01 December 2004
Supreme Court


Case number: C.A. No.-004366-004366 / 1999
Diary number: 10456 / 1999



CASE NO.: Appeal (civil)  4366 of 1999

PETITIONER: Polymat India P. Ltd. & Anr.

RESPONDENT: National Insurance Co. Ltd. & Ors.

DATE OF JUDGMENT: 01/12/2004

BENCH: B.N. Agrawa & A.K. Mathur


With (C.A. No.  6063/1999 )

National Insurance Co.Ltd. Versus Polymat India P. Ltd. & Anr.


       Both the appeals arise against the order passed by the   National Consumer Disputes Redressal Commission, New Delhi.           One Civil Appeal No. 4366/1999  is filed by the Polymat  India Pvt. Ltd. and the other Civil Appeal No. 6063/1999 is filed   by the National Insurance Company Ltd. & Ors. against the order  passed by the National Consumer Disputes  Redressal  Commission, New Delhi on 27th May, 1999  in the  Original  Petition No. 204 of 1994.         Since both the appeals raise  common question of law and  arise out of  the same order,  they are disposed of  by  the common  order.         Brief facts  of the case are as under:         That the Original Petition was filed by the  Complainant  M/s   Polymat  India Pvt. Ltd.  & Anr.  as a consequence of  its claim  under 2 fire policies bearing No. 101600/3101669/0 in    respect  of Building, machinery and accessories and furniture and other  contents and  the other bearing No. 101600/3101670/0  regarding  stocks and used/burn lubricating oil and  refined oil  in its factory  premises consequent upon a fire being repudiated by the  Insurance  Company, Opposite Party No. 1.   The  insured Polymat India Pvt.  Ltd. is a factory  measuring 251’x 150’ and is bounded by 7’ high  brick wall on South and Chain-link fencing on the North, East and  West Sides.  Inside the factory premises the Complainant had a  shed measuring 101’ x 41’ constructed of  brick wall with asbestos  sheets louvers at upper and asbestos sheets roofing on tubular  frame structure. Attached to the South side of the shed was a     lean-to structure measuring about 85’ x 25’ and constructed  of  brick walls and roofing on tubular frame.   The construction was  divided into several rooms housing the office, quality  control  laboratory, workshop-cum-rest room and store room  for tools and   equipment.  These rooms had their opening inside the shed. In the  said factory a Dove-tail batch type acid and clay treatment process  for refining the used/burnt lubricating oil was undertaken.  The raw  material for the process was the burnt and used lubricating oil  which was  received in barrels  and stored in the open yard.  Apart  from that, oil was also brought in  and unloaded into used oil pits.    The finished product  i.e. refined lubricating oil was  either being  loaded into oil tankers or being filled in drums. In the part of the



