M/S Hanil
Era Textiles Limited Vs. Oriental Insurance Co. Ltd. & Ors [2000] INSC 592
(29 November 2000)
M.J.Rao,
G.G.Balakrishnan K.G. BALAKRISHNAN, J.
The
appellant is a manufacturer of cotton, polyester, woollen and viscose yarns and
their blends. It is a hundred per cent export-oriented unit and has got two
manufacturing mills, one engaged in the manufacture of spinning acrylic yarn
(Mill A) and the other for spinning cotton yarn and various blended yarn (Mill
B). Appellant started production of these yarns in 1994 and in the same year
had taken 12 fire insurance policies for a total assured sum of Rs.
125.72
crores. These policies were initially valid from January 1994 to October 1995
and were later renewed from time to time. These policies covered raw materials,
stocks, plant and machinery, accessories, spares, building etc.
While
issuing the policies, the officials of the respondent Insurance Company had
visited the premises of the appellant factory and inspected machinery,
building, stock etc. and the premia payable by the appellant were fixed
accordingly.
Mill
'B' has a Blow-room since cotton processing requires the said facility. The
officials of the respondent Insurance Company inspected and verified the Blow-
room and the respondent informed the appellant on 22.11.1994 that the property
situated in the Blow-room in Mill 'B' attracted a higher premium of Rs. 8.9 per
thousand instead of Rs. 2.5 per thousand charged earlier and accordingly an
additional sum of Rs. 93,316/- was required to be paid by the appellant. The
appellant paid the additional premium of Rs.93,316/-
as demanded by the respondent Insurance Company.
A
major fire accident occurred in Mill 'B' on 24.12.94 destroying the stocks,
machinery and building therein.
Admittedly,
the Blow-room was not affected by fire. The appellant immediately reported the
matter to the respondent Insurance Company. The surveyors visited the Mill on
6.1.1995 to assess the extent of damage caused by the fire.
Having
taken several months to complete their report, the Surveyors ultimately
assessed a net claim of Rs.3,68,60,231/-,
though, according to the appellant's estimate, the loss was around Rs. 7 crores.
On
24.1.95, the respondent Insurance Company informed the appellant that a sum of
Rs. 49,89,463/- should be paid as additional premium as the Tariff Advisory
Committee (TAC) approved type Automatic Diversion System or Co-2 Flooding
System in the Chute Feeding arrangement between the Blow-room and the Carding
Section was not installed in the Mill and in the absence of the fire protection
system as prescribed under the TAC regulation, premium at the rate of Rs. 8.9
per thousand would be applicable to the entire factory w.e.f. 1.1.95, excluding
the raw material in godown. Subsequently, on 13.7.95, the respondent Insurance
Company again addressed a letter to the appellant stating that the earlier
letter for payment of Rs. 49.89,463/- was cancelled and a sum of Rs.
1,13,13,344/- was to be paid by the appellant as the entire factory building,
including the Blow-room was a single communicating structure and, therefore,
the premium at a higher rate of Rs. 11.73 per thousand was applicable to the
entire area. This was based on the alleged inspection by the engineers of the
respondent Insurance Company along with the engineers of the Tariff Advisory
Committee (TAC) and the Loss Prevention Association of India Ltd. (LPA) after
the date of the fire. The appellant was not agreeable to pay the additional
amount so required to be paid to the respondent Insurance Company and contended
that the Blow-room was segregated in all respects and the TAC approved fire-
fighting equipment had been installed by the appellant. On 19.9.96, the
respondent Insurance Company informed the appellant that the competent
authority had approved the settlement of the fire claim for Rs. 2,94,10,834/-
and an amount of Rs. 73,67,636/- was due towards customs liability. The
respondent Insurance Company sought to claim a deduction of Rs. 1,20,77,614/-
towards an alleged short-charged premium. Thus, on 27.11.96, the appellant
received a cheque for Rs. 1,71,33,220/- out of a total claim of Rs.
3,68,60,231/-. The respondent Insurance Company required the appellant to give
an undertaking for a deduction of the short- charged premium. Aggrieved by the
same, the appellant preferred a complaint before the National Consumer Disputes
Redressal Commission and prayed that the respondent Insurance Company be
directed to pay an amount of Rs.1,23,97,036/- with 24% interest from 24.12.94
till the date of payment. The appellant also prayed for payment of interest @
24% for the delayed payment of Rs.1,73,33,220/-
and also sought other incidental reliefs.
