M/S SUPER LABEL MFG. CO. vs. NEW INDIA ASSURANCE COMPANY LIMITED

NON­REPORTABLE      IN THE SUPREME COURT OF INDIA    CIVIL APPELLATE JURISDICTION    CIVIL APPEAL NO.3673 OF 2015     M/s Super Label Mfg. Co.                 .…Appellant(s) Versus New India Assurance Company Limited….  Respondent(s) J U D G M E N T A.S. Bopanna, J.                  1. The   appellant   is   a   registered   partnership   firm engaged   in   the   business   of   printing   high   technology labels   used   as   adhesive   labels   mainly   by   Drug Manufacturers and  Other Companies on their packing material.   In   order   to   carry   on   such   business,   the appellant had imported highly sophisticated and costly Signature Not Verified machinery and had installed the same in their premises. Digitally signed by R Natarajan Date: 2023.05.17 10:44:45 IST Reason: 1 Among   the   said   machinery   that   was   installed,   it   also included the ‘Aquaflex’ brand of machinery from Canada and   ‘Gallus­Arsoma’   from   Switzerland,   which   are sophisticated printing machinery. In order to insure the said   machinery   against   any   damage   and   loss,   the appellant had secured a ‘Standard Fire and Special Perils’ Policy from the respondent insurance company. The said policy was for a total cover of Rs. 3,35,30,000/­ (Rupees Three   Crores   Thirty­Five   Lakhs   Thirty   Thousand   only) and was valid for the period 15.05.2003 to 30.08.2004.  2. When this was the position, as per the case of the appellant,   there   was   a   fire   mishap   in   the   factory   on 28.02.2004 at about 7.50 AM. The fire had damaged and destroyed certain portions of the factory which included the   plant   and   machinery,   building,   raw   material   and finished products. The appellant, therefore, invoked the policy and filed a claim with the respondent insurance company for a sum of Rs.3,02,75,000/­ (Rupees Three Crores   Two   Lakh   Seventy­Five   Thousand   only).   The appellant   had   also   informed   M/s   Loss   Prevention 2 Association   of   India   Ltd.   and   requested   them   to undertake an investigation.  3. As   per   procedure   the   insurance   company appointed a surveyor, M/s Prabha Associates, Mumbai to assess the loss. The said surveyors were required to submit a report in not more than six months as per the regulations   under   the   Insurance   Regulatory   and Development   Authority.     The   surveyor   conducted   the inspection   of   the   premises   several   times   and,   at   the instance of the surveyor, the appellant also called for an Engineer   from   the   manufacturers   in   Switzerland   to physically inspect the machine and to tender his opinion. In this regard, the appellant had also to incur expenses of   about   Rs.4,86,665/­   (Rupees   Four   Lakh   Eighty­Six Thousand Six Hundred Sixty­Five only). The appellant contends, though the surveyor admitted the loss to the tune of Rs.1,81,35,810/­ (Rupees One Crore Eighty­One Lakhs   Thirty­Five   Thousand   Eight   Hundred   Ten   only) and the assessment of loss was enhanced further based on   the   letter   dated   13.09.2004   and   07.10.2004,   on 3 submission   of   the   report   the   respondents   limited   the reimbursement to Rs.16,15,606/­ (Rupees Sixteen Lakh Fifteen Thousand Six Hundred and Six Only) by sending a voucher dated 16.05.2005. The appellant declined to accept the same and instead, filed a consumer complaint before   the   National   Consumer   Disputes   Redressal Commission   (for   short,   ‘NCDRC’)   claiming   a   sum   of Rs.5,20,91,724/­   (Rupees   Five   Crores   Twenty   Lakhs Ninety­One Thousand Seven Hundred Twenty­Four only) including the amount of Rs.2,26,61,376/­ (Rupees Two Crores   Twenty­Six   Lakhs   Sixty­One   Thousand   Three Hundred   Seventy­Six   only)   which   was   the   amount assessed as a loss by the surveyor and also the interest payable to the various banks.  4. The   respondents   filed   their   written   statement disputing the claim put forth by the appellant. According to   the   respondent,   the   amount   of   Rs.16,15,606/­ (Rupees Sixteen Lakhs Fifteen Thousand Six Hundred and Six only) offered by them was as assessed by the surveyor, and as such the same would be the full and 4 final settlement of the claim by the appellant. It is alleged by the respondent that the appellant had not cooperated with the surveyors at the time of the assessment being made by the surveyor. It is their case that in respect of the imported machines, the local representative of the manufacturers   were   unable   to   technically   prove   the damage to the machinery since they had no technical expertise   or   knowledge   to   attend   to   the   same.   