2024 INSC 356 REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2759 OF 2009

New India Assurance Company Ltd. … Appellant (s)

Through its Manager

Versus

M/s Tata Steel Ltd. ...Respondent(s)

with

Civil Appeal No. _______ of 2024

(@ SLP (C) No. 10001 of 2009)

C.A. Nos. 5242-5243 of 2009

J U D G M E N T

K.V. Viswanathan, J.

1.Leave granted in SLP (Civil) No. 10001 of 2009.

2.I.A. No. 48152 of 2022 in Civil Appeal No. 2759 of 2009 is filed

by the Respondent [earlier known as M/s Bhushan Steel and Strips

Ltd, hereinafter referred to as the “Complainant” or the

“Insured”] seeking change of its name in the proceedings to ‘Tata

Steel Ltd’. The Complainant/Insured has filed similar IAs in the

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connected appeals filed by it. It is stated that the name of the

Complainant/Insured was changed to ‘Bhushan Steel Ltd’ in the

year 2007. Thereafter while these appeals were pending, the

company underwent a Corporate Insolvency Resolution Process

and was successfully taken over by ‘Tata Steel Ltd’ on 27.11.2018

and was renamed as ‘Tata Steel BSL Ltd’. Thereafter, it is seen that

the Complainant/Insured further underwent a merger/amalgamation

and was finally merged/amalgamated with ‘Tata Steel Ltd’ w.e.f.

11.11.2021. In view of the said facts, all the applications for

change of name are allowed.

3.These are four Civil Appeals arising out of the proceedings in

Original Petition No. 233 of 2000 before the National Consumer

Disputes Redressal Commission, New Delhi [“NCDRC”].

4.Civil Appeal No. 2759 of 2009 has been filed by the New India

Assurance Company Limited [hereinafter referred to as “NIACL”

or the “Insurer” or the “Insurance Company”] challenging the

order dated 05.08.2008 of the NCDRC. By the said order, the

NCDRC partly allowed the complaint of the Insured. The NCDRC

awarded an amount of Rs.13,15,27,000/- with interest at 10% per

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annum from the expiry of two months since the submission of

survey report dated 11.12.2001, payable to the Insured. The amount

already paid by the Insurance Company was ordered to be adjusted

and a cost of Rs. 50,000/- was also awarded to the Insured.

NIACL, in this Appeal, is aggrieved with the finding that the

Complainant’s claim must be settled, based on calculating

depreciation at the rate of 32% - and not 60%.

5.The Civil Appeal arising out of SLP(Civil) No. 10001 of 2009 has

been filed by the Insured/Complainant. The grievance here is

against the dismissal of Misc. Application No. 298 of 2008 in

Original Petition No. 233 of 2000 seeking review of the order

dated 05.08.2008.

6.Civil Appeal Nos. 5242-5243 of 2009 have been filed by the

Insured/Complainant against the main order dated 05.08.2008

(passed in O.P. No. 233 of 2000) and order dated 29.08.2008

(allowing the application for rectification and correcting the figure

awarded to Rs. 13,51,27,000/- instead of Rs. 13,15,27,000/-)

respectively.

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7.The grievance pleaded by the Insured/Complainant in its connected

appeals is that the compensation awarded ought to have been

greater because, according to it, the base figure on which the

depreciation of 32% was computed should have been Rs.28 Crores

and not Rs.20,09,95,000/-. The claim was that, so computing, the

amount payable by NIACL should have been Rs. 18.91 Crores.

Brief Summary of Facts:

8.The Insured had taken an insurance policy from NIACL for the

entire machinery and equipment of its mill by paying a premium of

Rs.62,09,655/-. The policy was for the period 29.09.1998 to

28.09.1999. According to the Insured, due to a fire accident on

12.12.1998, the ‘20 Hi Cold Rolling Mill’ fitted with imported

equipment was fully destroyed resulting in a loss of Rs. 35.08

crores. The incident of fire was intimated to NIACL on 12.12.1998

itself. Surveyors ‘M/s R.K. Singhal and Company Pvt. Ltd.’ and

subsequently ‘M/s A.K. Govil and Associates’ and ‘M/s P.C.

Gandhi’ were appointed by NIACL. A claim for Rs. 35.08 crores

was filed on 29.01.1999. According to the Insured, this was based

upon the quotations received from various manufacturers of the

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said machinery and the complete details of cost for replacing

and/or repairing the machines.

9.The Insured also pleaded that since the running of the company

was important, it got a 6 Hi Cold Rolling Mill installed in its unit

and commenced production by spending Rs.29.60 crores apart

from excise duties.

10.Admittedly, based on the interim report of the surveyors, a sum

of Rs.4,92,80,905/- was released in favour of the Insured by

NIACL on 24.03.1999. According to the Insured, after the release

of the amount, it placed an order with ‘M/s Flat Products

Equipments (India) Limited’ [“M/s Flat Products”] for reinstating

the 20 Hi Cold Rolling machine by replacing the totally damaged

and partially damaged parts for a total sum of Rs.25 crores, and

paid Rs.3,75,00,000/- to M/s Flat Products by way of advance

payment. Further, a sum of Rs.47.50 lacs on account of inspection

charges of mill housing and Rs. 25 lacs for transportation of mill

housing were also paid. According to the Insured, though it lost

more than Rs. 25 crores, in view of the persistence from the

Insurance Company, vide letter dated 16.06.1999, it gave consent

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for receiving Rs.20.95 Crores as net adjusted loss to avoid loss of

time.

11.According to the Insured, since no response was forthcoming

and the balance amount was not released, Consumer Complaint

bearing Case No. 233 of 2000 was filed by the Insured before the

NCDRC on 30.05.2000.

12.According to NIACL, after receipt of the information about the

fire accident on 12.12.1998, NIACL immediately appointed the

surveyors and soon thereafter, on the basis of the interim survey

report, on-account payments were made. The Joint Surveyors

submitted their report on 11.12.2001. The vigilance complaints

were also closed on 18.01.2002.

13.According to NIACL, it was only on 27.03.2002 that the Insured

informed NIACL about the fact of having already installed a new 6

Hi Cold Rolling Mill and requested them for joint inspection with

the surveyors. In the Joint Surveyors’ Report of 11.12.2001, the

loss was assessed at Rs.19.55 crores on replacement basis and

Rs.13.51 crores on depreciation basis. The surveyors, on

03.05.2002, requested the Complainant to furnish several

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information for which there was no response. It was contended by

NIACL that the plea of the Insured in their letter of 27.03.2002 that

it had placed an order for cold rolling mill on 11.01.1999 and the

same was installed in September-October, 1999 at the cost of Rs.

31.37 crores and the prayer that the replacement should be treated

as reinstatement, is completely unacceptable. The machine

installed is 6 Hi Cold Rolling as against the damaged mill which

was 20 Hi Cold Rolling. According to NIACL, the claim has been

rightly settled at Rs.7.88 Crores

Proceedings before the NCDRC:

14.Though several other points were argued before us by the

Insured, the point canvassed before the NCDRC [and pleaded in

the Insured’s connected Appeals] related only to the calculation of

depreciation. The argument taken by the Insured before the

NCDRC was that NIACL was not justified in computing

depreciation at 60% while the surveyors in the reports had

recommended 32% as depreciation. The NCDRC observed that the

effort by the Insured to install a lesser capacity 6 Hi Cold Rolling

Mill was an effort in desperation. It also found the claim to be

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genuine. Addressing the issue of depreciation, it held that after the

initial recommendation in the Joint Surveyors’ Report dated

11.12.2001 of computing 32% depreciation, the surveyors were

persuaded by the letter of the Insurance Company dated 12.11.2002

to increase the depreciation to 60%. An additional affidavit was

called for from the NIACL to justify the depreciation at 60%. After

perusing the affidavit, the NCDRC held that there were no standard

guidelines for calculating depreciation and that it had been

calculated differently for different units. According to the NCDRC,

the affidavit quoted the instances of very high depreciation just to

suit the convenience of NIACL. It may be mentioned that the

affidavit relied on certain cases where depreciation was computed

at a maximum rate up to 75% - 80%. The NCDRC held that the

issuance of the letter of the Insurance Company to the Surveyors

seeking revision of calculation was issued eleven months after the

Joint Surveyors’ Report dated 11.12.2001 and that this was not a

healthy practice. So holding, it maintained the depreciation at 32%

and directed the payments as noted above.