plant which was in open the centrifugation, settling and  decantation, dehydration, condensation of  lighter volatile  impurities,  acid treatment and condensation of volatile matters  were being conducted.  The part of the operation which was carried  on inside the shed were the less hazardous process like clay  treatment and neutralization, filtration and centrifugation, oil  blending etc.   In that shed two Thermic Fluid Heaters,  one oil  fired boiler and one water softening plant were also installed.  At  the material time,  all these plants and machinery and materials  were covered by the two fire insurance policies.   In the said   policies the banker of the claimant was also one of the  beneficiaries. The  said two policies were of dated 19th and 20th  March, 1992.  It was alleged  that in 1992 the bankers were  changed by the Complainant from Grindlays Bank,  Chowringhee  Branch, Calcutta to Allahabad Bank, Camac Street Branch,   Calcutta and all  the fixed assets were  mortgaged by the  Complainant in favour of the West Bengal Financial Corporation  to secure  the loans received by the  Complainant No. 1.  All the  fixed assets, stocks and stocks-in-process of the Complainant  remained insured with the  New India Assurance Co. upto 19th/20th  March, 1992.  But after the  change of the bankers from Grindlays  Bank to Allahabad Bank the Complainant also changed their  insurer from the New India Assurance Co. Ltd. to National  Insurance Co. Ltd..  It is also  pointed out that the  Development  Officer of the National Insurance Co. Ltd. one Mr. Sandip Guha  brought two  proposal forms for fire insurance on or about 17th  March, 1992 and got those signed by the Complainant  in blank.    He also took with him photocopies of the previous policies issued  by New India Assurance Co. Ltd.  It is further alleged  that the   premises of the  Complainant were inspected by the said  Development Officer and  after  inspection, the rates of premium  were fixed.   The premium which was demanded by the Opposite  Party No. 1 being Rs. 12,012/- and Rs. 3,890/- respectively which  was paid by the Complainant.  In the said policies the location of  the property was mentioned as "factory-cum-godown and office  premises",  though there was no godown in the factory premises.   Thereafter on 13th January 1993 the said factory premises and the  entire building, furniture,  fixtures and fittings, stocks in process   and other material lying outside factory shed were   completely  destroyed  in fire.  The  insurance company appointed one Shri  S.N.M. Consultants as  the Surveyors.   The Surveyors visited the  premises and conducted  an inspection.  The complainant supplied  all information sought  by the surveyors.   The complainant was  informed by the surveyors that  they had been instructed by the  opposite parties not to assess loss to the plant and machinery,  furniture, fixtures and fittings and civil structure outside the  covered shed and building and all that plant and machinery which  were lying installed in the open part of the factory premises were  not allowed to be covered by the insurance.   Therefore,  the  Surveyors only assessed the losses inside the covered area.  The   Surveyors were also informed that they were supposed to assess  the loss inside the covered area only.   The complainant from the  very beginning requested the Insurer to amend the policies as there  was no godown within the  precincts of the factory premises and  all goods lying inside the plant  and outside the plant should be  insured. But  no response was received   from the Insurance  Company.   Even  the Surveyors report was not made available to  the complainant despite repeated requests.  Therefore, the present  claim was filed  before the National  Consumer Disputes Redressal  Commission.  It was also alleged that Insurance Company did not  decide despite the insured complainant continued to incur losses of   interest  on the outstandings of Allahabad  Bank and the West  Bengal Financial Corporation.  It is alleged that release of part  payment  on account of payment of atleast 75%  of  whatever had  been assessed by the Surveyors was also not released. Ultimately



on July, 1994,  Complainant received  a letter dated 1st July, 1994   claiming the two fire policies for  a sum of Rs. 19,95,432.75 and  Rs.9,242.28 respectively i.e. Rs. 20,04,675/-  after deduction  therefrom a sum of Rs. 19,224/- as ’penal premium’ being the  difference of premium between Class-I and Class \026II construction  for three years and two vouchers for  signatures of the  Complainant  with the direction to send further cheque  for  a sum  of Rs 4239/-, which was also paid.     It was alleged that these two  vouchers were signed by the complainant  without prejudice to its  claim for the balance and returned to the insurer-Opposite Parties.    The complainant demanded   the details of  deduction   from its  claim and  received a statement of accounts but no reasons were  given for this deduction.   The Surveyors assessed the loss at Rs.  48,73,095/- only but the reasons for reducing this amount  to Rs.  20,23,899/- which was not even 50% of the loss assessed by the  Surveyors.   The complainant claimed a sum of Rs. 58,20,161/-   under the said two policies .  But the surveyors assessed  the loss at  Rs. 48,73,095/-.  It is alleged that  inspite of this, the opposite  parties even upto the date of filing  of  the complaint  had not paid  even the reduced amount of Rs. 20,04,675/- minus Rs. 19,224/-  which  they had originally offered under the two policies.   When  the matter could not be sorted out then the complainant filed  the  present claim before the  National Forum.  Respondents filed  a  response to the present complaint that they  had settled the claim at  a little over Rs. 20 lakhs as a non-standard claim because under   the policy the premises  was described as of 1st class construction.   The Insurance Company refuted the other allegations and   explained that they disallowed the claim relating to plant and  machinery outside the covered area installed outside the building  and  had also not  considered the claim of the goods i.e. the drums  of oil lying in the open within the factory precincts.  It is also  contended that the complainant was not kept in dark about the  basis of settlement.  It was also urged that  regarding  queries  of   the Complainant, a letter dated 12th August, 1994 was  sent giving  details to the complainant, which was  received by the complainant  on 31st August, 1994.   In this background., National Commission  examined that whether the claim of complainant is justified or not.   The Commission after considering the matter took view that the  factory premises includes the plant & machinery and goods inside  the shed and  outside the shed are covered under both fire policies.            The commission relied on the definition of the factory as  given  in the Factory Act 1948.

