REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.7515 OF 2001 M/s KRISHNA FOOD & BAKING  INDUSTRY P. LTD. … Appellants

Versus

M/S NEW INDIA ASSURANCE CO. LTD. & ANR. … Respondents

WITH CIVIL APPEAL NO.8495 OF 2001

RAJENDRA KUMAR SAWHNEY … Appellant

Versus

M/S NEW INDIA ASSURANCE CO. LTD. & ANR. … Respondents

WITH CIVIL APPEAL NO.8496 OF 2001

M/s KRISHNA FOOD & BAKING  INDUSTRY P. LTD. … Appellant

Versus

M/S NEW INDIA ASSURANCE CO. LTD. & ORS. … Respondents

WITH CIVIL APPEAL NO.3393 OF 2002

M/S NEW INDIA ASSURANCE CO. LTD.  … APPELLANT

VERSUS

M/s KRISHNA FOOD & BAKING  INDUSTRY P. LTD. & ANR. … RESPONDENTS

WITH CIVIL APPEAL NO.4024 OF 2002

M/S NEW INDIA ASSURANCE CO. LTD.  … APPELLANT

VERSUS

RAJENDRA KUMAR SAWHNEY & ANR. … RESPONDENTS

WITH CIVIL APPEAL NO.8000 OF 2002

CANARA BANK … APPELLANT

VERSUS

M/s KRISHNA FOOD & BAKING  INDUSTRY P. LTD. & ORS. … RESPONDENTS

WITH CIVIL APPEAL NO.8002 OF 2002

CANARA BANK … APPELLANT

VERSUS

M/s KRISHNA FOOD & BAKING  INDUSTRY P. LTD. & ANR. … RESPONDENTS

J U D G M E N T

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C.K. THAKKER, J.

1. All  these  appeals  have  been  filed

against a common judgment and order dated June

01,  2001  passed  by  the  National  Consumer

Disputes  Redressal  Commission  (‘National

Commission’ for short) in Original Petition No.

194  of  1994  and  companion  matters.   These

appeals  are  filed  under  Section  23  of  the

Consumer  Protection  Act,  1986  (hereinafter

referred to as ‘the Act’). 2. To  appreciate  the  controversy  raised

in the present appeals, few relevant facts may

be stated.   3. M/s  Krishna  Flour  and  Oil  Mills

(‘Mill’ for short) is a partnership firm while

M/s Krishna Food and Baking Industry Pvt. Ltd.

(‘Company’ for short) is a company registered

under the Companies Act, 1956 as applicable to

the State of Jammu & Kashmir. Both the units

were located in Nawab Bazar, Srinagar, in the

State of Jammu & Kashmir.  Both were sister

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concerns.  Rajendra Kumar Sawhney was Chairman

of  the  Company  as  also  main  partner  of  the

Mill.  The Company was dealing in manufacturing

bread, biscuits, cakes and other bakery items.

It is the case of the complainants that during

the period of disturbances caused by militancy

in  early  nineties  of  the  last  century,  Mr.

Praneet  Sawhney,  only  son  of  Rajendra  Kumar

Sawhney  was  shot  dead  by  the  terrorists  on

March  27,  1990  in  his  office.   Immediately

thereafter, operations of both the units were

suspended and the complainants had to migrate

to Delhi.  It was stated that there was ‘watch

and ward staff’ as also some other personnel

who looked after the premises and stocks and

raw materials lying in the units.  It was also

stated in the complaints that the complainants

were able to transfer records from Srinagar to

Delhi. 4. According  to  the  complainants,  they

had obtained three separate insurance policies

from  M/s  New  India  Assurance  Co.  Ltd.

4

(‘Insurance Company’ for short), the details of

which are as under; S No. Policy No. Sum  

Assured Case No. Items covered

1. 112119000249 Rs.40 Lakh

194/94 Stock of  Wheat, Wheat Products  and  Packing material  and  Goods  of like nature of Krishna Flour & Oil Mills

2. 113119000312 Rs.25 Lakh

210/94 Stocks of Raw Material like  Flour,  Maida, Ghee, chemicals etc. in godowns  belonging  to Krishna  Food  &  Baking Industries

3. 113119000313 Rs.53 Lakhs

209/94

Plant & Machinery installed in Krishna Food & Baking Industries. (a) Factory Building      Rs.21 lakhs (b) Electric fittings     Rs.4 lakhs (c) Plant & Machinery     Rs.28 lakhs

5. It  was  the  say  of  the  complainants

that  in  the  morning  of  November  12,  1991,

certain terrorists attacked the Company as well

as the Mill and set them on fire.  Substantial

damage  had  been  caused  to  building,  plant,

machinery  and  electricity  fittings;  the  raw

materials  lying  in  the  units  were  destroyed

stocks which were in both the units were also

either destroyed or substantially damaged.  In

5

view of the insurance coverage, a demand was

made  by  the  complainants  to  the  Insurance

Company to get the survey done and to pay the

amount of loss sustained by the complainants.

