, consumer includes not only the
person who has hired or availed of the services but also includes
any beneficiary of such services. Therefore, an insured could be
a person who hires or avails of the services of the insurance
company but there could be many other persons who could be
the beneficiaries of the services. It is not necessary that those
beneficiaries should be parties to the contract of insurance. They
are the consumers not because they are parties to the contract
of insurance but because they are the beneficiaries of the policy
taken out by the insured. The definition of consumer under the
Act is very wide and it includes beneficiaries who can take benefit
of the insurance availed by the insured. Under the tripartite
agreement entered between the Bank, the cold store and the
farmers, the stock of the farmers was hypothecated as security
with the Bank and the Bank had insisted that the said stock should
be insured with a view to safeguard its interest. The penultimate
clause of the tripartite agreement in unambiguous terms binds
the cold store to insure the goods, to indemnify the produce, to
cover the risk and cover the loan amount. This insurance policy
had to be taken at the cost of the second party which is the farmer.
Therefore, there can be no manner of doubt that the farmer is a
beneficiary under the policy. The farmer is, therefore, definitely
a consumer and the orders of both the Commissions that the
complaint under the Act is maintainable are upheld.
[Paras 26-28][515-H; 516-A-H]
4. In the present case, the farmer had agreed to pay
consideration to the cold store and, therefore, the goods were
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS.
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not held in trust per se but the goods were held by cold store as
bailee of the goods for consideration. The possession of the farm
produce was handed over by the bailor, i.e. farmer to the cold
store i.e. the bailee, in terms of the contract. There may be inter
se rights and liabilities between the farmer and the cold store but
it cannot be said that the goods were held 'in trust'. The goods
were also not held 'on commission'. No commission was payable
and only rental was paid. [Para 33][518-B-D]
5. The insurance policy itself envisaged that there were
interest of other parties and not only the Bank and the insured.
Therefore, it was for the insurance company to verify and find
out who was the owner of the goods. It could not presume that all
the goods belong to the cold store. The assumption of the
insurance company that it had insured the goods belonging to
the cold store itself has no factual basis. Cold stores are
constructed in such a way that there are many compartments in
the cold store. Any person can deposit a small or large amount of
goods to be kept in cold store. Normally, it is the goods of third
parties which are stored in a cold store and, therefore, the Court
is dealing with a policy of insurance whereby the premises and
the stock and goods in a cold store have been insured. The natural
corollary would be that the insurance company should have known
that the goods belong to the third parties. From the policy of
insurance, it is found that in respect of description of risk, the
insurance covers "Stock of Guntur Chillies/Byadigi Chillies/Other
variety Chillies, Jawar Seeds, Bengal Garam, Red Gram,
Tambrind, Coriander Seeds & Other pulses." This stock in trade
was covered for a sum of Rs.30 crores and premium was charged
accordingly. A prudent insurance company before issuing a policy
of such a heavy amount, must or at least should have ascertained
the value and the nature of the goods. The insurance company
herein is one of the largest nationalised insurance companies
and a presumption has to be drawn that it must have verified the
details before insurance policy was issued. In case, the insurance
company has chosen not to verify the stock it cannot take
advantage of its own negligence. The principle of uberrima fides
has no application because the cold store had declared all
necessary facts. The bank clause clearly indicated that the goods
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were hypothecated/pledged to the Bank. Therefore, the insurance
company now cannot turn around and claim that the names of the
owners were not supplied to it at the time of insurance.The
insurance policy was renewed at least twice. Therefore, the policy
was in existence for 3 years and it is in the 3rd year that the fire
took place. [Paras 36, 37][519-E-H; 520-A-E]
6. Further, as long as the parties to the tripartite agreement
i.e. the Bank, the farmer and the cold store, are not disputing the
correctness of the agreement, there is no reason why the Court
should not accept the same to be a genuine document.
[Para 40][521-B]
7. If the insurance company while accepting the proposal
form does not ask the insured to clarify any ambiguities then the
insurance company after accepting the premium cannot now urge
that there was a wrong declaration made by the insured. To make
a contract void the non-disclosure should be of some very
material fact. In the peculiar facts of this case, not disclosing the
tripartite agreement or the names of the owners cannot be said
to be such a material fact as to make the policy void or voidable.
