2020 (2) TMI 1577 - SC - Indian Laws

Court Rules in Favor of Farmers in Insurance Dispute

CANARA BANK Versus M/s. UNITED INDIA INSURANCE CO. LTD. & ORS.

The court concluded that the fire was accidental, rejecting claims of arson by the insurance company. It held that the farmers were consumers under the ... Fire Accident - genuineness of tripartite agreement - privity of contract between the farmers and the insurance company or not - case of the insurance company is that nobody in his right mind would store agricultural produce for such a long period of time - HELD THAT:- 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? - issue of privity of contract? - HELD THAT:- 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) quoted hereinabove 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. As far as the definition of the consumer in relation to hiring or availing of services is concerned, the definition is much wider - 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 farmer had agreed to pay consideration to the cold store and, therefore, the goods were 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. 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. However, this will obviously be subject to the bank clause. The Bank cannot claim interest at the contractual rate and is not entitled to claim interest at the contractual rate because the farmers have been driven through a long drawn litigation which could have been easily avoided if the Bank had itself sent the copy of the tripartite agreement to the insurance company or insisted that the insured should send the same to the insurance company - the Bank cannot claim interest at the contractual rate. The Bank would be entitled to charge simple interest right from the date of grant of loan at the rate of 12% per annum. The 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. The insurance company shall be liable to pay to each one of the farmers the value of his goods to be assessed as per the rate mentioned on the warehouse receipts when the goods were stored in the Cold Store in terms of our direction given hereinabove along with interest at the rate of 12% per annum from the date of fire till payment or deposit thereof - Canara Bank shall file certified statements of accounts before the Karnataka State Consumer Disputes Redressal Commission showing the principal amount of loan advanced to each farmer and the amount due to the Bank by calculating simple interest @ 12% p.a. up to 13.01.2014 i.e. payable by 14.01.2014 after adjusting the payments which the Bank may have received in the loan account. Appeal disposed off. Issues Involved:1. Whether the fire was accidental.2. Whether the farmers are consumers under the Consumer Protection Act, 1986.3. Privity of contract between the farmers and the insurance company.4. Applicability of General Exclusion Clause No.5.5. Applicability of General Condition Nos. 1 & 8.6. Deficiency in service by the Bank.7. Calculation of the claim amount payable to the farmers.Detailed Analysis:1. Whether the fire was accidental:The court addressed the contention of the insurance company that the fire was not accidental. Both the State and National Commissions concluded that the fire was accidental and caused by an electrical short circuit. The court noted reports from the electrical inspector, police investigation team, and forensic science laboratory (FSL) all confirming the fire was due to a short circuit. The court rejected the insurance company's reliance on reports from Truth Labs and Rank Surveyors Private Limited, which suggested arson, due to inconsistencies and lack of credibility. The court concluded that the fire was indeed accidental and rejected the insurance company's claims of arson.2. Whether the farmers are consumers under the Consumer Protection Act, 1986:The insurance company argued that the farmers were not consumers as defined under the Act. The court referred to Section 2(d) of the Act, which includes beneficiaries of services within the definition of a consumer. The court held that the farmers, as beneficiaries of the insurance policy taken by the cold store, were indeed consumers. The tripartite agreement between the farmers, the Bank, and the cold store mandated insurance of the farmers' produce, making the farmers beneficiaries of the insurance policy.3. Privity of contract between the farmers and the insurance company:The insurance company contended that there was no privity of contract between it and the farmers. The court held that under the Consumer Protection Act, it is not necessary for there to be privity of contract between the insurance company and the claimants. The farmers, as beneficiaries of the insurance policy, were entitled to claim under the policy despite not being direct parties to the contract.4. Applicability of General Exclusion Clause No.5:The insurance company argued that Clause 5 of the policy excluded coverage for goods held in trust. The court rejected this argument, stating that the goods were stored in the cold store for consideration (rent) and not merely held in trust. The relationship was one of bailor and bailee, and the exclusion clause did not apply.5. Applicability of General Condition Nos. 1 & 8:The insurance company claimed that the policy was voidable due to non-disclosure of material facts and fraudulent claims. The court noted that the insurance company had not declared the policy void during its term and could not do so now. The court found no evidence of fraudulent claims or false declarations. The insurance policy included an Agreed Bank Clause, indicating awareness of third-party interests. The court held that the insurance company could not escape liability on these grounds.6. Deficiency in service by the Bank:The court found that the Bank was remiss in not informing the insurance company about the tripartite agreement and the ownership of the goods. However, the court did not find sufficient grounds to hold the Bank liable for deficiency in service. The court noted that the Bank's decision not to sell the produce was commercially reasonable given the nature of Byadgi chillies.7. Calculation of the claim amount payable to the farmers:The court addressed the farmers' claim that the value of the goods should be assessed as of the date of the fire. The insurance policy stipulated that the value of the property at the time of destruction should be paid. However, the court found that the evidence provided by the farmers was insufficient to determine the exact value of the goods on the date of the fire. The court upheld the decision of the National Commission to use the value reflected in the warehouse receipts.Conclusion:The insurance company is liable to pay the value of the goods as reflected in the warehouse receipts along with simple interest at the rate of 12% per annum from the date of the fire. The Bank is entitled to recover the principal amount of the loan along with simple interest at the rate of 12% per annum from the date of the loan until repayment. The court directed the insurance company to deposit the amount payable to the farmers with the State Commission by a specified date. All appeals were disposed of with no order as to costs.