12 February 2020
Supreme Court


Case number: C.A. No.-010409-010409 / 2016
Diary number: 26062 / 2016


  C.A.No.10409 of 2016                                                                         1




CIVIL APPEAL NO. 10409 OF 2016

     Oriental Insurance Co. Ltd.            ...Appellant


National Bulk Handling  Corporation Pvt. Ltd.                     ...Respondent

J U D G M E N T    


1. This civil appeal is filed under Section 23 of the

Consumer Protection Act, 1986, by the opposite party,

in  Consumer  Case  No.2  of  2010,  filed  before  the

National  Consumer  Disputes  Redressal  Commission,  New

Delhi,  aggrieved  by  the  judgment  and  order  dated

22.06.2016. The above said complaint is disposed of by

impugned order, directing the appellant-opposite party

to pay a sum of Rs.3,46,87,113/- (Rupees Three Crores

Forty Six Lakhs Eighty Seven Thousand One Hundred and


  C.A.No.10409 of 2016                                                                         2

Thirteen)  to  the  respondent-complainant  as  per  the

insurance  policy  with  interest  @  9%  per  annum  with

effect from six months from the date of lodgement of

the claim, till the date of payment.

2. The  respondent-complainant  is  a  Collateral

Management  Company,  which  undertakes  to  store  the

commodities  pledged  by  the  farmers,  traders  and

manufacturers etc., in availing loan from lending banks

and other institutions. In case of any loss of the

pledged  commodities,  the  respondent-complainant  is

liable to make good the loss to the lending bank. The

respondent-Collateral  Management  Company,  took

Fidelity Guarantee Insurance Policy from the appellant-

opposite party, in respect of the pledged commodities

stored in warehouses/godowns at several places.

3. The  three  firms  namely  S.K.  Sales  Corporation,

Navbharat  Commodities  and  Navbharat  Agro  Products,

entered into agreements with the respondent-complainant

for storing commodities including urad and mentha oil

in their warehouse at Gadarpur in District Udham Singh

Nagar,  Uttarakhand.  The  respondent-Company  was

appointed  as  the  Collateral  Manager  for  the  said


  C.A.No.10409 of 2016                                                                         3

commodities, which has deployed security guards hired

by it from the security agency, besides its own field

staff. Coming to know that on 06.11.2008, the stored

commodity of urad was unauthorizedly removed from the

godown, which was pledged to HDFC Bank, the respondent

dispatched a team of its officers to investigate the

same. The report dated 16.11.2008 of the investigating

agency revealed certain omissions and commissions by

the concerned employees of the respondent in connivance

with the borrowers. Coming to know of such unauthorized

removal  of  urad,  the  respondent  has  taken  steps  to

prevent further possible loss to oil and wheat. 601

barrels of oil were shifted to a godown at Bazpur,

where a quality check was conducted. On making such

quality  check,  laboratory  report  revealed  that  the

mentha oil was substituted by water in the barrels.

Thereupon, claim was lodged by the respondent with the

appellant  on  08.11.2008 and further a complaint was

also lodged at the Police Station upon which, an FIR

was registered on 19.11.2008.  

4. The  respondent-complainant  made  a  claim  with

appellant,  alleging  that  the  commodities  were


  C.A.No.10409 of 2016                                                                         4

removed/substituted  in  connivance  with  the  employees

which was an act of infidelity covered by the insurance

policy taken by it. It is alleged that the employees

have committed criminal breach of trust, with a view to

cause loss to the banks and the complainant. When the

claim  was  not  accepted,  the  respondent-complainant

approached the National Commission, claiming an amount

of Rs.4,17,84,213/-(Rupees Four Crores Seventeen Lakhs

Eighty  Four  Thousand  Two  Hundred  and  Thirteen).  The

said claim included loss of stock of urad payable to

HDFC  Bank  for  an  amount  of  Rs.  70,97,100/-

(Rupees  Seventy  Lakhs  Ninety  Seven  Thousand  One

Hundred) and further loss of Rs. 3,46,87,113/-(Rupees

Three Crores Forty Six Lakhs Eighty Seven Thousand One

Hundred and Thirteen Only) payable to State Bank of

India for the stock commodity of mentha oil. The said

claim  was  contested  and  opposed  by  the  appellant-

opposite party. By considering the submissions on both

sides and other relevant material placed on record, the

National  Commission,  by  impugned  order,  allowed  the

claim of Rs.3,46,87,113/- along with interest @ 9% per


  C.A.No.10409 of 2016                                                                         5

annum towards the loss of mentha oil but at the same

time rejected the claim so far as urad is concerned.  

