http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 3  

CASE NO.: Appeal (civil)  2431 of 2000

PETITIONER: National Insurance Co. Ltd..                             

RESPONDENT: Harjeet Rice Mills                                               

DATE OF JUDGMENT: 25/07/2005

BENCH: CJI R.C. LAHOTI & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  

P.K. BALASUBRAMANYAN, J.

                1.              The National Insurance Company, the respondent in a claim  before the State Commission under the Jammu & Kashmir Consumer  Protection Act, is the appellant before us.  M/s Harjeet Rice Mills, the  respondent herein, had insured its stocks with the appellant for the  period September 1991 to September 1992.  The respondent herein  approached the State Consumer Commission with a claim that there was  an accidental fire in its godown in the night intervening the first and  second January 1992; that the goods stocked were lost in the fire; that  the surveyor appointed had estimated the loss at Rs. 8,96,500/- on  finding that the loss was due to a fire caused by a short circuit; that the  appellant had repudiated the claim unjustly; that there was thus  deficiency in service and that the respondent was entitled to a sum of Rs.  9 lakhs as the value of the goods lost, to a sum of Rs. 1 lakh as damages  for mental agony and for interest at 24% per annum on the entire  amount, from the date of the incident of fire.  The appellant resisted the  claim by contending, inter alia, that the State Commission had no  jurisdiction to entertain the claim; that on a further investigation, it was  revealed that the fire was not caused by short-circuit; that it was a  deliberate act of causing a fire with a view to make a claim on the  insurance policy; that the loss was highly exaggerated since the godown  concerned did not have the capacity to take in the quantity allegedly  stored and lost; that it was a case of an attempted insurance fraud; that  the claim was closed as a no claim; that there was no deficiency in  service and that the claim was liable to be rejected.

2.              The State Commission did not consider the objection to its  jurisdiction on merits.  It held that the Surveyor’s report relied on by the  claimant has to be accepted and an order for payment out of that amount  with interest thereon at the rate of 18% per annum from the date of the  loss till the date of payment had to be made.  It also held that the claim  for compensation had to be denied, since, if granted, the amount  awarded would have exceeded its jurisdiction.  Thus, the appellant was  directed to pay a sum of Rs. 8,96,500/- with interest thereon at the rate of  18% per annum from 2.1.1992, till the date of payment.  The appellant  filed an appeal before the High Court of Jammu & Kashmir.  The High  Court declined to interfere, essentially stating that the finding of fact  arrived at by the State Commission, could not be interfered with in the  circumstances of the case.  Thus, the appeal was dismissed.

3.              Learned Senior Counsel for the appellant first submitted  that the High Court was in error in not setting aside the decision of the  State Commission on the ground that the State Commission lacked

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 3  

pecuniary jurisdiction to entertain the claim. He pointed out that the  pecuniary jurisdiction was limited to entertaining claims for Rs. 10 lakhs  or less and that in the present case, the claim was for Rs. 10 lakhs plus  interest thereon, taking the claim out of the purview of the Commission.   Learned counsel for the respondent submitted that the claim was for Rs.  10 lakhs and the claim for interest cannot take the claim beyond the  jurisdiction of the State Commission.  He also pointed out that the Act  has since been amended and now the Commission has been conferred  jurisdiction to entertain a claim for a sum above Rs. 10 lakhs.  He also  submitted that the objection to pecuniary jurisdiction was not taken at  the threshold and the High Court was justified in overruling the  contention in that regard.   

4.              We do not think it necessary to go into this question on  merits in view of the course we propose to adopt and in view of the  amendment to the Act enhancing the pecuniary jurisdiction of the State  Commission and the present claim being within that enhanced  jurisdiction.

5.              One of the main defences attempted by the appellant was  that the fire was not accidental and hence the appellant had no liability  under the policy.  The respondent- claimant met this plea by pointing out  that the surveyor had reported that the fire was caused by a short-circuit  as pleaded by it.  It is true that the Surveyor’s report supported the claim  of the respondent herein.  But the said report was also based on an  investigation by the police, supporting a conclusion that the fire was  caused by short-circuit of electricity.  It is seen that there was a further  police investigation and the Deputy Superintendent of Police R.S. Pura  had reported that the earlier investigation was perfunctory, that the cause  of the fire has to be properly investigated and in the circumstances a  fresh investigation was called for.  The appellant had engaged a private  investigator to investigate and that agency had reported that the fire  might not have been caused by short-circuit; that it could have been  arson or a deliberate attempt to make an insurance claim; that the loss  estimated could not have occurred considering the capacity of the  godown and that the available materials in the custody of the police  indicated that what was burned was paddy husk and not rice or paddy  itself as claimed.  The appellant argued before the Commission that in  the light of this report, the Commission should decline jurisdiction and  direct the claimant to go to a Civil Court to establish its claim.  It was  also argued that the report of the Surveyor could not be accepted in the  circumstances, especially in view of the report of the Deputy  Superintendent of Police.  The claimant argued that the report of the  private investigator could not be looked into in the light of Section 64  UM(c) of the Insurance Act, since there was nothing to show that the  private investigator was licensed.  The State Commission accepted the  position canvassed for by the claimant and refused to look into the report  of the private investigator.  The High Court in appeal, also endorsed that  position.   

6.              We are of the view that the State Commission should have  given an opportunity to the appellant before us to prove the investigation  report.  Section 64UM of the Insurance Act cannot stand in the way of  the insurance company in establishing that the claim was a fraud on the  company, or that it was a case of deliberately causing a fire so as to lay  the foundation for an insurance claim.  Similarly, the Commission did  not apply its mind to the aspect highlighted that the first police  investigation was reported to be perfunctory and a fresh, proper  investigation had been recommended.  Similarly, the discrepancy in the  capacity of the godown and the possibility that what was lost was only or  mainly paddy husk, should have persuaded the Commission to make a  proper enquiry before deciding to accept the Surveyor’s report in this

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 3  

case.  The High Court, in our view, has failed to exercise its appellate  jurisdiction properly.  It failed to see that it had the duty as the Appellate  Authority to satisfy itself that no fraud was involved and that the claim  was genuine and sustainable.  We are of the view that adequate prima  facie material was available to warrant a proper enquiry on that question.   In this situation, we are satisfied that interference is called for in this  appeal.

7.              We are satisfied that the proper course to adopt is to set  aside the decisions of the High Court and the State Commission and to  remand the claim for a fresh enquiry and decision by the Commission.   Since, we are of the view that a proper enquiry and a fresh decision by  the initial authority itself is called for, we refrain from discussing the  relevant aspects argued before us, so as to ensure that no prejudice is  caused to either side.  Now that the claim comes within the limit of the  pecuniary jurisdiction of the State Commission, we are satisfied that the  proceedings can be remanded to the State Commission itself for a proper  decision on all the questions involved including the question of the cause  of fire.  We, therefore, allow this appeal and setting aside the decisions  of the High Court and that of the State Commission, remand the claim of  the respondent herein to the State Commission for an investigation de  novo.  The State Commission will give the parties effective opportunity  to lead whatever evidence they may want and decide the claim afresh,  including its sustainability, on the basis of the evidence that may be  adduced.  The parties will appear before the State Commission on  19.9.2005.  We make no order as to costs.