REPORTABLE

IN THE SUPREME COURT OF INDIA  CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1042 OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 20393 OF 2018)

CANARA BANK            …APPELLANT(S)

Versus   

M/S UNITED INDIA INSURANCE CO. LTD. & ORS.         …RESPONDENT(S)

WITH

CIVIL APPEAL NO.  1043­1051   OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 24774­24782 OF 2018

CIVIL APPEAL NO. 1052­1059     OF 2020  (@SPECIAL LEAVE PETITION (CIVIL) NO. 25957­25964 OF 2018)

CIVIL APPEAL NO. 1060­1071    OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 25137­25148 OF 2018)

CIVIL APPEAL NO. 1072­1081    OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 25235­25244 OF 2018)

CIVIL APPEAL NO. 1082­1090    OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 25535­25543 OF 2018)

CIVIL APPEAL NO. 1091­1097     OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 25325­25331 OF 2018)

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CIVIL APPEAL NO. 1098­1106       OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 26077­26085 OF 2018)

CIVIL APPEAL NO. 1107­1117       OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 26494­26504 OF 2018)

CIVIL APPEAL NO. 1118­1126      OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 25714­25722 OF 2018)

CIVIL APPEAL NO. 1127­1133       OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 25343­25349 OF 2018)

CIVIL APPEAL NO. 1134­1203       OF 2020 (@SPECIAL LEAVE PETITION (CIVIL) NO. 31449­31518 OF 2018)

J U D G M E N T

Deepak Gupta, J.

Leave granted.

2. All these appeals are being decided by one common judgment

since they arise out of a common order dated 08.06.2018 of the

National Consumer Disputes Redressal  Commission, New Delhi,

hereinafter referred to as ‘the National Commission’.

3. Briefly stated the facts of the case are that most of the

claimants, hereinafter referred to as ‘the farmers’, had grown

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Byadgi Chilli Crop during the year 2012­2013.   Some of the

farmers had some other crops.   These farmers had stored their

agricultural  produce in  a  cold  store run by  a  partnership firm

under the name and style of  Sreedevi  Cold Storage,  hereinafter

referred to as ‘the cold store’.   These farmers also obtained loans

from Canara Bank, hereinafter referred to as ‘the Bank’.  The loan

was advanced by the Bank to each one of the farmers on security

of the agricultural produce stored in the cold store.  The cold store

was insured with the United India Insurance Company Limited,

hereinafter  referred to as  ‘the  insurance company’.  A  fire took

place in the cold store on the night intervening 13.01.2014 and

14.01.2014.   The entire building of the cold store and the entire

stock of agricultural produce was destroyed.   

4. After the fire, the cold store, which had taken out a

comprehensive insurance policy, raised a claim with the insurance

company but the claim of the cold store was repudiated by the

insurance company mainly on the ground that the fire was not an

accidental fire.   The farmers had also issued notice to the

insurance company in respect of the plant, machinery and

building but this claim was repudiated by the insurance company

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on the additional ground that the farmers had no locus standi  to

make the claim as  the  insured was the cold store  and not  the

farmers.   It was further pleaded that Condition No.8 of the

insurance policy had been violated, and that there was no privity

of contract between the farmers and the insurance company.

Since the claims of the farmers were either rejected or not

answered,  they filed claim petitions   against the cold store, the

Bank and the insurance company in which the primary relief

claimed was the value of the agricultural produce as on the date of

fire and interest thereupon and each of the farmers also claimed

damages of Rs.1,00,000/­ per head.  There were 91 claim petitions

filed  and  in most  of them the  agricultural  produce was Byadgi

Chilli.   In  a few  petitions, the  agricultural  produce  was  Dabbi

Chilli, Guntur Chilli, Bengal Gram, Coriander (Dhania), Jwar etc.

However, this will not have any material impact on the decision of

these cases.  The details containing the name of the claimants, the

nature of the produce, number of bags and quantity thereof, rate,

and  number of kilograms  have  been set out in Para  7 of the

judgment of the National Commission which we are not

reproducing for the sake of brevity.   

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5. In the claims filed it was pleaded that the cold store while

levying the general charges had also charged the insurance

premium paid  by it.   It  would  be  pertinent to  mention that  a

tripartite  agreement  had  been  entered into  by each  one  of the

farmers while taking a loan from the Bank and hypothecating the

agricultural produce  which  was stored in the cold store.   The

farmer, the Bank, and the cold store were parties to the tripartite

agreement.   The cold store issued a warehouse receipt giving the

particulars of the crop stored, the value thereof and also the date

of the tripartite agreement.   For the period in question i.e. from

2012­2013 till the occurrence of fire, the cold store was admittedly

insured with the insurance company.  The plant and machinery of

the cold store was  insured  for Rs.5 crores and the stocks were

insured for Rs.30 crores.