Appeal to this Court:

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15.The appeal by NIACL seeks depreciation to be fixed at 60%.

The Insured also in its appeals has focused only on the issue of

depreciation with the argument being that the base figure on which

32% depreciation was calculated should have been Rs.28 crores

and not Rs.20.09 crores. There are no other grounds raised in the

memo of the appeal.

16.However, the Insured during the course of submission, while

candidly admitting that no other point had been raised in the memo

of appeal, relied on the judgment in Oswal Plastic Industries v.

Manager, Legal Deptt N.A.I.C.O. Ltd., [2023 SCC OnLine SC

43] to contend that the reinstatement value should have been

awarded in full and that in the case of reinstatement value no

question of depreciation arises. This argument has been dealt with

herein below at an appropriate stage.

Contentions of NIACL:-

17.Appearing for NIACL, learned Senior Counsel Mr. Sanjay

Jain contended that the insurance policy had a special

condition in the form of Reinstatement Value Clause; that

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there are two methods of settlement of a claim depending on

the nature of the policy, namely, the reinstatement value basis

and market value basis (or depreciation basis); that under the

Reinstatement Value Clause, the method of indemnity was to

be the “cost of replacing or reinstating the same i.e. property

of the same kind or type but not superior or more extensive

than the insured property when new”; that the reinstatement

was to be carried out by the Insured within 12 months or

within such further extended time; that para 2 of the Special

Provisions provided that until expenditure has been incurred

by the Insured in replacing/reinstating the damaged property,

the Insurance Company shall not be liable to pay any amount

in excess of the amount which would have been payable

under the policy, if the said reinstatement clause had not been

incorporated; para 4 of the Special Provisions provided that if

the Insured expressed its intention to replace/reinstate the

damaged property and the Insured is unable or unwilling to

replace the damaged property on the same or another site, the

reinstatement clause was to be rendered ineffective.

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18.Adverting to the impugned judgment, learned Senior

Counsel contended that the findings that (i) the insurer, out of

sheer desperation, bought the 6 Hi configuration; (ii) the

depreciation rate as calculated by the NIACL was erroneous;

and (iii) NIACL’s letter to the surveyor asking for a revised

calculation was not a healthy practice, are all erroneous

findings which are completely untenable. According to

learned Senior Counsel, the Insured in violation of the

undertaking did not take any steps for reinstatement; that

there was no delay on the part of the Insurance Company and

in fact on account payment of Rs. 4,92,80,905/- had been

released as early as on 24.03.1999; that the NCDRC

overlooked the fact that the Insured did not comeback to the

Insurance Company with any information for about 08

months and only on 26.11.1999, followed by another letter of

10.02.2000 asked for extension of time limit for

reinstatement of the insured property; that the same was

accommodated by the NIACL and on 07.03.2000, an

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extension of 12 months was given and which time limit

period was also not adhered to; that the Insured after

receiving the interim payment claimed that Rs. 3.75 crores

were advanced to M/s Flat Products and the said vendor

neither repaired the insured property nor replaced the same;

that nearly two years later on 28.06.2001, M/s Flat Products

informed the Insured that they had lost their expertise and, as

such, the delay could not be attributed to the NIACL; that the

Insured informed the NIACL about having installed a 6 Hi

Cold Rolling Mill (as against the insured property of 20 Hi

Cold Rolling Mill), on 27.03.2002, without revealing the date

of actual installation and without giving any comparable

specification, which unilateral act cannot be termed as “an act

of sheer desperation” as termed by the NCDRC.

19.It is submitted by the learned Senior Counsel that under

the aforesaid circumstances, the Reinstatement Value Clause

was rendered inoperative. However, the Insurance Company

gave another opportunity to act in good faith and provide

necessary specification and particulars, which were not

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provided for, in spite of the undertaking in the letter of

09.07.2002. Hence, by no stretch of imagination could the

delay be attributable to the Insurance Company.

20.Insofar as the percentage of depreciation was concerned, it

was contended that the NCDRC erroneously disregarded the

affidavit filed by the Insurance Company clarifying the

standard practice. On the finding about the practice adopted

by the Insurance Company as “not being a healthy practice”,

Mr. Sanjay Jain submitted that the NIACL gave ample

opportunities to provide cogent material and it is only upon

their failure to furnish the necessary documents, as obligated

in the policy, that NIACL was constrained to settle the claim

on market value basis by applying the necessary percentage

of depreciation. It was contended that in the report of

11.12.2001, the joint surveyors, while arriving at the

depreciation rate of 32%, did not have any material.

Therefore, it was a prudent act on the part of the NIACL to

arrive at a calculation on the basis of market value with the

applicable rates of depreciation, after informing the surveyors

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that the reinstatement method was not an option any longer.

The learned Senior Counsel submitted that the claim was

finally assessed by the surveyors, who in their survey report

dated 07.12.2002 and after computing the balance life of ten

years arrived at the depreciation rate of 60%. Hence,

NIACL’s conduct in accepting that report could not be said to

be arbitrary. It was argued that there was no disagreement on

the surveyor’s report.

21.The learned Senior Counsel emphasized that even today,

the Insured has no definite proof available with regard to the

actual age of the mill and as to when it was procured from its

vendor; or under what circumstances and condition the same

was procured and other essential details. In this background,

the assessment made by the surveyors, who are experts, could

not be said to be illegal or untenable. The learned Senior

Counsel further submitted that the recommendation of

depreciation at 32% was at the stage when no material was

forthcoming and was not supported by any cogent material

and clarity on this aspect emerged only on the report of

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07.12.2002. According to the learned Senior Counsel, ground

(D) in Civil Appeal Nos.5242-5243 of 2009 records an

admission of the Insured about the NCDRC rightly

proceeding on depreciation basis.

22.Learned Senior Counsel submitted that there was no

ambiguity and hence there is no room for the applicability of

doctrine of contra proferentem. The survey report of

11.12.2001 was prepared at a premature stage with all relevant

disclaimers. Alternatively, it was submitted that under Section

64 UM (2) of the Insurance Act, 1938, the NIACL was

entitled to differ from the recommendation of the surveyor.

23.Learned Senior Counsel strongly refuted the reliance

placed in the convenience compilation, by the Insured on the

judgment in Oswal Plastic Industries (supra). Learned Senior

Counsel contended that Oswal Plastic Industries (supra) was

not a case with the Reinstatement Value Clause as a special

condition. Learned Senior Counsel contended that unlike in

Oswal Plastic Industries (supra), Clause 9 had no application

to the facts of the present case. That in any event documents

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were not provided by the Insured to NIACL. Dealing with

Regulation 9(3) of the IRDA (Protection of Policyholders’

Interests) Regulations, 2002 [“IRDA Regulations”], learned

Senior Counsel submitted that the joint surveyors report dated

07.12.2002 was for all intents and purposes the original

surveyors report and as such Regulation 9(3) assuming it to be

mandatory had no application. Alternatively, it was contended

that Regulation 9(3) is only directory.

24.Insofar as the cross appeal is concerned, the learned Senior

Counsel contended that the claim for the base figure as Rs. 28

crores is absolutely unjustified, there being no cogent material

to support the same. In fact, the stand of the Insured was that

its vendor M/s Flat Products had expressed its inability due to

loss of expertise and the same was conveyed two years after

receiving the advance. For all these reasons, the learned

Senior Counsel prayed that the appeal of NIACL be allowed

and the appeals of the Insured be dismissed.

