Reportable

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 6527 OF 2002

Sikka Papers Limited     ..Appellant

Versus

National Insurance Company Ltd. & Ors.         ..Respondents

J U D G E M E N T

R.M. LODHA, J.

This  appeal  under  Section  23  of  the  Consumer  

Protection Act, 1996 (for short  ‘the Act’) is at the instance of the  

complainant as  its claim to the tune of  of Rs.35,06,000/- against  

the National Insurance Company Limited (for short ‘insurer’) has  

not been accepted in its  entirety and the National Commission  in  

its judgment and order dated July  18, 2002 directed the insurer to  

pay to the  complainant an  amount of  Rs. 10,47,491 only along  

with interest at the rate of 12% from March 1, 2000, till the date of  

payment after adjusting the amount already  paid.   

2. The facts from which the controversy arises are these:

The  complainant,  Sikka  Paper  Limited,  is  a   limited  company  

engaged in the manufacture of paper having a paper mill unit in  

District Muzaffarnagar (U.P.).    For want of regular and continuous  

supply  of  electricity  from  the  Uttar  State  Electricity  Board,  the  

complainant purchased the  Diesel Generating Set of 1000 KVA  of  

Kirloskar  Cumins  Limited  with   alternator  of  1250  KVA  for  the  

smooth running of its unit.  The said  diesel generating set along  

with  alternator  was got  insured by the complainant  for  a period  

from  April  8,  1999  to  April  7,  2000  for  Rs.35,00,000/-  vide  

insurance policy No. 451902/46/99/415.  The complainant  paid a  

premium amount of Rs.55,860/- to the insurer.     

3. On December 25, 1999, the said generating set broke  

down and it could not start again despite efforts. The concerned  

officers  of  the  insurer  were  intimated  in  this  regard  by  the  

complainant  and  they  were  requested  for  arranging  immediate  

survey  of the insured generating set. The first surveyor  appointed  

by  the  insurer  is  said  to  have  completed  his  inspection  on  

December  26,  1999  and  advised  the  complainant  to  send  the  

engine to the authorized repairers viz.,  Cumins Diesel Sale and  

Service (India) Limited, Pune.   On   December 30, 1999, another  

surveyor is said to have  inspected  the diesel generating set  and  

identified the damages and the complainant with the consent of the  

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insurer,  sent  the  diesel  generating  set  for  repairs  to  authorized  

repairers at Pune. The authorized repairers gave the estimate of  

expenses of repairs to the tune  of Rs.27,00,395/- and repaired the  

diesel  generating  set.   The  complainant  is  said  to  have  paid  

Rs. 25,00,000/- to the repairers.   

4. The case of the complainant is that  all bills acquired  

and directed by the insurer and their  appointed  surveyors  and as  

required by the policy were handed over to the insurer  and the  

complainant was  told that the  actual expenses incurred by them  

in the repairs  of the diesel generating set as well as reinstatement  

charges  would  be  paid  but  later  on  they  agreed  to  reimburse  

Rs.8,07,110/-  only.  Constrained  thereby,  the  complainant  

approached  the  National  Commission  and  claimed   a  sum  of  

Rs.25,00,000/-  towards  repairs  of  diesel   generating  set;  

Rs.10,00,000/-  for  mental  harassment  and  damages  along  with  

interest and costs.  The complainant alleged that the insurer failed  

to discharge their obligations under the insurance policy  and with  

mala  fide  intention  to  defeat  and  delay   its   legitimate  claim,  

adopted all unwarranted and illegal devices.