The
respondents 1 to 4 (collectively referred to as 'the respondent Insurance
Company'' in the Judgment) filed a joint reply before the Commission, wherein
the allegations made in the complaints were denied and it was submitted that
the withholding of the sum of Rs. 1.20,77,614/- was for adequate reasons and
there was no deficiency of service alleged by the complainant. It was also
denied that the demand for the additional premium was an afterthought. The
respondent Insurance Company further stated that the said premium had to be
charged in accordance with the Fire Tariffs prescribed by the Tariff Advisory
Committee, a statutory body set up under the Insurance Act, 1938, as it was
obligatory for all insurance companies to charge premium in accordance
therewith. For charging the Tariff premium, it was immaterial whether the fire
originated in the main area and not in the Blow-room or whether the Blow-room
was totally unaffected by the fire. The Fire Tariffs also provide for the
manner in which the various sections of the multiple occupancy risk will be
segregated from each other.
It is
only when the segregation is done in the manner provided for by the rules that
varying rates of premium can be charged for each section of a building
independently on its own merits. The premises of the appellant factory were
inspected in March 1994 and the Blow-room was not operational. In view of the
Tariff provisions and on the fact of non-segregation of the Blow-room from the
main area, an amount of Rs. 1,13,13,344/- had to be short-charged towards
premium. A copy of the report of the Government Audit Party was produced by the
respondent Insurance Company before the National Commission. The respondent
Insurance Company contended that the Blow-room was not segregated from the main
room and, therefore, the appellant was liable to pay the additional premium.
After
hearing both the sides, the Commission came to the conclusion that the
enhancement of the premium was based on the application of the TAC Regulations
and it was the duty of the respondent Insurance Company to have inspected and
monitored the Complainant Company even prior to the incidence of fire, but that
cannot be said to be a deficiency of service qua the Complainant. The
respondent Insurance Company had every right to claim any shortage of premium
at a later date even after the issue of the policies, if it was found due and
recoverable subsequently under the TAC Regulations. The Commission held that
the appellant was not entitled to any other relief sought for in the complaint.
The complaint was accordingly dismissed without costs. Aggrieved by the same,
the present appeal is filed.
We
heard counsel on either side elaborately. The learned senior counsel for the
appellant contended that the respondent Insurance Company charged a higher rate
of premium for the Blow-room, whereas the rest of the area was permitted to be
insured at a lower premium and this is indicative of the fact that the
Blow-room was separated and segregated from the rest of the area. The learned
senior counsel for the appellant further urged that six fire-proof doors had
been installed to protect the Blow-room area and, therefore, the contention of
the respondent that the Blow-room and the rest of the area was a single
communicating structure is not correct. The learned counsel for the respondent,
on the other hand, contended that the higher rate of premium was charged in respect
of the Blow-room on the assumption that the appellant would make the Blow-room
a segregated portion. The respondent's counsel contended that the Blow-room
started operation somewhere in April, 1994, and even though the appellant was
advised to furnish the separate values of the bifurcation, the same was not
furnished. Meanwhile, some of the policies became due for renewal from
1.11.1994 and the renewal was done on a provisional basis. The information
relating to bifurcation was given by the appellant only on 14.11.94 and as the
Insurance Company had not admitted but only assumed that the Blow- room was
segregated from the rest of the area of the mill, the additional premium of Rs.
93,316/- was demanded by the respondent for insurance from 1.11.94. The contention
of the respondent's counsel is that the Blow-room was segregated from the rest
of the area with fireproof doors only after the incident of fire.
It was
urged by the respondent's counsel that based on the recommendations of the
Tariff Advisory Committee, the appellant was asked to pay the additional
premium of Rs.1,13,13,344/-
as according to the respondent Insurance Company, the appellant should have
observed the TAC approved type of Automatic Diversion System or Co-2 Flooding
system in the Chute Feeding arrangement between the Blow-room and the Carding
Section, but this was not done by the appellant prior to the occurrence of the
fire and the Blow-room was not segregated from the rest of the area. Therefore,
the additional premium of Rs.1,13,13,344/- was liable to be paid by the
appellant.
