All these appeals have been filed against a common judgment and order dated June 01, 2001 passed by the National Consumer Disputes Redressal Commission in Original Petition and companion matters. ...
No Acts & Articles mentioned in this case
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7515 OF 2001
M/s KRISHNA FOOD & BAKING
INDUSTRY P. LTD. … Appellants
Versus
M/S NEW INDIA ASSURANCE CO.
LTD. & ANR. … Respondents
WITH
CIVIL APPEAL NO.8495 OF 2001
RAJENDRA KUMAR SAWHNEY … Appellant
Versus
M/S NEW INDIA ASSURANCE CO.
LTD. & ANR. … Respondents
WITH
CIVIL APPEAL NO.8496 OF 2001
M/s KRISHNA FOOD & BAKING
INDUSTRY P. LTD. … Appellant
Versus
M/S NEW INDIA ASSURANCE CO.
LTD. & ORS. … Respondents
WITH
CIVIL APPEAL NO.3393 OF 2002
M/S NEW INDIA ASSURANCE CO. LTD. … APPELLANT
VERSUS
M/s KRISHNA FOOD & BAKING
INDUSTRY P. LTD. & ANR. … RESPONDENTS
WITH
CIVIL APPEAL NO.4024 OF 2002
M/S NEW INDIA ASSURANCE CO. LTD. … APPELLANT
VERSUS
RAJENDRA KUMAR SAWHNEY & ANR. … RESPONDENTS
WITH
CIVIL APPEAL NO.8000 OF 2002
CANARA BANK … APPELLANT
VERSUS
M/s KRISHNA FOOD & BAKING
INDUSTRY P. LTD. & ORS. … RESPONDENTS
WITH
CIVIL APPEAL NO.8002 OF 2002
CANARA BANK … APPELLANT
VERSUS
M/s KRISHNA FOOD & BAKING
INDUSTRY P. LTD. & ANR. … RESPONDENTS
J U D G M E N T
2
C.K. THAKKER, J.
1. All these appeals have been filed
against a common judgment and order dated June
01, 2001 passed by the National Consumer
Disputes Redressal Commission (‘National
Commission’ for short) in Original Petition No.
194 of 1994 and companion matters. These
appeals are filed under Section 23 of the
Consumer Protection Act, 1986 (hereinafter
referred to as ‘the Act’).
2. To appreciate the controversy raised
in the present appeals, few relevant facts may
be stated.
3. M/s Krishna Flour and Oil Mills
(‘Mill’ for short) is a partnership firm while
M/s Krishna Food and Baking Industry Pvt. Ltd.
(‘Company’ for short) is a company registered
under the Companies Act, 1956 as applicable to
the State of Jammu & Kashmir. Both the units
were located in Nawab Bazar, Srinagar, in the
State of Jammu & Kashmir. Both were sister
3
concerns. Rajendra Kumar Sawhney was Chairman
of the Company as also main partner of the
Mill. The Company was dealing in manufacturing
bread, biscuits, cakes and other bakery items.
It is the case of the complainants that during
the period of disturbances caused by militancy
in early nineties of the last century, Mr.
Praneet Sawhney, only son of Rajendra Kumar
Sawhney was shot dead by the terrorists on
March 27, 1990 in his office. Immediately
thereafter, operations of both the units were
suspended and the complainants had to migrate
to Delhi. It was stated that there was ‘watch
and ward staff’ as also some other personnel
who looked after the premises and stocks and
raw materials lying in the units. It was also
stated in the complaints that the complainants
were able to transfer records from Srinagar to
Delhi.
4. According to the complainants, they
had obtained three separate insurance policies
from M/s New India Assurance Co. Ltd.
4
(‘Insurance Company’ for short), the details of
which are as under;
S No.Policy No. Sum
Assured
Case No.Items covered
1. 112119000249 Rs.40
Lakh
194/94 Stock of Wheat, Wheat
Products and Packing
material and Goods of
like nature of Krishna
Flour & Oil Mills
2. 113119000312 Rs.25
Lakh
210/94 Stocks of Raw Material
like Flour, Maida,
Ghee, chemicals etc. in
godowns belonging to
Krishna Food & Baking
Industries
3. 113119000313 Rs.53
Lakhs
209/94
Plant & Machinery
installed in Krishna Food
& Baking Industries.