5. The insurer resisted the  complaint and set up the plea  

that  claim  of Rs.8,07,110/- was accepted as per the surveyor’s  

report dated May 15, 2000;  the surveyor considered  the damage  

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caused  as a result of the accident to the various parts of the diesel  

generating  set  and  wherever  he  found  that   replacement  was  

required, he provided for the same.   The insurer stated that  the  

surveyor assessed the   damages on the basis of  only those items  

which were affected in accidental damage and the balance items  

not following the scope of the policy  were disallowed.  It was the  

case of the insurer  that the parts which did not suffer any damage  

as  a  result  of  accident  were  not  liable  to  be  replaced  at  the  

expense of the insurer.  The insurer also averred that the surveyor  

in  its  report  dated  May 15,  2000 after  considering  the  damage  

caused  to  the  diesel  generating  set   has  allowed  amounts  for  

carrying  out  the  necessary  replacement  of  parts   damaged  in  

accident  after  deducting the depreciation.  The deduction at the  

rate of 25.71% as under-insurance was also sought to be justified.  

The insurer denied the claim towards mental harassment.

6. The  National  Commission,  inter  alia, considered  the  

matter thus:

“…We are also unable  to accept  the figure  given by the Complainant for purchase of the Engine  as well as while it  meets the  ‘capacity’  requirement  but not of ‘kind’ i.e. a cumin engine thus not meeting  the requirement of the Terms of Policy as reproduced  earlier under the head ‘Sum Insured’.  We find that the  third Surveyor  has taken pains to explain  each and  every  part  of  the  repairs,  freight  etc.  and  his  assessment of loss is as per terms of the Policy which  alone  can  form  the  basis  of  payment  to  the  

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Complainant.  We also see further material on record  that  estimates  of  Rs.25  lakhs  for  repairs  relate  to  replacement  of  several   parts   not   affected by   the  incident but to prolong  the life of the  Engine.     Full  reimbursement  has  been  made  for  replacement  of  crankshaft, Main bearings, connecting Rod bearing, oil  coolers and Gears but not for cylinder liners, Piston  and  Pistons  rings  as  they  are  expendibles,  to  the  extent   that  they  are  subject  to  wear  and  tear  on  account of constant use.  The  latter contingency is  not covered by terms of the policy, hence cannot be  allowed.

In the light of above    discussions, we direct  the  Opposite  Party  to  pay  to  the  Complainant  an  amount  of  Rs.10,47,491/-  as  assessed  by  the  third  Surveyor  along with  interest  @ 12% from 1.3.2000  i.e. after two months of the receipt of the report of the  second  Surveyor,  till   the  date  of  payment  after  adjusting  for  the  payment  already  made.   The  Opposite Party shall also pay cost of Rs. 5000/-  to the  complainant.”

7. We heard the learned counsel for the parties.  In the  

light  of the contentions advanced  before us, the following two  

questions arise for our consideration:

(one) Whether the insurer  was justified  in  accepting report  dated  May 15, 2000  submitted by  the  surveyor  who  had  assessed  the  loss  of  Rs.14,45,000/- after deducting  about Rs.10,55,000/-  from  Rs.25,00,000/- i.e. actual  amount  paid  by  the   complainant   for    repairing  the   diesel  generating set ?

(two) Whether  the  insurer  was  justified  in  deducting  an  amount  of  Rs.3,71,509.50  (25.71%)  as  under  insurance  from  the  loss  assessed   at  Rs.14,45,000/-  by the  surveyor  in  its  report  dated  May 15, 2000 ?

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re :   question (one)

8. That  the  complainant   took  machinery   insurance  

policy to cover  diesel generating set of 1000 KVA with alternator  

of  1250 KVA  from the insurer is not in dispute.  The said diesel  

generating set with alternator was got  insured  for the period from  

April 8, 1999 to April 7, 2000.  Although the said diesel  generating  

set with alternator was purchased by the complainant as per  the  

invoice in 1997 for Rs. 45,00,000/-, it is not in dispute that  sum  

insured  for alternator was Rs. 9,00,000/- and diesel generating  

set Rs.26,00,000/- i.e., insurance cover was for Rs. 35,00,000/- in  

all.  It is also  an admitted position  that on December 25, 1999,  

the  diesel  generating  set   that  was  insured  with  insurer  broke  

down  and  could  not  be  started.   The   spot  survey  was  got  

conducted by the insurer and on the advice of the surveyor, the  

diesel generating set was sent to  authorized repairers at Pune for  

repairs.  The last surveyor’s report is May 15, 2000.   According to  

the  complainant,  they  paid  a  sum  of  Rs.25,00,000/-  to  the  

repairers  for the repairs of diesel  generating set but the insurer  

relying upon the report of the  last surveyor agreed to reimburse  

the sum of Rs.8,07,110/- only  which  was not acceptable to the  

complainant.  