In
this case, it is not disputed that the appellant had valid insurance policies
during the period when the fire occurred in the Mill. According to the
appellant, the loss suffered by the appellant was around Rs.7 crores. However,
the independent surveyor assessed the loss at Rs.3,68,60,231/. Even according
to the respondent, the amount payable under the insurance policies was settled
at Rs. 2,94,10,834/- vide its letter dated 19th September 1996 and by the same
communication the appellant was informed that a sum of Rs. 1,20,77,614/- would
be deducted. The dispute relates only to the question whether the appellant was
in fact liable to pay the additional premium of Rs.1,13,13,344/-.
This claim was based on the basis that the appellant had not segregated the
Blow-room from the rest of the area and therefore, the entire area attracted
premium at the rate of Rs.11.73 per thousand. It may be noted that initially
the entire area was insured @ Rs.2.5 per thousand, and subsequently the
officers and engineers of the respondent Insurance Company visited the premises
of the appellant factory and vide communication dated 22.11.1994, the Blow-
room was separately insured at the higher rate of Rs. 8.9 per thousand. In the
letter dated 22.11.94 addressed to the appellant, it was stated that: "We
are in receipt of your letter dated 14th November, 1994 furnishing separate
values in respect of the properties situated in the Blow-room area of your
factory referred to herein above.
The additional
premium in respect of the said property comes to Rs. 93,316/- as per the
premium computation shown hereunder." Therefore, it is clear that the
Blow-room was taken as a separate portion segregated from the rest of the
factory premises.
The
fire occurred on 24.12.1994 and the surveyors M/s Mehta & Padamsey Pvt.
Ltd. visited the premises on 6.1.1995. In the report of the Surveyors, dated
16.5.1996, it was stated that the Blow-room was connected with the process area
via the opening meant for the fireproof doors.
It was
also stated that the entire main factory building, including the area of the
Blow-room was a single communicating structure. But, on the other hand, it is
pertinent to note that the representatives of the Loss Prevention Association
of India Ltd. also visited the factory premises and in paragraph 7.1 of their report
, it is stated by them as under:
"As
mentioned earlier, various sections of the factory were not segregated from
each other (except Blow Room which was segregated by means of double fire-proof
doors). So the fire spread very quickly from the stock of raw material to the
finished product stack which was located at the other end of the section named
'Mixing Conditioning Department." [emphasis supplied] When the appellant
raised objections regarding the opinion expressed by the surveyors, M/s Mehta
& Padamsey Pvt. Ltd., a revised report was given on February 11, 1997,
wherein it was stated that in the absence of verifiable records, the only date
when it is possible to state with certainty that the Blow-room was segregated,
is January 6, 1995, but this opinion was not based on any available records or
data.
It is
of primary importance to note that the fire had not spread to the Blow-room
area. That raises a strong presumption that the Blow-room was segregated even
before the accident. The appellant had also produced documents to show that
they had installed the fireproof doors to protect the Blow-room. The next
important fact was that the respondent demanded a higher rate of premium for
the Blow-room in November 1994 and this is prima facie indicative of the fact
that the Blow-room was separated from the rest of area. The observations of the
representatives of the Loss Prevention Association of India Ltd., who visited
the factory on 6.1.1995, cannot be lightly disregarded. Therefore, it is clear
that the attempts of the respondent Insurance Company to show that the
appellant had not taken effective steps to segregate the Blow-room cannot
succeed.
The
respondent Insurance Company claimed the additional premium of Rs. 1,13,13,344/-
on the basis of the recommendations of the Tariff Advisory Committee, and it
seems that the Comptroller and Auditor General had also recommended that this
additional premium should be paid by the appellant. According to the opinion of
the Tariff Advisory Committee, the Blow-room was not segregated and the entire
main factory, including the building and the Blow-room, was a single
communicating structure and, therefore, premium at the higher rate of Rs. 11.73
per thousand should have been charged for the entire area and this higher rate
of Rs. 11.73 was reduced to Rs. 8.9 per thousand by the Tariff Advisory
Committee with effect from 1.4.1994. It was made clear that the revised lower
rate of Rs.8.9 per thousand would apply to the new business or renewals falling
due on or after 1.4.94. It is also the case of the respondent Insurance Company
that the TAC-approved type Automatic Diversion System or Co-2 Flooding System
in the Chute Feeding arrangement between the Blow-room and the Carding Section
was not installed. It is pertinent to note that the appellant was never
informed that these arrangements have to be made. The respondent Insurance
Company has also not produced any correspondence to show that when the insurance
policies in question were issued, the appellant was informed about these
matters or that the appellant refused to comply with these requirements.