It was also observed that as per the guidelines in settling the  claims  75%  of loss  should have been settled.  No basis  or  reasons were given as to why original claim was not  settled at  75%  of loss as determined by the Surveyor which was  not   disputed.   It was also observed    that  dilatory approach adopted  by Insurance Company resulted in harassment to complainant and  he had to suffer additional interest liability from time to time by  the financial institutions and it was also observed that the assessee  is entitled to 75% of the claim assessed by the surveyors i.e. 75%   of Rs. 48,73,095.75, which  comes to Rs. 36,54,821.25  and  interest was levied @ 18% per annum commencing from two  months after the receipt of  the Surveyor’s report till the date of  payment and also   imposed the  cost  of  Rs. 10,000/-.  Aggrieved   against this order, both these appeals were  filed,  one by Insurance  Company  and the other by M/s  Polymat India, hence both are   disposed of  by the common order.         The first and foremost question for consideration is,  as per   the terms of the policy whether all the goods which are lying  within the shed or outside the shed are covered under the policy or  not.  In Policy No. 101600/3101670/0   under heading  ’Property to  be insured’  which  reads as under:-         "Stock in trade or merchandise  consisting Rs. 15,00,000/-.



(A ground plan of the premises may please be sketched in the  space provided showing also Adjoining and/or adjacent property  within 15M (50ft) therefrom."         Clause 8 of the  Policy which is relevant for our purpose  reads as under:         "Are there any goods stored in the open, or is         there is kutcha shed or timber built or thatched                    roof  building with 15M (50ft.) or the property               No         to which this proposal applied?  If so, please             give details."

       In the original policy, the expression used was  "Factory- cum-Godown-cum-Office".         In another Policy also in similar query No. 8, a similar  answer was given  that is in negative.         The answer of the insured complainant was in negative that  no goods are stored in open, or in kutcha shed  or timber built or  thatched roof building  within  15M (50ft.) of the property to  which proposal applies. In short that goods lying outside plant are  not insured.           Therefore, the question is when the complainant themselves  has given the answer in negative  to the aforesaid queries in both  the policies, whether the complainant is entitled to the benefit of  loss occasioned to him on the goods lying outside the factory  premises in the open.         It may also be  relevant to mention here that after the  proposal form was received by the complainant  and they  immediately requested by  a letter on 20th April 1992 to National  Insurance Co.  pointing out certain discrepancies in both the  policies and requested to carry out  corrections in  both the  policies, i.e.,   request for incorporating the name  of  the   Allahabad Bank, Camac Street, Calcutta as mortgagee  along with  West Bengal Financial Corporation, secondly, the coverage of   plant and machinery inside or outside the building  and the  coverage  for stock and stock in process and lastly the expression  ’Godown cum factory’ be deleted as there is no ’godown’.   Letter  dated 20th April, 1992 reads as under:

"Polymat India Pvt. Ltd. 1/B , D.L. Khan Road Calcutta 700 027 20th April 1992

The National Insurance Co. Ltd. Calcutta Division XVIII, 6, Lyons Range, Calcutta 700 001

Sub.: Correction in Policy No. 101600/3101669/0(BMC)                              Policy No. 101600/3101670/0 (SSP)

       Dear Sir,         With reference to the captioned two policies delivered  through your Development Officer, Mr. Guha, palease note the  following discrepancies which please amend and oblige.