5. We have heard Sri. Vishnu Mehra, learned counsel

appearing  for  the  appellant-Company  and  Sri.  C.U.

Singh,  learned  senior  counsel  appearing  for  the

respondent-complainant.  Learned  counsel  for  the

appellant,  by  taking  us  to  the  material  placed  on

record and the impugned order, mainly contended that

the respondent-complainant has failed to prove that any

employee  is  involved  in  removing/substituting  mentha

oil with water in 601 barrels, which was stored in the

godown.  It  is  submitted  that  even  as  per  the

investigation reports, seals were intact, as such, in

absence  of  any  finding  with  regard  to  tampering  of

seals,  there  is  no  basis  for  the  claim  of  the

respondent-complainant. Further it is stated that as

per the terms of the contract of insurance, the claim

was  not  made  immediately.  As  such,  respondent  has

violated the terms and conditions of the contract of

insurance.  It  is  submitted  that  National  Commission

fell in error in allowing the claim of Rs.3,46,87,113/-

towards  the  loss  of  mentha  oil,  as  claimed  by  the


  C.A.No.10409 of 2016                                                                         6

respondent- complainant. It is further submitted that

even in the impugned order, the National Commission did

not  name  any  employee  of  the  respondent,  who  was

allegedly involved in substituting the mentha oil with

water. Thus, it is submitted that the impugned order is

fit to be set aside, by allowing the appeal.

6. On the other hand, Sri. C.U. Singh, learned senior

counsel,  by  referring  to  the  survey  report  of  the

appellant-Company  and  other  material,  has  submitted

that even as per the survey report of the appellant-

Company, the commodity of mentha oil was removed, by

substituting  with  water,  by  the  borrowers,  in

connivance  with  employees.  Further,  it  is  submitted

that  on  the  complaint  made  by  the  respondent,  the

owners of the commodity who have pledged the goods to

the bank and also the employees of the respondent, were

charge-sheeted for offences under Sections 420, 406,

405, 415, 427 of the Indian Penal Code and the case is

pending trial. It is submitted that the survey report

itself indicates involvement of the employees of the

respondent, as such, claim is covered by the insurance

policy.  It  is  submitted  that  after  filing  of  the


  C.A.No.10409 of 2016                                                                         7

complaint, when the claim is repudiated, such rejection

order also is questioned by way of amendment. It is

submitted  that  when  the  impugned  order  is  read  in

entirety with regard to urad and mentha oil, it is

clear that the warehouse Supervisor Mr. Narender Yadav

and  security  guard  Mr.  Ram  Singh  were  involved  in

removal/substitution of mentha oil with water.  

7. Learned counsel by taking us to the survey report,

has  also  submitted  that  the  survey  report  itself

indicates  for  prosecuting  borrowers  as  well  as

employees of the respondent, as such, there is no basis

for the allegation of the appellant that employees were

not involved. It is submitted that when it has come to

light that mentha oil was substituted by water, 100 per

cent sampling was undertaken, which was completed on

12.11.2008 and the investigation report was submitted

to  the  respondent-complainant  on  14.11.2008  and  the

matter was reported to the insurer on 18.11.2008, as

such, there is no violation of condition no.1 of the

policy.  Learned  counsel,  explaining  the  scope  of

Fidelity  Guarantee  Insurance  Policy,  has  placed

reliance on a judgment of this Court, in the case of


  C.A.No.10409 of 2016                                                                         8

Food Corporation of India Vs. New India Assurance Co.

Ltd. and Others1 and a recent judgment of this Court

dated 24.01.2020, in the case of Gurshinder Singh Vs.

Shriram General Insurance Co. Ltd. & Anr.2

8. Upon hearing the learned counsels on both sides

and on perusal of the impugned order and other material

placed on record, we do not find any merit in any of

the  contentions  advanced  by  learned  counsel  for  the

appellant.  The  aforesaid  judgments  relied  on  by

learned counsel for the respondent, though relate to

insurance  claims,  but  the  issues  decided  in  the

aforesaid  judgments,  have  no  direct  bearing  on  the

issues which arise for consideration in this case.  

9. It is not in dispute that the insurance policy for

fidelity  guarantee  was  in  force  during  the  relevant

time, which was obtained by the respondent-complainant.