(a) Factory Building
Rs.21 lakhs
(b) Electric fittings
Rs.4 lakhs
(c) Plant & Machinery
Rs.28 lakhs
5. It was the say of the complainants
that in the morning of November 12, 1991,
certain terrorists attacked the Company as well
as the Mill and set them on fire. Substantial
damage had been caused to building, plant,
machinery and electricity fittings; the raw
materials lying in the units were destroyed
stocks which were in both the units were also
either destroyed or substantially damaged. In
5
view of the insurance coverage, a demand was
made by the complainants to the Insurance
Company to get the survey done and to pay the
amount of loss sustained by the complainants.
The Insurance Company, however, did not do
anything in the matter for quite long time.
The complainants got the survey done through
their surveyors and demanded the amount to
which they were entitled to. The Insurance
Company, however, did not make payment which
constrained the complainants to approach
National Commission by filing three complaints
being Complaint Nos. 194, 209 and 210 of 1994.
6. The prayer made in the complaints and
the demand in respect of policies and sums may
be summarized thus;
S No.Policy No. Sum
Assured
Complaint
No.
Items covered
1. 112119000249 Rs.40
Lacs
194/94 Stock of Wheat, Wheat
Products and Packing
material and Goods of
like nature of the
Mills.
(‘Wheat Policy’)
2. 113119000312 Rs.25
Lakhs
210/94 Stocks of Raw Material
like Flour, Maida,
Ghee, chemicals etc. in
godown belonging to
Baking Industry.
(‘Raw Material Policy’)
6
3. 113119000313 Rs.53
Lakhs
209/94
Plant & Machinery
installed in Baking
Industry.
(‘Plant Policy’)
(a) Factory Building
Rs.21 lakhs
(b) Electric fittings
Rs.4 lakhs
(c) Plant & Machinery
Rs.28 lakhs
7. The Insurance Company repudiated the
claim of the complainants. At a belated stage,
survey had been carried out by the Insurance
Company through its Surveyors wherein it was
observed that substantial damage had not been
caused to building, plant, machinery and
electricity fittings and the complainants were
not entitled to the amount demanded by them
under the said head. The Insurance Company also
assessed the damage to the building, plant,
machinery and electricity fittings to the
extent of Rs.31,373/- and nothing more.
8. With regard to raw-materials and
stocks, the amount was substantially curtailed
by the Insurance Company inter alia on the
grounds that the stocks were perishable in
7
nature and had become unfit for human
consumption and the same had been badly
affected by bacterial growth. It had become
worthless at the time of mishap in 1991. It
was also contended that in absence of proper
‘watch and ward staff’, there was pilferage of
stocks and raw materials by intruders as well
as by staff members of the complainants’
Company and Mill. It was, therefore, submitted
that the complainants were not entitled to the
amount claimed in the complaints.
9. The National Commission went into the
merits of the matter and held that the
complainants were entitled to certain reliefs.
With regard to stocks kept in the godown of the
Mill, it observed that it was covered by policy
No. 1131190000249. The policy was for an amount
of Rs. forty lakhs and premium of Rs.5,814/-
was paid. The claim put forward by the
complainants was for Rs.37,78,618/-. According
to the complainants, the stocks which were
lying in the units were as under;
8
CommodityQuantity Rate Amount (Rs.)
Wheat 2138.48 Qtls. Rs.400/Qtl. 8,55,392
Maida 4676 Bags (90 Kg.) Rs.450/bag 21,04,200
Krishna
Bhog Atta
271 Bags (80 Kg.) Rs.400/bag 1,08,400
Super
Fine Atta
5952 Bags (10 Kg) Rs.55/bag 3,27,360
Bran 2090 Bag (10 Kg) Rs.100/bag 2,09,000
Bardana
(Packing
Material)
(Total value as per
Books)
1,74,267
Total 37,78,619
10. The National Commission held that
surveyors of the complainants had prepared a
report and submitted to the Insurance Company,
but the claim was repudiated on the ground that
there were no stock worth its while as there
was pilferage since the units remained closed
for about twenty months. It was also contended
by the Insurance Company that the stock was not
fit for human consumption. The final survey
report at the instance of the Insurance Company
recommended to settle the claim of the
complainants at Rs.5,18,619/-. The figure was
communicated by the Insurance Company to the
complainants.
