REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 4315 OF 2006                                         

Sr. Divisional Manager, O.I. Co. Ltd. & Anr.    …Appellants

Versus

M/s. Target Plywood Industries Ltd.               ....Respondent

JUDGMENT

Dr. Mukundakam Sharma, J.

1. In this appeal we are called upon to deal with a fire insurance claim  

made by the respondent who put up a complaint seeking direction for  

payment of a sum of Rs. 81.33 lakhs.   The aforesaid claim includes a  

claim of a sum of Rs. 79,08,314/- for the stocks which were destroyed by  

the fire and which were duly covered by the Insurance Policy issued by  

the appellant after payment of full premium.

2. The  respondent  herein  is  a  small  scale  industry  engaged  in  the  

manufacturing and marketing of plywood and allied products.    It  had  

taken two insurance  policies  as  stated hereinbefore  from the appellant  

after  paying  full  premium.    During  the  period  of  the  aforesaid  two  

policies, on 25.11.1997, a fire broke out in the factory which engulfed the  

godowns  of  the  said  factory  and  completely  destroyed  all  the  stocks  

which were lying within the said godown resulting in heavy loss to the  

respondent.

3. The management of the company immediately sent information to  

the  fire  brigade,  the  Police  and  also  the  insurer.    The  complainant-

respondent thereafter submitted a claim as stated hereinbefore for a sum  

of  Rs.  81.33 lakhs  including  a  sum of  Rs.  79,08,314/-  for  the  stocks  

destroyed by fire.   It is needless to point out that we are here concerned  

only with regard to the claim and assessment made with regard to the loss  

of  the  stock  destroyed.    After  receipt  of  the  aforesaid  claim  of  the  

respondent company, the insurance company appointed and engaged a  

Surveyor M/s. Subhash Kapoor & Associates for making assessment of  

the  loss.    The Surveyor  made  an  enquiry,  examined the  records  and  

thereafter submitted an interim survey report dated 12.12.1997.   In the  

said interim report, the Surveyor accepted that it was an accidental fire.  

It was stated in the said interim report that loss in respect of the stocks  

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would  be  around  Rs.  75  lakhs  considering  the  unaffected  stock,  

recoverable salvage lying in the premises of the insured.   The Surveyor  

also reported that the Company did not maintain reasonable record of the  

stock and therefore the said Surveyor is unable to certify the correctness  

of the valuation of closing stock because of the discrepancies between the  

physical stock and the book records, as details of stock, consumption etc.  

of stock was not provided, in the absence of which they are unable to  

certify the correctness of the stock and its valuation.

4. Subsequently on 6.3.1998, the Surveyor submitted a final survey  

and assessment report in which the Surveyor assessed the loss caused to  

the stock of Rs. 62,38,655.76 from which salvage value and thereafter  

50% of  the  amount  was  deducted  for  various  alleged  deficiencies  as  

stated in the report and assessed the loss of Rs. 28,64,560.38.    

5. Not  being satisfied  with  the  said  report,  the  insurance company  

considered it necessary to appoint an Investigator to investigate and to  

make re-assessment of the claim amount based on verification of books  

and  records.   Accordingly  M/s.  S.  Soni  &  Co.,  Surveyors  were  

appointed/engaged as the investigators who caused an enquiry during the  

course  of  which  records  available  with  the  claimant  Company  were  

examined.   Besides, the investigator also made enquiries with the banks  

of  the  respondent  Company  where  the  stocks  of  the  company  were  

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hypothecated  and also  verified  the  records  from various suppliers  and  

transporters and checked the original G.Rs and production records and  

the stock records placed before it and thereafter submitted its report.   In  

the said report, it was held that there was actually an accidental fire in the  

factory  premises  of  the  respondent  as  claimed  and  stated  by  the  

respondent.    

6. It  also  transpires  from the report  submitted  that  Stock  Register,  

Ledger Accounts and production statements were submitted before the  

investigator  by the  respondent  Company in  terms of  their  request  and  

therefore  all  relevant  records  appeared  to  have been submitted  by the  

respondent  company  to  the  said  investigator.   The  said  investigator  

verified all those records and on examination thereof and on the basis of  

other records examined by them which were colleted by them not only  

from the  respondent  Company but  also  from other  quarters,  made  an  

assessment  recording  therein  the  loss  of  stock  as  on  25.11.1997  as  

Rs. 61,50,990.15.