The engineer of M/s Gallus who visited from abroad declared the machine to be a total loss based on the photographs and   had not stated categorically that the machine could not   be   repaired.   The   respondents   contended   that   the Engineer could not explain as to how the damage had occurred   due   to   fire.   In   effect,   the   respondents   had disputed the reports tendered by the experts but had sought to rely on the report of the surveyor appointed by them and that of M/s. Material Technology Development Centre (for short, ‘MTDC’). In that context, they sought to justify   the   amount   of   Rs.16,19,209/­   (Rupees   Sixteen Lakhs Nineteen Thousand Two Hundred and Nine only) 5 offered by them. Insofar as the claim and the assessment of loss to the extent of Rs.2,26,61,376/­ (Rupees Two Crore   Twenty­Six   Lakhs   Sixty­One   Thousand   Three Hundred and Seventy­Six only) it was contended that it is unsubstantiated.  5. In the background of the contentions, the NCDRC has taken into consideration the surveyor’s report and based on the same has considered the aspect relating to the heavy rusting of the machinery and concentrated on as   to   whether   the   rusting   within   4   to   5   hours   is technically   feasible.   In   this   regard,   the   NCDRC   has referred to the opinion in the website ‘Wikipedia’ with regard to corrosion, as explained therein and has based its decision on the same to arrive at the conclusion that the   rusting   to   the   machinery   had   taken   place   over   a number of years and not due to one incident of fire and the water sprayed for its extinguishment. In that view, the NCDRC has not given credence to the contention of the appellant that the surveyor had earlier assessed the loss at Rs.2,26,61,376/­ (Rupees Two Crores Twenty­Six 6 Lakhs Sixty­One Thousand Three Hundred Seventy­Six only) but on the other hand accepted the contention of the respondents that the appellant is entitled to the sum of   Rs.16,19,209/­   (Rupees   Sixteen   Lakhs   Nineteen Thousand  Two Hundred  and  Nine  only) as  offered  by them.  The NCDRC, therefore, disposed of the complaint through its order dated 24.02.2015 limiting the relief to the said sum of Rs.16,19,209/­ (Rupees Sixteen Lakhs Nineteen Thousand Two Hundred and Nine only) with interest   at   12   per   cent   per   annum.   The   appellant therefore claiming to be aggrieved is before this Court in this appeal.  6. We   have   elaborately   heard   Mr.   Arunabh Chowdhury,   learned   senior   advocate   for   the   appellant and Mr. S.L. Gupta, learned counsel for the respondent and perused the appeal papers including the order dated 24.02.2015 passed by the NCDRC which is impugned herein.  7. At the outset, it is necessary to note that insofar as the   respondent   having   issued   the   ‘Standard   Fire   and 7 Special   Perils’   Policy   which   was   valid   for   the   period 15.05.2003 to 30.08.2004 covering the damages up to Rs.   3,35,30,000/­   (Rupees   Three   Crores   Thirty­Five Lakhs Thirty Thousand only) is the accepted position. The   fact   that   during   the   validity   of   the   policy,   a   fire accident had occurred on 28.02.2004 is also undisputed. The fire being the cause for having resulted in certain loss which is covered under the policy for reimbursement also   cannot   be   disputed.   The   very   fact   that   the respondents have quantified the loss and offered to pay the   sum   of   Rs.16,19,209/­   (Rupees   Sixteen   Lakhs Nineteen Thousand Two Hundred and Nine only) which according to them was the loss/damage to the plant and machinery   and   other   articles   would   indicate   that   the only issue which was to be determined by the NCDRC and now by this Court is with regard to the extent of damage   caused   and   the   amount   of   compensation therefore, to be paid and reimbursed by the respondent insurance company under the policy, within the amount of coverage provided therein.  8 8. The   report   dated   28.03.2005   of   M/s   Prabha Associates,   the   surveyor   appointed   by   the   respondent insurance   company   shows   that   on   the   visit   made   on 28.02.2004, it records that the fire brigade vehicles had arrived at 8.15 A.M. and had doused the fire using water jets till 10.30 A.M. In this regard, it also records that water   was   sprayed   all   over   the   place   which   caused damage to the machineries, than the damage that was caused by the fire itself. The observation recorded by the surveyor   is   that   the   ‘Aquaflex’   printing   press   located below the cables was found affected. Further the ‘Gallus’ Printing   Machine,   ‘Spengler’   machine   and   A.V.   Flexo plate   counter   were   all   water   affected.   