11. The National Commission noted that
respondent No. 2 Grindlays Bank supported the
9
case of the complainants and prayed that the
amount claimed by the complainants be given to
them as the complainants executed mortgage
documents in the favour of the Bank.
12. The National Commission considered the
evidence of Mr. Ghulam Rasool Wani, the only
witness examined on behalf of the complainants
who was an illiterate staff member. On behalf
of the Insurance Company, two surveyors, Mr.
Andrasabi and Mr. A.K. Gupta were examined. The
Insurance Company also examined Mr. V.K. Malik
and Mr. M.R. Grover. The National Commission
considered the relevant documentary and oral
evidence and observed that the risk was covered
by the terms and conditions of the insurance
policy. It also held that the units could not
work in view of militancy in the area and the
units were required to be closed down. It
believed the case of the complainants that
there was terrorist attack on both the units on
November 12, 1991 and the militants set on fire
the units. It further recorded a finding that
10
there was no evidence whatsoever to conclude
that there was pilferage either by the
intruders or by the staff members of any of the
units. It, however, held that stocks were
worthless, and as such, the complainants were
not entitled to the amount claimed. According
to the National Commission, an amount of
Rs.5,18,619/- as recommended by the surveyors
of the Insurance Company was a reasonable
figure and ought to have been accepted by the
Insurance Company. Accordingly, it held that
the complainants were entitled to the said
amount.
13. With regard to the raw material, it
was covered by policy No.1131190000312 and the
coverage was for Rs. 25 lakhs. Premium of
Rs.4,821/- was paid and the policy was
subsisting.
14. The break up given for such claim was
as under;
Raw Materials Rs. 11,52,248-00
Packing Materials Rs. 05,40,079-00
Interest @ 18% Rs. 08,66,471-00
11
------------
TOTAL Rs. 25,58,798-00
------------
15. Thus, according to the complainants,
total loss in respect of raw materials and
allied perils was to the extent of Rs.
25,58,798/-. On the said claim, the Insurance
Company appointed three investigators, i.e. Mr.
Hamdani, Andrasabi and Adarsh Associates. The
surveyors, in their report, narrated the facts
and circumstances of the case and left the
amount of valuation of raw materials to the
opposite party. In a subsequent report,
however, they gave a figure of Rs.4,33,122/-
for settlement of the claim and asked the
complainants whether they were ready to accept
the amount. Upon the query by the complainants,
however, the Insurance Company, instead of
giving response to the query, repudiated the
claim vide letter dated April 19, 1995 on the
ground that there was pilferage and hence, the
Insurance Company was not liable. Moreover,
12
though there was destruction of raw material
due to fire in the units, since the raw
materials were unfit for human consumption, the
complainants’ claim was not well-founded. It
was, therefore, held that the complainants were
not entitled to the claim.
16. The National Commission considered the
question and observed that there was no
pilferage and taking into account the weather
condition in Srinagar, it could not be held
that the raw materials had become worthless or
unfit for human consumption. Considering the
reports, it was held by the National Commission
that as per the Surveyors Report at the
instance of the Insurance Company, the
claimants were entitled to Rs.4,53,122/-.
17. In respect of building, plant,
machinery and electricity fittings, the claim
was covered by policy No.1131190000313. It was
for Rs. 53 lakhs. The break-up was as follows;
13
i) Factory Building Rs. 21,00,000
ii) Electric fittings including
Transformer etc.
Rs. 4,00,000
iii) Machinery of all kinds used for
Manufacture of Biscuits, Bread etc.
Rs. 28,00,000
Rs. 53,00,000
---------------
18. The Insurance company, on the other
hand, stated that the complainants were
entitled only to Rs.31,373/- and nothing more.
19. The National Commission considered the
question and observed that the complaint
relating to the said policy was required to be
allowed in part. The Insurance Company was
directed to make payment of Rs.31,373/- towards
damage to building with interest at the rate of
12 per cent and the complaints were accordingly
disposed of.
