THE NEW INDIA ASSURANCE CO. LTD. v. M/S. S.K. HANDLOOM HANDICRAFTS

as the Complainant (Respondent herein) and the New India Assurance Co. Ltd is referred as the Opposite Party (OP)/Insurer (Appellant herein).

4. Brief facts of the case, as per the Complainant, are that their firm is engaged in manufacturing and processing yarn, cloth, fabrics, thread, latex, raw materials, and finished goods. The firm obtained a 'Standard Fire and Special Perils Policy No. 35390011150100000516 from Opposite Party (OP) valid from 27.06.2015 to 26.06.2016, with a sum insured amounting to Rs. 3 Crore, covering their premises, including building, plant & machinery, accessories and stock. The premium for the policy was paid regularly to the OP. On 08.05.2016, a devastating fire broke out in the complainant's premises at Panipat due to an electric short circuit, causing extensive damage to the building, machinery and stock. The complainant immediately informed the fire department, police authorities and the OP. The OP appointed a surveyor, who assessed the loss at Rs. 93,22,401/- in his report dated 29.06.2017. However, the report was not provided to the complainant until August 2017, despite IRDA rules requiring its timely disclosure. OP rejected the claim of the complainant on the grounds of non-submission of certain documents, including a rent agreement and invoices from M/s Mittal Enterprises. They clarified that M/s Mittal International and the complainant firm are distinct entities, though they collaborated professionally. Their firm operates independently, with own PAN number, Income Tax registration, EPF and ESI Accounts. All relevant invoices and purchase bills, including those sourced from M/s Mittal International, were forwarded to OPs. The surveyor confirmed the fire incident as genuine, coverage was intact, and the stock was found to be extensively burnt. They contended that the policy was taken purely for indemnification of losses and not for profit motive. Despite multiple requests, OPs failed to settle the claim. Consequently, they filed the Consumer Complaint before the State Commission, seeking Rs.93,22,401/- as claim, compensation of Rs.10,000/- for harassment, and Rs. 33,000/- as litigation expenses, alleging deficiency in service on the part of the OPs.

5. OP contested the complaint by filing a written response, raising objections regarding maintainability, jurisdiction, and locus standi. They argued that the claim involves complex legal and factual questions, better suited for a civil court. OP admitted the existence of the insurance policy covering a sum insured of Rs. 3 Crore and that Mr. Ashish Behl, a surveyor submitted a preliminary report on 18.06.2016 and M/s Consolidated Insurance Surveyors & Loss Assessors Pvt. Ltd, an IRDAI-approved firm, conducted a detailed survey and submitted their report on 29.06.2017. OP alleged non-cooperation from the complainant during the assessment process and pointed out the absence of crucial documents, such as purchase invoices and challans. The documents were sourced from M/s Mittal International and not directly from the complainant. Despite assessing the loss at Rs. 93,22,401/-, the complainant failed to establish their insurable interest concerning the destroyed goods. OP concluded that the repudiation of the claim was justified, asserting no deficiency in service on their part, and prayed for dismissal of the complaint.

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6. The learned State Commission, vide order dated 04.10.2023 allowed the complaint and directed the OP as under: -

"12. Resultantly in view of the findings above, the present complaint deserves to be allowed and the OP insurance company is liable to make payment the amount assessed by its own surveyor vide Ex.C-3 i.e. Rs.93,22,401/- along with compensation for the mental agony and harassment assessed at Rs.50,000/- and litigation expenses at Rs.33,000/-. Since the complainant has not clamed any Interest on the said amount, so the said amount of Rs.93,22,401/- be paid within a period of 45 days without any interest along with compensation for mental agony and harassment with litigation expenses, from the date of receipt of certified copy of the orders.

13. However, since the repudiation of the claim vide Ex. C-4 has been rejected by this Commission it is made clear that in case, the above said awarded amount is not paid within a period of 45 days, then the entire amount shall carry interest @ 12% p.a. from the date of filing of complaint till actual realization as a default provision."

7. Aggrieved by the impugned order of the State Commission, the Appellant/OP has filed this present Appeal seeking the following:

"a) Allow the Appellant's Appeal by setting aside the impugned order dated 4.10.2023 of the State Commission, in Consumer Complaint No. 582 of 2017, and consequently dismiss the Complaint;

b) Pass such other and further orders as this Hon'ble Commission may deem fit and proper in the facts and circumstances of this case."

8. In the Appeal, the Appellant mainly raised the following issues:

A. The State Commission failed to appreciate that admissibility of a claim under an insurance policy must be examined strictly within the terms and conditions of the policy.