The  Insurance  Company,  however,  did  not  do

anything in the matter for quite long time.

The complainants got the survey done through

their  surveyors  and  demanded  the  amount  to

which they were entitled to.  The Insurance

Company, however, did not make payment which

constrained  the  complainants  to  approach

National Commission by filing three complaints

being Complaint Nos. 194, 209 and 210 of 1994. 6. The prayer made in the complaints and

the demand in respect of policies and sums may

be summarized thus; S No. Policy No. Sum  

Assured Complaint No.

Items covered 1. 112119000249 Rs.40

Lacs 194/94 Stock of  Wheat, Wheat

Products  and  Packing material  and  Goods  of like  nature  of  the Mills. (‘Wheat Policy’)

2. 113119000312 Rs.25 Lakhs

210/94 Stocks of Raw Material like  Flour,  Maida, Ghee, chemicals etc. in godown  belonging  to Baking Industry. (‘Raw Material Policy’)

6

3. 113119000313 Rs.53 Lakhs

209/94

Plant & Machinery installed in Baking Industry. (‘Plant Policy’) (a) Factory Building      Rs.21 lakhs (b) Electric fittings     Rs.4 lakhs (c) Plant & Machinery     Rs.28 lakhs

7. The  Insurance  Company  repudiated  the

claim of the complainants.  At a belated stage,

survey had been carried out by the Insurance

Company through its Surveyors wherein it was

observed that substantial damage had not been

caused  to  building,  plant,  machinery  and

electricity fittings and the complainants were

not entitled to the amount demanded by them

under the said head. The Insurance Company also

assessed  the  damage  to  the  building,  plant,

machinery  and  electricity  fittings  to  the

extent of Rs.31,373/- and nothing more.  8. With  regard  to  raw-materials  and

stocks, the amount was substantially curtailed

by  the  Insurance  Company  inter alia on  the

grounds  that  the  stocks  were  perishable  in

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nature  and  had  become  unfit  for  human

consumption  and  the  same  had  been  badly

affected  by  bacterial  growth.  It  had  become

worthless at the time of mishap in 1991.  It

was also contended that in absence of proper

‘watch and ward staff’, there was pilferage of

stocks and raw materials by intruders as well

as  by  staff  members  of  the  complainants’

Company and Mill. It was, therefore, submitted

that the complainants were not entitled to the

amount claimed in the complaints. 9. The National Commission went into the

merits  of  the  matter  and  held  that  the

complainants were entitled to certain reliefs.

With regard to stocks kept in the godown of the

Mill, it observed that it was covered by policy

No. 1131190000249. The policy was for an amount

of Rs. forty lakhs and premium of Rs.5,814/-

was  paid.   The  claim  put  forward  by  the

complainants was for Rs.37,78,618/-.  According

to  the  complainants,  the  stocks  which  were

lying in the units were as under;

8

Commodity Quantity Rate Amount (Rs.) Wheat 2138.48 Qtls. Rs.400/Qtl. 8,55,392 Maida 4676 Bags (90 Kg.) Rs.450/bag 21,04,200 Krishna Bhog Atta

271 Bags (80 Kg.) Rs.400/bag 1,08,400

Super Fine Atta

5952 Bags (10 Kg) Rs.55/bag 3,27,360

Bran 2090 Bag (10 Kg) Rs.100/bag 2,09,000 Bardana (Packing Material)

(Total  value  as  per Books)

1,74,267

Total 37,78,619

10. The  National  Commission  held  that

surveyors of the complainants had prepared a

report and submitted to the Insurance Company,

but the claim was repudiated on the ground that

there were no stock worth its while as there

was pilferage since the units remained closed

for about twenty months.  It was also contended

by the Insurance Company that the stock was not

fit for human consumption.  The final survey

report at the instance of the Insurance Company

recommended  to  settle  the  claim  of  the

complainants at Rs.5,18,619/-.  The figure was

communicated by the Insurance Company to the

complainants. 11. The  National  Commission  noted  that

respondent No. 2 Grindlays Bank supported the

9

case of the complainants and prayed that the

amount claimed by the complainants be given to

them  as  the  complainants  executed  mortgage

documents in the favour of the Bank. 12. The National Commission considered the

evidence of Mr. Ghulam Rasool Wani, the only

witness examined on behalf of the complainants

who was an illiterate staff member. On behalf

of the Insurance Company, two surveyors, Mr.