20. Being aggrieved by the order passed by
the National Commission, three appeals have
been filed by the complainants. The grievance
of the complainants is that though the
complainants were entitled to the amount which
had been claimed by them, based on evidence and
14
Surveyors’ Reports, the National Commission
committed an error of fact and of law in not
granting the prayer and in not allowing the
complaints in their entirety. It was,
therefore, submitted that the appeals deserve
to be allowed by directing the Insurance
Company to pay full amount with interest at the
rate of 18 per cent from November 12, 1991 and
costs. The prayer was also made to pay
appropriate amount towards harassment caused to
the complainants.
21. Two appeals are filed by the Insurance
Company. In the appeals, it was contended by
the Insurance Company that the National
Commission was in error in granting relief in
favour of the complainants. The complainants
were not entitled to any relief since in
absence of the Managing Director and other
responsible persons, there was pilferage by
intruders and staff members themselves for
which the Insurance Company cannot be held
liable nor it can be directed to make payment.
15
Similarly, raw materials and stocks had become
unfit for human consumption and the
complainants were not entitled to the amount
claimed by the complainants from the Insurance
Company. The amount which was offered by the
Insurance Company was adequate and sufficient.
The amount on account of poor quality of goods
and materials had been rightly deducted. The
order passed by the National Commission,
therefore, deserves interference by allowing
the appeals of the Insurance Company.
22. Grindlays Bank has not challenged the
order passed by the National Commission.
Canara Bank, however, has filed two appeals by
obtaining special leave from this Court against
orders passed in Original Petition Nos. 209 of
1994 and 210 of 1994. It has supported the case
of the complainants. According to the Canara
Bank, the claim put forward by the complainants
was well-founded and ought to have been allowed
in toto by directing the Insurance Company to
pay full amount towards loss and damage claimed
16
by the complainants. It, however, submitted
that the entire amount to which the
complainants were entitled ought to have been
ordered to be paid to the Bank in view of the
fact that the Insurance Policies had been
assigned in favour of the Bank. In law, such an
assignment amounts to transfer of actionable
claim in favour of the Bank. The Insurance
Company is, therefore, bound to pay the amount
to Canara Bank. Reliance in this connection was
placed on behalf of the Bank on Section 38 of
the Insurance Act, 1938; Sections 130 and 135
of the Transfer of Property Act, 1882 and a
decision of this Court in Chief Executive
Officer & Vice Chairman, Gujarat Maritime
Board v. Haji Daud Haji Harun Abu & Ors.,
(1996) 11 SCC 23. It was, therefore, submitted
that appeals filed by the complainants should
be allowed but the entire amount in relation to
two policies be ordered to be paid to Canara
Bank.
17
23. We have heard the learned counsel for
the parties. Learned counsel for the
complainants contended that the National
Commission committed an error of fact and of
law in not allowing the complaints and the
claims put forward by the complainants in their
entirety. It was submitted that the National
Commission recorded a finding that the claims
were covered by policies which were operative.
Claims were lodged by the complainants on the
basis of damage sustained by them. In support
of such claims, survey was made and Surveyors’
Reports were duly forwarded to the Insurance
Company. The defence of the Insurance Company
that there was pilferage by the intruders as
well as by staff members of the complainants
was not believed. Regarding adverse affect on
raw materials and stocks, the National
Commission observed that keeping in view the
climatic conditions of Srinagar, it could not
be said that the entire stock and raw material
was unfit for human consumption. It, therefore,
18
allowed part of the claim of the complainants.
According to them, however, the National
Commission was not right in deducting the claim
of the complainants. Apart from favourable
climatic conditions in Jammu & Kashmir, the
National Commission ought to have appreciated
the fact that the complainants could not carry
on their business activities of preparing
biscuits, breads, cakes and other items not
because of inaction on their part, but because
of terrorist activities and militancy in the
area. It was, therefore, not a case of
voluntary omission to carry on trade, but it
was compulsion that they could not produce
goods. It was contended that terrorism was one
of the terms covered by the Insurance Policy
and since the business could not be carried on
because of terrorism, the complainants had to
suspend operations of both the units. The
complainants cannot be held even partly
responsible for such suspension of operation of
units and stoppage of business. The National
19
Commission ought to have appreciated these
facts and ought to have allowed the claim of
the complainants.