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9. In  Vikram Greentech (I)   Ltd.  & Anr. v.   New India  

Assurance Co.  Ltd.,1  we considered  the essentials of insurance  

of contract thus:

“15. An   insurance  contract,  is  a  species  of  commercial  transactions  and must be construed like  any other  contract to its own terms and by itself.   In  a  contract  of  insurance,  there  is  requirement  of  uberimma  fides i.e.  good  faith  on  the  part  of  the  insured.  Except that, in other respects, there is no  difference between a contract of insurance and any  other contract.  The four essentials of a contract of  insurance  are,  (i)  the  definition  of  the  risk,  (ii)  the  duration  of  the  risk,  (iii)  the  premium and  (iv)  the  amount  of  insurance.   Since  upon  issuance  of  insurance policy, the insurer undertakes to indemnify  the loss suffered by the  insured on account of risks  covered by the  insurance policy,  its terms have to  be  strictly  construed   to  determine  the   extent  of  liability of the insurer.  The  endeavour of the court  must always be to interpret the words in which the  contract  is  expressed  by  the  parties.   The   court  while construing the terms of policy is not expected  to  venture into extra liberalism that may  result in  re- writing the  contract or  substituting the  terms which  were  not  intended  by  the  parties.   The  insured  cannot claim anything more than what is covered by  the  insurance  policy.  [General  Assurance  Society  Ltd. Vs.  Chandumull  Jain and another,   AIR 1966  SC  1644, Oriental  Insurance  Co.  Ltd.  Vs.  Sony  Cheriyan (1999)  6  SCC  451 and    United   India   Insurance Co. Ltd. Vs. Harchand Rai Chandan Lal   (2004) 8 SCC  644.”    

10. The relevant  portion  of   Machinery  Insurance Policy  

taken by the complainant from the insurer are :

“NOW  THIS  POLICY  OF  INSURANCE  WITNESSETH  THAT  subject  to   the  terms  and  exemptions   exclusions   provisions  and  conditions  contained herein or endorsed hereon the Company  will at its own option by payment or reinstatement or  repair indemnify the Insured against unforeseen and  sudden  physical   damage  by  any  cause  not  

1  JT 2009 (5) SC 579

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hereinafter  excluded  to  any  Insured  property  specified  in  the   attached  Schedule  whilst  in  the  premises  therein  mentioned  necessitating  its  immediate repair or replacement.

GENERAL EXCEPTIONS .   THE COMPANY SHALL NOT BE LIABLE  UNDER  THIS POLICY IN RESPECT OF:-

1…………………………… 2…………………………… 3…………………………… 4…………………………… 5.Deterioration of  or  wearing away or  wearing out  of any machine caused by or naturally resulting from  normal use or exposure.

Special Exclusions: 1…………………………… 2…………………………… 3……………………………

PROVISIONS Sum Insured: It  is  a requirement of this Insurance that the Sum  Insured  shall be equal  to the cost of replacement of  the insured property  by new property  or  the same  kind  and  same  capacity  which  shall  mean   its  replacement  cost  including   freight  dues  and  customs duties  if any and erection costs.

Basis of Indemnity:  a) In cases where damage to an insured item can be  repaired   the  Company  will  pay   expenses  necessarily incurred to restore the damaged machine  to  its  former   state of  serviceability   plus  the cost  dismantling  and re-erection incurred for the purpose  of  effecting  the repairs   as well as ordinary freight  to and from  a repair-shop customs   duties   and  dues if any  to the  extent  such expenses have been  included   in  the  Sum  Insured   if  the  repairs  are  executed   at  a  workshop  owned  by   Insured,  the  Company  will pay the cost of materials  and wages  incurred  for  the   purpose  of  the  repairs  plus  a  reasonable  percentage  to cover overhead charges.