Andrasabi and Mr. A.K. Gupta were examined. The

Insurance Company also examined Mr. V.K. Malik

and Mr. M.R. Grover.  The National Commission

considered  the relevant  documentary and  oral

evidence and observed that the risk was covered

by the terms and conditions of the insurance

policy.  It also held that the units could not

work in view of militancy in the area and the

units  were  required  to  be  closed  down.   It

believed  the  case  of  the  complainants  that

there was terrorist attack on both the units on

November 12, 1991 and the militants set on fire

the units. It further recorded a finding that

10

there was no evidence whatsoever to conclude

that  there  was  pilferage  either  by  the

intruders or by the staff members of any of the

units.   It,  however,  held  that  stocks  were

worthless, and as such, the complainants were

not entitled to the amount claimed.  According

to  the  National  Commission,  an  amount  of

Rs.5,18,619/- as recommended by the surveyors

of  the  Insurance  Company  was  a  reasonable

figure and ought to have been accepted by the

Insurance Company.  Accordingly, it held that

the  complainants  were  entitled  to  the  said

amount. 13. With  regard to the raw material, it

was covered by policy No.1131190000312 and the

coverage  was  for  Rs.  25  lakhs.   Premium  of

Rs.4,821/-  was  paid  and  the  policy  was

subsisting. 14. The break up given for such claim was

as under; Raw Materials Rs. 11,52,248-00 Packing Materials Rs. 05,40,079-00 Interest @ 18% Rs. 08,66,471-00

11

------------   TOTAL  Rs. 25,58,798-00

------------

15. Thus,  according  to  the  complainants,

total  loss  in  respect  of  raw  materials  and

allied  perils  was  to  the  extent  of  Rs.

25,58,798/-.  On the said claim, the Insurance

Company appointed three investigators, i.e. Mr.

Hamdani, Andrasabi and Adarsh Associates.  The

surveyors, in their report, narrated the facts

and  circumstances  of  the  case  and  left  the

amount of valuation of raw materials to the

opposite  party.  In  a  subsequent  report,

however, they gave a figure of Rs.4,33,122/-

for  settlement  of  the  claim  and  asked  the

complainants whether they were ready to accept

the amount. Upon the query by the complainants,

however,  the  Insurance  Company,  instead  of

giving response to the query, repudiated the

claim vide letter dated April 19, 1995 on the

ground that there was pilferage and hence, the

Insurance Company was not liable.  Moreover,

12

though there was destruction of raw material

due  to  fire  in  the  units,  since  the  raw

materials were unfit for human consumption, the

complainants’  claim was  not well-founded.  It

was, therefore, held that the complainants were

not entitled to the claim. 16. The National Commission considered the

question  and  observed  that  there  was  no

pilferage and taking into account the weather

condition in Srinagar, it could not be held

that the raw materials had become worthless or

unfit for human consumption.  Considering the

reports, it was held by the National Commission

that  as  per  the  Surveyors  Report  at  the

instance  of  the  Insurance  Company,  the

claimants were entitled to Rs.4,53,122/-. 17. In  respect  of  building,  plant,

machinery and electricity fittings, the claim

was covered by policy No.1131190000313.  It was

for Rs. 53 lakhs.  The break-up was as follows;

13

i) Factory Building Rs. 21,00,000 ii) Electric fittings including

Transformer etc. Rs.  4,00,000

iii) Machinery of all kinds used for  Manufacture of Biscuits, Bread etc.

Rs. 28,00,000

  Rs. 53,00,000    ---------------

18. The  Insurance  company,  on  the  other

hand,  stated  that  the  complainants  were

entitled only to Rs.31,373/- and nothing more. 19. The National Commission considered the