24. It was also submitted that in spite of
continuous requests by the complainants to the
Insurance Company to get the survey done, no
action was taken by the Insurance Company for a
pretty long time. Moreover, even after the
survey was got done by the Insurance Company
through its own Surveyors and as per their
reports, certain amounts were required to be
paid, the said amount was also not paid by the
Insurance Company. Regarding certain items,
there was no response whatsoever by the
Insurance Company. The National Commission
also took into account those facts, but allowed
the claim of the complainants only in part.
The order of the National Commission to that
extent, therefore, requires to be modified by
granting full claim of the complainants.
25. It was submitted that in the facts and
circumstances and entitlement of the
20
complainants for full claim, appeals filed by
the Insurance Company are liable to be
dismissed.
26. Regarding to appeals filed by Canara
Bank, it was submitted that the appeals are not
maintainable. The National Commission was,
therefore, wholly right in not directing the
Insurance Company to pay the claim amount to
the Bank. It was also submitted that such
claim lodged by the Canara bank was even
otherwise not tenable. It was urged that under
Section 3 of the Jammu & Kashmir Migrants (Stay
of Proceedings) Act, 1997, no such claim could
have been lodged by the Bank against the
complainants by approaching a Civil Court by
filing a suit and no order could have been made
or a decree could have been passed by a
competent Court in view of the provisions of
the said Act. Since no such claim is
maintainable in the light of statutory
provisions, the Bank cannot by this indirect
method, obtain a decree and get it executed
21
which it could not have otherwise got in view
of the suspension of such claims. It was,
therefore, submitted that both the appeals
filed by the Canara Bank are also liable to be
dismissed.
27. The learned counsel for the respondent
Insurance Company contended that the National
Commission was not right in partly allowing the
claims of the complainants. It was stated that
the Insurance Company got the survey done
through its surveyors and the amount to which
the complainants were found entitled was
offered to them. But the complainants wanted
more amount and approached the National
Commission. It was also submitted that from
the Survey Reports, it was clearly proved that
stocks and raw materials had become unfit for
human consumption. The National Commission was,
therefore, right in reducing the claim to that
extent. According to the counsel, however, the
National Commission was not right in observing
and recording a finding that there was no
22
pilferage. It was stated that it was not in
dispute that after Praneet Sawhney was shot
dead by the terrorists, the operation in both
the units stood suspended and Managing Director
of the Company (Rajendra Kumar Sawhney) left
Srinagar and went to Delhi and only employees
were there. It was, therefore, obvious that in
absence of any responsible officer belonging to
Sawhney family, there was pilferage as stated
by the Insurance Company and the National
Commission could not have recorded a finding to
the contrary. To that extent, therefore, their
appeals deserve to be allowed.
28. The learned counsel for the Canara
Bank, on the one hand, supported the claim of
the complainants and submitted that once the
operation of the units became impossible due to
terrorist activities which was covered by a
clause in Insurance Policy and the complainants
could not carry on business, the National
Commission was not justified in rejecting any
part of the claim of the complainants. On the
23
basis of survey reports substantial loss to the
building, plant, machinery and electricity
fittings had been proved and the complainants
were entitled to the entire amount. Similarly,
with regard to raw materials and stocks,
nothing could have been deducted by the
National Commission as it was impossible for
the complainants to carry on production. The
only reason why the units could not operate was
militancy activities in the area. If it were
so, the National Commission was not justified
in taking into account the fact as to
suspension of business for reduction of claim
and consideration of the aspect that certain
items were unfit for human consumption and the
amount was liable to be reduced.
29. It was, however, submitted that
indisputably substantial advance was made to
the complainants by the Bank and it was having
charge over the property of the Company and of
the Mill. It had also a right of lien. It was,
therefore incumbent on the National Commission
24
to uphold the claim of the Bank by directing
the Insurance Company to pay the amount to the
Bank directly and not to the complainants. The
counsel submitted that the provisions of
Section 38 of the Insurance Act, 1938 and
Sections 130 and 135 of the Transfer of
Property Act are clear on the point. The point
is also covered by a decision of this Court.