1.      Policy No. 101600/3101669/0 (BMC)

a)      Besides West Bengal Financial Corporation, the Allahabad  Bank, Camac Street Branch is also interested as Mortgagee in  respect of our entire building: plant machinery &  equipments; and furniture, fittings & fixtures. b)      In the last paragraph, the item nos. should be 1,2 & 5 and 1,2  & 4. c)      Besides Plant & Machinery installed  in Open Yard/in



Building, item 2 should also include Laboratory Equipment,  Stores, Spares, etc lying anywhere in our Factory Complex  (inside  and/or outside the Building).

2.      Policy No. 101600/3101670/0 (SSP)

The coverage required  is for Stock and Stock in Process,  i.e., all types of raw materials & chemicals; stocks  undergoing any process and the semi finished/finished  stock- inside  or  outside the building but within our  factory  compound (as hypothecated to the Allahabad  Bank).  It may be noted that in the Policy the sum of  Rs.15,00,000/- is wrongly stated against item 4 instead of  item 3.  (We have no Godown in our Factory Compound).

Please made necessary change in both the Policies on  above stated basis.  Please also send us photocopies of the  two proposal forms which we had handed over to your Mr.  Guha on 17th March, 1992- signed blank by our  representative Shri Sidheswar Chakraborty so that you  could fill in the queries of those two  proposal forms on  the basis of expiring policies of New India Assurance  Company Ltd., in appropriate manner.          Thanking you,

Yours faithfully For Polymat India (P) Ltd.

 Sd/- (Rita Jhawar) Manager: Finance & Accounts CC: The Allahabad Bank       --for information         Camac Street Branch          3C, Camac Street              Calcitta 700 016"

These three amendments were suggested  by the aforesaid  communication.  The Insurance Company by the communication  dated 23rd April, 1992 agreed to only amendement  to the extent of  the name of  the  Bank, namely, Allahabad Bank as maortgagee   and no further amendment was made in the original Policies.  This  was also confirmed by the  evidence of sole witness  Shri  Samaresh Sarkar, Divisional Manager produced by the Insurance  Company in evidence before the National Forum.  No evidence  was led by the complainant before the National Forum.  Therefore,  the question is how the correspondence and documents produced  by  both the parties are  to be construed.  But unfortunately the  National  Commission did not consider all  these aspects  and   immediately rushed   to  direct  to pay 75% of  the  loss assessed  by  the surveyors.         Now, the  question whether the expression "Factory-cum- Godown"  includes all plant & machinery and all goods lying  within the  boundary wall  of the factory,  was covered under both  the  Policies.  The expression "Factory"  has been defined under Section  2(m) of the Factories act which reads as under: "Factory" means any premises including the  precincts thereof-

(i)     whereon ten or more workers are working, or  were working on any day  of the preceding  twelve months, and in any part of which a  manufacturing process is being carried on with  the aid of power, or is ordinarily so carried on,




(ii)    whereon twenty or more workers are working,  or were working on any day of the  preceding  twelve months, and in any part of which a  manufacturing process is being carried on  without the aid of power, or is ordinarily so  carried on, -

but does not include a mine subject to the operation of   the Mines Act, 1952,  a mobile unit belonging to the  armed forces of the Union, a railway running shed or a  hotel, restaurant or eating place."

       The factory has also been defined in the Law Lexicon: "A building or buildings with plant  for the manufacture  of goods."   The word ’factory’ unless specially defined by statute,  is always used in connection with the place where some  kind of manufacturing process is carried on.  The  activity of exhibiting films does not fall within the  definition of factory contained in the Factories Act."

Factory means any premises, including the precincts  thereof, in any part of which a manufacturing process is  carried on.  The expression  ’premises’ including the  precincts thereof’  takes within its connotation not  merely the building but the open area or the compound  about that particular building.   S.T. Trading Co. Vs.  Union of India, AIR 1966 Guj. 116, 125 (Employees  Provident Funds Act (19 of 1952), S 2(g)."