question  and  observed  that  the  complaint

relating to the said policy was required to be

allowed in part.  The Insurance Company was

directed to make payment of Rs.31,373/- towards

damage to building with interest at the rate of

12 per cent and the complaints were accordingly

disposed of. 20. Being aggrieved by the order passed by

the  National  Commission,  three  appeals  have

been filed by the complainants.  The grievance

of  the  complainants  is  that  though  the

complainants were entitled to the amount which

had been claimed by them, based on evidence and

14

Surveyors’  Reports,  the  National  Commission

committed an error of fact and of law in not

granting the prayer and in not allowing the

complaints  in  their  entirety.  It  was,

therefore, submitted that the appeals deserve

to  be  allowed  by  directing  the  Insurance

Company to pay full amount with interest at the

rate of 18 per cent from November 12, 1991 and

costs.  The  prayer  was  also  made  to  pay

appropriate amount towards harassment caused to

the complainants.  21. Two appeals are filed by the Insurance

Company.  In the appeals, it was contended by

the  Insurance  Company  that  the  National

Commission was in error in granting relief in

favour  of the  complainants. The  complainants

were  not  entitled  to  any  relief  since  in

absence  of  the  Managing  Director  and  other

responsible  persons,  there  was  pilferage  by

intruders  and  staff  members  themselves  for

which  the  Insurance  Company  cannot  be  held

liable nor it can be directed to make payment.

15

Similarly, raw materials and stocks had become

unfit  for  human  consumption  and  the

complainants were not entitled to the amount

claimed by the complainants from the Insurance

Company. The amount which was offered by the

Insurance Company was adequate and sufficient.

The amount on account of poor quality of goods

and materials had been rightly deducted. The

order  passed  by  the  National  Commission,

therefore,  deserves  interference  by  allowing

the appeals of the Insurance Company. 22. Grindlays Bank has not challenged the

order  passed  by  the  National  Commission.

Canara Bank, however, has filed two appeals by

obtaining special leave from this Court against

orders passed in Original Petition Nos. 209 of

1994 and 210 of 1994. It has supported the case

of the complainants. According to the Canara

Bank, the claim put forward by the complainants

was well-founded and ought to have been allowed

in toto by directing the Insurance Company to

pay full amount towards loss and damage claimed

16

by the complainants.  It, however, submitted

that  the  entire  amount  to  which  the

complainants were entitled ought to have been

ordered to be paid to the Bank in view of the

fact  that  the  Insurance  Policies  had  been

assigned in favour of the Bank. In law, such an

assignment  amounts to  transfer of  actionable

claim in favour of the Bank.  The Insurance

Company is, therefore, bound to pay the amount

to Canara Bank. Reliance in this connection was

placed on behalf of the Bank on Section 38 of

the Insurance Act, 1938; Sections 130 and 135

of the Transfer of Property Act, 1882 and a

decision  of  this  Court  in  Chief  Executive

Officer  &  Vice  Chairman,  Gujarat  Maritime

Board  v.  Haji  Daud  Haji  Harun  Abu  &  Ors.,

(1996) 11 SCC 23. It was, therefore, submitted

that appeals filed by the complainants should

be allowed but the entire amount in relation to

two policies be ordered to be paid to Canara

Bank.

17

23.  We have heard the learned counsel for

the  parties.  Learned  counsel  for  the

complainants  contended  that  the  National

Commission committed an error of fact and of

law  in  not  allowing  the  complaints  and  the

claims put forward by the complainants in their

entirety.  It was submitted that the National

Commission recorded a finding that the claims

were covered by policies which were operative.

Claims were lodged by the complainants on the

basis of damage sustained by them.  In support

of such claims, survey was made and Surveyors’

Reports were duly forwarded to the Insurance

Company.  The defence of the Insurance Company

that there was pilferage by the intruders as

well as by staff members of the complainants

was not believed.  Regarding adverse affect on

raw  materials  and  stocks,  the  National

Commission observed that keeping in view the

climatic conditions of Srinagar, it could not

be said that the entire stock and raw material

was unfit for human consumption. It, therefore,

18

allowed part of the claim of the complainants.

According  to  them,  however,  the  National

Commission was not right in deducting the claim

of  the  complainants.  Apart  from  favourable

climatic  conditions  in  Jammu  &  Kashmir,  the

National Commission ought to have appreciated

the fact that the complainants could not carry

on  their  business  activities  of  preparing

biscuits,  breads,  cakes  and  other  items  not

because of inaction on their part, but because

of terrorist activities and militancy in the

area.  It  was,  therefore,  not  a  case  of

voluntary omission to carry on trade, but it

was  compulsion  that  they  could  not  produce

goods.  It was contended that terrorism was one

of the terms covered by the Insurance Policy

and since the business could not be carried on

because of terrorism, the complainants had to

suspend  operations  of  both  the  units.  The

complainants  cannot  be  held  even  partly

responsible for such suspension of operation of

units and stoppage of business. The National

19

Commission  ought  to  have  appreciated  these

facts and ought to have allowed the claim of

the complainants. 24. It was also submitted that in spite of

continuous requests by the complainants to the

Insurance Company to get the survey done, no

action was taken by the Insurance Company for a

pretty long time.  Moreover, even after the

survey was got done by the Insurance Company

through  its  own  Surveyors  and  as  per  their

reports, certain amounts were required to be

paid, the said amount was also not paid by the

Insurance  Company.  Regarding  certain  items,

there  was  no  response  whatsoever  by  the

Insurance  Company.   The  National  Commission

also took into account those facts, but allowed

the claim of the complainants only in part.