Contentions of the Insured/Complainant: -

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25.Mr. Joy Basu, learned Senior Counsel appearing for the

Insured, at the very outset, contended that the memorandum

containing the Reinstatement Value Clause was never part of

the policy document issued by the NIACL. This

memorandum, according to the learned senior counsel, was

never received by the Insured. Without prejudice to the same,

it is contended that Clause 9 of the conditions in the policy

has to be read in conjunction with the Reinstatement Value

Clause. Since, as per para 4, the Reinstatement Value Clause

got extinguished, Clause 9 of the conditions became

applicable.

26.Learned Senior Counsel submitted that in terms of Clause

9 where reinstatement/repair is not possible, the surveyor’s

assessment of reinstatement has to be complied with. Learned

senior counsel relied on the judgment in Oswal Plastic

Industries (supra). Learned Senior Counsel contended that

the interpretation of Clause 9 was laid down only by the

Oswal Plastic Industries (supra) judgment in January, 2023

and as such the Insured should be allowed to canvass the

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argument based on Oswal Plastic Industries (supra).

According to learned Senior Counsel, the inability/failure to

reinstate as contemplated in the last part of the Clause 9 is the

failure of the NIACL. Learned Senior Counsel further

contended that it is only with the hope of an expedited

settlement that the Insured accepted the lower figure of Rs.

20.95 Crores. Calculating on reinstatement basis, the

surveyors in their report of 11.12.2001 arrived at the figure of

Rs. 19.55 crores without application of any depreciation.

According to the Insured, the amount further due is

Rs.11,80,87,699/-.

27.Alternatively, it is submitted by the learned Senior Counsel

that even if the market value basis is to be applied,

depreciation has to be calculated on the sum insured of Rs. 80

crores. To support this plea, learned Senior Counsel relied on

Dharmendra Goel vs. Oriental Insurance Co. Ltd. (2008) 8

SCC 279. Further, without prejudice, it is contended that if

depreciation was not to be calculated on the sum insured, then

the depreciation has to be calculated on the cost of the new

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locally sourced 20 Hi Cold Rolling Machine which would

cost Rs. 25 crores plus taxes totaling Rs 28 crores. Further, it

is contended that the depreciation rate was 32% as mentioned

by the surveyors in their report of 11.12.2001 and NIACL has

not adduced any reasons for deviating from the

recommendation of the surveyors. Learned Senior Counsel

submitted that the surveyor’s response of 07.12.2002 was “a

reluctant response from an embarrassed surveyor” to the letter

of NIACL dated 12.01.2002 which, according to the learned

senior counsel, was a letter by the insurer asking the surveyors

to compute maximum depreciation. In any event, according to

the learned Senior Counsel, the doctrine of contra

proferentem applied and the interpretation in favour of the

Insured should have been adopted. It was argued that there

was a breach of Regulation 9(3) of the IRDA Regulations. So

contending, the learned senior counsel prayed that the appeal

of NIACL be dismissed and the cross appeals of the Insured

be allowed.

Questions before this Court:

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28.In the above background, the questions that arise for

consideration are as follows:

i.Was the Reinstatement Value Clause part of the

policy?

ii.Was NIACL justified in computing loss on

depreciation basis and fixing depreciation at 60%?

iii.Is the Insured justified in claiming reinstatement

value by placing reliance on the judgment in

Oswal Plastic Industries (supra)?

iv.To what reliefs are the parties entitled?

v.

Discussion and Reasons:

29.At the outset, it is important to set out the crucial clauses of the

policy in question.

Fire Policy “C”

In consideration of the insured name in the schedule

hereto having paid to the New India Assurance

Company Limited (hereinafter called the company) the

premium mentioned in the said schedule. THE

COMPANY AGREES (subject to the Condition and

Exclusions contained herein or endorsed or otherwise

expressed hereon) that it after payment of the premium

the property Insured described in the said schedule or

any part of such property, be destroyed or damaged by:

1.Fire

……

6.….. During the period of Insurance named in the said

schedule or of any subsequent period in respect of

which the insured shall have paid and the Company

shall have accepted the premium required for the

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renewal of the policy the Company will pay to the

insured the value of the property at the time of the

happening of its destruction or the amount of such

damage or at its opinion reinstate or replace such

property or any part thereof.

Conditions

……

6. (i) On the happening of any loss or damage the

insured shall forthwith give notice thereof to the

company and shall within 15 days after the loss or

damage or such further time as the Company may in

writing allow in that behalf, deliver to the company;

a. A claim in writing for the loss or damage containing

as particular an account as may be reasonably

practicable of all the several articles or items or

property damaged or destroyed, and of the amount of

the loss or damage thereto respectively, having regard

to their value at the time of the loss or,

b. Particular of all other insurance, if any:

The insured shall also at all times at his own expense

produce, procure and give to the company all such

further particulars, plans, specifications, books,

vouchers, invoices, duplicates or copies thereof,

documents investigation reports (internal/external),

proof and information with respect to the claim and the

origin and cause of the insured perils and the

circumstances under which the loss or damage

occurred, and any matter touching the liability or the

amount of the liability of the Company as may be

reasonably required by or on behalf of the Company

together with a declaration on Oath or in other legal

form of the truth of the claim and of any matter

connected therewith.

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No claim under this policy shall be payable unless the

terms of this condition have been complied with.

30.Two other important clauses viz., Clause 9 of the Conditions and

the memorandum containing the Reinstatement Value Clause are

extracted below at the appropriate place in the discussion.

Answer to Question No (i) :-

31.There was a debate at the Bar as to whether the memorandum

consisting of the Reinstatement Value Clause (extracted later in the

judgment) was a part of the policy. The argument was raised by

senior counsel for the Insured who contended that the

memorandum containing the Reinstatement Value Clause was not

part of the policy. We reject this contention at the outset. This is for

the reason that before the NCDRC in the written statement filed by

the NIACL, in para 3, it was specifically pleaded as under:

“The copy of the fire policy at pages 13 to 22 is a true

copy of the policy issued by the Respondent. However,

the Reinstatement Value Clause issued along with the

policy is not attached to the same. The answering

Respondent is filing herewith the copy of the policy

with complete terms and conditions and clauses as

Annexure R-1 to this written Statement.”

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32.In the replication filed by the Insured, there was no denial of this

averment. Hence, we reject the contention of the Insured that the

memorandum of the Reinstatement Value Clause was not the part

of the policy. There are other factors which establish that the

Reinstatement Value Clause was part of the Policy. They are

discussed hereinbelow. Issue (i), set out above, is answered in favor

of NIACL.

Discussion of Question No. (ii) :-

33.Coming back to the clauses in the insurance policy, it will be

seen that the assurance in the opening clause of the policy was that

NIACL will pay to the Insured the value of the property at the time

of the happening of its destruction OR the amount of such damage

OR at its option, reinstate or replace such property or any part

thereof. In the conditions, it was incorporated that the Insured was

at all times at its own expense to produce, procure and give to

NIACL all such further particulars, plans, specifications, books,

vouchers, invoices, duplicates or copies thereof, documents,

investigation reports (internal/external), proof and information with

respect to the claim and all matters provided for in Clause 6. It is

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also stipulated that no claim under this policy was payable unless

the terms of this condition was complied with.