7. It was mentioned in the Report that they have thoroughly checked  

the sale transactions during the period 1996-97 and during 1997-98 to  

check the date of loss and found them in order with the sale bills.   They  

also verified the sales with the sales tax returns and found that sales are  

co-relating  with  the  sales  tax  returns.    They  further  found  that  the  

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purchase transactions are properly entered in the books of accounts and  

payments are proper.

8. They, however, deducted an amount of Rs. 32,08,624.00 from the  

total loss of the stock of Rs. 61,50,990.15 holding that the purchases are  

not genuine and also an amount of Rs. 1,61,746/- on the ground that these  

are purchases for which payment was not made/or the bill is tampered  

with and does not have Form 31, thereby arrived at the stock position as  

on 25.11.1997 which was destroyed by fire at Rs. 27,80,620.15.   They  

have  also  deducted  an  amount  of  Rs.  5,09,535.00  towards  salvage  of  

leftover stock based on Surveyor’s Report and thereby arrived at a total  

loss of  stock of  Rs.  22,71,085.15.   They also made a  loss assessment  

entry in the report in the following manner:-

“LOSS ASSESSMENT

 Now based on our verification, we have assessed  the loss of stock, which is computed as under:

Loss of Stock 22,71,085.15

Less:  Dead Stock Factor @ 5%  1,13,554.25         ___________

Loss Assessed          21,57,530.90   

___________”

9. On  submission  of  the  aforesaid  report,  the  appellant  Company  

approved the claim for an amount of Rs. 22,46,536/- and consequently  

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appellant  sent  a  discharge  voucher  to  the  Union Bank of  India  from  

whom the voucher  was fully  discharged in full  and final  payment  of  

claim for an amount of Rs. 22,23,404 and received from the bank under  

letter dated 27.07.2000.

10. The appellant  issued their  cheque for  the aforesaid amount and  

served  the  same  to  the  said  bank  on  31.07.2000  which  was  

acknowledged by the bank on the same date.    

11. The respondent Company, aggrieved by the meager amount paid  

towards  its  claim,  filed  a  complaint  before  the  National  Consumer  

Disputes Redressal  Commission alleging deficiency of service against  

the appellant Company.   The aforesaid complaint was entertained by the  

Commission and the appellant company filed a reply enclosing therewith  

the report of Surveyor and the Investigator.   The Commission heard the  

counsel appearing for the parties, examined the entire records and by its  

judgment  and  order  dated  19.7.2006  it  allowed  the  complaint  of  the  

respondent and held that the value of the stock destroyed by fire was Rs.  

57,29,120.76.    It  was held that  the deduction of  50% of the alleged  

various deficiencies made by the Surveyor were unjustified.   It was also  

made clear in the said order  that  the Commission was relying on the  

assessment  made  by  the  Surveyor  and  not  by  the  Investigator.  

Consequently, a direction was issued by the Commission directing the  

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appellant to pay a deducted amount of Rs. 28,64,560/- with interest @  

10% per annum from 1.6.1998 (i.e. after seven months from the date of  

the  incident  and  three  months  from  the  date  of  the  report  of  the  

Surveyor).   The appellant was also directed to pay a cost of Rs. 1 lakh.

12. Consequent upon the said order of the Commission, the Insurance  

Company  deposited  the  amount  calculated  on  the  basis  of  the  said  

judgment and order with the National Commission.

13. The Insurance Company was aggrieved by the aforesaid judgment  

and order and, therefore, it has filed the present appeal in this Court.

14. While  admitting  the  present  appeal  filed  by  the  insurance  

Company, this Court directed that the respondent shall be permitted to  

withdraw the amount awarded, which was deposited before the National  

Commission upon furnishing a bank guarantee to the satisfaction of the  

Commission.

15. The respondent Company, however, filed an application seeking  

modification of the order passed by this Court on 19.10.2006.   In the  

said  application,  an  order  came  to  be  passed  by  this  Court  to  the  

following effect:-

“xxxxxxxxxx

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In view of the facts stated in the application, order  dated 19th October, 2006, is modified to this extent  only  that  the  respondent  shall  be  permitted  to  withdraw  twenty  five  per  cent  of  the  amount  awarded  without  furnishing  any  security  and  the  rest  as  directed  under  the  said  order.    To  this  extent,  order  dated  19th October,  2006,  stands  modified.