No  deduction   shall  be  made   for  depreciation  in  respect  of parts replaced  except those with limited  life  but the value  of any salvage  will be taken into  account   if  the  cost  of   repairs  as  detailed  herein  above  equals or exceeds the  actual value  of the  

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machinery  insured  immediately   before  the  occurrence  of  the  damage the  settlement  shall  be  made on the basis provided for in (b) below.

b)………………………………….. ……………………………………. ……………………………………. ……………………………………. ……………………………………. If the sum insured  is less than the amount required  to be insured  as per Provision 1 hereinabove the  Company will pay only in such proportion as the sum  insured  bears  to the amount  required to be insured.  Every item is more than one shall be subject to this  condition separately.

…………………………………………………………”  

11. It has been argued on behalf of the  complainant  that  

the  insured  must  be  reimbursed  for  the  entire  repairs  costs  

incurred  by  it  in  repair  of  diesel  generating  set  since  as  per  

insurance policy, the insurer was responsible  for the payment of  

any sort  of  loss or   reinstatement  or  repair   and indemnify  the  

insured in all respects.  Relying upon the policy, it was submitted  

that it was the duty of the insurer to pay the necessary  expenses  

incurred  to restore the damaged generating set to its former  state  

and  the cost  of dismantling  and  erection etc.   We find it difficult  

to accept the aforestated contention since it overlooks the General  

Exceptions incorporated in the policy that provide that the insurer  

shall not be  liable  under the policy  in respect of deterioration of  

or wearing away or wearing out of machine caused by or  naturally  

resulting from  normal use or exposure.    In other words, the policy  

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does  not  provide for  protection against  wear and tear  that  the  

machinery  had undergone and that the insured  may have chosen  

to  replace.   The  provision  of   ‘sum  insured’  viz.,  the  cost  of  

replacement  of insured property by new property of the same kind  

and  same  capacity  is  subject  to  the  exception  that  repair   or  

replacement shall  not   extend to the machinery or parts which  

have  undergone  normal   wear  and  tear  due  to  its  use  and  

exposure.  In terms of the Machinery  Insurance Policy taken by  

the insured, the insurer is required  to reimburse the insured to the  

extent   of   moneys   spent  on  repairs  or   replacement  of  the  

machinery to the kind of position that it was before the  incident of  

damage.

12. In  this  backdrop,  before  we  turn  to  the  surveyor’s  

report dated  May 15, 2000,  we deem it proper to  notice Section  

64 UM(2) of the Insurance Act, 1938 that reads thus :

“64-UM (2)- No claim in respect of a loss which  has occurred in India and requiring to be paid or  settled  in  India  equal  to  or  exceeding  twenty  thousand  rupees  in  value  on  any  policy  of  insurance, arising or intimated to an insurer at any  time after the expiry of a period of one year from  the  commencement  of  the  Insurance  (Amendment)  Act,  1968,  shall,  unless otherwise  directed  by  the  [Authority],  be  admitted  for  payment or settled by the insurer unless he has  obtained  a report, on the loss that has occurred,  from a person who holds a  licence issued under  this section to act as a surveyor or loss assessor  

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(hereafter  referred  to  as  “approved  surveyor  or  loss assessor”):

Provided that nothing in this sub-section shall be  deemed to take away or abridge the right of the  insurer to pay or settle any claim at any amount  different  from  the  amount  assessed  by  the  approved surveyor or loss assessor.”