B. The State Commission overlooked the pecuniary jurisdiction as per Ambrish Shukla vs. Ferrous Infrastructure as the loss claimed was Rs.1,66,10,638/- and the sum insured was Rs.3 crores. Thus, the complaint falls outside the State Commission's jurisdiction.

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C. The appellant rightly repudiated the claim as the insured failed to provide credible proof of ownership or insurable interest in the goods claimed as destroyed. Surveyor's report revealed absence of records, invoices, or challans for the alleged lost goods.

D. It is unlikely that a manufacturing firm with power looms would restrict its activities to mere packing of goods for another entity. The preliminary survey revealed that M/s. S.R. Group (owned by Dr. R.K. Garg), was operating from the same premises. F. The surveyor found that the fire-affected godown was in fact in possession of M/s Mittal International until June 2015, and the insured address matched the factory premises of M/s. Mittal Int.

E. The complainant failed to produce any challans or supporting records regarding the alleged job work. The State Commission erred in holding that 'goods held in trust and/or on commission' were under policy cover, despite absence of such stipulation. F. The Hon'ble Supreme Court in Khatema Fibres vs. New India Assurance Co. Ltd. ruled that Consumer Fora cannot subject surveyor reports to forensic examination if they comply with regulatory norms and are not arbitrary. The State Commission order is contrary to the rulings in Shree Ambica Medical Stores vs. Surat People's Co- operative Bank Ltd. and General Assurance Society Ltd. vs. Chandumull Jain.

9. Upon notice, the Respondent/Complainant filed a reply reiterating the original complaint contending that the claim repudiation was without any cogent reason amounts to

"Deficiency in Service" and this has caused a great deal of injustice to the Complainant.

10. In his arguments, the learned Counsel for Appellant admitted the insurance policy in question and reiterated the grounds of appeal. He contended that the insurance company was justified in repudiating the claim as per report of the surveyor on the basis of "no claim". He sought that the order of the learned State Commission be set aside with exemplary costs. He relied on Singal Udyog vs. National Insurance Co. Ltd., (2020) 19 SCC 154; Manager, Indusind Bank vs. Sanjay Ghosh, 2022 Live Law (SC) 550; Khatema Fibres Ltd. vs. New India Assurance Co. Ltd., 2021 SCC OnLine SC 818.

11. On the other hand, the learned Counsel for the Complainant reiterated the facts of the case and argued in favour of the order of the learned State Commission. He contended that the Appellant resorted to repudiation of a genuine insurance claim under false grounds. The order of the learned State Commission is just, proper and sustainable in law. He sought to dismiss the First Appeal with costs. He has relied on CE Construction Ltd. & Ors. Vs. Intertoll ICS India Pvt. Ltd., MANU/DE/1198/2015; Maharani of India vs. Branch Manager, United India Ins. Co. Ltd., RP No.1794 of 2017, decided on 11.01.2018 by NCDRC; Vaan Infra Pvt. Ltd. vs. Liberty Videocon General Insurance & Ors., MANU/CF/0283/2018.

12. We have examined the pleadings placed on record, associated documents and rendered thoughtful attention to the arguments advanced by the learned counsels for both

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the parties.

13. The policy in question was a 'Standard Fire and Special Peril Policy' (SFSP), which is a conventional insurance cover protecting the Plant, Machinery and Accessories, Stock, and Stock in process. The insured is engaged in manufacturing and processing of yarn, cloth, fabrics, thread, latex, raw materials and finished goods had been availing the same policy from the OP for some years. The standard policy format issued by the OP contains columns tailored to suit the requirements of different types of customers. It is uncontested position that, until the year 2015-16, the original policies obtained by the complainant continued to cover Plant, Machinery & Accessories, Stock and Stock in process. The OP contends that the surveyor's report indicated that the insured firm had no records/documents concerning the goods allegedly destroyed such as copies of purchase invoices, challans, etc., and that the documents submitted were arranged from one M/s. Mittal International by the insured firm.

14. The complainant initially made a claim of Rs.1,66,10,638/-, but later restricted the claim to the amount assessed by the surveyor, i.e., Rs.93,22,401/-. The claim was repudiated on the grounds that the insured firm failed to provide proper records/documents concerning the loss of goods, such as purchase invoices and challans. The surveyor's report dated 29.06.2017 assessed the net loss as Rs.93,22,401/-. The State Commission expressly clarified from OP whether the policy in question under which the claim was settled as 'No Claim,' was a fresh policy or a renewal of an earlier policy. It was affirmed that it was the same policy that had been continuously renewed annually. No new proposal form had been submitted by the complainant for the policy issued for 2015-2016 or any prior years. The State Commission's finding in this regard is based on these facts.