It   was   also observed in the report that the water marks were found on all the machines and metal rollers on ‘Gallus’ and ‘Aquaflex’ machine which was rusted due to the water being sprayed. In the report, it was also indicated that the probable   cause of  fire is short circuit and it was extinguished by the fire brigade by spraying water on all the machines located in the premises. It is observed that, 9 when they visited the premises, all the iron parts were rusted   to   varying   degrees   with   regard   to   the   ‘Gallus’ machine and that there was water on mechanical and electric   parts   located   on   the   operations   side   of   the machine. The rear side of the machine was found intact. It was therefore concluded that the rusting was due to the water being sprayed.  9. As   regards   ‘Aquaflex’   machine,   it   was   indicated that the machine was located very close to the source of fire and it was found that the plastic knobs had partly melted; the electrical wirings had burnt and the main control panel was void of water marks. Pursuant to such report there was an exchange of correspondence between the appellant and the surveyor wherein further details were furnished relating to effort made by the appellant towards   the   restoration   of   the   machinery   and   M/s Graphic Technology Inc. having informed the appellant through the communication dated 17.04.2004 that the cost of repairing the machine will exceed the reasonable limit and may not be able to guarantee optimum printing 10 quality in spite of repairs as the metal deformation on the main frame cannot be reverted. The very opening of the   machine   requiring   additional   parts   was   also highlighted. It is in that background, having taken note of this aspect of the matter the surveyor who had on 06.09.2004   made   an   assessment   of   Rs.1,81,35,810/­ (Rupees   One   Crores   Eighty­One   Lakhs   Thirty­Five Thousand   Eight   Hundred   Ten  only)  and   had   sent   for acceptance of the insured, namely the appellant so as to finalise   the   report,   on   further   exchange   of correspondence, the assessment of damage was revised.  10. The respondent, in that background, also sought for a report from the Loss Prevention Association of India Ltd.,   which   on   examination   by   visiting   the   site   on 12.03.2004   along   with   the   Divisional   Manager   and Development   Officer,   apart   from   suggesting   remedial measures had noted with regard to considering the bill of damage to the electric cables etc. It was noted that two printing   machines   were   found   partly   damaged   due   to heat, smoke and fire fighting water. But, observation was 11 however   made   that  heavy   rusting   was   technically   not feasible   within   the   time   span   of   4   to   5   hours   under conditions of fire and its extinguishment. The respondent therefore taking into consideration the said reports had limited   the   reimbursement   to   the   extent   as   indicated above.  11. While taking note of this aspect, what is also to be kept   in   view   is   the   report   submitted   by   M/s Gallus/Heidelberg India Pvt. Ltd. pursuant to the visit made   on   29.02.2004   within   a   few   hours   of   the   fire accident. The said report indicated that the machine was total   loss   and   not   repairable   with   reasonable   costs. Subsequently the Engineer who flew from Switzerland also visited the site on 05.10.2004. As per the report dated 06.10.2004, the machine was extensively damaged as a result of fire and could neither be switched on, nor be overhauled/repaired at the site. He was also of the opinion that the machine would have to be dismantled in order to inspect the damage and if any replacement is required it would be highly expensive. The said report 12 was no doubt available before the surveyor and surveyor had   raised   certain   queries   with   regard   to   the   print precision and as to why the repairs cannot be carried out in India. M/s Heidelberg India Pvt. Ltd. submitted its reply on 05.01.2005 indicating that the premises was gutted by fire and the medium used to extinguish the fire was water. As such heavy film of rust had formed over the heated steel component like plate and  impression cylinders,   activation   mechanism,   machine   sliding surfaces, bearings at various locations throughout the length   and   breadth   of   the   press.   It   was   indicated   in technical terms with regard to the machine not being rectifiable. 12. As noted earlier, the respondent had also secured reports   from   MTDC   subsequent   to   the   report   of   M/s Heidelberg.   