6. The case of the farmers was that in terms of the tripartite

agreement, the  cold  store  had got the  stocks  insured from the

insurance company.  The fire was an accidental fire and, therefore,

in terms of the policy, the insurance company was liable to pay the

amount of value of the agricultural produce stored with the cold

store as on the date of fire and was also liable to pay interest on

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the amount payable.   The insurance company resisted the

complaint mainly on the ground that the ‘farmers’ were not

‘consumers’ within the meaning of Consumer Protection Act, 1986,

hereinafter referred to as ‘the Act’.  It was also claimed that there

was no privity of contract between the farmers and the insurance

company because the policy was taken by the cold store and not

by the farmers.  It was alleged that the entire story of loans was a

false story.   On merits, any conceivable objection which could be

taken was taken.   The insurance company went to the extent of

denying that the claimants were farmers or they had produced the

agricultural produce or that they had stored it in the cold store.  It

was also alleged that the Bank was negligent as it did not take any

step to recover the amount due for more than two years.  The case

of the insurance company is that nobody in his right mind would

store agricultural produce for such a long period of time.

Therefore, the very genuineness of the tripartite  agreement was

challenged.   The other main ground taken was that the fire was

not  an accident  and  there  was no spontaneous combustion on

account  of electrical short circuit.  According to the insurance

company,  there was an element of  arson  involved and the cold

store seems to have been deliberately set on fire.   

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7. The stand of the cold store was that the fire was accidental

and that since the stock was insured, the amount was payable by

the  insurance company.  The Bank supported the claim of the

farmers with the caveat that the amount should be paid to it so

that it could set it off against the loans advanced to the farmers.

8. The Karnataka State Consumer Disputes Redressal

Commission at  Bangalore, hereinafter referred to as ‘the  State

Commission’ vide judgment dated 28.04.2017 held that the

farmers had proved that the fire took place on account of electrical

short circuit and  no element of human intervention  or  use of

kerosene was found.  The State Commission also found that as per

the tripartite agreement entered into between the farmers, the

Bank and the cold store, it was mandatory for the cold store to

insure the goods so hypothecated by the farmers with the Bank.

The insurance company was held liable to pay the amount to the

farmers.   The State Commission assessed the value of the goods

by taking the value as reflected in the warehouse receipts issued

at the time of taking of loan and did not accept the plea of the

farmers that they should get the market value of the goods as on

the date of fire.  The Bank was also held deficient in service.  The

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cold store and the insurance company were held jointly and

severely liable and were directed to pay the value of the

agricultural produce hypothecated with the Bank to the

farmers/claimants as on the date of tripartite agreement together

with the interest at the rate of 14% per annum payable from six

months from the date of the incident till the date of realisation.

One complaint being Complaint No.597 of 2015 was dismissed.  In

some of the complaints, the Bank was also held jointly and

severely liable to pay the costs of Rs.10,000/­ whereas in a large

number of cases the complaint against the Bank was dismissed.   

9. Aggrieved by the aforesaid judgment dated 28.04.2017 of the

State Commission, an appeal was filed before the National

Commission.   By the impugned judgment, the National

Commission concurred with the findings of the State Commission

and held that the farmers are consumers.   It held that the

insurance company was aware of the fact that the goods were held

in trust.  It further held that there is no evidence to show that the

fire was not an accidental fire or that the fire had been started by

the owner of the cold store.  However, it partly allowed the appeal

of the insurance company and reduced the interest from 14% per

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annum to 12% per annum. The  farmers had also filed appeal

claiming that in terms of the insurance policy they should have

been paid the value of the goods as on the date of fire.  However,

this claim was rejected basically on the ground that the farmers

had failed to show that the chilli and/or other produce stored is of

the same class and characteristics as reflected in the Variety­wise

Periodic Report of the Bengaluru Market for different commodities.

As far as the appeals filed by the Bank were concerned, the

National Commission held that in the peculiar facts of the case

where the farmers had suffered substantial losses, the principal

amount of loan advanced by the Bank would be remitted by the

insurance company to the Bank but the other amount i.e. interest

and damages, would be given to the farmers.  It was also held that

there was no deficiency of service on behalf of the Bank and the

costs imposed on the Bank in some of the cases were set aside.

10. Before this Court, appeals have been filed by the insurance

company, the farmers, the cold store and the Bank.   