34.Clause 9 of the Conditions states that if NIACL, at its option,

reinstate or replace the property damaged or destroyed, or any part

thereof, instead of paying the amount of loss or damage, or join

with any other company or Insurance in so doing, NIACL shall not

be bound to reinstate exactly or completely but only as

circumstances permit and in reasonably sufficient manner, and in

no case shall NIACL be bound to spend more in reinstatement than

it would have cost to reinstate such property as it was at the time of

occurrence of such loss or damage nor more than the sum insured

by the Company thereon. Clause 9 reads as follows:

“9. If the company at its option, reinstate or replace the

property damaged or destroyed, or any part thereof,

instead of paying the amount of the loss or damage, or

join with any other company or insurance, in so doing,

the company shall not be bound to reinstate exactly or

completely but only as circumstances permit and in

reasonably sufficient manner and in no case shall the

company be bound to spend more in reinstatement

than it would have cost to reinstate such property as it

was at the time of the occurrence of such loss or

damage nor more than the sum insured by the

Company thereon,

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If the Company so elect to reinstate or replace an

property the insured shall at his own expense furnish

the company with such plans, specifications,

measurements, quantities and such other particulars as

the company may require, and no acts done, or caused

to be done, by the company with a view to

reinstatement or replacement shall be deemed an

election by the Company to reinstate or replace.

If in any case the Company shall be unable to reinstate

or repair the property hereby insured, because of any

municipal or other regulations in force affecting the

alignment of streets or the construction of buildings or

otherwise, the Company shall, in every such case, only

be liable to pay such sum as would be requisite to

reinstate or repair such property if the same could

lawfully be reinstated to its former condition.”

35.To the policy is attached the memorandum of the Reinstatement

Value Clause which reads as follows:

REINSTATEMENT VALUE CLAUSE

Attached to and forming part of policy No.

It is hereby declared and agreed that in the event of the

property Insured under (Items Nos. of ) the within

policy being destroyed or damaged, the basis upon

which the amount payable under each of the said

items of the policy is to be calculated, shall be the

cost of replacing or reinstating on the same, i.e.

property of the same kind or type but not superior or

more extensive than the insured property when new

subject to the following Special Provisions and

subject also to the terms and conditions of the policy

except manner as the same may be varied hereby.

SPECIAL PROVISIONS

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1. The work of the replacement or reinstatement

(which may be carried out upon another site and in any

manner suitable to the requirements of the insured

subject to the liability of the Company not being

thereby increased) must be commenced and carried out

with reasonable dispatch and in any case must be

completed within 12 months after the destruction or

damage or within such further time as the company

may (during the said 12 months) in writing allow;

otherwise no payment beyond the amount which

would have been payable under the policy if this

memorandum had not been incorporated therein shall

be made.

2. Until expenditure has been incurred by the Insured

in replacing or reinstating the property destroyed or

damaged the company shall not be liable for any

payment in excess of the amount which would have

been payable under the policy if this memorandum had

not been incorporated therein.

3. If at the time of replacement or reinstatement the

sum representing the cost which would have been

incurred in replacement or reinstatement if the whole

of the property covered had been destroyed exceeds

the sum insured thereon at the breaking out of any fire

or at the commencement of any destruction of or

damage to such property by any other peril insured

against by this policy, then the Insured shall be

considered as being his own insurer for the excess and

shall bear a rateable proportion of the loss accordingly.

Each item of the policy (it more than one) to which

this Memorandum applies shall be separately subject

to the foregoing provision.

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4. This Memorandum shall be without force or effect

if:

(a) The Insured fails to intimate to the company within

6 months from the date of destruction or damage or

such further time as the Company may in writing

allow, his intention to replace or reinstate the property

destroyed or damaged.

(b) The Insured is unable or unwilling to replace or

reinstate the property destroyed or damaged on the

same or another site.

36.The memorandum of the Reinstatement Value Clause stipulates

that it was declared and agreed that in the event of the property

Insured under the policy being destroyed or damaged,

a.The basis upon which the amount payable under each of the

said items of the policy is to be calculated, shall be the cost of

replacing or reinstating on the same, i.e. property of the same

kind or type but not superior or more extensive than the

insured property when new subject to the following Special

Provisions and subject also to the terms and conditions of the

policy except manner as the same may be varied hereby.

b.The Special Provisions stipulate that the work of the

replacement or reinstatement must be commenced and carried

out with reasonable dispatch and in any case must be

27

completed within 12 months after the destruction or damage

or within such further time as the company may (during the

said 12 months) in writing allow; otherwise no payment

beyond the amount which would have been payable under the

policy if this memorandum had not been incorporated therein

shall be made.

c.Until expenditure has been incurred by the insured in

replacing the property destroyed or damaged, the company

shall not be liable for any payment in excess of the amount

which would have been payable under the policy if this

memorandum had not been incorporated therein.

d.If at the time of replacement or reinstatement the sum

representing the cost which would have been incurred in

replacement or reinstatement if the whole of the property

covered had been destroyed exceeds the sum insured thereon

at the breaking out of any fire or at the commencement of any

destruction of or damage to such property by any other peril

insured against by this policy, then the Insured shall be

considered as being his own insurer for the excess and shall

28

bear a rateable proportion of the loss accordingly. Each item

of the policy (if more than one) to which this memorandum

applies was to be separately subject to the following

provisions.

e.This Memorandum was to be without force or effect if

i.The Insured fails to intimate to the company within 6

months from the date of destruction or damage or such

further time as the Company may in writing allow, his

intention to replace or reinstate the property destroyed or

damaged.

ii.The Insured is unable or unwilling to replace or reinstate

the property destroyed or damaged on the same or another

site."

37.It is very clear from the above that the original terms of the

policy which provided for payment by NIACL of the value of the

property at the time of the happening of its destruction or the

amount of such damage was varied and the basis was changed. The

changed basis under the Memorandum of the Reinstatement Value

Clause was that the amount payable was to be calculated based on

the cost of replacing or reinstating the same, i.e. property of the

29

same kind or type but not superior or more extensive than the

insured property when new.

38.It is also clear that in view of the Reinstatement Value Clause,

the question of NIACL on the facts of the present case opting to

reinstate or replace under Clause 9 of the conditions of the policy

does not arise and with the same reasoning, the question of the

applicability of Clause 9 itself cannot arise.

Relevant Facts as they unfolded:-

39.At this stage, it is important to deal with the correspondence that

was exchanged between the parties to bring out as to how under the

Reinstatement Value Clause, it was the Insured who attempted to

reinstate or replace the property which was destroyed. As will be

clear from the sequence of the events, it was the Insured who was

either unable to or unwilling thereafter to reinstate the property. Let

us see how the facts unfolded. On 12.12.1998 i.e., the date of the

fire, the Insured intimated NIACL and requested for the surveyors

to be deputed. On 14.12.1998, the surveyors wrote to the Insured

requesting for various information including year wise

capitalization, balance sheets of the previous two years, copy of the

30

original invoices of affected items as well as fresh proforma

invoice and the logbook and any other maintenance record. In the

reply of 18.12.1998, crucial information with regard to the original

invoice as well as proforma invoice were not furnished. An interim

survey report was prepared on 04.02.1999 by the three surveyors in

the joint report and that report had the following disclaimer:

“Based on the physical inspection carried out and

limited information made available by the Insured till

then, the above surveyors submitted their joint survey

report on 22nd December 1998. Subsequently, the

underwriters appointed P.C. Gandhi & Associates as

another joint surveyors. The joint surveyors visited the

insured factory jointly and severally on various dates

and carried out detailed physical inspection of the

subject machine besides carrying out protracted

discussions with the Insured official accompanied by

Supplier/Manufacturers of the Mill.”

40.The interim survey report noticed that the claim was for Rs.35

Crores and the effective claim excluding excise duty was Rs.30.28

crores. Dealing with the assessment of loss, in Para 14, it was

mentioned in the report that the Insured lodged their claim based

on the price breakup given by manufacturers which included cost

of supply, installation and commissioning but excluded excise,

sales tax, transportation and civil works. The report mentioned that

31

the price break-up given was accepted in general at that stage and

that comparable cost could not be possible from an alternative

source. Most importantly, in Para 14 (1.4), it was provided as

under:

“Policy provides for Reinstatement clause and Insured

have confirmed verbally that they would reinstate the

damages without any delay. At this stage, reasonable

depreciation and salvage are adjusted for considering

conservative on Account Payment.”