Learned
Author E.R. Hardy Evamy, in his book relating to Fire & Motor Insurance,
2nd Edition, on page 7, has observed:
"The
contract of fire insurance, like other contracts of insurance, differs from any
ordinary contract in that it requires, throughout its existence, the utmost
good faith (uberrima fides) to be observed on the part of both the insured and
the insurers.
In
addition to the ordinary obligation, which exists in every contract that all
representations made by the parties during the negotiations leading up to the
contract shall be honestly made, it is an implied term of the contract of fire
insurance that the person seeking the insurance shall communicate to the
insurers all matters within his knowledge which are in fact material to the
question of the insurance, and not merely all those which he believes to be
material." There is no case that the insured had suppressed any material,
whereas the respondent Insurance company had not apprised the insured about the
Automatic Diversion System or the Co-2 Flooding System in the Chute Feeding
Arrangement.
The
special precautions to be made on the basis of the report of the TAC are
generally matters within the knowledge of the insurers and the contract of
insurance being a contract of utmost good faith, ordinarily, these matters
should have been brought to the notice of the insured before the policy was issued
in his favour. It is also important to note that the respondent Insurance
Company did charge a higher rate of premium for the "Blow-room".
There is nothing to indicate that it was done on a provisional basis or that
the insured suppressed any material facts. In fact, the engineers of the
respondent Insurance Company visited the appellant's factory prior to the
issuance of the policies and charged a higher rate of premium for the
Blow-room. When premium is thus demanded and collected at a higher rate, it is
an indication regarding the nature of the contract that subsists between the
parties, namely, that the insurer was aware of the higher risks involved. In Halsbury's
Laws of England, Vol. 25, at Para 458, the
following observations are made:
"The
rate of premium in fact charged may give rise to important inferences. The
materiality of a representation, which has been made, may be inferred from a
reduced rate of premium being charged. Similarly, ignorance on the part of the
insurers of some matter supposed to be well known may be inferred if they
charge no more than the ordinary rate of premium, while an exceptionally high
rate of premium may be indicative of their acceptance of the risk as hazardous
without requiring disclosure of the precise facts making it so." It is
clear that the respondent Insurance Company recovered the premium at a higher
rate for the Blow-room and this can only be on the basis of the acceptance of
the fact that the Blow-room was a separate unit. Therefore, the contention of
the respondent that the Blow-room and the rest of the area was a single
communicating structure cannot be accepted.
On
reappraisal of the evidence, including various correspondences between the
insured and the insurer, it is clear that the appellant had segregated the
Blow-room from the rest of the area even prior to the occurrence of fire.
The
fact that the respondent charged a higher rate of premium after having
inspected the premises, and the report of the Loss Prevention Association of
India Ltd. that the Blow-room was segregated by means of double fire-proof
doors and the fire had not spread to this area, strengthen the plea of the
appellant as regards the Blow-room. It is also to be noted that the respondent
Insurance Company received the separate values of bifurcation as early as on
14.11.94 without any demur and went ahead with the issuance of policy charging
premium at a higher rate for the Blow-room. The belated steps taken by the
respondent to charge premium at still higher rate for the entire area was not justified
under law. It may be noted that out of Rs. 1,13,13,344/-, an amount of Rs.
43,99,003/- was sought to be levied as premium due for the period 1993-94. This
amount was sought to be recovered from the appellant apparently much after the
lapse of the validity period of those policies. Therefore, we hold that a sum
of Rs. 1,20,77,614/- due to the appellant was illegally withheld by the
respondent.
In the
result, the respondent Insurance Company is directed to pay an amount of Rs.
1,20,77,614/- to the appellant with 12% interest per annum from 14.3.97, that
is the date of the complaint filed by the appellant before the National
Consumer Disputes Redresssal Commission, up to the date of payment. The
appellant would also be entitled to proportionate costs from the respondent
Insurance Company.
The
appeal stands allowed to the extent indicated above.
Back