The order of the National Commission to that

extent, therefore, requires to be modified by

granting full claim of the complainants. 25. It was submitted that in the facts and

circumstances  and  entitlement  of  the

20

complainants for full claim, appeals filed by

the  Insurance  Company  are  liable  to  be

dismissed. 26. Regarding to appeals filed by Canara

Bank, it was submitted that the appeals are not

maintainable.  The  National  Commission  was,

therefore, wholly right in not directing the

Insurance Company to pay the claim amount to

the  Bank.   It  was  also  submitted  that  such

claim  lodged  by  the  Canara  bank  was  even

otherwise not tenable. It was urged that under

Section 3 of the Jammu & Kashmir Migrants (Stay

of Proceedings) Act, 1997, no such claim could

have  been  lodged  by  the  Bank  against  the

complainants by approaching a Civil Court by

filing a suit and no order could have been made

or  a  decree  could  have  been  passed  by  a

competent Court in view of the provisions of

the  said  Act.   Since  no  such  claim  is

maintainable  in  the  light  of  statutory

provisions, the Bank cannot by this indirect

method, obtain a decree and get it executed

21

which it could not have otherwise got in view

of  the  suspension  of  such  claims.   It  was,

therefore,  submitted  that  both  the  appeals

filed by the Canara Bank are also liable to be

dismissed. 27. The learned counsel for the respondent

Insurance Company contended that the National

Commission was not right in partly allowing the

claims of the complainants.  It was stated that

the  Insurance  Company  got  the  survey  done

through its surveyors and the amount to which

the  complainants  were  found  entitled  was

offered to them. But the complainants wanted

more  amount  and  approached  the  National

Commission.  It was also submitted that from

the Survey Reports, it was clearly proved that

stocks and raw materials had become unfit for

human consumption. The National Commission was,

therefore, right in reducing the claim to that

extent.  According to the counsel, however, the

National Commission was not right in observing

and  recording  a  finding  that  there  was  no

22

pilferage.  It was stated that it was not in

dispute  that  after  Praneet  Sawhney  was  shot

dead by the terrorists, the operation in both

the units stood suspended and Managing Director

of the Company (Rajendra Kumar Sawhney) left

Srinagar and went to Delhi and only employees

were there.  It was, therefore, obvious that in

absence of any responsible officer belonging to

Sawhney family, there was pilferage as stated

by  the  Insurance  Company  and  the  National

Commission could not have recorded a finding to

the contrary. To that extent, therefore, their

appeals deserve to be allowed. 28. The  learned  counsel  for  the  Canara

Bank, on the one hand, supported the claim of

the complainants and submitted that once the

operation of the units became impossible due to

terrorist  activities  which  was  covered  by  a

clause in Insurance Policy and the complainants

could  not  carry  on  business,  the  National

Commission was not justified in rejecting any

part of the claim of the complainants.  On the

23

basis of survey reports substantial loss to the

building,  plant,  machinery  and  electricity

fittings had been proved and the complainants

were entitled to the entire amount.  Similarly,

with  regard  to  raw  materials  and  stocks,

nothing  could  have  been  deducted  by  the

National Commission as it was impossible for

the complainants to carry on production. The

only reason why the units could not operate was

militancy activities in the area.  If it were

so, the National Commission was not justified

in  taking  into  account  the  fact  as  to

suspension of business for reduction of claim

and consideration of the aspect that certain

items were unfit for human consumption and the

amount was liable to be reduced. 29. It  was,  however,  submitted  that

indisputably  substantial advance  was made  to

the complainants by the Bank and it was having

charge over the property of the Company and of

the Mill. It had also a right of lien. It was,

therefore incumbent on the National Commission

24

to uphold the claim of the Bank by directing

the Insurance Company to pay the amount to the

Bank directly and not to the complainants. The

counsel  submitted  that  the  provisions  of

Section  38  of  the  Insurance  Act,  1938  and

Sections  130  and  135  of  the  Transfer  of

Property Act are clear on the point. The point

is also covered by a decision of this Court.

