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Case Number

Revision Petition No. 1174 of 2010 (Against the Order Dated 10/11/2009 in Appeal No. 1176/2006 of the State Commission Andhra Pradesh)

Attorney(S)

Ms. Sakshi Gupta, Advocate
Mrs. K. Radha, Advocate

Judges

J.M. Malik, Presiding Member

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Smart Summary

Judgment Summary — Justice J. M. Malik, Presiding Member

Factual and Procedural Background

The proprietorship M/s Pawan Enterprises, originally owned by Late Sh. Vupputuri Ayyanna (Complainant No.1), was continued by his son Sri Vupputuri Srinivasa Rao (Complainant No.2) under a will. The business dealt in cotton and had its own warehouse. The proprietor had an insurance policy covering the business from 28.11.2001 to 27.11.2002 that included risk at the address of M/s Srinivasa Pressing Company Pvt. Ltd.

On 06.05.2002 the complainant purchased two lots (100 bales) of cotton lint from Sri Sambasiva Lakshmi Cotton Ginning Mills at the premises of M/s Srinivasa Pressing Company Pvt. Ltd. The total invoice value was Rs.8,64,376/-. The complainant took possession on 06.05.2002. A fire occurred on 08.05.2002 at about 7:30 P.M. at the pressing company's premises and the cotton bales were destroyed.

Payment for the purchased goods was made by cheque dated 13.05.2002 and encashed on 14.05.2002. The insurer repudiated the claim. The complainant filed a complaint before the District Forum for Rs.8,64,376/- with interest and compensation. The District Forum dismissed the complaint. On appeal, the State Commission allowed the complaint and directed payment of Rs.8,64,376/- with interest @6% p.a. from the date of repudiation (28.03.2003) plus Rs.5,000/- costs.

Oriental Insurance Company Ltd. (the insurer) filed a Revision Petition (filed in 2010) challenging the State Commission order. Subsequent appearances included counsel for the complainant, who failed to pay an adjournment cost of Rs.5,000/-, and the matter was heard ex parte on behalf of the insurer. The National-level revisional court (authoring opinion) reviewed the orders of both fora below and the surveyor's report relating to the claim.

Legal Issues Presented

Whether Complainant No.2 (Sri Vupputuri Srinivasa Rao) has locus standi to prosecute the complaint after stepping into the shoes of the original proprietor under a will.
Whether the sale of the cotton bales on 06.05.2002 was valid despite the payment being made a few days after the transaction (payment on 13.05.2002, encashment 14.05.2002).
Whether the transaction was a bona fide purchase or a sham/accommodation transfer designed to obtain insurance benefit (i.e., transfer of stocks from an uninsured owner to the insured to derive undue benefit).
Whether the report of the surveyor who inspected the loss site should be accepted and what weight it should be given in resolving the dispute.

Arguments of the Parties

Complainant's Position

The complainant (initially proprietor and succeeded by his son) asserted ownership of the cotton bales purchased on 06.05.2002 and claimed the insurance proceeds for the loss caused by the fire on 08.05.2002.
The State Commission's reasoning (supportive of the complainant) included that payment made after a few days does not invalidate the sale, since consideration in a sale need not be instantaneous; and that the parties obtained an Agricultural Market Committee permit and paid tax (Ex-A-20) covering the transaction.

Respondent / Insurance Company's Position

The insurer denied that the complainant was the true owner of the goods, alleging that Sri Sambasiva Lakshmi Cotton Ginning Mill was the real owner and that the complainant was introduced to create a pretense to obtain insurance cover.
The insurer relied on the surveyor's report which concluded that the purchase of 100 bales on 06.05.2002 appeared to be an accommodation to cover uninsured stock of Sri Sambasiva Lakshmi Cotton Ginning Mill, noting that the bales had been pressed on 18.04.2002 but transferred only on 06.05.2002, and that the insured had not produced evidence of the gin mill's insurance at the pressing premises.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Roshan Lal Oil Mills Ltd. & Ors. (2000) 10 Supreme Court Cases 19	Authority for giving significant weight to the report of a surveyor/inspecting official (i.e., the evidentiary value of a surveyor's report).	The court relied on the principle to uphold the evidentiary value of the surveyor's report and found no reason to discard it in this case.
D.N. Badoni Vs. Oriental Insurance Co. Ltd., I (2012) C.P.J. 272 (NC)	Support for treating a surveyor's report as materially significant in assessing insurance claims and related disputes.	The court cited this authority in support of accepting the surveyor's findings and thereby gave those findings decisive weight in allowing the revision petition and dismissing the complaint.