13. Recently, in New India Assurance Company Limited  v.  

Pradeep  Kumar  2,  we  had  occasion  to  consider  the  aforesaid  

provision and we held thus :

“The  object  of  the   aforesaid  provision  is  that where the claim in respect of   loss required  to be paid by the  insurer is Rs.20,000/- or more,  the loss must first  be  assessed by an approved  surveyor ( or loss assessor) before it  is admitted  for payment or settlement by the insurer.  Proviso  appended thereto,  however,  makes it  clear  that  insurer may settle the claim for the  loss suffered  by insured at any amount or pay to the  insured  any amount different from  the amount assessed  by the approved surveyor (or loss assessor).   In  other words although the assessment  of loss by  the  approved  surveyor   is  a   pre-requisite  for  payment   or  settlement  of  claim  of  twenty  thousand   rupees  or  more  by   insurer,   but  surveyor’s report is not the last  and  final  word.  It is not that sacrosanct that  it cannot be departed  from;  it  is  not  conclusive.  The  approved  surveyor’s report may be  basis or foundation for  settlement of a claim by the insurer in respect of  the loss suffered by the insured  but surely  such  report  is  neither   binding  upon  the  insurer  nor  insured.”

14. The last  surveyor  in  his  report  dated May 15,  2000  

assessed the loss thus :

2 2009 (6) SCALE 253

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I)  Working of Claim under Invoice No.60/184989 dated  13.01.2000 of  M/s.CDSS :

We have allowed Labour Charges at Rs.80,000.  Rs.80,000  Octroi Charge   Rs.16,200 Freight Charges   Rs.16,000 Transit Insurance     Rs.  3,500

 -------------------

      Rs.1,15,700 Works Contract Tax 4%                  4,628

       -- -----------------   

Rs.1,20,328

II)  Working of Claim under Invoice No.60/184990 dated  31/1/2000 of M/s. CDSS:

1) “Kit –Crank Shaft” – Part No.AR 388113400K9 – 1 No.        Rs.13,80,895. 52

(vide Page 1, Sr.No.1 of Subject invoice)  Add 4% Work contract Tax Rs.     55,235.83

------------------------ Rs.14,36,131.35

The subjects  Kit  –Crank Shaft  is  comprising of  set  Main  Bearings & connecting Rod Bearings, the reasonable total  value  for them is taken  at Rs.1,35,131.35.  

Less  Reasonable  cost  for  set  of  main  bearings  &  Connecting rod bearings Rs.  1,35,131.35

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

Rs.13,01,000/-

Thus , bifurcation of costs are as under:- Cost of Crank Shaft Rs.13,01,000 Cost of  set of main bearings &  Connecting rod bearings Rs.  1,35,131

--------- ---------- Rs.14,36,131.35

A) Assessment for Crank Shaft:  Cost for Crank Shaft Rs.13,01,000  Less additional policy excess for the   Crank shaft as per endorsement ..20%  Rs.  2,60,200

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-------------------  Net Loss Rs.10,40,800

B) Assessment for set of main bearings   & connecting rod bearings:-  Cost for the set Rs.  1,35,131.35  Less reasonable depreciation ..50% Rs.     67,565.67

------------------------  Net Loss after depreciation Rs.     67,565.67

2) Gears – 2 Nos. @ Rs.2587.69 –        Part No.3177095 (Vide Page 6,Sr.       No.91 of subject Invoice) Rs.       7,763.07

          Add 4% work contract Tax  Rs.      310.52 Rs.       8,073.59

Less reasonable depreciation 50% Rs.       4,036.79 Net Loss after depreciation Rs.       4,036.80

Thus, net  loss after depreciation for (1) & (2)= A + B + Gears above for items under  Invoice  No.60/184990 Rs.11,12,402.47

III) Working of claim under Invoice No.   60/184991 Dt. 31/01/2000 of M/s.CDSS

Core  Coolers (Oil collers) – 4 Nos. @   54,205.42 – Part No.3627295 Rs.  2,16,821.68   Add 4% Work contract Tax Rs.       8,672.87 This is not a Limited life   item and hence there is no any depreciation applicable for it  under the policy Net Loss Rs.  2,25,494.55