The National Commission was, therefore, wrong

in rejecting the prayer of the Bank and both

the appeals of the Bank should be allowed. 30. Regarding the provisions of 1997 Act,

it was submitted that the contention of the

complainants is ill-founded.  This is not a

case wherein the Bank becomes a plaintiff and

in that capacity, it files a suit against the

complainants-defendants for recovery of amount.

Once there is an ‘actionable claim’ and the

Bank is having charge over the property of the

complainants, it  ipso facto  entitles the Bank

to  recover  such  amount  directly  from  the

debtor, i.e. Insurance Company.  The 1997 Act

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has  no  application  to  such  cases.   It  was

asserted that as on date, the amount to which

the Bank is entitled and the complainants are

liable to pay, exceeds Rs. five crores. The

Bank, therefore, has right to get the entire

amount  to  which  the  complainants  are  held

entitled to. It was, hence, submitted that the

appeals  filed  by  the  Bank  deserve  to  be

allowed. 31. Having heard the learned counsel for

the parties and having gone through the records

and proceedings as also the judgment of the

National  Commission,  it  is  clear  that  the

complainants were able to establish the claims

put forward by them.  It is not in dispute by

and  between  the  parties  that  the  Insurance

Policy covered several acts including terrorism

and fire. It has come in evidence and has been

believed by National Commission that the son of

the Managing Director was killed in March, 1990

by terrorist attack.  It is in the light of the

said incident that the Managing Director had to

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leave Srinagar and to return to Delhi.  It was

because of the said incident that the operation

of both the units was suspended. Thus, it was

not a case wherein the complainants  did not

undertake the activities which were required to

be  undertaken  by  them,  but  they  could  not

operate the units and carry on business. No

fault,  therefore,  can  be  found  against  the

complainants  for suspending  the operation  of

both  the  units.  The  complainants  obviously

cannot suffer because of non-production in the

Mill as well as in the Company.  The National

Commission  was,  therefore,  not  right  in

reducing any amount on the ground that certain

stocks and raw materials were unfit for human

consumption.  It  was  not  intentional  or

deliberate act on the part of the complainants

in stopping production and allowing the stocks

and raw materials to get spoiled or damaged and

by making them unfit for human consumption.  It

was  because  of  the  militant  activities  and

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terrorism that the Company and the Mill could

not do business and produce goods.  Reduction

of amount by the National Commission on that

count was, therefore, unjustified and in our

opinion,  that  part  of  the  order  requires

interference by this Court. 32. As regards pilferage by intruders and

staff members, except ipse dixit on the part of

the Insurance Company, no material whatsoever

has been placed on record in support of such

allegation.  The  National  Commission,  in  our

opinion, was justified in not accepting such

bare assertion without any evidence or concrete

material in support of such plea. In fact, a

finding  has  been  recorded  by  the  National

Commission that the godowns were ‘full’ when

they were set on fire. ‘Watch and ward staff’

were protecting the Mill and the Company. There

was also a ‘Police post’ nearby both the units.

Further, the report submitted by Mr. Andrasabi

as  to  pilferage  was  not  reliable.  In  Shyam

Sunder Narang v. United India Insurance Co.,

28

(1997) 111 CPJ 599, an adverse comment had been

made  by  the  National  Commission  against  the

report submitted by Mr. Andrasabi. Hence, in

our opinion, the National Commission was right

in not believing ‘pilferage theory’ advanced by

the Insurance Company. 33. The  matter,  however,  did  not  end

there. Even before us, nothing has been shown

from which such an inference could be drawn by

a reasonable and prudent man as to pilferage by

intruders  or  staff  members.  The  National

Commission, in our judgment, was wholly right

in negativing the contention of the Insurance

Company that substantial part of stocks and raw

materials had been taken away by intruders or

staff members.  No reduction, therefore, could

be allowed on that count. 34. The National Commission was also right

in observing that no payment was made by the

Insurance  Company  even  as  per  the  survey

conducted  by  the  Surveyor  appointed  by  the

Insurance Company.  Taking into consideration

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the  entire  facts  and  circumstances,  in  our

opinion, the complainants are entitled to claim

compensation towards building, plant, machinery

and  electricity  fittings,  raw  materials  and

stocks. 35. Accordingly, the complainants are held

to be entitled to the following; Policy No. Amount entitled to be awarded in

favour of the appellant-insured 113119000249 Rs. 37,78,619/- 113119000312 Rs. 23,79,195/- 113119000313 Rs. 25,81,600/-

35. In view of the fact that the appeals

filed  by  the  complainants  are  allowed,  the

appeals  filed  by  the  Insurance  Company  must

necessarily  fail.  Accordingly,  the  appeals

filed by the Insurance Company are dismissed. 36. In respect of Policy No. 113119000249,

no appeal has been filed by the Grindlays Bank.