Court's Reasoning and Analysis

The court conducted a comparative scrutiny of the District Forum and State Commission orders and proceeded through the following analytical steps:

Locus standi: The court agreed with the State Commission that Complainant No.2 (Sri Vupputuri Srinivasa Rao) had the right to contest the matter, having stepped into the shoes of the original proprietor by virtue of a will. The court stated it did not find fault with that finding.
Validity of sale despite delayed payment: The court noted that the State Commission correctly explained the law that consideration in a contract of sale need not be an immediate down payment — it may be a spot payment, a promise, part payment and part promise — and that mere delay in payment does not automatically invalidate a sale. The court accepted that legal proposition as correct.
Need to assess concomitant circumstances: Despite accepting the general legal proposition about consideration, the court emphasized that to understand an event one must consider concomitant circumstances and facts. It refused to accept purely conjectural arguments of the District Forum that the transaction was fabricated without first conclusively proving the true ownership and the alleged diversion of loyalty by the gin mill.
Surveyor's report: The court examined the surveyor's report in detail. The report recorded specific facts: (a) the 100 bales were pressed on 18.04.2002 though the alleged purchase by the insured was on 06.05.2002; (b) the cheque payment was dated 13.05.2002 and was honored; (c) the insured did not produce evidence of any insurance of the gin mill's stocks at the pressing premises; and (d) on the basis of timing and explanations the surveyor formed the opinion that the transaction appeared to be an accommodation designed to transfer uninsured stock into the insured to claim insurance proceeds.
Evaluation of evidence and credibility: The court found no reason to discard the surveyor's report, describing the surveyor as a "guileless witness" without an attributed motive. The court observed that the surveyor's findings carried "infinite significance" as supported by cited precedents and therefore merited acceptance.
Conclusion from factual matrix: Given the surveyor's findings and the absence of convincing evidence to the contrary, the court accepted the insurer's contention that the transaction was not a genuine trade transaction but an accommodation intended to derive undue benefit from the insurer. The court thus concluded that the State Commission's allowance of the complaint could not stand.
Procedural note: The court recorded that the complainant's counsel failed to pay the adjournment costs imposed and that the insurer's counsel's arguments were heard ex parte; however, the court's decision focused substantively on the facts and surveyor's report.

Holding and Implications

Revision petition allowed; the order of the State Commission is set aside and the complaint is dismissed.

Implications:

The direct effect is that the complainant's claim for Rs.8,64,376/- (and attendant interest/costs awarded by the State Commission) is rejected and the complaint is dismissed. The court recorded "No order as to costs."
The court's decision turned on acceptance of the surveyor's factual report and the finding that the purchase transaction was, on the available evidence, an accommodation to obtain insurance proceeds rather than a genuine trade transaction.
The opinion does not purport to announce a new legal principle; rather it applied existing authorities (cited precedents) regarding the evidentiary weight of a surveyor's report and assessed the specific facts of this case to set aside the State Commission's order.

Judgment delivered by J. M. Malik, Presiding Member.

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Oriental Insurance Co. Ltd. v. Pavan Enterprises

JUSTICE J. M. MALIK, PRESIDING MEMBER

1. Late Sh. Vupputuri Ayyanna- Complainant -1 was the proprietor of M/s Pawan Enterprises. After his death, the matter is being pursued by Sri Vupputuri Srinivasa Rao, his son Complainant No. 2, who also joined as one of the complainants, from the very start. There can be no conflictions on the point that Sri Vupputuri Srinivasa Rao Complainant No. 2, stepped into the shoes of complainant-1, by virtue of a will. The above said proprietorship deals in cotton. It has got its own warehouse and keeps the stocks for further proceedings in Pressing mills.

2. The original proprietor, Sh. Vupputuri Ayyanna obtained insurance coverage for his business including in the risk address of M/s Srinivasa Pressing Company Private Limited also. The Insurance Policy was to commence from 28.11.2001 to 27.11.2002. The complainant purchased two lots of cotton bales from Sri Sambasiva Lakshmi cotton Ginning Mills, Chintapallipadu, at the premises of M/s Srinivasa Pressing Company Pvt. Ltd., Kurunthala, Vatticherukur Mandal, on 06.05.2002 under Cash/Credit Bills for amounts of Rs.4,30,892/- and Rs.4,30,484/- respectively, the total amount being Rs.8,64,376/-. The complainant took possession of the cotton in the premises of M/s Srinivasa Pressing Company Pvt. Ltd. on 06.05.2002. It may be mentioned here that lots belonged to Sri Sambasiva Lakshmi Cotton Ginning Mills, which were already lying there, on 18.04.2002. The said purchase at anothers premises was made after the lapse of 18 days.

