Full Judgment Text
REPORTABLE
2024 INSC 356
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
Signature Not Verified
Digitally signed by
satish kumar yadav
Date: 2024.05.01
10:43:22 IST
Reason:
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
th
account payment of Rs. 5 Crore on 24 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:
“1.00 INSTRUCTIONS
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
th
evening of 12 December. Accordingly Mr. R.K.
th
Singhal visited Insured’s factory on 13 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
th
their Facsimile of 16 December. Their representatives
th
visited Insured factory on 17 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
nd
report on 22 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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