There is no fraudulent claim made. There is no false declaration
made and neither is the loss and damage occasioned by any wilful
act or connivance of the insured. The insurance company under
the insurance policy is liable to indemnify the cold store with
regard to the value of goods and since the farmers are the
beneficiaries, they are entitled to get the amount payable under
the policy, subject to the bank clause. [Paras 43, 44][522-C-F]
8. When the Bank issues loans against the hypothecation
of goods, as in the present case, and insists that the goods should
be insured to safeguard its outstandings then a duty lies upon
the Bank to inform the insurance company of the policy. The
matter has dragged to this stage only because the names of the
farmers were not mentioned in the policy or because the tripartite
agreement was not handed over to the insurance company. The
Bank, as a prudent financial institution, should have insisted that
the tripartite agreement should also be handed over to the
insurance company. Therefore, there is some level of deficiency
on behalf of the Bank. The Bank cannot claim interest at the
contractual rate. It would be entitled to charge simple interest
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS.
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right from the date of grant of loan at the rate of 12% per annum.
[Paras 48 & 49][523-G-H; 524-A-D]
9. The decision of the National Commission that the value
of the goods as reflected in the warehouse receipts should be
taken to be the value on the date of fire is affirmed. Bank shall be
entitled to recover the principal amount advanced by it to each
one of the farmers along with the simple interest at the rate of
12% per annum from the date of advancing of loan till repayment
thereof. The insurance company is liable to pay the value of goods
as reflected in the warehouse receipts of each farmer along with
simple interest at the rate of 12% per annum from the date of
fire till payment of the amount. The dues of the Bank till the date
of fire will have to be first determined and, thereafter, the excess
will be payable to the farmer along with the interest. Further
direction issued. [Paras 54, 55][526-B, D-E]
United India Insurance Co. Ltd. v. Harchand Rai Chandan
Lal (2004) 8 SCC 644 : [2004] 4 Suppl. SCR 662; Raghunath
Rai Bareja v. Punjab National Bank (2007) 2 SCC 230 :
[2006] 10 Suppl. SCR 287; Suraj Mal Ram Niwas Oil Mills
(P) Ltd. v. United India Insurance Co. Ltd. (2010) 10 SCC
567 : [2010] 13 SCR 138 - referred to.
M. C. Chacko v. The State Bank of Travancore, Trivandrum
(1969) 2 SCC 343 : [1970] 1 SCR 658; Satwant Kaur Sandhu
v. New India Assurance Co. Ltd. (2009) 8 SCC 316 : [2009]
10 SCR 560 - held inapplicable.
Case Law Reference
[2004] 4 Suppl. SCR 662
referred to
Para 18
[2006] 10 Suppl. SCR 287
referred to
Para 19
[2010] 13 SCR 138
referred to
Para 20
[1970] 1 SCR 658
held inapplicable
Para 29
[2009] 10 SCR 560
held inapplicable
Para 41
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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1042
of 2020.
From the Judgment and Order dated 08.06.2018 of the National
Consumer Disputes Redressal Commission, New Delhi in First Appeal
No. 2327 of 2017.
With
Civil Appeal Nos. 1043-1051, 1052-1059, 1060-1071, 1072-1081,
1082-1090, 1091-1097, 1098-1106, 1107-1117, 1118-1126, 1127-1133, 11341203 of 2020.
P.P. Malhotra, Dr. (Mr.) Rajeev Dhavan, Gopal
Shankaranarayanan, Sajan Poovayya, Dhruv Mehta, Sr. Advs., Vineet
Malhotra, Vishal Gohri, Ms. Sunaina Phul, Yasir Rauf, Shubhendu
Kaushik, Mohit Paul, Pratibhanu Singh Kharola, Mahesh Choudhary,
Sabarish Subramanian, Y. William Vinoth Kumar, Vishnu Unnikrishnan
(for K. Paari Vendhan), Rajesh Kumar-I, Anant Gautam, Ms. Sakshi
Gaur, Sorabh Dahiya, Ms. Khushboo Aggarwal, Vibhu Sharma, Anmol
Mehta, Deepak Anand, Advs. for the appearing parties.
The Judgment of the Court was delivered by
DEEPAK GUPTA, J.
1. Leave granted.
2. All these appeals are being decided by one common judgment
since they arise out of a common order dated 08.06.2018 of the National
Consumer Disputes Redressal Commission, New Delhi, hereinafter
referred to as 'the National Commission'.
3. Briefly stated the facts of the case are that most of the claimants,
hereinafter referred to as 'the farmers', had grown Byadgi Chilli Crop
during the year 2012-2013. Some of the farmers had some other crops.