41.This clause also reinforces the fact that Reinstatement Value

Clause proving for reinstatement by the Insured was part of the

policy. So finding at Para 15, the surveyor in their interim report

concluded as under:

“It may be noted that while assessing the provisional

loss, substantial margin has been kept, even after

considering the depreciation etc. Based on the limited

verification carried out till now, we are of considered

opinion that the minimum loss on Reinstatement Value

Basis is like to be around Rs. 1500 lacs and the

maximum loss on Reinstatement Value Basis after

more detailed verifications has been estimated at

around Rs. 2500 lacs.

In consideration of the Insured’s request for an On

Account Payment, should be Underwriters so desire,

they may consider an On Account Payment of upto Rs.

720 Lacs at this stage.”

32

It was clearly mentioned that the report was issued without

prejudice, and subject to terms and conditions of the relevant

insurance policy.

42.This report was followed by a letter issued by the Insured on

10.02.1999.

“We undertake that reinstatement of damaged property

on account of fire loss caused on 12.12.1998, shall be

carried out by us within the stipulated time as per fire

policy No.1132160705785. We confirm that

suggestions given in the TAC and LPA report will be

complied with during the reinstatement of the mill.”

On 24.03.1999, on account payment of Rs. 4,98,80,905/- was

made.

43.Thereafter, on 10.06.1999, the Insured wrote to M/s Flat

Products placing an order for repair of the ‘20 Hi Cold Rolling

Mill’ and paying them an amount of Rs. 3.75 crores as 15%

advance. It transpires that on 06.10.1999, the Chief Vigilance

Officer of NIACL addressed a letter to the General Manager,

NIACL furnishing a report about an anonymous complaint

received stating that the fire was due to arson and that there has

been inflated assessments resulting in approval of huge on account

33

payments. The report concluded that there was no indication that

the fire was due to arson but there were indications that the loss

could have been assessed for highly inflated amount. The Chief

Vigilance Officer sounded a note of caution to the following effect:

“Therefore, adequate precautions should be taken

before a final decision is taken in respect of the claim.

We would like to suggest that an opinion of technical

expert in the concerned field may be taken regarding

extent and assessment of loss in order to arrive at the

actual loss sustained by the claimant. You may also

examine the feasibility of having into depth technical

investigation into various objects of the claim.”

44.When matter stood thus on 16.06.1999, the Insured wrote to the

surveyors stating as under:

“However, against contract price of Rs. 25 crores, we

agree and confirm to the assessment of the net

adjusted loss of Rs. 20,95,00,000/- (Indian Rupees

Twenty Crores Ninety Five Lakhs Only) after taking

into account the items of salvage & excess as

applicable under the terms and conditions of the

policy.”

45.On 27.10.1999, the Insured wrote a letter to NIACL (inter alia

referring to the earlier letters of 21.08.1999, 05.10.1999 &

12.10.1999) stating that in spite of the expiry of ten months, the

claim amount has not been settled, and that the supplier was asking

them to make further payment otherwise the work would not start.

34

So stating a request was made for the settlement of the claim at the

earliest. This was followed by another letter of 26.11.1999 stating

that since the claim had not yet been settled they could not progress

in the reinstatement of the mill. They also sought extension of 24

months for the reinstatement of the mill.

46.The Insured also wrote a letter of 16.12.1999 referring to their

earlier letter of 23.07.1999 to the effect that the original invoices in

respect of Cold Rolling Mill were not available with them; that

their supplier M/s Flat Products has confirmed that the sale bill of

the 20 Hi Cold Rolling Mill is not available with them; they

furnished a letter of M/s Mukand Limited, Thane dated 09.12.1999

addressed to M/s Flat Products confirming that two number of Mill

Housings were supplied by them to M/s Precision Equipment, a

sister concern of M/s Flat Products; a letter of M/s Flat Products

dated 09.12.1999 that two numbers of SENDZIMIR were sold to

M/s Jawahar Metal Industries Pvt. Limited, the previous name of

the Insured and that housing for these mills were procured from

M/s Mukand Ltd. vide their invoice dated 23.03.1988 and

09.01.1989.

35

47.In substance, no concrete information was forthcoming from the

Insured, and while claiming that the invoices were not available

certain indirect evidence in the form of certificates for part supply

were attempted to be furnished. Most importantly these certificates

were of dates which were after the fire.

48.Another letter of 10.02.2000 repeating the same request for

payment was made by the Insured. The NIACL responded by their

letter of 07.03.2000 granting extension of 12 months for

reinstatement of the damaged mill. All these clearly indicate that

the Reinstatement Value Clause was part of the policy and that the

Insured had agreed to reinstate in accordance with the said clause.

Thereafter, the Insured wrote a letter dated 28.04.2000 clearly

setting out the following:

“This has reference to the correspondence in connection

with the above referred claim. After detailed discussions

on various occasions with the loss assessors appointed by

you, we accepted the settlement arrived at by the surveyor

on repair loss basis. As desired by the surveyors, we gave

a letter of acceptance vide letter dated 16.6.99 for the

assessment of the net adjusted loss of Rs. 20.95 Crores

after taking into account the items of salvage and

excesses as applicable under the terms of the policy (copy

enclosed). It is regretted that even after releasing on

account payment of Rs. 5 Crore on 24

th

March, 1999 the

matter is lying pending for the last about 1½ year in spite

36

of our various meetings with you and also various letters

written from time to time.”

49.It is very clear from this letter that the Insured accepted the net

adjusted loss of Rs.20.95 Crores and a letter accepting the same

dated 16.06.1999 was given to the surveyor. Thereafter, the

Insured, getting no response, on 30.05.2000, filed the Consumer

Complaint No. 233 of 2000 for the following reliefs:

a)Rs. 15.95 crores on account of balance claim for fire loss.

b)Interest @ 18% from 16.06.1999 till its actual payment.

c)Rs. 73 lacs on account of inspection and transportation

charges.

d)Damages @ Rs. 3 crores per month since August, 1999 till

the release of payment as prayed for under claim (a).

50.From the written statement, apart from the other facts, it was set

out that on 06.10.1999, the Chief Vigilance Officer has suggested

that the opinion of technical expert be taken before taking the final

decision in the matter. Thereafter, further complaints were received

resulting in the appointment of M/s J. Basheer & Associates who

submitted their report on 10.04.2000. It was also averred that on

26.07.2000, the CBI approached NIACL with respect to some

complaint filed by the Respondent and in that context, the CBI had

37

called the officials of NIACL on 26.07.2000, 20.03.2001,

29.03.2001. Earlier on 16.04.2000, the CBI requisitioned the

Respondent’s claim file pertaining to the case. It was averred that

on 18.09.2000, NIACL appointed M/s Allianz Zentrum Fur

Technik GmBH, Germany who gave their opinion on 26.10.2000.

Since that report was not based on physical examination, Allianz

was called to do a physical examination and the detailed report

came on 10.07.2001. On 11.12.2001, according to NIACL, the

Joint Surveyors submitted their report where they assessed the loss

of the damaged mill at 19.55 crores on replacement basis and 13.51

crores on depreciation basis. It was only on 18.01.2002, the Chief

Vigilance Officer closed the complaints received.

51.It was averred in the Written Statement that on 27.03.2002, the

Insured for the first time informed NIACL that they had already

installed a new Cold Rolling Mill. An undated letter was annexed

purportedly informing the same facts. NIACL averred that the said

undated letter was not received. The NIACL submitted that the said

letter of 27.03.2002 was sent to the surveyors. In pursuance

38

thereof, the surveyors wrote a letter dated 03.05.2002 requesting

for the following information:

i.Copy of the order placed with M/s Flat

Products.

ii.Copy of the quotation submitted by M/s Flat

Products prior to placement of the order and

copy of the inquiry floated by them.

iii.Whether the interest of any financial

institutions or banks or any of the sister

concerns or private companies exists in the

new Mill or not? If yes, please submit

relevant documents.

iv.Certificate of the Chartered Accountant

confirming date of capitalization for the said

Mill. The certificate should endorse all the

invoices forming part of the Mill

capitalization. One set of invoices may be

submitted along with the certificate.