3. Unfortunately, on 08.05.2002, at about 7-30 P.M., a fire broke out at the premises of Sh. Sambasivarao Pressing Company Pvt. Ltd. and the above said cotton bales were gutted in fire. It also transpired that the payment of the said goods was not made, immediately. There was made subsequently on 13.05.2002 and the same was encashed on 14.05.2002. The claim made by the complainant was repudiated. The complainant, thereafter, filed a complaint before the District Forum with the prayer that the above said sum of Rs.8,64,376/- alongwith interest, compensation etc. be granted in favour of the complainant.

4. The respondent/Insurance Company contested the present case. It categorically denied the ownership of the complainant of the goods in question. It contended that Sri Sambasiva Lakshmi Cotton Ginning Mill, was the owner of the property in dispute. Since it did not have insurance of that cotton, therefore, they introduced the complainant to come to its rescue.

5. The District Forum dismissed the complaint.

6. Aggrieved by that order the complainant preferred an appeal before the State Commission. The State Commission allowed the complaint and directed the OP to pay to complainant No. 2, a sum of Rs.8,64,376/- with interest @6% p.a. from the date of repudiation, i.e. 28.03.2003 and pay an amount of Rs.5,000/- representing costs.

7. The Revision Petition was filed by the Oriental Insurance Company Ltd. the OP. The Revision Petition was filed in the year 2010. Mr.K.Maruthi Rao, counsel for the complainant appeared on 16.12.2014. His wife, Ms. K. Radha, Advocate, appeared on 22.01.2015, and prayed for a date. The adjournment was granted subject to payment of Rs.5,000/- as costs. The case was fixed for 24.08.2015. Counsel for the complainant pleaded no instructions. She also displayed her inability to pay the costs. Arguments were heard ex-parte from Ms. Sakshi Gupta, counsel for the petitioner in the presence of Ms. K. Radha. Till the announcement of this judgment, neither the costs were paid nor was a request made to hear the counsel for the complainant.

8. A closet scrutiny of the orders of both the Fora below go to show that the order passed by the District Forum cannot be faulted. It has taken the correct view. Now, we turn to the reasoning given by the State Commission. The State Commission correctly decided that the Complainant No. 2 has got the to contest this case. I do not pick up a conflict with that finding.locus standi

9. Secondly, the State Commission opined that even if the payment is made after few days after this incident, on 14.05.2002, the sale cannot be said to be invalid. It explained that the District Forum passed the order obviously under the impression that for a conclusion of the contract of sale of goods, the instantaneous passing of consideration is sign but theQuo-non, law in this regard is otherwise. It observed that any contract of sale of goods for that matter in any contract, the consideration could be not necessarily down payment and it could also be a payment on the spot or promise or part payment and part promise. The State Commission also found that the parties to the transaction obtained permit of the Agricultural Market Committee, Guntur and also paid tax as per Ex-A-20 for covering this very same transaction.

10. The third reason given by the State Commission is reproduced as follows:- Likewise in order to condemn this transaction as false, the District Forum also embarked upon a conjecture that Sri Sambasiva Lakshmi Cotton Ginning Mills was not in the habit of getting its cotton pressed by M/s.Srinivasa Pressing Company Private Limited as it was the customer of Balaji pressing Mill and that the said Sri Sambasiva Lakshmi cotton Ginning Mill diverted its stocks to M/s Srinivasa Pressing Company Private Limited only to lend colour of truth to this transaction allegedly owned by the complainant by way of accommodation. This again is an argument that suffers from the vice of double presumption. Such conjectural argument without the basis of first conclusively proving that the cotton in truth only belongs to Sri Sambasiva Lakshmi Cotton Ginning Mills and then that it temporally switched loyalty to M/s Srinivasa Pressing Company Private Limited only to take advantage of the insurance coverage readily available with the complainant.

11. I am of the considered view that all these arguments carry exiguous value. Although, the legal proposition cited by the State Commission may be true, yet, to understand an event, its concomitant circumstances must be understood, too. The facts are stubborn things. The report of the Surveyor, who visited the spot immediately, is relevant. The following observations made by the Surveyor go a long way to dispel the doubts, if any.