I.A. No. 3 is, accordingly, disposed of.”

16. Consequent upon the said order, the respondent has withdrawn 25  

per cent of the amount awarded by the National Commission without  

furnishing any security  and the balance 75 per  cent  amount was also  

withdrawn by furnishing a bank guarantee which is valid till date.

17. In the light of the aforesaid background facts, we examined the  

grounds taken in the present appeal by the appellant Insurance Company  

with the assistance of their counsel.    

18. The  respondent  was  also  represented  by  Mr.  Yasobant  Das,  

learned  senior  counsel  who also  assisted  us  and took us  through the  

various documents which the respondent are relying upon in support of  

their claim.   The Commission while considering the records extensively  

referred to the Survey Report dated 12.12.1997 and particularly relied  

upon the contents of paragraph 42 and 53 of the said report, which we  

reproduce hereinafter:-

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“42.   Value of the stocks arrived at the aforestated  basis was worked out at  Rs. 62,38,655.76.   The  relevant  details  are  given  under  the  Heading  “Assessment of Loss”.

53.   Total value of stock as on the date of loss has  been concluded at Rs. 62,38,655.76 – Refer details  under the heading “Assessment of loss”.”

19. Paragraph 55 of the said Survey Report wherein the reason for  

discount  of  50% was  given by the  Surveyor  was  also  quoted  by  the  

Commission which we reproduce hereinafter:-

“Gross  stock  amount  after  adjustment  for  above  salvage  value  has  been  discounted  by  50%  to  account  for  (i)  inaccuracies  in  Audited  Balance  Sheet,  (ii)  Auditors  qualifying  remarks  that  the  Insured had not maintained reasonable records of  stocks,  (iii)  non-establishment  of  precise  production  of  Face  and  Core  Veneer  within  the  factory premises (iv) Wastage of wood from logs  to Face and Core Veneer and (v) sale of scrap –  saw dust etc.”

20. Thereafter  the  Commission  has also referred and considered the  

Report submitted by the Investigator.   The Commission noted that the  

investigator did not agree with the discount of stock of 50 per cent and  

also the findings and conclusions arrived at by the investigator that for  

some purchases  complainant  had  failed  to  establish  the  same because  

according to them lorry receipts were fictitious, inasmuch as one of the  

alleged  transporters  denied having issued the  lorry  receipt  in  question  

whereas the other transporter namely M/s.  Amit Transport Co. had no  

existence  at  all,  which  according  to  the  investigator  proves  that  the  

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purchases/stocks were actually not sent or even if it was sent they did not  

go to the factory but had gone elsewhere.

21. The Commission further noted the report of the investigator to the  

effect  that  the  purchases  made  from  Aggarwal  Enterprises  and  from  

Bansal & Co. although were entered into their records and payments were  

shown to have been made but the same are disallowed since the same as  

per  explanations  given  in  the  report  do  not  seem  to  be  genuine  or  

authentic.

22. The Commission thereafter noted the fact of verification of bank  

records by the Investigator and their assessment and also the summary of  

total assessment which are reproduced hereinafter:

“Verification of Bank Records :  

We  visited  the  Union  Bank  of  India,  the  bank  where the stock is hypothecated and obtained the  stock inspection reports and stock statements.  As  per the bank’s inspection report, they inspected the  stock on 5.11.1996 and 31.12.1996.  We found that  as  per  the  stock  statement  as  on  31.3.1997  the  value  of  stock  is  Rs.  78,35,492.11.   We  also  verified the payments made by the insured through  bank and found that they are in order except one  payment  mentioned  above  was  not  made  for  Rs. 1,61,746/-.

OUR ASSESSMENT On the basis of above facts, we assessed the  

loss as follows:  

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Stock as on 25.11.98 as per Trading A/c Rs. 61,50,990.15

Less : Purchases which are not genuine    as per (Schedule A) 32,08,624.00

Less : Purchases whose payment is    not made (and bill is tampered   with and does not have    form 31.  1,61,746.00

     ----------------------- Rs. 33,70,370.00

  ---------------------------- STOCK AS ON 25.11.97 Rs. 27,80,620.15 Less :  Salvage of leftover (after loss)

  Based on Surveyor’s report. (-) Rs.  5,09,535.00    ----------------------------

LOSS OF STOCK Rs. 22,71,085.15

From  the  aforesaid  amount,  there  was  further  deduction on the assessment that there would be  deduction @  5% for  dead  stock  and  further  reduced it by Rs. 1,13,554.25 and arrived at loss  for the stock at Rs. 21,57,530.90.