52.There was no response resulting in the surveyors writing another

letter of 24.06.2002. On 09.07.2002, the insured sought two week’s

39

time to submit the information. With no information forthcoming,

on 07.08.2002, once again the surveyors wrote to the Insured.

Thereafter, it was submitted that till date the mill has not been

reinstated. NIACL submitted that the claim that, at the cost of

Rs.31.37 crores, the cold rolling mill was installed, is absolutely

incorrect. It was averred that Cold Rolling Mill installed by the

complainant is a 6 Hi Cold Rolling Mill whereas the damaged mill

was 20 Hi Cold Rolling Mill and that the two mills are of different

models and that 6 Hi Cold Rolling Mill cannot be treated as

reinstatement. So contending, it was pleaded that the surveyors had

submitted their report on 11.12.2001 in which they had assessed

the Insured’s loss at Rs.13.51 crores on depreciation basis and

Rs.19.55 crores on reinstatement basis and that the Insured has not

submitted any document/material for reinstatement.

53.It is also important to note that on 28.06.2001, M/s Flat

Products, with whom the insured was on talks with for

reinstatement, had written to the Insured clearly indicating in that

letter as follows:

40

“…. In the meantime, the specialists and designers

who were engaged for the manufacturing/repairs of 20

Hi 1250mm wide mill for cold rolling mild steel have

left our company and we are now not in position to

repair/supply your 20 Hi, 1250mm wide mill for Cold

Rolling Mild Steel. This fact was also made known to

the Inspecting team from Germany by our Director,

Sh. D.D. Sengupta, to survey the loss of the aforesaid

machine.”

NIACL Letter to Surveyors:-

54.On 12.11.2002, NIACL wrote to the surveyors stating that the

insured are unable to produce invoices to establish the cost and age

of the mill affected in the said occurrence that considerable time

has elapsed and since the Insured has not been able to establish and

substantiate its claim, NIACL may consider the claim on

depreciated value basis taking into account the maximum

depreciation applicable to such mill. The surveyors were asked to

have the workings on the above lines.

Response of the Surveyors:-

55.In response, on 07.12.2022, the surveyors wrote to the NIACL

stating that in spite of several reminders the Insured as on date had

not submitted any clarification/details and as such the matter had

remained pending. As requested by the NIACL, an alternative

41

assessment by considering maximum depreciation was submitted

with the recommendation of 60% depreciation fixing loss at

Rs.7.90 Crores.

56.It was explained that in the report of 11.12.2001, the

depreciation was adjusted to 32% considering the average life of

the mill as 25 years. That is 32% on overall for a period of usage of

eight years at 4% per year. Eight years were arrived at since the

mill was installed in 1989 and the fire was happened in 1999. The

balance life of mill was taken as 17 years. In the letter it was

clarified that as the machine was running at its optimum capacity, it

was their opinion that the residual life as per the calculations

should be 40% thereby implying applicable depreciation of 60%

and that when 60% depreciation is considered the sum insured is

deemed to be adequate. The residual life was taken as less than 10

years. On 03.01.2003, the NIACL addressed a letter to Insured

stating that the loss amount as sanctioned would be Rs. 7.88 crores

and since Rs. 5 crores (after deducting TDS) has already been paid,

the balance amount would be Rs. 2.88 crores.

Answers to Question No. (ii):

a) Adoption of the Depreciation Method

42

57.From what has been discussed above, it emerges clearly that

under the main terms of the policy the company was to pay the

Insured the value of the property at the time of happening of the

destruction (except where NIACL opts to reinstate). There was a

special memorandum attached to the policy. That memorandum

was the Reinstatement Value Clause which substituted the basis

upon which the amount was payable from the value on the date of

destruction to the cost of replacing or reinstating the property i.e.

property of the same kind or type but not superior or more

extensive than the insured property when new. However, as it

transpires the said memorandum ceased to have any force since

the Insured was unable and unwilling to replace or reinstate the

property. Special Provision 4 (b) of the memorandum applied and

rendered the Reinstatement Value Clause ineffective.

58.It is also amply clear that once we revert back to the original

policy with its conditions, the Insured under Clause 6(b) of the

conditions had an obligation to give NIACL all such further

particulars, plans, specifications, books, vouchers and invoices

with respect to the claim. It is also set out that no claim under the

43

policy was to be payable unless the terms of these conditions were

duly complied with. It is sufficiently brought out that in spite of the

surveyors writing to the Insured repeatedly (on 14.12.1998,

03.05.2002, 24.06.2002 and 07.08.2002), there was no information

forthcoming from the Insured about the invoices as proof of the

value of the damaged equipment and the cost of the new

equipment. Instead, the Insured originally undertook that they will

reinstate the damaged property; received the on account payment

of Rs.4,92,80,905/- (i.e. Rs.05 Crores minus TDS) and informed

NIACL that they have placed order for repair of 20 Hi Cold

Rolling Mill to M/s Flat Products and paid them Rs. 3.75 crores.

Thereafter by their letter of 16.06.1999, the Insured sought

assessment of net adjusted loss at Rs.20.95 Crores. After this,

without showing any progress merely letters were written

repeatedly asking for early settlement. The scenario was while the

surveyors of NIACL kept asking for the basic and relevant

particulars, the Insured without furnishing the same kept asking for

the settlement of the money.

44

59.Fortunately for the Insured, NIACL did not completely

repudiate the claim. Instead faced with the letters of the Insured

dated 16.06.1999 admitting to the value at Rs.20.95 Crores and the

letter of M/s Flat Products of 28.06.2001 throwing up their hands

and informing the Insured about them having lost their expertise,

NIACL resorted to settling the claim under the opening clause of

the policy by agreeing to pay the Insured the value of the property

at the time of the happening of the destruction. (Depreciation

Method)

60.We are not in a position to fault NIACL for resorting to this

method of settlement.

b) Quantum of Base Figure: -

61.NIACL also applied depreciation at the rate of 60% on the

figure of Rs.20.09 Crores. Whether this was a correct percentage of

depreciation was really the only dispute that was adjudicated

before the original forum. The Insured has a two-fold case to

challenge the basis of settlement adopted by NIACL before this

Court. First, they contend that the base figure should have been

Rs.28 Crores based on the figure they say M/s Flat Products was to

45

charge them for reinstating the 20 Hi Cold Rolling Mill and after

adding taxes to the figure of Rs. 25 crores, they arrive at a base

figure of Rs. 28 crores. This contention is totally untenable for the

following reasons.

a.Firstly, by their letter of 16.06.1999, they categorically agree

and confirm to the assessment of the net adjusted loss at

Rs.20.95 Crores.

b.Secondly, there was no proof forthcoming from the Insured.

Since no invoices were furnished to state that the value of the

property on the date of the loss was Rs. 25 crores, the post

incident certificates produced along with the letter of

09.12.1999 of M/s Mukand Limited and the letter of M/s Flat

Products dated 09.12.1999 attempting to make a remote

connection with the value of the damaged property do not

inspire any confidence. In any event, they are not invoices

depicting the value of the property at the time of its

installation.

c.In any event, the surveyors, based on their expertise, having

assessed the value at Rs.20.09 Crores, there is no reason to

46

countenance the submission that the base figure on which the

depreciation should have been calculated was Rs. 28 crores.

c) Percentage of Depreciation: -

62.The next facet of the submission is that even if the value was to

be taken as Rs.20.09 Crores of the property, the depreciation

should have been computed at 32% as was mentioned in the report

of the surveyors dated 11.12.2001. No doubt in the 11.12.2001

report of the joint surveyors while calculating depreciated value

basis, 32% was taken by the surveyors but even this report carried

a number of disclaimers. First of all, the surveyors state that the

report is issued without prejudice and they extract the interim

survey report of 04.02.1999. The surveyors set out in para 5.21 as

follows:

“Loss Assessment on Depreciation Basis

(a)It is understood that Insured have not yet completed

repairs/reinstatement. The delay in the process was

Insured’s desired to have additional fund to proceed with

repairs, which of course is not warranted under the policy.