5. It is not out of place to mention here that the 100 bales involved in the subject claim are purchased from Sri Sri Sambasiva Lakshmi Cotton Ginning Mill on 06-05-2002, this was the first time that the insured made a purchase from Sri Sri Sambasiva Lakshmi Cotton Ginning Mill since 01-04-2001.

6. However, the insured had made payment for the above mentioned purchase vide Cheque Number: 411036 datede 13-05-2002 drawn on Bank of Maharashtra favoring Sri Sri Sambasiva Lakshmi Cotton Ginning Mill for Rs. 8,64,324/-. The cheque has been duly honored by the drawee, we have vouched the same into the Pass Book, and the same is also duly certified by the bank vide their Letter No: AL17/CC/GEN/2002 dated 15 June 2002. (Copy Enclosed)th

7. We have asked the insured whether the stocks of Sri Sri Sambasiva Lakshmi Cotton Ginning at Sri Srinivasa Pressing Company Private Ltd., are insured and if so to produce a copy of insurance policy covering the sotcks of Sri Sri Sambasiva Lakshmi Cotton Ginning Mill, the insured stated that they are not aware of the same and if there is insurance cover they will produce a copy of the policy to us, which they have not done so far. Therefore, the real intention behind these purchases appears to accommodate Sri Sri Sambasiva Lakshmi Cotton Ginning Mill, which does not have insurance cover for the stocks lying in Sri Srinavasa Pressing Company Private Ltd. This is evident from the facts that Sri Sri Sambasiva Lakshmi Cotton Ginning Mill does not have insurance in Sri Srinivasa Pressing Company Privazte Ltd., but had stock of cotton in Sri Srinivasa Pressing Company Private Ltd. On the other hand Pavan Enterprises had insurance cover valid up to 27-11-2002 (one year policy taken on 28-11-2001) but had no stock at Sri Srinivasa Pressing Company Private Ltd., (other than these 100 bales purchased).

8. We have raised this point in discussions with the insured. The insured stated that they have purchased these bales on bale condition. Bale condition means the purchaser purchase loose lint from the seller and the seller will be responsible to handover the lint in FB bale form in the premises where the purchaser had an insurance cover. They also stated that Sri Sri Sambasiva Lakshmi Cotton Ginning Mill do not get their bales pressed at Sri Srinivasa Pressing Company Private Ltd., but only at Balaji Pressing Company. The insured further stated that as they dont have an insurance cover at Balaji Pressing Company, Sri Sri Sambasiva Lakshmi Cotton Ginning Mill have shifted the lint boras from Balaji Pressing Company to Sri Srinivasa Pressing Company Private Ltd., and got them pressed at Sri Srinavasa Pressing Company Private Ltd., and then transferred them to their name vide T/L No. 2/54 dated 06-05-02. Even if we take the above mentioned explanation to be correct, 100 bales which were pressed on 18-04-2002 as per P.R. Register of the press were transferred only on 06-05-2002 i.e. after 18 days, only for the reasons best known to the insured and Sri Sri Sambasiva Lakshmi Cotton Ginning Mill. If the bales were purchased on bale condition on 06-05-2002 why were these bales pressed on 18-04-2002 and stacked in Sri Srinivasa Pressing Company Private Ltd., long before the purchases? Based on the above-mentioned points we are of the opinion that the transaction involving purchase of 100 bales on 06-05-2002 by the insured is purely to accommodate Sri Sri Sambasiva Lakshmi Cotton Ginning Mill.

9. The subject claim is a clear case of transfer of stocks from an uninsured to the insured to derive undue benefit from the insurers and is not a genuine trade transaction which has taken place in the normal course of business. Hence the subject claim may be repudiated by the insurers.

12. I see no reason to discard the report of the Surveyor. He appears to be a guileless witness. No motive was ever attributed to him. There must be some reasonable ground or doubt to reject his report. The report of the surveyor carries infinite significance as was held in Roshan Lal Oil Mills Ltd. & Ors. (2000) 10 Supreme Court Cases 19 and in D.N. Badoni Vs. Oriental Insurance Co. Ltd. I (2012) C.P.J. 272 (NC).

13. Consequently, I accept the Revision Petition, set aside the order of the State Commission and dismiss the complaint. No order as to costs. ......................J J.M. MALIK PRESIDING MEMBER

Oriental Insurance Co. Ltd. v. Pavan Enterprises

Judgment Summary — Justice J. M. Malik, Presiding Member

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Complainant's Position

Respondent / Insurance Company's Position

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Oriental Insurance Co. Ltd. v. Pavan Enterprises

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