It was observed by the National Commission in

the impugned judgment that the matter appears

to have been settled between the parties. In

any case, there is no appeal by a financial

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institution  so  far  as  the  said  policy  is

concerned.  37. But as far as the appeals by Canara

Bank are concerned, in our opinion, the claim

put forward by the Bank is well founded.

Section 38 of the Insurance Act reads

thus;

Section 38 - Assignment and transfer of insurance policies  (1)  A  transfer  or  assignment  of  a policy of life insurance, whether with or without consideration may be made only by an endorsement upon the policy itself  or  by  a  separate  instrument, signed  in  either  case  by  the transferor or by the assignor his duly authorised  agent  and  attested  by  at least  one  witness,  specifically setting forth the fact of transfer or assignment.

(2) The transfer or assignment shall be  complete  and  effectual  upon  the execution  of  such  endorsement  or instrument  duly  attested  but  except where the transfer or assignment is in favour  of  the  insurer  shall  not  be operative  as  against  an  insurer  and shall not confer upon the transferee or  assignee,  or  his  legal representative, and right to sue for the  amount  of  such  policy  or  the moneys secured thereby until a notice in  writing  of  the  transfer  or

31

assignment  and  either  the  said endorsement or instrument itself or a copy thereof certified to be correct by both transferor and transferee or their duly authorised agents have been delivered to the insurer:  

Provided  that  where  the  insurer maintains  one  or  more  places  of business  in  India, such  notice  shall be  delivered  only  at  the  place  in [India]  mentioned  in  the  policy  for the purpose or at his principal place of business in India.  

(3)  The  date  on  which  the  notice referred  to  in  sub-section  (2)  is delivered  to  the  insurer  shall regulate  the  priority  of  all  claims under  a  transfer  or  assignment  as between  persons  interested  in  the policy; and where there is more than one  instrument  of  transfer  or assignment the priority of the claims under  such  instruments  shall  be governed  by  the  order  in  which  the notices referred to in sub-section (2) are delivered.

(4)  Upon  the  receipt  of  the  notice referred  to  in  sub-section  (2),  the insurer shall record the fact of such transfer  or  assignment  together  with the date thereof and the name of the transferee or the assignee and shall, on the request of the person by whom the  notice  was  given,  or  of  the transferee or assignee, on payment of a fee not exceeding one rupee, grant a written acknowledgement of the receipt of  such  notice;  and  any  such

32

acknowledgement  shall  be  conclusive evidence against the insurer that he has duly received the notice to which such acknowledgement relates.

(5)  Subject  to  the  terms  and conditions  of  the  transfer  or assignment,  the  insurer  shall,  from the  date  of  receipt  of  the  notice referred  to  in  sub-section  (2)], recognise  the  transferee  or  assignee named in the notice as the only person entitled to benefit under the policy, and  such person shall be subject to all liabilities and equities to which the transferor or assignor was subject at  the  date  of  the  transfer  or assignment  and  may  institute  any proceedings in relation to the policy without obtaining the consent of the transferor or assignor or making him a party to such proceedings.

(6)  Any  rights  and  remedies  of  an assignee or transferee of a policy of life insurance under an assignment or transfer  effected  prior  to  the commencement of this Act shall not be affected  by  the  provisions  of  this section.

(7) Notwithstanding any law or custom having  the  force  of  law  to  the contrary, an assignment in favour of a person made with the condition that it shall  be  inoperative  or  that  the interest  shall  pass  to  some  other person on the happening of a specified event  during  the  lifetime  of  the person whose life is insured, and an assignment in favour of the survivor

33

or survivors of a number of persons, shall be valid.  