(b)Insurer had several issued to be resolved before advising

us in November 2001 to proceed with final assessment of

loss.

(c)Pending reinstatement, we have assessed the loss on

depreciated value basis under summary of assessed loss.”

63.As is clear from the above, the NIACL has several issues to be

resolved before advising the surveyors to proceed with the

47

assessment in November, 2001 and that pending reinstatement they

had assessed the loss on depreciated value basis. After this report

of 11.12.2001, it was the Insured who tried to open the matter

again by writing a letter of 27.03.2002 stating that they had already

installed a new Cold Rolling Mill. Strangely, this was after the

admitted letter of 28.06.2001 by M/s Flat Products stating that they

are not in a position to repair the 20 Hi Cold Rolling Mill since the

experts have left the company. However, by the letter of

27.03.2002, the Insured wanted to treat the purported installation of

6 Hi Cold Rolling Mill as a valid reinstatement to stake a claim on

reinstatement value basis. This claim of the NIACL is that

particulars were sought for on 03.05.2002 and 24.06.2002 and the

Insured on 09.07.2002 sought two weeks’ time to submit the

information, but nothing was forthcoming, resulting in the

surveyors writing to the Insured again on 07.08.2002. It was in this

background that NIACL wrote the letter of 12.11.2002 in the

following terms:

"With reference to the above, we have noted that the

insured are unable to produce invoices to establish the

actual cost and age of the Mill affected in the said

occurrence.

48

As considerable time has elapsed and since the insured

has not been able to establish and substantiate their

claim, we may consider the claim on depreciated value

basis taking into account the maximum depreciation

applicable to such Mill. As such, we request you to let

us have our working on the above lines to enable us to

put up the matter to the competent authority for their

consideration."

64.Learned Senior Counsel Mr. Joy Basu for the Insured argued

that this letter was an attempt to goad the surveyors and that the

response of surveyors dated 07.12.2002 was a reluctant response

from an embarrassed surveyor. We are not prepared to countenance

the submission of Mr. Joy Basu, learned Senior Counsel. In fact,

the Insured is fortunate that there was no total repudiation for non

supply of relevant documents.

65.In fact the sequence of events shows the following; soon after

the claim, there was an interim survey of 04.02.1999 where

minimum loss on reinstatement value basis was estimated to be

around Rs.15 crores and maximum loss on reinstatement value

basis was estimated to be Rs.25 crores. An on-account payment of

Rs. 7.20 crores was recommended. Thereafter, it is interesting to

note that from the 11.12.2001 report that between December, 1998

and July 1999 there were talks and inspections with

49

suppliers/manufacturers and the officials of the Insured. It further

appears that the loss assessment exercise was complete by July,

1999 and the report was held back due to investigation by other

agencies. This is clear from the following preliminary portion of

the 11.12.2001 report:

“1.00INSTRUCTIONS

Instructions were received from New India Assurance

Co. Ltd. Regional Office II, New Delhi on 13.12.98 by

R.K. Singhal & Company Private Ltd. to survey and

assess the damage to Insured’s 20 HI Rolling Mill due

to a fire that broke out in Insured’s factory in the

evening of 12

th

December. Accordingly Mr. R.K.

Singhal visited Insured’s factory on 13

th

December 98

and carried out a preliminary inspection of the subject

machine. A.K. Govil & Associates were subsequently

co-opted as joint surveyors by Regional Office vide

their Facsimile of 16

th

December. Their representatives

visited Insured factory on 17

th

December in order to

carry out the necessary inspection. Based on the

physical inspection carried out and limited information

made available by the Insured till then, the above

surveyors submitted their join preliminary survey

report on 22

nd

December 1998. Subsequently the

underwriters appointed P.C. Gandhi & Associates as

another joint surveyors. The joint surveyors visited the

Insured factory jointly and severally on various dates

and carried out detailed physical inspection of the

subject machine besides carrying out protracted

discussions with the Insured official accompanied by

Suppliers/ Manufacturers of the Mill.

Accordingly, matter was discussed with insurers

several occasions and loss assessment exercise was

almost complete by July -1999.

We understand that insurer had received some

complaint concerning subject loss and the matter went

50

into investigations by various agencies one after

another.

Insurer had also referred some matters to us and

necessary information and assistance were extended to

the insurer as well as concerned agencies.

Insurer have now advised us in the month of

November 2001 to submit final loss assessment report.

In view of the above, this final survey report is issued

without prejudice and is based on documents

submitted by the insured and physical verification

carried out by us.

We have in our “Interim Survey Report” dated

04.02.1999 discussed the following in details.

The above details are not being repeated and final

survey report may therefore be read in conjunction

with our earlier report.”

[Emphasis Supplied]

66.This is important because nowhere the 11.12.2001 report makes

any reference to the 28.06.2001 letter of M/s Flat Products

expressing their inability to reinstate the plant. There is a reference

in Para 6.3 of the 11.12.2001 report to a meeting at the plant site on

19.06.2001 wherein the surveyors were given to believe that the

Insured still desires to reinstate the mill. However, this was on

condition that they will do so only after receiving further payment.

Based on the inspection and negotiations that were carried out up

to July, 1999, summary of assessed loss in para 5.23 was drawn up.

This was fixed for replacement/repair at Rs.19.55 Crores (after

51

deductibles like salvage etc). What is crucial is also that on this

figure itself depreciation at 32% was worked out. The base figure

was arrived at on reinstatement basis only and the same was

adopted for the depreciation basis also. No doubt, depreciation was

worked at 32%. This discussion is significant since the grievance

of the Insured is that the NIACL ought not to have written the letter

of 12.11.2002. We reject this contention. The NIACL was justified

in writing the letter of 12.11.2002 because after reviving their

demand to reinstate the plant, the Insured failed to furnish the

documents required and even admittedly the plant as allegedly

reinstated was of 6 Hi Cold Rolling Plant and not 20 Hi Cold

Rolling Plant. In this scenario, one cannot fault the NIACL for

writing the letter of 12.11.2002 particularly when the report of

11.12.2001 was before the new offer for reinstatement by the

Insured’s letter of 27.03.2002. Admittedly the report was based on

discussions that took place till July, 1999

67.In fact, the surveyors, after receiving the letter of 10.11.2002

should have reassessed the value on depreciated value basis which

would be to value the loss as per the opening clause of the policy

52

i.e. arrive at the value of the property at the time of happening of

its destruction. This was not done and in the response of

07.12.2002 the base value was kept at Rs.20.09 Crores and applied

depreciation at 60% on the following justification:

“As the machine was running at its optimum capacity, we

are of the opinion that its residual life should not have be

less than 10 years i.e. residual life as per our above

calculation should be 40% thereby implying maximum

applicable depreciation of 60%”

68.The Insured has stood to gain by keeping the base figure at

Rs.20.09 Crores as value for the depreciated basis also. That was a

value arrived at by the surveyors based on their expert assessment.

69. Dealing with the grievance that 60% depreciation had no basis,

the NCDRC called for an additional affidavit from NIACL. The

NIACL in the affidavit set out as follows:

"2. There are no written guidelines for computing

depreciation @ 4% per year. However, there is established

practice to calculate the depreciation in the case of old

machinery @ 5% per year upto maximum of 75% - 80%.