Thus net loss under all the three Invoice  as per claim  bill works out to I) + II)  + III) Rs.14,58,225.02 Less reasonable Salvage at scrap value Rs.     13,225.02

Rs.14,45,000.00 Less under-insurance -25.71% vide page  No.13 Rs.  3,71,509 .50

Rs.10,73,490.50 Say Rs.10,73,491 Less Policy Excess Rs.     26,000 Net assessed Loss Rs.10,47,491/-“

15.         The parts which had suffered due  to wear and tear on  

account of  constant use, although replaced could not form part of  

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claim  for reimbursement under the terms of policy and, therefore,  

surveyor in its report dated May 15, 2000 cannot be said to have  

wrongly rejected such claim.  It is true that surveyor’s report is not  

the  last  word  but  then  there  must  be  legitimate  reasons  for  

departing  from such  report.   In  our  view,  the  complainant  has  

failed to show any reason justifying rejection of surveyor’s report  

dated May 15, 2000.

re :  question  (two)

16.   In the Dictionary of  Insurance (Second Edn.) by C.  

Bennett, “under-insurance” is explained thus:

“under-insurance  occurs  when  the  amount   of  insurance is less than the full value of property insured  and means that the insured  pays a smaller  premium  than that required   as the rate  is fixed on the basis of  full  values  being  insured.    It  leads  to  partial   loss  claims  being scaled down by average (qv.).”

The expression “average” is explained thus:

“In non-marine property  insurance if a sum insured is  ‘subject to average’, and the sum insured  is less than  the value  at risk at  the time of  loss, the claim will be  reduced   in  the  same  proportion.   The  measure  combats  under-insurance.”            

17. As per the invoice,  the diesel generating  set  and the  

alternator  was purchased by the complainant in the year 1997 for  

Rs.45,25,000/-.    The complainant,  however,  got  the insurance  

cover valuing diesel generating set (Rs.26,00,000/-) and alternator  

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(Rs.9,00,000/-),  in all  for  Rs.35,00,000/-.   Apparently,  therefore,  

there is an  element  of under-insurance.    There is  merit in the  

contention of learned counsel for the insurer that the value  of the  

item is always  declared by the insured at the time  of issuance of  

the  insurance  policy  while  the  element  of  under-insurance  is  

calculated  by  the  insurer  at  the  time  of   assessment  of  loss.  

Although  on  behalf  of  the  complainant,  it  was  contended  that  

under-insurance, if any, must be calculated at the time of issuance  

of policy and could not be deducted at the time of assessment of  

the  loss  but  we find  it  difficult  to  accept  the  same.  The policy  

provides that if the sum insured  is less than the amount required  

to be insured,  the insurer will pay  only in such  proportion as the  

sum  insured bears to the amount insured.  In accordance with the  

said provision in  the policy if  the surveyor applied the pro-rata  

formula  and  deducted  25.71%  from  the  loss  so  assessed  i.e.  

Rs.3,71,509.50 from the sum  payable as under-insurance, such  

deduction cannot be  faulted.

18. We  are,  thus,  of  the  view  that  the  National  

Commission did not commit any error in accepting the Surveyor’s  

report dated May 15, 2000 as the assessment  made there-under  

is proper and in accordance with the provisions of the  policy.

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19. By way of footnote,  we may observe that claim  of  

Rs.10,00,000/- made by the complainant for mental harassment is  

wholly  misconceived  and  untenable.    The  complainant   is  a  

company  and,  therefore,   claim  for  mental  harassment  is  not  

legally  permissible.   It  is  only  the  natural  person   who  can  

claim  damages  for  mental  harassment  and  not  the  corporate  

entity.

20. In all, we find that the consideration of the matter by  

the  National  Commission  does  not  suffer  from  any  legal  flaw  

justifying   interference by us.

21. Appeal is, accordingly, dismissed with no order as to  

costs.

………………….J (D.K. Jain)  

………………….J (R.M. Lodha)

New Delhi, May 29, 2009  

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