These farmers had stored their agricultural produce in a cold store run
by a partnership firm under the name and style of Sreedevi Cold Storage,
hereinafter referred to as 'the cold store'. These farmers also obtained
loans from Canara Bank, hereinafter referred to as 'the Bank'. The
loan was advanced by the Bank to each one of the farmers on security
of the agricultural produce stored in the cold store. The cold store was
insured with the United India Insurance Company Limited, hereinafter
referred to as 'the insurance company'. A fire took place in the cold
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LTD. & ORS.
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store on the night intervening 13.01.2014 and 14.01.2014. The entire
building of the cold store and the entire stock of agricultural produce
was destroyed.
4. After the fire, the cold store, which had taken out a
comprehensive insurance policy, raised a claim with the insurance
company but the claim of the cold store was repudiated by the insurance
company mainly on the ground that the fire was not an accidental fire.
The farmers had also issued notice to the insurance company in respect
of the plant, machinery and building but this claim was repudiated by the
insurance company on the additional ground that the farmers had no
locus standi to make the claim as the insured was the cold store and
not the farmers. It was further pleaded that Condition No.8 of the
insurance policy had been violated, and that there was no privity of
contract between the farmers and the insurance company. Since the
claims of the farmers were either rejected or not answered, they filed
claim petitions against the cold store, the Bank and the insurance company
in which the primary relief claimed was the value of the agricultural
produce as on the date of fire and interest thereupon and each of the
farmers also claimed damages of Rs.1,00,000/- per head. There were
91 claim petitions filed and in most of them the agricultural produce was
Byadgi Chilli. In a few petitions, the agricultural produce was Dabbi
Chilli, Guntur Chilli, Bengal Gram, Coriander (Dhania), Jwar etc.
However, this will not have any material impact on the decision of these
cases. The details containing the name of the claimants, the nature of
the produce, number of bags and quantity thereof, rate, and number of
kilograms have been set out in Para 7 of the judgment of the National
Commission which we are not reproducing for the sake of brevity.
5. In the claims filed it was pleaded that the cold store while
levying the general charges had also charged the insurance premium
paid by it. It would be pertinent to mention that a tripartite agreement
had been entered into by each one of the farmers while taking a loan
from the Bank and hypothecating the agricultural produce which was
stored in the cold store. The farmer, the Bank, and the cold store were
parties to the tripartite agreement. The cold store issued a warehouse
receipt giving the particulars of the crop stored, the value thereof and
also the date of the tripartite agreement. For the period in question i.e.
from 2012-2013 till the occurrence of fire, the cold store was admittedly
insured with the insurance company. The plant and machinery of the
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cold store was insured for Rs.5 crores and the stocks were insured for
Rs.30 crores.
6. The case of the farmers was that in terms of the tripartite
agreement, the cold store had got the stocks insured from the insurance
company. The fire was an accidental fire and, therefore, in terms of the
policy, the insurance company was liable to pay the amount of value of
the agricultural produce stored with the cold store as on the date of fire
and was also liable to pay interest on the amount payable. The insurance
company resisted the complaint mainly on the ground that the 'farmers'
were not 'consumers' within the meaning of Consumer Protection Act,
1986, hereinafter referred to as 'the Act'. It was also claimed that there
was no privity of contract between the farmers and the insurance
company because the policy was taken by the cold store and not by the
farmers. It was alleged that the entire story of loans was a false story.
On merits, any conceivable objection which could be taken was taken.
The insurance company went to the extent of denying that the claimants
were farmers or they had produced the agricultural produce or that they
had stored it in the cold store. It was also alleged that the Bank was
negligent as it did not take any step to recover the amount due for more
than two years. The case of the insurance company is that nobody in his
right mind would store agricultural produce for such a long period of
time. Therefore, the very genuineness of the tripartite agreement was
challenged. The other main ground taken was that the fire was not an
accident and there was no spontaneous combustion on account of
electrical short circuit. According to the insurance company, there was
an element of arson involved and the cold store seems to have been
deliberately set on fire.
7. The stand of the cold store was that the fire was accidental
and that since the stock was insured, the amount was payable by the
insurance company. The Bank supported the claim of the farmers with
the caveat that the amount should be paid to it so that it could set it off
against the loans advanced to the farmers.