MTDC   vide   its   report   dated   06.01.2005 observed that heavy rusting is not technically feasible within the time span of 4 to 5 hours under conditions of fire and its extinguishment. It was indicated, technically they   could   not   confirm   significant   amount   of   rusting 13 within   4   to   5   hours   because   of   fire   and   its extinguishment as valid.  13. The   appellant   on   the   other   hand   sought   the assistance   of   Indian  Institute   of   Technology,   Powai  to secure a report in the background of the existing report including that of MTDC. The IIT, Powai through its report dated 12.08.2006 observed that the simulation of the conditions to test the feasibility of rusting within 4 to 5 hours   was   not   proper   and   cannot   be   considered   as reliable.   The   report   of   MTDC   suggesting   that   rusting existed prior to break out of fire was commented upon and was indicated that it was misinterpretation on their own observations.   The Indian Institute of Technology (IIT), Powai in their report had also indicated that the seven conditions necessary for rusting and corrosion did in fact exist. In that light, the report suggested that the rusting and corrosion of machine occurred on account of the fire accident. It was suggested that the surveyors report is not scientific and that it is inconclusive.  14 14. Having  noted  the various  reports that  had been secured at various stages, insofar as the fact that the assessment by a surveyor is a requirement to arrive at a conclusion to assess the loss is the accepted position. However, as against the report of the surveyor appointed by the insurance company if there is any other material on   record,   the   same   cannot   be   ignored   but   is   also required  to  be  noted  for  the purpose of  settlement of claim.   In   this   regard,   learned   senior   counsel   for   the appellant   has   relied   on   the   decision   of   this   Court   in National   Insurance   Company   Ltd.   Vs.   Hareshwar Enterprises (P) Ltd. and Others  (2021) SCC Online SC

15 15. In that background, in the instant facts where no oral   evidence   has   been   tendered   by   the   parties   and ultimately   the   consideration   is   based   on   the   reports which are available on record, the nature of the reports and the manner in which the fire accident had occurred and the situation leading to the claim is to be assessed in an objective manner by the adjudicatory forum. In order   to   buttress   his   contentions   in   this   regard,   the learned senior counsel has referred to the decision in the case of   New India Assurance Company Limited Vs. Zuari Industries Limited and Others  (2009) 9 SCC 70 wherein this Court having referred to the earlier decision has arrived at the conclusion that the chain of events is to   be   taken   note   while   considering   the   claim   for damages.   In   this   regard,   it   is   stated   therein   as hereunder:­

16

17 16. In the above backdrop, in the instant case we note that the entire consideration made by the  respondent before   admitting   only   a   portion   of   the   claim   and   the ultimate consideration made by the NCDRC appears to be on the narrow issue with regard to the corrosion of the   machinery   and   in   that   regard   as   to   whether   the corrosion can happen within a short duration of 4 to 5 hours. In our opinion, such consideration in the instant facts   was   misdirected   and   therefore   resulted   in   the wrong conclusion.  17. We note that in the case on hand, the policy in question is a ‘Standard Fire and Special Perils’ Policy which is available at Annexures P­2 to P­5. The policy includes   the   coverage   in   respect   of   destruction   or damage due to fire, save the exceptions provided therein. The fact that in the instant case the fire accident had occurred during the subsistence of the policy and that such accident was accidental and had caused damage to the property of the appellants including to the machinery in question is not in dispute. The photographs relating to 18 the machines along with report of the surveyor would indicate that there is rusting on the machinery. The fact that the said machinery is highly sophisticated imported machinery for precision printing cannot be disputed. In such situation, when, due to such accidental fire and to extinguish such fire the assistance of the fire brigade was called for and even as per the report of the surveyor the fire brigade had sprayed water and such other fire extinguishing   material   over   the   machinery   which   was placed in the room which caught fire and the fire brigade has   made   effort   between   8.15   am   to   10.30   am,   the damage to the machinery has occurred. From the report of the   experts  it is  indicated  that the   machinery  was beyond repair keeping in view the precision work to be performed with the said machinery and there was no guarantee that even if an attempt is made to repair the same   after   opening   the   machine,   it   would   give   good results.  