11. We have  heard Shri  P.P.  Malhotra, learned senior  counsel

appearing for the insurance company, Dr. Rajeev Dhavan and Shri

Gopal Shankaranarayanan, learned senior counsel appearing for

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the farmers, Shri Sajan Poovayya, learned senior counsel

appearing for the cold store and Shri Dhruv Mehta, learned senior

counsel appearing for the Bank.

Appeals of the Insurance Company

12. Shri P.P. Malhotra, learned senior counsel appearing for the

insurance company raised several issues for consideration of this

Court.   One of the contentions raised by him is that the fire in

question was not an accidental fire.  It is also contended that the

farmers were not consumers and therefore the consumer fora have

no jurisdiction to decide the dispute.  He next contends that there

is no privity of contract between the farmers and the insurance

company.  According to  him, a contract of insurance is to  be

strictly construed between the parties to the contract.  He submits

that there was no insurable interest of the farmers and the

tripartite agreement entered between the Bank, the farmers and

the cold store was never disclosed to the insurance company.  He

further submits that there is non­disclosure of important facts by

the cold store (insured) and, as such, the insurance company is

not liable.   He also urged that the liability of the insurance

company is excluded by virtue of General Exclusion Clause 5 and

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General Condition no.1 and General Condition no.8 of the

insurance policy.      

Whether the fire was an accident?

13. As far as this issue is concerned, both the State Commission

and the National Commission have come to the conclusion that

the fire was an accidental fire and occurred due to a short circuit.

These  are  pure findings of fact  which, in  our view, cannot  be

challenged in these proceedings.   However, since lengthy

arguments were addressed by Shri P. P. Malhotra in this behalf,

we shall deal with the same.  At the outset, we may note that the

electrical inspector, the police investigation team and the forensic

science laboratory (FSL) have all come to the conclusion that the

fire took place due to a short circuit.   The concluding portion of

the report of the FSL reads as follows:­

“From the above examination, the following observations have been made  

1. Presence of combustible materials like thermocol (which are used to insulate the walls) pillars, wooden partitions and the grains stored inside the building could have enhanced the spread of fire.

2. The congested space in the building might have accelerated the smoldering fire.

3. The fire might have originated at the sixth floor front side of the building.  But it was not possible to

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locate the exact place of origin of fire since the complete building was involved in fire.

4. An electrical short circuit may have initiated the fire.”

The insurance company relies upon the findings given by a

company namely Truth Labs and those of Rank Surveyors Private

Limited, which read as follows:­

“Based on a thorough and in­depth inspection of the incident site, forensic examinations, field investigations,  documentary evidence  analysis and personal evidence obtained, it is concluded that the fire occurred in M/s. Sree Devi Cold Storage, Billary on the intervening night of 13/14th January 2014.

a. Was not due to spontaneous combustion on account of bacterial/chemical fires.

b. Was not due to electrical failure caused by short circuit.

c. And was on account of extraneous ignitable fire accelerants such as kerosene used deliberately  for ignition, initiation, propagation and burning of stocks in the cold storage through human intervention.

d. Based on the motive, means and opportunity to carry out such malicious acts the possibility of the involvement of management in such a nefarious act cannot be ruled out.”

14. We may note that it is not disputed that in the construction

of the cold store, the temperature was maintained by insulating

the walls of the cold store.  Bitumen (coal tar) and Thermocol were

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used for providing insulation.  The FSL found that in a fire which

takes place in a building where such material is used for

construction, hydro carbons would obviously be present.   On the

other hand, M/s. Truth Labs mainly relied upon the presence of

hydro carbons to  come to the  conclusion  that the  fire  had not

occurred spontaneously and on account of electrical short circuit

but occurred on account of extraneous ignitable fire accelerants

such as kerosene. The conclusions of M/s. Truth Labs were based

on some inspection and chemical analysis carried out by a team

headed by Dr. R. Srinivas.   Admittedly, this report of Dr. R.

Srinivas was never furnished to the parties nor was placed before

the State Commission.  Interestingly, when Mr. G. V. H. V. Prasad,

Director of M/s. Truth Labs was put a specific query whether the

walls of the ground floor and the top floor and the inside portion of

the cold store along with 169 pillars were constructed by

sandwiching bitumen and thermocol between the concrete in order

to raise the level of insulation, he replied that ‘he was not aware of

how the Cold Storage was built’.   This clearly shows the shoddy

manner  in which M/s.  Truth Labs conducted the  investigation.

There can be no proper investigation of a fire if the investigating

agency does not even try to find out what is the nature of

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construction of the building which has been destroyed in the fire.