The National Commission was, therefore, wrong
in rejecting the prayer of the Bank and both
the appeals of the Bank should be allowed.
30. Regarding the provisions of 1997 Act,
it was submitted that the contention of the
complainants is ill-founded. This is not a
case wherein the Bank becomes a plaintiff and
in that capacity, it files a suit against the
complainants-defendants for recovery of amount.
Once there is an ‘actionable claim’ and the
Bank is having charge over the property of the
complainants, it ipso facto entitles the Bank
to recover such amount directly from the
debtor, i.e. Insurance Company. The 1997 Act
25
has no application to such cases. It was
asserted that as on date, the amount to which
the Bank is entitled and the complainants are
liable to pay, exceeds Rs. five crores. The
Bank, therefore, has right to get the entire
amount to which the complainants are held
entitled to. It was, hence, submitted that the
appeals filed by the Bank deserve to be
allowed.
31. Having heard the learned counsel for
the parties and having gone through the records
and proceedings as also the judgment of the
National Commission, it is clear that the
complainants were able to establish the claims
put forward by them. It is not in dispute by
and between the parties that the Insurance
Policy covered several acts including terrorism
and fire. It has come in evidence and has been
believed by National Commission that the son of
the Managing Director was killed in March, 1990
by terrorist attack. It is in the light of the
said incident that the Managing Director had to
26
leave Srinagar and to return to Delhi. It was
because of the said incident that the operation
of both the units was suspended. Thus, it was
not a case wherein the complainants did not
undertake the activities which were required to
be undertaken by them, but they could not
operate the units and carry on business. No
fault, therefore, can be found against the
complainants for suspending the operation of
both the units. The complainants obviously
cannot suffer because of non-production in the
Mill as well as in the Company. The National
Commission was, therefore, not right in
reducing any amount on the ground that certain
stocks and raw materials were unfit for human
consumption. It was not intentional or
deliberate act on the part of the complainants
in stopping production and allowing the stocks
and raw materials to get spoiled or damaged and
by making them unfit for human consumption. It
was because of the militant activities and
27
terrorism that the Company and the Mill could
not do business and produce goods. Reduction
of amount by the National Commission on that
count was, therefore, unjustified and in our
opinion, that part of the order requires
interference by this Court.
32. As regards pilferage by intruders and
staff members, except ipse dixit on the part of
the Insurance Company, no material whatsoever
has been placed on record in support of such
allegation. The National Commission, in our
opinion, was justified in not accepting such
bare assertion without any evidence or concrete
material in support of such plea. In fact, a
finding has been recorded by the National
Commission that the godowns were ‘full’ when
they were set on fire. ‘Watch and ward staff’
were protecting the Mill and the Company. There
was also a ‘Police post’ nearby both the units.
Further, the report submitted by Mr. Andrasabi
as to pilferage was not reliable. In Shyam
Sunder Narang v. United India Insurance Co.,
28
(1997) 111 CPJ 599, an adverse comment had been
made by the National Commission against the
report submitted by Mr. Andrasabi. Hence, in
our opinion, the National Commission was right
in not believing ‘pilferage theory’ advanced by
the Insurance Company.
33. The matter, however, did not end
there. Even before us, nothing has been shown
from which such an inference could be drawn by
a reasonable and prudent man as to pilferage by
intruders or staff members. The National
Commission, in our judgment, was wholly right
in negativing the contention of the Insurance
Company that substantial part of stocks and raw
materials had been taken away by intruders or
staff members. No reduction, therefore, could
be allowed on that count.
34. The National Commission was also right
in observing that no payment was made by the
Insurance Company even as per the survey
conducted by the Surveyor appointed by the
Insurance Company. Taking into consideration
29
the entire facts and circumstances, in our
opinion, the complainants are entitled to claim
compensation towards building, plant, machinery
and electricity fittings, raw materials and
stocks.
