ORDER
Rajyalakshmi Rao, Member
1. The revision petitioner, Shree Kalyan Ayurvedic Pharmacy, is the original complainant who filed complaint No. 31/1995 before the District Forum, Jamnagar, which was allowed by the District Forum against the Commercial Cooperative Bank Ltd, the respondent herein. The State Commission allowed the appeal filed by the respondent Bank against the order of the District Forum dated 21.4.2003 and dismissed the complaint by the order dated 22.12.2003 in Appeal No. 455/2003. Brief facts of the case are:
2. Petitioner/complainant is a partnership firm which produces Ayurvedic medicines and runs the small scale industries. Petitioner has taken an advance from the respondent bank against hypothecation of the stock of Ayurvedic medicines. Since 1989, the respondent bank has been taking insurance policies in respect of the hypothecated stock of the Ayurvedic medicines of the petitioner and the premium was paid by the bank to the Insurance Company which was being debited to the account of the revision petitioner. In the normal course, the bank deducted Rs. 395 being the insurance premium paid to the Insurance Company. There are two types of insurance policies, namely, fire policy-A and fire policy – C. Fire policy – A amongst others includes risks of flood and cyclone but in fire policy-C, special coverage about flood and cyclone has to be taken and the Insurance Company makes an endorsement to that effect in the policy on insurance. In the year 1994-95, the respondent Bank, without any intimation to the revision petitioner changed the Insurance Company from New India Insurance to United India Insurance Company. Moreover, the insurance policy obtained from the United India Insurance Company Ltd. did not cover the risk of flood and cyclone, whereas, the policies which were being obtained earlier from New India Insurance Company Ltd. used to cover the risk of flood and cyclone, apart from coverage of other risks.
3. It is argued by the learned Counsel for the petitioner, although it is not exactly relevant to the insurance policy in question, that the respondent bank had changed the Insurance Company from New India Assurance Company to United India Insurance Company perhaps for a different reason, i.e. United India Insurance Company was also appointed by the Employees’ Credit and Consumers Co-op. Society of the bank. This unilateral change of the Insurance Company has resulted in mistake of not covering the risk for the flood which was already covered by the previous Insurance Company under the policy.
4. There were heavy rains in Jamnagar in the year 1994, which caused heavy damage to the goods and machinery. The petitioner approached M/s. United India Insurance Co. for payment of the claim but was taken by surprise that the claim was not maintainable as the policy of insurance taken by the respondent-bank did not cover the risk of flood. Thereafter, the petitioner approached the respondent-bank and requested to pay the loss caused by heavy rains as there was gross negligence of duty on their part for not covering the risk of flood and cyclone which was done in the earlier years.
5. It is further argued that the bank had not taken any consent nor given any intimation to the petitioner about the change of Insurance Company and exclusion of the risk in respect of flood and cyclone. It is further contended by the petitioner that the petitioner was under impression that the bank, in ordinary course of business, has taken a comprehensive insurance policy covering the risk of flood and cyclone.
6. Being aggrieved by the gross negligence and deficiency in service on the part of the respondent-bank, the petitioner filed Complaint Case No. 31 of 1995 before the District Forum, Jamnagar and prayed for the following reliefs:
(i) To grant compensation of Rs. 2,15,554.50 towards loss suffered by the petitioner/complainant. Break up of the said loss is as under:
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Head of Loss Amount of
loss (Rs.)
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Raw material 48,182.00
Finished Goods 1,55,972.50
Packing containers 2,100.00
Machinery repairing 3,000.00
Electric repairing 2,300.00
Furniture/Fixture
Repairing 4,000.00
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Total 2,15,554.50
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(ii) To award Rs. 50,000.00 towards loss of business;
(iii) To award Rs. 50,000.00 towards mental harassment, and
(iv) Interest @ 24% p.a. compounded with effect from 14.7.1994.