Thereafter,  the loss for building and other plant  and  machinery  was  assessed  and  the  loss  was  summarized as under:  

SUMMARY OF TOTAL LOSS ASSESSMENT

The loss is summarized as below:  

Particulars Loss  

Allowed

Average  

Clause

Dead  Stock  

Factor 5%

NET  LOSS  

ASSESSED STOCKS 2271065.15 NIL 113554.25 21,57,530.90 Building  &  Electrical  Fittings

610137.00 28798.00 NIL      32,239.00

Plant &   63500.00 1733.55 NIL      61,766.45 TOTAL 239560.15 30531.55 113554.25 22,51,536.35 Less :  Excess Clause 2500 x 2 Policies            (-)                         5,000.00

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                               NET LOSS ASSESSED                          22,46,536.35

23. The  Commission  factually  recorded  in  its  order  that  in  the  

aforesaid complaint it is only concerned with the method adopted by the  

Surveyor in deducting the value of the stock of 50 per cent and deduction  

of  stock of  Rs.  32,08,624/-  by  the  Investigator  on the  record  that  the  

Lorry Receipts were fake and that the purchase of the stock for which  

payment is made to the vendor by an account payee cheque/draft was not  

believed.   That  was  so  recorded  by  the  National  Commission  on  the  

ground that both the Surveyor and the Investigator assessed the loss of  

stock of Rs. 62,38,655.76 and Rs. 61,50,990.15 respectively.

24. The ground that was taken by the respondent/complainant was that  

the aforesaid 50 per cent deduction made by the Surveyors and not  

allowing the amount shown as deduction by the Investigator was  

unjustified.   

25. The aforesaid contention was considered by the Commission in the  

light of the records and on appreciation thereof, the Commission  

held as follows:-

“(i) ….the Investigator has reduced the amount of Rs.  61,50,480/-  by  Rs.  32,08,624/-  on  the  alleged  ground  that the purchases were not genuine because two lorry  receipts were not tallying.  They have ignored the fact  that  for  the  said  purchase  bills  amount  was  paid  by  cheque  or  demand  drafts.    For  arriving  at  such  

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conclusion  the  Investigator  has  ignored  the  bank  accounts.  In  this  complaint  the  Complainant  has  produced the extract of bank account, as quoted above,  which  establishes  beyond  doubt  that  the  amount  was  paid  by  the  Complainant  by  account  payee  cheques  and/or drafts.   Therefore, the said ground given by the  Investigator is without any substance.

Similarly,  the  Surveyor  has  reduced  the  amount  by  discounting it by 50%.   The method of discounting by  50% is even not accepted by the Investigator.   In any  case, the reason given for discounting is mainly on the  basis of auditor’s final remarks without considering the  relevant letters written by the Chartered Accountant to  the Company and its  reply as  well  as final  certificate  given  by  the  Chartered  Accountant  on  10.8.1997  wherein they have stated that the stock statement was  produced before them and the same was found to be true  and proper and in respect of quantity and its value for  the year ended 31.3.1996.   The other ground which is  given  is  with  regard  to  non-establishment  of  precise  production of  face  and core-veneer  within the factory  premises and wastage of  wood from logs to face and  veneer as well as sale of scrap-saw dust.   In our view,  this would have no bearing with regard to the existing  stock as per the stock registers.”  

26. For   the   aforesaid   reasons,   the  Commission  allowed  the  

complaint  and  held  that  the  value of the stock destroyed by fire was  

Rs. 57,29,120.76.

27. A  careful  look  at  the  aforesaid  findings  recorded  by  the  

Commission would make it crystal clear that the Commission came to the  

aforesaid finding on the ground that the Investigator had ignored the fact  

that for the said purchase, bills amount was paid by cheques or demand  

drafts.   It also recorded the finding that the method of discounting by 50  

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per cent is not based on appropriate reasons which is established from the  

fact that the aforesaid method of discounting by 50 per cent is not even  

accepted by the Investigator.  