35. Accordingly, the complainants are held
to be entitled to the following;
Policy No. Amount entitled to be awarded in
favour of the appellant-insured
113119000249 Rs. 37,78,619/-
113119000312 Rs. 23,79,195/-
113119000313 Rs. 25,81,600/-
35. In view of the fact that the appeals
filed by the complainants are allowed, the
appeals filed by the Insurance Company must
necessarily fail. Accordingly, the appeals
filed by the Insurance Company are dismissed.
36. In respect of Policy No. 113119000249,
no appeal has been filed by the Grindlays Bank.
It was observed by the National Commission in
the impugned judgment that the matter appears
to have been settled between the parties. In
any case, there is no appeal by a financial
30
institution so far as the said policy is
concerned.
37. But as far as the appeals by Canara
Bank are concerned, in our opinion, the claim
put forward by the Bank is well founded.
Section 38 of the Insurance Act reads
thus;
Section 38 - Assignment and transfer
of insurance policies
(1) A transfer or assignment of a
policy of life insurance, whether with
or without consideration may be made
only by an endorsement upon the policy
itself or by a separate instrument,
signed in either case by the
transferor or by the assignor his duly
authorised agent and attested by at
least one witness, specifically
setting forth the fact of transfer or
assignment.
(2) The transfer or assignment shall
be complete and effectual upon the
execution of such endorsement or
instrument duly attested but except
where the transfer or assignment is in
favour of the insurer shall not be
operative as against an insurer and
shall not confer upon the transferee
or assignee, or his legal
representative, and right to sue for
the amount of such policy or the
moneys secured thereby until a notice
in writing of the transfer or
31
assignment and either the said
endorsement or instrument itself or a
copy thereof certified to be correct
by both transferor and transferee or
their duly authorised agents have been
delivered to the insurer:
Provided that where the insurer
maintains one or more places of
business in India, such notice shall
be delivered only at the place in
[India] mentioned in the policy for
the purpose or at his principal place
of business in India.
(3) The date on which the notice
referred to in sub-section (2) is
delivered to the insurer shall
regulate the priority of all claims
under a transfer or assignment as
between persons interested in the
policy; and where there is more than
one instrument of transfer or
assignment the priority of the claims
under such instruments shall be
governed by the order in which the
notices referred to in sub-section (2)
are delivered.
(4) Upon the receipt of the notice
referred to in sub-section (2), the
insurer shall record the fact of such
transfer or assignment together with
the date thereof and the name of the
transferee or the assignee and shall,
on the request of the person by whom
the notice was given, or of the
transferee or assignee, on payment of
a fee not exceeding one rupee, grant a
written acknowledgement of the receipt
of such notice; and any such
32
acknowledgement shall be conclusive
evidence against the insurer that he
has duly received the notice to which
such acknowledgement relates.
(5) Subject to the terms and
conditions of the transfer or
assignment, the insurer shall, from
the date of receipt of the notice
referred to in sub-section (2)],
recognise the transferee or assignee
named in the notice as the only person
entitled to benefit under the policy,
and such person shall be subject to
all liabilities and equities to which
the transferor or assignor was subject
at the date of the transfer or
assignment and may institute any
proceedings in relation to the policy
without obtaining the consent of the
transferor or assignor or making him a
party to such proceedings.
(6) Any rights and remedies of an
assignee or transferee of a policy of
life insurance under an assignment or
transfer effected prior to the
commencement of this Act shall not be
affected by the provisions of this
section.
(7) Notwithstanding any law or custom
having the force of law to the
contrary, an assignment in favour of a
person made with the condition that it
shall be inoperative or that the
interest shall pass to some other
person on the happening of a specified
event during the lifetime of the
person whose life is insured, and an
assignment in favour of the survivor
33
or survivors of a number of persons,
shall be valid.
38. Likewise, both the sections, i.e.
Sections 130 and 135 of the Transfer of
Property Act, 1882 are explicitly clear and
they read as under;
Section 130 - Transfer of actionable
claim
(1) The transfer of an actionable
claim whether with or without
consideration shall be effected only
by the execution of an instrument in
writing signed by the transferor or
his duly authorized agent, shall be
complete and effectual upon the
execution of such instrument, and
thereupon all the rights and remedies
of the transferor, whether by way of
damages or otherwise, shall vest in
the transferee, whether such notice of
the transfer as is hereinafter
provided be given or not:
Provided that every dealing with the
debt or other actionable claim by the
debtor or other person from or against
whom the transfer would, but for such
instrument of transfer as aforesaid,
have been entitled to recover or
enforce such debt or other actionable
claim, shall (save where the debtor or
other person is a party to the
transfer or has received express
notice thereof as hereinafter
provided) be valid as against such
transfer.