15. Undisputedly, the complainant has been obtaining the same insurance policy from the OP insurer over a period of time, without any changes. The nature of commercial activity undertaken by the respondent/complainant was to process the raw material supplied to him by his clients into handloom handicraft as final product. Thus, the nature and scope of tasks of the complainants entail processing of the raw material belonging to the clients which are brought to its premises into finished products.

16. The policy in question was to provide insurance cover for the material, including those held in trust, worth Rs.2.5 Crores on stocks of all kind of yarn, cloth, fabrics, thread, latex, raw materials, finished goods, packing materials, textile goods, handloom/power- loom products, it's made ups and all other goods related to their trade whilst in process/under process lying and or stored in process block, Godowns in factory premises situated at VPO Sewah Beh, Kadyan Hero Honda, Panipat. Fire + EQ + STFI covered goods held in trust and/or commission are also covered. Rs. 50 Lakhs on complete machinery of textile unit, DG Set, including all electrical and non-electrical accessories, cables, panel board, fittings etc. Therefore, it is clear that the goods held in trust, which is

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the present case, are covered under the said insurance policy.

17. The complainant is stated to have submitted all details, calculations, and documents that were sought by the surveyor. However, the surveyor concluded that the insured firm had no records/ documents concerning the goods allegedly destroyed, and the documents submitted appeared to have been arranged from M/s. Mittal International. Consequently, the OP's liability with respect to the policy was determined by the surveyor as 'Nil.'

18. Clearly, the complainant had duly insured its stocks and assets which included plant, machinery, accessories, stocks and stocks in process, including those held in trust. The stock destroyed is the insured property that was burnt in the fire incident. The specific details and breakdown of calculations were provided by the complainant. Clearly, all assets that were impacted in the incident are covered under the policy in question. The terms of the policy are to be interpreted as stated thereat. Thus, the action of surveyor in not considering damage occasioned in due compliance of the terms of the policy and limiting to only a few is untenable.

19. In the given circumstances, even if there was some ambiguity with respect to the scope of cover under the policy, the same shall be interpreted in favour of the insured as clarified by the Hon'ble Supreme Court in Haris Marine Products versus export credit guarantee corporation (ECGC) Limited, 2022 SCC OnLine SC 509 wherein it was held that when there is any ambiguity in the terms and conditions of the contract, the court has the discretion to interpret the same in favour of the Insured by applying the principle of 'Contra Proferentem'. The relevant portion of the said judgment is as under:-

"22. Reconciliation of ambiguous terms in commercial contracts has been a contentious issue across jurisdictions. A 2011 decision by the Supreme Court of the United Kingdom (hereafter, "UK Supreme Court") in Rainy Sky SA v. Kookmin Bank was concerned with the interpretation of refund guarantees given by a ship builder to the buyers, and whether the same was triggered when the ship builder started facing financial difficulties and was subjected to a debt workout procedure. Allowing the appeal, the UK Supreme Court provided the guiding principle for resolution of such ambiguity, keeping the 'business common sense' as central:

"The language used by the parties will often have more than one potential meaning. I would accept the submission made on behalf of the appellants that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other." (emphasis supplied)

23. This principle was further developed by UK Supreme Court

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in Arnold v. Britton. The facts were that a 99-year lease specified that service charge of £90 levied every year was subject to 10% increase annually. The lessees submitted that by the end of the lease agreement, the service charge payable would be very high, exceeding the cost of providing the services. The UK Supreme Court refused to depart from the natural meaning of the clause, holding that:

"When interpreting a written contract, the court is concerned to identify the intention of the parties by reference to "what a reasonable person having all the background knowledge which would have been available to the parties would have understood them to be using the language in the contract to mean", to quote Lord Hoffmann in Chartbrook Ltd. v Persimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101, para