Fidelity  Guarantee  is  different  from  contingency

guarantee.  The  insurance  under  it,  is  for  honesty,

against negligence or for being faithful and loyal to

its  employees.  The  protection  afforded  is  different

than in normal insurance policies. Precisely, it is a

1 (1994) 3 SCC 324 2 C.A. No. 653 of 2020


  C.A.No.10409 of 2016                                                                         9

contract whereby, for a consideration, one agrees to

indemnify  another,  against  loss,  arising  from  the

breach of honesty, integrity or fidelity of an employee

or other person holding a position of trust. In Black’s

Law  Dictionary,  fidelity  insurance  is  explained  as


“Fidelity  Insurance-  Form  of  insurance  in  which

the insurer undertakes to guarantee the fidelity of an

officer, agent or employee of the assured or rather to

indemnify the latter for losses caused by dishonesty or

a  want  of  fidelity  on  the  part  of  such  person.”

As such, the insurance policy of fidelity guarantee is

to be construed as a policy, intended to protect the

assured against the contingency of a breach of fidelity

on the part of a person in whom confidence has been


10. The  impugned  order  is  assailed  mainly  on  the

ground  that  the  respondent  has  failed  to  prove

involvement of any of the employees of the respondent-

Company, as such, there cannot be any liability on the

appellant-insurance company. It is not in dispute that

the pledged goods of 601 barrels of mentha oil was


  C.A.No.10409 of 2016                                                                         10

stored  in  the  warehouse.  The  survey  report  dated

26.03.2009,  itself  indicates  the  involvement  of

employees  of  the  respondent-Company  in  removing  601

barrels of mentha oil stored by the respondent-Company.

Immediately,  after  confirmation  and  100  per  cent

sampling, it was disclosed that in all the barrels, the

mentha oil was substituted with water, a complaint was

lodged  by  the  respondent-complainant  on  18.11.2008

before the Gadarpur Police Station. In the complaint

filed, specific allegation is made about involvement of

staff of the respondent-Company.

11. There  is  a  specific  observation  in  the  survey

report  that  the  security  guard  of  the  respondent-

Company had allowed Mr. Sanjeev Chhabra(owner) to lift

the  stock.  Referring  to  the  complaint  made  by  the

respondent-Company to the Police, a request is made to

take action against owners as well as the employees

namely Mr. Narender Singh Yadav, who was the Warehouse

Supervisor,  Cluster  Head  Mr.  Anil  Saxena,  Warehouse

Executive Mr. Aneesh Mohd. and Security Guard Mr. Ram

Singh for committing crime under various Sections of

the Indian Penal Code. If the entire material is taken


  C.A.No.10409 of 2016                                                                         11

into consideration, it is clear that there is a clear

involvement of the employees of respondent and other

contract  employees  in  substituting  the  mentha  oil

barrels  with  water.  It  is  also  argued  by  learned

counsel for the appellant that during the inspection,

seals were found to be intact but it does not make any

difference in as much as 100 per cent sampling proved

that all barrels which were earlier filled with mentha

oil, were substituted with water.  

12. There  is  yet  another  contention  advanced  by

learned  counsel  for  the  appellant  that  there  was  a

delay  in  lodging  the  complaint,  as  such,  it  is  in

violation  of  condition  no.1  of  the  contract  of

insurance.  It  is  clear  from  the  impugned  order  and

other material placed on record, when it has come to

the  notice  of  the  respondent,  that  mentha  oil  was

substituted  by  water  in  the  barrels,  respondent

undertook 100 per cent sampling, by sending the samples

drawn  from  the  barrels  to  the  laboratory  and  such

sampling  was  completed  only  on  12.11.2008  and  the

investigation  report  came  to  be  submitted  to  the

respondent-Company  on  14.11.2008.  Before  that


  C.A.No.10409 of 2016                                                                         12

respondents were not aware of mentha oil substituted by

water in all the barrels. Thereafter, claim was made

before the appellant on 18.11.2008.  

13. In that view of the matter, it cannot be said that

there is any delay on the part of the respondent in

lodging the  claim,  so  as  to  accept  that  there  is

breach of condition no. 1 of the policy.  

14. For  the  aforesaid  reasons  and  in  view  of  the

findings recorded in the impugned order, we do not find

any merit in this appeal, so as to interfere with the

same.  The  appeal  is,  accordingly,  dismissed  with  no

order as to costs.  

    ……………………………………………………………………J                            (MOHAN M. SHANTANAGOUDAR)

    ……………………………………………………………………J                        (R. SUBHASH REDDY)

NEW DELHI; February 12, 2020