18. Per contra the fact remains that the respondent has not tendered any evidence to indicate that the same 19 machinery   in   fact   is   being   used   by   the   appellants subsequent   to   the   fire   accident   either   in   the   same manner   in   which   it   was   being   used   prior   to   the   fire accident or being used after repairs. Further except for the MTDC assuming that the corrosion has happened over a period of time, all other reports suggest that the corrosion has happened due to the spraying   of water to extinguish the fire. The fact that the appellant was a going concern as on the date of the fire accident is not in dispute. Further, the surveyors report in any event does not suggest that the machineries were not in use as on the relevant date. On the other hand, the appellants had contended that the very same machines were being used for   printing   the   labels   immediately   prior   to   the   fire accident and there was no complaint with regard to the quality   of   printed   labels   from   its   customers.   The respondents have not placed any contrary material to controvert the said position. In such situation, we are of the opinion that the emphasis in a fact of the present nature   to   arrive   at   the   conclusion   as   to   whether   the 20 corrosion could happen within a time period of 4 to 5 hours and in that regard, the NCDRC considering that aspect   based   only   on   the   definition   of   corrosion   in general terms is not justified.  19. In the overall assessment of the instant case, when the accidental fire on 28.02.2004 is the accepted position and in the very report of the surveyor dated 28.03.2005 recording the nature of the damage to the machinery is also   the   accepted   position,   a   narrow   construction   as made by the NCDRC is unacceptable. On the other hand, the chain of events will lead to the conclusion the fire accident has caused the damage.  20. If that be the position, the issue would be with regard to the extent to which the claim of the appellant is required to be accepted and the respondent be directed to reimburse the same. In this regard, though the claim is made by the appellant for the sum of Rs.5,20,91,724/­ (Rupees Five Crores Twenty Lakhs Ninety­One Thousand Seven   Hundred   Twenty­Four   only),   the   learned   senior counsel   for   the   appellant   would   indicate   that   the 21 appellant   would   presently   limit   the   claim   to Rs.2,26,61,376/­ (Rupees Two Crores Twenty­Six Lakhs Sixty­One Thousand Three Hundred Seventy­Six only). In that background, if the nature of assessment made by the   surveyor   at   the   first   instance   is   taken   into consideration,   the   amount   indicated   therein   was   in   a sum of Rs.1,81,35,810/­ (Rupees One Crores Eighty­One Lakhs Thirty­Five Thousand Eight Hundred Ten only). However   on   the   exchange   of   correspondence   between surveyor   and   the   appellant   who   brought   on   record additional material before the surveyor to indicate that the machinery cannot be repaired, the amount assessed was   Rs.2,32,02,000/­   (Rupees   Two   Crores   Thirty   Two Lakhs Two Thousand only).  21. Therefore,   if   all   these   aspects   are   taken   into consideration, the claim limited by the appellant at this juncture is the actual loss suffered by the appellant. We are therefore of the opinion that the appellant would be entitled to the amount of Rs.2,26,61,376/­ (Rupees Two Crores   Twenty­Six   Lakhs   Sixty­One   Thousand   Three 22 Hundred   Seventy­Six   only)   minus   the   sum   of Rs.16,19,209/­   (Rupees   Sixteen   Lakhs   Nineteen Thousand Two Hundred and Nine only) which was earlier offered   by   the   Insurance   Company   and   was   received without   prejudice   during   the   pendency   of   the proceedings, with interest if any that has been received. The balance amount of Rs. 2,10,42,167/­ (Rupees Two Crores   Ten   Lakhs   Forty­Two   Thousand   One   Hundred Sixty­Seven   only)   shall   be   payable   by   the   respondent with interest at 6 per cent per annum from the date of the complaint filed before the NCDRC. The same shall be paid within 8 weeks from the date of receipt of a copy of this judgment. 22. The appeal is accordingly allowed in part. 23. Pending application, if any, stands disposed of. …………….…………….J. (A.S. BOPANNA)         ….……………………….J.                                             (DIPANKAR DATTA) New Delhi; May 16, 2023 23