7. It is further contended that the petitioner had earlier suffered loss on account of heavy rains/flood and the New India Assurance Company had paid a sum of Rs. 12,380 to the respondent-Bank towards settlement of the claim under the insurance policy taken earlier and again in 1997, the petitioner suffered heavy loss on the same ground and a sum of Rs. 2,19,053 was paid by the Insurance Company towards the settlement of the claim directly to the respondent-bank. That being so, the respondent-bank cannot take a plea that in earlier policy they had not insured the petitioner for heavy rains/flood. The earlier claims have been settled by the Insurance Company without any demur obviously because such a risk from floods was covered by the policy.
8. The respondent-bank resisted the claim of the petitioner on the following grounds:
It is the duty of the petitioner to take insurance in respect of property including the stock and that there is no deficiency in service by them towards the petitioner and the bank cannot be made responsible for the same. Hence, there is no deficiency in service by the revision petitioner.
9. Learned Counsel for the bank relied upon the hypothecation agreement Clause-5:
The Borrowers shall at their own expense keep the hypothecated goods in good condition and keep the same insured in the names of the bank and Borrowers against fire and also, if required by the bank, against riots and civil commotion with some Insurance Company approved by the bank for the full market value of such goods and shall deliver to the bank the policy or policies for such insurance and the receipts for the premium paid therefor. If the Borrowers shall fail so to keep the hypothecated goods insured as aforesaid or deliver the policy or policies or the receipts for premium to the bank, the bank shall be at liberty, but not be bound, to effect the said insurance in the bank’s own name and to debit to the said Cash Credit Account all expenses incurred by the bank for so doing. All moneys received under any such insurance shall be employed in or towards satisfaction of the moneys secured by the hypothecated goods.
10. Learned Counsel for the bank further argued that there was no contract between the complainant and the bank requiring them to insure the property of the complainant and there was no obligation on the part of the bank to take insurance. It would mean that there was no contract of rendition of service of taking insurance for the hypothecated goods in respect of this claim. It is also argued that both the parties perhaps did not contemplate that there was risk of flood/cyclone and considered it to be a remote possibility and, therefore, insurance was not taken. If at all there was default in remitting the premium to the Insurance Company, which was debited to the complainant, could be a deficiency in service; or, not furnishing the new address of the complainant to the Insurance Company could also be held as deficiency, but not in the present case, where there was no agreement between the parties to bring in the element of service in this case.
11. We heard both the parties and perused the record. It is pertinent to note that bank’s rules provide for hypothecation.
12. The relevant rules are:
16.16. Insurances-
When in the loan documents there is guarantee of raw material and finished goods, of building or machinery or vehicle, in that case joint insurance of loanee and bank of the value of market price of that guarantee should be taken and insurance policy should be obtained and be kept with documents. All the risk should be covered in the policy. Note of policy should be done in the insurance register.
16.20. Insurance Policy:
To take insurance of goods, machinery and property against which advance is given and followed note in this behalf should be taken.
13. Various conditions have been prescribed under these rules like how a register should be maintained, how a cover note and policy should be obtained and the details of the policy.
14. As per these rules, it is very clear that it is the responsibility of the bank to have insurance of hypothecated goods and all risk should be got covered and this responsibility is also fixed on the bank. They should not only insure the risk covered but also need to maintain the record correctly.
15. Secondly, in the present case also previous policy was taken by the Insurance Company covering the risk of the flood but for the reasons best known to the office of the bank that was not done for the year in question. It is also established that on the basis of the said policies covering the flood, complainant claimed reimbursement of the compensation on two occasions and he got the same.
16. Further, the finding given by the State Commission that the parties might not have contemplated the risk of flood/cyclones, is imaginary. However, when a change in the scope of insurance policy was also made by the bank unilaterally without the consent/ approval of the complainant, especially when the premium is being debited to the complainant, we find that this conduct of bank amounts to deficiency in service.
17. In the result, we find deficiency in service on the part of the bank for not obtaining insurance covering the risk due to rains/flood. Hence, we allow the Revision Petition and set aside the order of the State Commission. We direct the respondent-Bank to pay compensation of Rs. 2,19,053 along with interest © 10% p.a. from 14.7.1994 till the date of payment within six weeks from the receipt of this order with costs of Rs. 10,000.