8. The Karnataka State Consumer Disputes Redressal
Commission at Bangalore, hereinafter referred to as 'the State
Commission' vide judgment dated 28.04.2017 held that the farmers had
proved that the fire took place on account of electrical short circuit and
no element of human intervention or use of kerosene was found. The
State Commission also found that as per the tripartite agreement entered
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
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into between the farmers, the Bank and the cold store, it was mandatory
for the cold store to insure the goods so hypothecated by the farmers
with the Bank. The insurance company was held liable to pay the amount
to the farmers. The State Commission assessed the value of the goods
by taking the value as reflected in the warehouse receipts issued at the
time of taking of loan and did not accept the plea of the farmers that
they should get the market value of the goods as on the date of fire. The
Bank was also held deficient in service. The cold store and the insurance
company were held jointly and severely liable and were directed to pay
the value of the agricultural produce hypothecated with the Bank to the
farmers/claimants as on the date of tripartite agreement together with
the interest at the rate of 14% per annum payable from six months from
the date of the incident till the date of realisation. One complaint being
Complaint No.597 of 2015 was dismissed. In some of the complaints,
the Bank was also held jointly and severely liable to pay the costs of
Rs.10,000/- whereas in a large number of cases the complaint against
the Bank was dismissed.
9. Aggrieved by the aforesaid judgment dated 28.04.2017 of the
State Commission, an appeal was filed before the National Commission.
By the impugned judgment, the National Commission concurred with
the findings of the State Commission and held that the farmers are
consumers. It held that the insurance company was aware of the fact
that the goods were held in trust. It further held that there is no evidence
to show that the fire was not an accidental fire or that the fire had been
started by the owner of the cold store. However, it partly allowed the
appeal of the insurance company and reduced the interest from 14%
per annum to 12% per annum. The farmers had also filed appeal claiming
that in terms of the insurance policy they should have been paid the
value of the goods as on the date of fire. However, this claim was rejected
basically on the ground that the farmers had failed to show that the chilli
and/or other produce stored is of the same class and characteristics as
reflected in the Variety-wise Periodic Report of the Bengaluru Market
for different commodities. As far as the appeals filed by the Bank were
concerned, the National Commission held that in the peculiar facts of
the case where the farmers had suffered substantial losses, the principal
amount of loan advanced by the Bank would be remitted by the insurance
company to the Bank but the other amount i.e. interest and damages,
would be given to the farmers. It was also held that there was no
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deficiency of service on behalf of the Bank and the costs imposed on
the Bank in some of the cases were set aside.
10. Before this Court, appeals have been filed by the insurance
company, the farmers, the cold store and the Bank.
11. We have heard Shri P.P. Malhotra, learned senior counsel
appearing for the insurance company, Dr. Rajeev Dhavan and Shri Gopal
Shankaranarayanan, learned senior counsel appearing for the farmers,
Shri Sajan Poovayya, learned senior counsel appearing for the cold store
and Shri Dhruv Mehta, learned senior counsel appearing for the Bank.
Appeals of the Insurance Company
12. Shri P.P. Malhotra, learned senior counsel appearing for the
insurance company raised several issues for consideration of this Court.
One of the contentions raised by him is that the fire in question was not
an accidental fire. It is also contended that the farmers were not
consumers and therefore the consumer fora have no jurisdiction to decide
the dispute. He next contends that there is no privity of contract between
the farmers and the insurance company. According to him, a contract of
insurance is to be strictly construed between the parties to the contract.
He submits that there was no insurable interest of the farmers and the
tripartite agreement entered between the Bank, the farmers and the
cold store was never disclosed to the insurance company. He further
submits that there is non-disclosure of important facts by the cold store
(insured) and, as such, the insurance company is not liable. He also
urged that the liability of the insurance company is excluded by virtue of
General Exclusion Clause 5 and General Condition no.1 and General
Condition no.8 of the insurance policy.
Whether the fire was an accident?
13. As far as this issue is concerned, both the State Commission
and the National Commission have come to the conclusion that the fire
was an accidental fire and occurred due to a short circuit. These are
pure findings of fact which, in our view, cannot be challenged in these
proceedings. However, since lengthy arguments were addressed by Shri
P. P. Malhotra in this behalf, we shall deal with the same. At the outset,
we may note that the electrical inspector, the police investigation team
and the forensic science laboratory (FSL) have all come to the conclusion
that the fire took place due to a short circuit. The concluding portion of
the report of the FSL reads as follows:-
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
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"From the above examination, the following observations have
been made
1. Presence of combustible materials like thermocol (which are
used to insulate the walls) pillars, wooden partitions and the grains
stored inside the building could have enhanced the spread of fire.