34
(2) The transferee of an actionable
claim may, upon the execution of such
instrument of transfer as aforesaid,
sue or institute proceedings for the
same in his own name without obtaining
the transferor's consent to such suit
or proceedings and without making him
a part thereto.
Exception.-Nothing in this section
applies to the transfer of a marine or
fire policy of insurance or affects
the provisions of section 38 of the
Insurance Act, 1938.
Section 135 - Assignment of rights
under policy of insurance against fire
Every assignee by endorsement or other
writing, of a policy of insurance
against fire, in whom the property in
the subject insured shall be
absolutely vested at the date of the
assignment, shall have transferred and
vested in him all rights of suit as if
the contract contained in the policy
had been made with himself.
39. In our opinion, therefore, the
submission of the learned counsel for the Bank
that as soon as a decree is passed or order is
made in favour of the complainants, the Bank is
entitled to the said amount is well founded.
For such a relief, it is not necessary for the
Bank to become a plaintiff by filing a suit in
35
a competent Court of law and obtain a decree in
its favour. It is true that had it been the
position, the provisions of 1997 Act would get
attracted and such suit would be stayed and no
decree could have been passed by a competent
Court in favour of the creditor. But in the
light of the statutory provisions in the
Insurance Act and in the Transfer of Property
Act, the Bank is entitled to the amount
directly from the Insurance Company.
40. In our opinion, the learned counsel
for the Bank is also right in relying upon the
decision in Gujarat Maritime Board. In that
case, a similar question came up for
consideration before this Court. There one B
was financed by A for purchase of vessel. The
vessel so purchased was mortgaged in favour of
A. As per the Finance Agreement between the
parties, B was required to take out a
comprehensive risk insurance policy and assign
it in favour of Director of Ports representing
Government of Gujarat. The insurance also
36
contained an endorsement in terms of the
agreement. The vessel on its voyage sunk in
the sea. B filed a complaint before the
National Commission claiming the insurance
amount from the Insurance Company. A brought
to the notice of the Commission that it had an
interest in the vessel as a mortgagee. The
Commission, however, directed the Insurance
Company to pay entire amount to B. A
approached this Court. This Court held that the
directions of the National Commission that the
entire insurance amount be paid to B was
unsustainable in law. Accordingly, the appeal
filed by the Maritime Board was allowed and the
order passed by the National Commission was set
aside.
41. In our opinion, the point is directly
concluded by the above decision of this Court
in Gujarat Maritime Board and the National
Commission was not right in rejecting the claim
of the Bank. The appeals of the Bank are,
therefore, required to be allowed.
37
42. For the foregoing reasons, the appeals
filed by the Insurance Company are ordered to
be dismissed. The appeals filed by the
complainants are required to be allowed to the
extent indicated above with interest at the
rate of 9 per cent per annum from the date of
filing of complaints before the National
Commission, i.e. from the date of payment. So
far as Appeal concerning Policy No. 11319000249
relating to stocks is concerned, the
complainants are entitled to get the entire
amount of Rs.37,78,619/- since there is no
appeal in respect of the said policy. Canara
Bank is not concerned with the said policy.
Grindlays Bank has not approached this Court
and had supported the complainants before the
National Commission. The two appeals of Canara
Bank are in regard to two policies,
113190000312 and 113190000313, raw materials
policy and plant policy. Both the appeals of
Canara Bank are allowed and the Insurance
Company is directed to make payment to Canara
38
Bank and not to the complainants in respect of
the amount to be paid to the complainants.
43. All appeals are disposed of
accordingly with no order as to costs.
…………………………………………………… J.
(C.K. THAKKER)
………………………………………………J.
(D.K. JAIN)
NEW DELHI,
November 07, 2008.
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