The Surveyors M/s. P.C. Gandhi and Associates assessed

the claim of M/s. Transpek Industries Ltd. by computing

the depreciation of 75%. In the case of M/s. Modem

Denim Ltd. the Surveyor applied the depreciation of 50%

for 10 years usage considering 20 years machine line.

Copy of Surveyor's letter dated 20th December, 2006 is

Exhibit R-1. The copy of the Surveyor's report dated 19th

March 2003 with respect to M/s. Transpek Industries Ltd.

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is Exhibit R-2 hereto. The copy of the Surveyor report

dated 25th February, 2003 with respect to Modem Denim

Ltd. is Exhibit R-3 hereto."

70.The surveyors had offered justification in their response dated

07.12.2002 for providing depreciation at the rate of 60%. The

Additional Affidavit also clarifies the established practice. It should

not be forgotten that the base figure of Rs.20.09 crores was kept

intact. We set aside the finding of the NCDRC that the practice

adopted in the instant case was not a healthy practice by the

NIACL. We uphold the percentage of depreciation at 60%. We

have not disturbed the base value of Rs.20.09 crores as no

arguments on that score were advanced by the NIACL.

71.In view of the above discussion, the NIACL rightly ordered the

settlement of the claim on 03.01.2003 stating the loss amount as

Rs.7.88 Crores and ordering the balance amount of 2.88 crores be

paid after adjusting the on account payment.

Question No.(iii) - Applicability of the Judgment in Oswal

Plastic Industries (supra)

72.The only other question that remains to be answered is the

argument based on the judgment in Oswal Plastic Industries

(supra). Firstly, no factual foundation was placed to raise this

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submission. Even in the Civil Appeals of the Insured the only

ground was based on the correct base figure and the applicable

rates of depreciation. In fact, the Insured in ground (D) in Civil

Appeal 5242-5243 of 2009 admitted that the NCDRC rightly

proceeded to determine the compensation on depreciation basis.

Ground (D) reads as follows:

“Because the Hon’ble National Commission rightly

proceeded on the premise that reinstatement of the

machine is no longer possible and that the

compensation to the appellant is therefore to be

determined on depreciation basis, i.e., value of the

machine on the date of loss.”

73.Further in the case of Oswal Plastic Industries (supra), as is

clear from para 2 of the said judgment, it appears the policy was on

reinstatement value basis. The complainant there claimed that he

had purchased the machinery to replace the damage in machinery

at the cost of 1,34,07,836/-. However, the surveyor had assessed

the loss on reinstatement basis 29,17,500/-. The NCDRC had

awarded compensation on depreciated basis. Before this Court, the

complainant relied on Clause 9 of the conditions, particularly the

second para, which Clause 9 was similar to the Clause 9 in the

present case. Even the Insurance Company contended as follows:

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12. It is submitted that as rightly observed by the

NCDRC that the goods insured were to be replaced on

“as is basis” i.e., if the machinery is an old machinery,

it is to be replaced by an old machinery and therefore,

as the actual reinstatement has not been done by the

complainant or by the insurance company and the

money is to be paid to the insured on reinstatement

basis, one has to find out the value of the machinery

on replacement basis i.e., the value of the old

machinery, which can be calculated only through

deducting the value of the depreciation from the

current value of the machinery.

74.It appears that even the Insured does not appear to have disputed

that the payment ought to have been on reinstatement basis and the

money is to be paid on reinstatement basis. Further, no clause

similar to the memorandum of reinstatement value clause appears

to have existed in Oswal Plastic Industries (supra).

75.In any event, independent of the above, no argument was raised

in the NCDRC and even in the memo of appeal here based on

second para of Clause 9. At the stage of final arguments in the

appeals, we are not prepared to permit this ambush argument by

allowing the Insured to mechanically rely on Oswal Plastic

Industries (supra) without establishing the factual similarity by

laying an appropriate foundation in the courts below. Hence,

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Oswal Plastic Industries (supra) has no application to the facts of

the present case.

IRDA Regulations

76.In so far as the argument based on Regulation 9(3) of the IRDA

(Protection of Policyholders’ Interests) Regulations, 2002, we find

there is no breach thereof. Regulation 9(3) of the IRDA reads as

follows:

9. Claim procedure in respect of a general

insurance policy

xxx

(3) If an insurer, on the receipt of a survey report, finds

that it is incomplete in any respect, he shall require the

surveyor under intimation to the insured, to furnish an

additional report on certain specific issues as may be

required by the insurer. Such a request may be made

by the insurer within 15 days of the receipt of the

original survey report.

Provided that the facility of calling for an additional

report by the insurer shall not be resorted to more than

once in the case of a claim.

77.This clause has no application to the facts of the present case. As

has been illustrated above, the second report of 11.12.2001 was

based on negotiations held up to July, 1999. Thereafter there were

several developments including the Insured’s claim to first give up

reinstatement and then reintroduce the claim for reinstating the

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mill. Several letters were written for furnishing crucial documents

which were not forthcoming from the Insured. Learned Senior

Counsel, Mr. Sanjay Jain contends that NIACL could have

repudiated the claim for non supply of documents. Be that as it

may, we are not called upon to decide that issue at this stage since

NIACL has on its own settled the claim by their letter of

03.01.2003. When NIACL, on the facts of the present case, wrote

the letter for assessing on depreciation basis, it is not a case of a

clarification being sought in an incomplete report. Hence, on the

facts of the present case, we do not find any violation of the

Regulation 9(3). In the absence of any ambiguity we also do not

find scope for applying the doctrine of contra proferentem.

78.A feeble argument was sought to be advanced to the effect that

the depreciation should have been calculated on the sum insured.

The judgments in Sri Venkateswara Syndicate v. Oriental

Insurance Co. Ltd 2009 (8) SCC 507 and on Dharmendra Goel

(supra) as well as Sumit Kumar Saha v. Reliance General

Insurance Company Ltd., (2019) 16 SCC 370 cited by the Insured

have no application to the facts of the present case. In

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Dharmendra Goel (supra) and Sumit Kumar Saha (supra), the

claimants never conceded for settlement of the claim at a value

lesser and different from the sum insured as in the present case.

Hence, there can be no case that the sum insured should be taken as

the basis for calculating depreciation.

79.As far as Sri Venkateswara Syndicate (supra) is concerned, this

Court had held that the insurance company cannot go on

appointing surveyors one after another so as to get a tailor-made

report to the satisfaction of the officer concerned of the insurance

company; and that if for any reason, the report of the surveyors is

not acceptable, the insurer has to give valid reason for not

accepting the report. This case has no applicability to the facts of

the present matter.

80.In this case, as discussed hereinabove, the Insurer was fully

justified in writing the letter dated 12.11.2002 to the Surveyor

requesting them to re-assess the settlement amount. It was only the

final response by the surveyors on 07.12.2002 that gave a clear

picture as to the base figure and the applicable rates of the

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depreciation since the method of settlement was to be the

depreciation basis and not reinstatement basis.

81.In view of the above, all the findings to the contrary recorded by

the NCDRC are held to be erroneous and are herewith set aside.

Conclusion

82.For the above reasons, we allow Civil Appeal No. 2759 of 2009

of NIACL and set aside the order of the NCDRC in O.P. No. 233 of

2000 dated 05.08.2008. We hold that the claim was rightly settled

by the NIACL letter dated 03.01.2003 which determined the loss

amount payable at Rs.7.88 crores after applying 60% depreciation.

We dismiss Civil Appeal arising out of SLP (Civil) No. 10001 of

2009 and Civil Appeal Nos. 5242-5243 of 2009 filed by the

Insured-respondent. Consequently, the Original Complaint OP

No.233 of 2000 before the NCDRC will stand dismissed. No order

as to costs.

…..…………………J.

(Surya Kant)

…..…………………J.

(K.V. Viswanathan)

New Delhi;

April 30, 2024.

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