2. The congested space in the building might have accelerated
the smoldering fire.
3. The fire might have originated at the sixth floor front side of the
building. But it was not possible to locate the exact place of origin
of fire since the complete building was involved in fire.
4. An electrical short circuit may have initiated the fire."
The insurance company relies upon the findings given by a
company namely Truth Labs and those of Rank Surveyors Private Limited,
which read as follows:-
"Based on a thorough and in-depth inspection of the incident site,
forensic examinations, field investigations, documentary evidence
analysis and personal evidence obtained, it is concluded that the
fire occurred in M/s. Sree Devi Cold Storage, Billary on the
intervening night of 13/14th January 2014.
a. Was not due to spontaneous combustion on account of bacterial/
chemical fires.
b. Was not due to electrical failure caused by short circuit.
c. And was on account of extraneous ignitable fire accelerants
such as kerosene used deliberately for ignition, initiation,
propagation and burning of stocks in the cold storage through human
intervention.
d. Based on the motive, means and opportunity to carry out such
malicious acts the possibility of the involvement of management
in such a nefarious act cannot be ruled out."
14. We may note that it is not disputed that in the construction of
the cold store, the temperature was maintained by insulating the walls of
the cold store. Bitumen (coal tar) and Thermocol were used for providing
insulation. The FSL found that in a fire which takes place in a building
where such material is used for construction, hydro carbons would
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obviously be present. On the other hand, M/s. Truth Labs mainly relied
upon the presence of hydro carbons to come to the conclusion that the
fire had not occurred spontaneously and on account of electrical short
circuit but occurred on account of extraneous ignitable fire accelerants
such as kerosene. The conclusions of M/s. Truth Labs were based on
some inspection and chemical analysis carried out by a team headed by
Dr. R. Srinivas. Admittedly, this report of Dr. R. Srinivas was never
furnished to the parties nor was placed before the State Commission.
Interestingly, when Mr. G. V. H. V. Prasad, Director of M/s. Truth Labs
was put a specific query whether the walls of the ground floor and the
top floor and the inside portion of the cold store along with 169 pillars
were constructed by sandwiching bitumen and thermocol between the
concrete in order to raise the level of insulation, he replied that 'he was
not aware of how the Cold Storage was built'. This clearly shows the
shoddy manner in which M/s. Truth Labs conducted the investigation.
There can be no proper investigation of a fire if the investigating agency
does not even try to find out what is the nature of construction of the
building which has been destroyed in the fire. M/s. Truth Labs has clearly
stated that the observation that fire took place on account of extraneous
ignitable fire accelerants, is based on the chemical analysis report which
shows presence of hydro carbons in the debris. It is apparent that
M/s. Truth Labs, for reasons best known to it, did not analyse the material
used for construction because if it had done so, it would have realised
that hydro carbons would be present when thermocol or bitumen are
burnt. Thermocol is basically a rigid plastic foam material which is derived
from petroleum and natural gas by-products. Bitumen is a semi-solid
hydrocarbon product produced from crude oil. Both thermocol and bitumen
are derivatives of petroleum products and hence are hydrocarbons by
their very nature. Therefore, presence of hydrocarbons would be natural
when a fire takes place. The presence of hydro carbon could not lead to
a conclusion that kerosene oil had been used to ignite the fire.
15. The National Commission has also dealt in detail with this
issue and has come to the conclusion that M/s. Truth Labs visited the
burnt cold store on two occasions and collected samples on both the
occasions. It, however, decided to send 12 samples collected only in the
second visit for analysis. Interestingly, the controlled samples were
collected from a plastic bag containing (fresh unaffected) chillies found
in the burnt stock of the affected premises. The controlled samples did
CANARA BANK v. M/S UNITED INDIA INSURANCE CO.
LTD. & ORS. [DEEPAK GUPTA, J.]
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not show presence of hydro carbons and hence, the assumption that the
presence of hydro carbons in the remaining samples was not relatable to
thermocol and tar. There is no explanation why the samples taken on the
first visit were not sent for analysis. It is also difficult to believe that in a
building which has been totally gutted in a fire, there would be one plastic
bag containing (fresh unaffected) chillies found in the burnt stock. It is
possible that these unburnt chillies may have been introduced later on.
Therefore, we cannot place any reliance on the report of M/s. Truth
Labs.