14. And it does so by focussing on the meaning of the relevant words, in this case clause 3(2) of each of the 25 leases, in their documentary, factual and commercial context. That meaning has to be assessed in the light of (i) the natural and ordinary meaning of the clause, (ii) any other relevant provisions of the lease, (iii) the overall purpose of the clause and the lease, (iv) the facts and circumstances known or assumed by the parties at the time that the document was executed, and (v) commercial common sense, but (vi) disregarding subjective evidence of any party's intentions. In this connection, see Prenn at pp 1384-1386 and Reardon Smith Line Ltd. v. Yngvar Hansen-Tangen (trading as HE Hansen-Tangen) [1976] 1 WLR 989 (2), 995-997 per Lord Wilberforce, Bank of Credit and Commerce International SA (in liquidation) v. Ali [2002] 1 AC 251, para 8, per Lord Bingham, and the survey of more recent authorities in Rainy Sky, per Lord Clarke at paras 21-30". (emphasis supplied)

24. Thus, a decisive method was suggested to construe the ambiguity of a term used in a commercial contract. This was applied by the UK Supreme Court in Woods v. Capita Insurance.¹⁷ The facts in brief are that the buyer of an insurance company relied on an indemnity clause to recover losses paid in the form of compensation to the customers of the insurance company to which the company has mis-sold products. According to the indemnity clause, any complaint to the Financial Services Authority (hereinafter

"FSA") would be indemnified by the buyer. However, the contract did not clearly specify what would happen if the company itself raised a complaint before the FSA. The UK Supreme Court held that a literalist approach to resolving ambiguity in a commercial contract term would yield incorrect results, and a holistic reading was imperative to ascertain meaning of terms agreed to by parties. Dismissing the appeal, the UK Supreme Court finally held that the indemnity clause was in addition to the wide-ranging warranties specified elsewhere in the contract, which was not contrary to business common sense. The agreement might have become a poor bargain for the buyer, but it was not the Court's function to improve that bargain:

"The court's task is to ascertain the objective meaning of the language which the parties have chosen to express their agreement. It has long been accepted that this is not a literalist exercise focused solely on a parsing of the wording of the particular clause but that the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to

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elements of the wider context in reaching its view as to that objective meaning. ***

Textualism and contextualism are not conflicting paradigms in a battle for exclusive occupation of the field of contractual interpretation. Rather, the lawyer and the judge, when interpreting any contract, can use them as tools to ascertain the objective meaning of the language which the parties have chosen to express their agreement. The extent to which each tool will assist the court in its task will vary according to the circumstances of the particular agreement or agreements. Some agreements may be successfully interpreted principally by textual analysis, for example because of their sophistication and complexity and because they have been negotiated and prepared with assistance of skilled professionals. The correct interpretation of other contracts may be achieved by a greater emphasis on the factual matrix, for example because of their informality, brevity or the absence of skilled professional assistance. But negotiators of complex formal contracts may often not achieve a logical and coherent text because of, for example, the conflicting aims of the parties, failures of communication, differing drafting practices, or deadlines which require the parties to compromise in order to reach agreement. There may often therefore be provisions in a detailed professionally drawn contract which lack clarity and the lawyer or judge in interpreting such provisions may be particularly helped by considering the factual matrix and the purpose of similar provisions in contracts of the same type. The iterative process, of which Lord Mance spoke in Sigma Finance Corpn (above), assists the lawyer or judge to ascertain the objective meaning of disputed provisions. On the approach to contractual interpretation, Rainy Sky and Arnold were saying the same thing." (emphasis supplied)

25. On application of the above principle to this Policy, and taking into consideration all relevant documents, this Court is of the opinion that the date of loading goods onto the vessel, which commenced one day prior to the effective date of the policy, is not as significant as the date on which the foreign buyer failed to pay for the goods exported, which was well within the coverage period of the Policy. Thus, the claim could not be dismissed simply on such basis, especially given that the date of loading the goods onto the vessel was immaterial to the purpose for which the policy was taken by the appellant.

B. Rule of contra proferentem

26. It is entrenched in our jurisprudence that an ambiguous term in an insurance

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"In other respects there is no difference between a contract of insurance and any other contract except that in a contract of insurance there is a requirement of uberrima fides i.e., good faith on the part of the assured and the contract is likely to be construed contra proferentem that is against the company in case of ambiguity or doubt… (I)n interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves". (emphasis supplied)

20. In view of the foregoing deliberations and after careful perusal of the material on record and the established precedents of the Hon'ble Supreme Court, the Appellant has not brought out anything substantial in the present Appeal that warrants interference into a detailed and well reasoned order of the learned State Commission dated 04.10.2023. The present First Appeal No.25 of 2024 is, therefore, dismissed.

21. All pending Application, if any, also stand disposed of accordingly.

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SUBHASH CHANDRA

PRESIDING MEMBER

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AVM J. RAJENDRA, AVSM VSM (Retd.)

MEMBER

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