28. The  Commission  held  that  the  aforesaid  reason  given  for  

discounting is mainly  on the Auditor’s final remarks but  it ignored the  

relevant letter dated 10.8.1997 written by the Chartered Accountant to the  

Company and its reply as well as final certificate given by the Chartered  

Accountant on 10.8.1997.     Interestingly, however, the Commission was  

totally  silent  about  the  letters  of  the  transporters  by  which  all  the  

aforesaid goods were alleged to have been carried to the godown of the  

respondent.  One of the two transporters categorically stated they did not  

issue any such receipt and the receipt shown to them are fake whereas the  

other alleged transporter did not have any existence.   Those records were  

relevant  records  which  were  required  to  be  considered  by  the  

Commission while recording its findings and coming to its conclusion.  

Besides, the aforesaid letter/certificate of the Chartered Accountant stated  

to have been issued on 10.8.1997 was not filed alongwith the documents  

that were originally filed but the same came to be placed on record only  

after evidence was closed and the matter was listed for final arguments.  

The said certificate dated 10.8.1997 does not find any mention in any of  

the correspondences which were filed and placed before the Commission.  

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In any case, the said document was required to be appreciated alongwith  

all other relevant records and on the basis thereof the Commission should  

have come to an appropriate  finding.    In our considered opinion,  the  

findings and the conclusions arrived at by the Commission was also not  

appropriate  as  they are  found to be abrupt  and arrived at  by ignoring  

certain vital and material evidence on record.   At the same time we also  

find that the deduction of 50 per cent on the alleged various deficiencies  

as suggested by the Surveyor is without any basis and no reason has been  

given to justify 50 per cent deduction from the actual assessment of the  

loss.  

29.   At this stage, learned counsel appearing for the respondent stated  

before us that the matter may not be remanded back to the Commission as  

the respondent Company had already suffered huge loss and that a final  

order may be passed by this Court, if necessary reducing the deduction of  

50 per cent towards deficiencies.   We enquired from the learned counsel  

appearing for the appellant who submitted before us that it is not possible  

for him to give any concession in that regard.

30. A fire broke out in the factory of the respondent on 25.11.1997.  

Twelve  years  have  passed  by  and therefore  we are  of  the  considered  

opinion that it would not be worthwhile to remit the matter back to the  

Commission.    The  appellant  Company  accepted  the  report  of  the  

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Investigator wherein also the total loss of the stock was shown to be Rs.  

61,50,990.15.    Some of the  aforesaid claims are  based upon receipts  

which  were  not  found  to  be  authentic  by  the  Investigator.    The  

respondents were prepared to accept deduction of 35 per cent from the  

total claim for the alleged deficiencies.  They have also been paid 25 per  

cent of the amount found due by the Commission over and above what  

was assessed and paid by the Insurance Company.

31. In view of the aforesaid factual position and peculiar circumstances  

of the case we hold that the total loss of stock is Rs. 57,29,120.76 out of  

which 35 per cent of the amount would stand deducted so the total loss is  

assessed at Rs 37, 23, 928.49.  The respondent is also entitled to 10 per  

cent interest in terms of the order of the Commission on the said amount  

as no argument was advanced by the appellant on the aforesaid issue.

32. The  respondent  has  already  received  the  amount  which  was  

awarded  by  the  Commission  over  and  above  what  was  paid  by  the  

Insurance  Company.    An  amount  of  25  per  cent  was  allowed  to  be  

withdrawn without security and for the balance amount which was also  

withdrawn by the Company, they had issued a bank guarantee, which is  

valid till date.

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33.   It is therefore, directed that the Commission shall now recover the  

excess amount paid to the respondent in terms of this order and return the  

said  excess  amount  paid/deposited  by  the  Insurance  Company  within  

eight weeks from today.

34. Respondent shall also give an undertaking in this Court within four  

weeks that they would return the excess amount as determined by the  

Commission within four weeks.

35. The appeal is disposed of in terms of the above order.

  ............………………………J.       [Dr. Mukundakam Sharma]

   .…................……….………..J.       [Dr. B.S. Chauhan]

New Delhi, July 7, 2009

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