16. In any event, neither in the report of M/s. Truth Labs nor in
the other reports by the insurance company is there anything to show
that the insured had set the cold store on fire. Whether the fire took
place by a short circuit or any other reason, as long as insured is not the
person who caused the fire, the insurance company cannot escape its
liability in terms of the insurance policy. We reject the contention of the
insurance company that the fire was ignited by the use of kerosene and
hence it is not liable.
Rule of Strict Interpretation
17. It has been submitted on behalf of the insurance company
that the terms of the insurance policy should be construed strictly and
since only the insurance company and the cold store (insured) were
parties to the contract of insurance, the insurance company will not be
liable to pay any claim to the farmers. Various authorities were cited by
both sides.
18. In United India Insurance Co. Ltd. v. Harchand Rai
Chandan Lal1 this Court held as follows:-
"9....It is settled law that terms of the policy shall govern the
contract between the parties, they have to abide by the definition
given therein and all those expressions appearing in the policy
should be interpreted with reference to the terms of policy and
not with reference to the definition given in other laws. It is a
matter of contract and in terms of the contract the relation of the
parties shall abide and it is presumed that when the parties have
entered into a contract of insurance with their eyes wide open,
they cannot rely on the definition given in other enactment...."
1 (2004) 8 SCC 644
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19. Reliance was placed on Raghunath Rai Bareja v. Punjab
National Bank2 wherein it was held:
"58. We may mention here that the literal rule of interpretation is
not only followed by judges and lawyers, but it is also followed by
the layman in his ordinary life. To give an illustration, if a person
says "this is a pencil", then he means that it is a pencil; and it is
not that when he says that the object is a pencil, he means that it
is a horse, donkey or an elephant. In other words, the literal rule
of interpretation simply means that we mean what we say and
we say what we mean. If we do not follow the literal rule of
interpretation, social life will become impossible, and we will not
understand each other. If we say that a certain object is a book,
then we mean it is a book. If we say it is a book, but we mean it
is a horse, table or an elephant, then we will not be able to
communicate with each other. Life will become impossible. Hence,
the meaning of the literal rule of interpretation is simply that we
mean what we say and we say what we mean."
20. Reliance was also placed on the following paragraph in Suraj
Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co.
Ltd.3:
"26. Thus, it needs little emphasis that in construing the terms of
a contract of insurance, the words used therein must be given
paramount importance, and it is not open for the court to add,
delete or substitute any words. It is also well settled that since
upon issuance of an insurance policy, the insurer undertakes to
indemnify the loss suffered by the insured on account of risks
covered by the policy, its terms have to be strictly construed to
determine the extent of liability of the insurer. Therefore, the
endeavour of the court should always be to interpret the words in
which the contract is expressed by the parties."
21. The principles relating to interpretation of insurance policies
are well settled and not in dispute. At the same time, the provisions of
the policy must be read and interpreted in such a manner so as to give
effect to the reasonable expectations of all the parties including the insured
and the beneficiaries. It is also well settled that coverage provisions
2 (2007) 2 SCC 230
3 (2010) 10 SCC 567
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LTD. & ORS. [DEEPAK GUPTA, J.]
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should be interpreted broadly and if there is any ambiguity, the same
should be resolved in favour of the insured. On the other hand, the
exclusion clauses must be read narrowly. The policy and its components
must be read as a whole and given a meaning which furthers the
expectations of the parties and also the business realities. According to
us, the entire policy should be understood and examined in such a manner
and when that is done, the interpretation becomes a commercially sensible
interpretation. As far as the present case is concerned, if we read the
tripartite agreement along with the terms of the policy it is obvious that
the Bank insisted that the stock be insured. The farmers were told that
they would pay the premium. The cold store while fixing the rent obviously
factored the premium into the rent. It was obvious that the intention of
the parties was that they would be compensated by the insurance
company in case of any untoward loss.
Whether the farmers are consumers and the issue of privity
of contract
22. One of the main grounds of attack to the judgments of both
the State Commission and the National Commission on behalf of the
insurance company is that the farmer is not a consumer insofar as the
insurance company is concerned. The contention is based on the ground
that the insurance policy is admittedly only between the insurance
company and the cold store. It is further urged by Shri Malhotra that the
claim of the cold store for damage to the building, plants and machinery
was repudiated by the insurance company on 16.09.2015. The cold store
has not challenged the repudiation. Thereafter, all the complaints have
been filed through one counsel which indicates that they have been
orchestrated by the cold store itself.