               So far as the definition of factory is concerned as given  in Factories Act,  it  shows that where the manufacturing process is  undertaken, that means  the  manufacturing process which is   undertaken  within the  plants.  This does not cover the outside area  of plant.  But each definition has to be construed  in the context in  which it is used.   Loosely the expression,  ’factory’ may include  the whole premises of factory.  But each expression has to be given  the meaning in the context where it occurs.  The expression   "Factory-cum-Godown" has to be read in the present context with  the other conditions which appear in the  Policy document. In fact  the Clause 8 which has been reproduced  above, specifically made  reference that whether the goods are stored in open   or there is  kuccha shed or timber built or thatched roof building within 15M  (50ft.)  of  the  property to which this proposal applies?  If so, give  the details.   But no detail was given and it was answered in   negative. Therefore, what was sought  to be insured was plant and  machinery.  It is admitted that  there was no godown. Therefore, it  is  clear that goods lying outside the plant were not insured. Had  the intention of the parties been otherwise then they would have   answered query No. 8 in positive terms  with details. But it was  answered  in negative.  Therefore, the documents have to be  construed  in the manner it is presented and we cannot give a  different interpretation dehors the context.  Both the parties have  executed the contract  and complainant made a disclosure to query  No.8 categorically  in negative that no goods are lying  in open or  in Kaccha shed.  That shows  that the goods lying in covered area  were only  insured and none else.             In this connection,  a reference may be made to series of  decisions of  this Court wherein it has been held that duty  of  the  Court to interpret the document of contract as was understood  between the parties..  In the case  of General Assurance Society  Ltd. Vs. Chandmull Jain                                                                     



                     reported in 1966 (3) SCR 500 at pages 509-510,  it was observed  as under: "In interpreting documents relating to a contract of  insurance, the duty of  the court is to interpret the words  in which the contract is expressed by the parties,  because it is not for the court to make a new contract,  however reasonable, if the parties have not made it  themselves."

Similarly,  in the case of  Oriental Insurance Co. Ltd. Vs.  Samayanallur Primary Agricultural Co-op. Bank  resported in  (1999)  8 SCC 543- Para 3 at page 546-f,  it was observed as  under: "The insurance policy has to be construed having  reference only to the stipulations contained in it and no  artificial farfetched meaning could be given to the  words appearing in it."

Therefore, the terms of the contract  have to be construed   strictly without  altering  the nature of the contract as it  may affect  the interest of parties adversely.         In this connection, it may also be relevant to mention here  that when this proposal was approved  the same was sent  to the   complainant and  the complainant wanted  some amendments  in   both  policies i.e. coverage of goods lying outside plant including  the expression factory \026cum- godown as there was no godown in  existence but those  amendments were not agreed to by the   insurance company, they only agreed to make amendment of  incorporation of  name of the Bank, i.e.,  Allahabad Bank  in the  Policy.  When the terms of the contract  have been reduced in  writing it cannot be changed  without  the mutual agreement by  way of  both the parties.  In the present case, they did not agree for  amendment of the policies, if the complainant was vigilant  and  wanted this  expression to be deleted he should have prosecuted  the matter seriously or repudiated the Policy.  The  only defence  pleaded was that they were assured  orally but no evidence  was    led by complainant.  On the contrary,  suggestion was denied by   single witness produced by  the Insurance Company before  National Forum.         In  this connection, our attention was invited to decision of  this Court in the case of  United India Insurance Co. Ltd. Vs. M. K.  J. Corporation reported in  (1996) 6 SCC 428 wherein it was  observed as under: "\005..After the completion of the contract, no material  alteration can be made in its terms except by mutual  consent."

Therefore, in the present case when the proposal was sought to be amended and it was only agreed to by  the  Insurance  company to the extent  substituting the  Bank i.e. Allahabad Bank  and the other amendments were not agreed by the Insurance   Company, the complainant  had a choice to repudiate the  insurance policy or to obtain a proper declaration. But the  complainant did not pursue the matter further, it is to be blamed  itself  for this.  Therefore, after construing the terms of the contract it  transpires that the intention between the parties was  to cover the  plant  and machinery which were lying in the factory, i.e.,  in the  covered area  and in the shed and not  the goods which were lying  outside the covered area.   Therefore  the order of the Commission  directing the payment of 75% of  the  assessment made by the  Surveyor  of the goods which were lying inside and outside the  factory was not correct approach on the part of the Commission. The Commission should have  examined the matter in detail