38. Likewise,  both  the  sections,  i.e.

Sections  130  and  135  of  the  Transfer  of

Property  Act,  1882  are  explicitly  clear  and

they read as under; Section 130 - Transfer of actionable claim  (1)  The  transfer  of  an  actionable claim  whether  with  or  without consideration  shall  be  effected  only by the execution of an instrument in writing  signed  by  the  transferor  or his  duly  authorized  agent,  shall  be complete  and  effectual  upon  the execution  of  such  instrument,  and thereupon all the rights and remedies of the transferor, whether by way of damages  or  otherwise,  shall  vest  in the transferee, whether such notice of the  transfer  as  is  hereinafter provided be given or not:  

Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transfer would, but for such instrument  of  transfer  as  aforesaid, have  been  entitled  to  recover  or enforce such debt or other actionable claim, shall (save where the debtor or other  person  is  a  party  to  the transfer  or  has  received  express notice  thereof  as  hereinafter provided)  be  valid  as  against  such transfer.  

34

(2)  The  transferee  of  an  actionable claim may, upon the execution of such instrument  of  transfer  as  aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor's consent to such suit or proceedings and without making him a part thereto.  

Exception.-Nothing  in  this  section applies to the transfer of a marine or fire  policy  of  insurance  or  affects the  provisions of section 38 of the Insurance Act, 1938.  Section  135  -  Assignment  of  rights under policy of insurance against fire Every assignee by endorsement or other writing,  of  a  policy  of  insurance against fire, in whom the property in the  subject  insured  shall  be absolutely vested at the date of the assignment, shall have transferred and vested in him all rights of suit as if the contract contained in the policy had been made with himself.

39. In  our  opinion,  therefore,  the

submission of the learned counsel for the Bank

that as soon as a decree is passed or order is

made in favour of the complainants, the Bank is

entitled to the said amount is well founded.

For such a relief, it is not necessary for the

Bank to become a plaintiff by filing a suit in

35

a competent Court of law and obtain a decree in

its favour. It is true that had it been the

position, the provisions of 1997 Act would get

attracted and such suit would be stayed and no

decree could have been passed by a competent

Court in favour of the creditor.  But in the

light  of  the  statutory  provisions  in  the

Insurance Act and in the Transfer of Property

Act,  the  Bank  is  entitled  to  the  amount

directly from the Insurance Company. 40. In  our  opinion,  the  learned  counsel

for the Bank is also right in relying upon the

decision in  Gujarat Maritime Board.   In that

case,  a  similar  question  came  up  for

consideration before this Court.  There one  B

was financed by A for purchase of vessel.  The

vessel so purchased was mortgaged in favour of

A.   As per the Finance Agreement between the

parties,  B was  required  to  take  out  a

comprehensive risk insurance policy and assign

it in favour of Director of Ports representing

Government  of  Gujarat.   The  insurance  also

36

contained  an  endorsement  in  terms  of  the

agreement.  The vessel on its voyage sunk in

the  sea.   B  filed  a  complaint  before  the

National  Commission  claiming  the  insurance

amount from the Insurance Company.  A  brought

to the notice of the Commission that it had an

interest in the vessel as a mortgagee.  The

Commission,  however,  directed  the  Insurance

Company  to  pay  entire  amount  to  B.   A

approached this Court. This Court held that the

directions of the National Commission that the

entire  insurance  amount  be  paid  to  B  was

unsustainable in law. Accordingly, the appeal

filed by the Maritime Board was allowed and the

order passed by the National Commission was set

aside. 41. In our opinion, the point is directly

concluded by the above decision of this Court

in  Gujarat  Maritime  Board and  the  National

Commission was not right in rejecting the claim

of the Bank.  The appeals of the Bank are,

therefore, required to be allowed.

37

42. For the foregoing reasons, the appeals

filed by the Insurance Company are ordered to

be  dismissed.  The  appeals  filed  by  the

complainants are required to be allowed to the

extent  indicated  above  with  interest  at  the

rate of 9 per cent per annum from the date of

filing  of  complaints  before  the  National

Commission, i.e. from the date of payment. So

far as Appeal concerning Policy No. 11319000249

relating  to  stocks  is  concerned,  the

complainants  are  entitled  to  get  the  entire

amount  of  Rs.37,78,619/-  since  there  is  no

appeal in respect of the said policy. Canara

Bank is not concerned with the said policy.

Grindlays Bank has not approached this Court

and had supported the complainants before the

National Commission. The two appeals of Canara

Bank  are  in  regard  to  two  policies,

113190000312  and  113190000313,  raw  materials

policy and plant policy. Both the appeals of

Canara  Bank  are  allowed  and  the  Insurance

Company is directed to make payment to Canara

38

Bank and not to the complainants in respect of

the amount to be paid to the complainants. 43. All  appeals  are  disposed  of

accordingly with no order as to costs.  

……………………………………………………J. (C.K. THAKKER)

………………………………………………J.      (D.K. JAIN)

NEW DELHI, November 07, 2008.

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