in terms of the policy and the relevant documents bearing on  the  subject.   This was not done.  Therefore, we have  no hesitation to  say that what was sought to be covered by  both the  Policies was  only plant and machinery in shed  and not the goods which were  lying outside the plant and shed.         Next question is whether the reduction of the amount by  insurance company under  various heads is justified or not? We have gone through the reasons  given by the Insurance  Company  for reducing the amount  and we are of the opinion that  the reasons given  by the Insurance Company appear to be  reasonable  and justified which read as under:- "1.     Though surveyor assessed the total loss on building as   Rs. 5,52,049/-  but while computing  we only accepted  Rs. 4,97,049/- as the balance amount of Rs. 55,000/- is  assessment relating to the  portion which is not inside  the building. 2.      Regarding plant and machinery though the surveyor  assessed Rs. 24,61,757/- but we considered Rs.  14,97,651/- and rest Rs. 9,64,106/-  was related to the  assessment of the plant and machinery installed outside  the building. 3.      Regarding assessment of furniture, fixture and fittings  though you mentioned that the surveyor assessed Rs.  1,76,820/- but it did not appear true according to the  survey report the surveyor assessed only Rs. 1,55,820/-.   But we could consider to the tune of  Rs. 87,320/- as the  business amount of Rs. 68,500/- was related to the  portion kept outside the building.

       Under SSP Policy though the surveyor assessed Rs.  16,17,212/-  but we could consider only (i) Hydraulic  Oil (630 litres) amounting to Rs.11,100/- and (ii)  H.S.D. in barrel (1081 litres) amounting to Rs. 2624/-  aggregating to Rs. 13,724/- and rest of the items  assessed by surveyor were beyond the scope of cover  and not within the purview of the policy."

Therefore,  on this account also we do not find  any merit  to  interfere in the matter.   The next question is with regard to  award of  interest.  As  per the guidelines laid down,  the Insurance Company had  to settle  the claim within two months of the  Surveyor’s Report.  The   reason for delay has been explained.   Since the fire took place on   13th January, 1993,  the Insurance Company appointed the  Surveyor and Surveyor sent his report. dated November 5, 1993   which was received by the appellant on November 9, 1993.  Since  there was some discrepancies in the survey report, the  Insurance  Company vide their letter dated  December 14,  1993  sought  clarification from the surveyors which was replied on 22.4.94 by  the Surveyors.  The Insurance Company after that took the  decision and informed the claimant  vide their letter dated 1.7.94    for approval of  the claim   for Rs. 20,23,899/- under both the  polices.   Therefore, it was submitted that  almost within stipulated  time the intimation was sent to them, as such  the levy of interest  @  18%  by the Commission  is not justified. We are satisfied that the action taken by the Insurance Co.  was within reasonable time.  Therefore, it cannot be  saddled with  a high rate of  interest @ 18%. However Insurance Companies  should have speed up disposal of claims in order to inspire greater  confidence in them. Be that as it may,  since the amount was  received by the claimant in 1994, therefore,  levy of interest @  18% does not appear to be justified.  Hence, we set aside  the order  awarding  interest @ 18% per annum.    Similarly  a levy of cost of  litigation of Rs. 10,000/-  also does not appear to be justified in the



present case as in view of our finding above.  Hence, we allow the  C.A.  No. 6063/1999 filed by National Insurance Company and set  aside the  order of the Commission.         Polymat India Pvt. Ltd.. (C.A. No. 4366/99) have also filed  appeal against the same order and their  grievance is Commission  ought  to have granted entire loss  assessed by Surveyors instead of  75%  &   interest should have been awarded from the date of loss.   Since, we have examined the whole matter in detail, we are  satisfied that claimant is not entitled to be compensated  loss as  claimed by them.   Hence,   we do not find any merit in this appeal  and the same is dismissed with no orders as to costs.