M/s. Truth Labs has clearly stated that the observation that fire

took place on account of extraneous ignitable fire accelerants, is

based on the chemical analysis report which shows presence of

hydro carbons in the debris.  It is apparent that M/s. Truth Labs,

for reasons best known to it, did not analyse the material used for

construction because if it had done so, it would have realised that

hydro carbons would be present when thermocol or bitumen are

burnt.  Thermocol is basically a rigid plastic foam material which

is derived from petroleum and natural gas by­products.  Bitumen

is a semi­solid hydrocarbon product produced from crude oil.

Both thermocol and bitumen are derivatives of petroleum products

and hence are hydrocarbons  by their very nature.   Therefore,

presence of hydrocarbons would be natural when a fire takes

place.  The presence of hydro carbon could not lead to a conclusion

that kerosene oil had been used to ignite the fire.   

15. The National Commission has also dealt in detail with this

issue and has come to the conclusion that M/s. Truth Labs visited

the burnt cold store on two occasions and collected samples on

both the occasions.   It, however, decided to send 12 samples

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collected only in the second visit for analysis.   Interestingly, the

controlled samples were collected  from a plastic  bag containing

(fresh unaffected) chillies found in the burnt stock of the affected

premises.  The controlled samples did not show presence of hydro

carbons and hence, the assumption that the presence of  hydro

carbons in the remaining samples was not relatable to thermocol

and tar.   There is no explanation why the samples taken on the

first visit were not sent for analysis.   It is also difficult to believe

that in a building which has been totally gutted in a fire, there

would be one plastic bag containing (fresh unaffected) chillies

found in the burnt stock.  It is possible that these unburnt chillies

may have been introduced later on.   Therefore, we cannot place

any reliance on the report of M/s. Truth Labs.

16. In any event, neither in the report of M/s. Truth Labs nor in

the other reports by the insurance company is there anything to

show that the insured had set the cold store on fire.  Whether the

fire took place by a short circuit or any other reason, as long as

insured is not the person who caused the fire, the insurance

company cannot escape its liability in terms of the insurance

policy.   We reject the contention of the insurance company that

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the fire was ignited by the use of kerosene and hence it is not

liable.

Rule of Strict Interpretation

17. It has been submitted on behalf of the insurance company

that the terms of the insurance policy should be construed strictly

and since only the insurance company and the cold store (insured)

were parties to the contract of insurance, the insurance company

will not be liable to pay any claim to the farmers.   Various

authorities were cited by both sides.   

18. In  United India Insurance Co. Ltd.  v.  Harchand Rai

Chandan Lal1 this Court held as follows:­  

“9….It  is settled law that terms of the policy shall govern the contract between the parties, they have to abide by the definition given therein and all  those expressions appearing in the policy should be interpreted with reference to the terms of policy and not  with reference to the  definition given  in  other laws. It is a matter of contract and in terms of the contract the relation of the parties shall abide and it is presumed that when the parties have entered into a contract of insurance with their eyes wide open, they cannot rely on the definition given in other enactment….”

1 (2004) 8 SCC 644

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19. Reliance was placed on  Raghunath Rai Bareja  v.  Punjab

National Bank2 wherein it was held:

“58.  We may mention here  that the  literal rule  of interpretation is not only followed by judges and lawyers, but it is also followed by the layman in his ordinary life. To give an illustration, if a person says “this is a pencil”, then he means that it is a pencil; and it is not that when he says that the object is a pencil,  he means that  it is  a horse,  donkey or an elephant. In other words, the literal rule of interpretation simply means that we mean what we say and we say what we mean. If we do not follow the literal rule of interpretation, social life will become impossible, and we will not understand each other. If we say that a certain object is a book, then we mean it is a book. If we say it is a book, but we mean it is a horse, table or an elephant, then we will not be able to communicate with each other. Life will become impossible. Hence, the meaning of the literal rule of interpretation is simply that we mean what we say and we say what we mean.”

20. Reliance was also placed on the following paragraph in Suraj

Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co.

Ltd.3:

“26. Thus, it needs little emphasis that in construing the terms of a contract of insurance, the words used therein must be given paramount importance, and it is not open for the court to add, delete or substitute any  words. It is  also  well  settled that  since  upon issuance of an insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy, its terms have to be strictly construed to determine the extent of liability of the insurer. Therefore, the endeavour of the court should always be to interpret

2 (2007) 2 SCC 230 3 (2010) 10 SCC 567

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the words in which the contract is expressed by the parties.”

21. The principles relating to interpretation of insurance policies

are well settled and not in dispute.   At the same time, the

provisions of the policy must be read and interpreted in such a

manner so as to give effect to the reasonable expectations of all the

parties including the insured and the beneficiaries.  It is also well

settled that coverage provisions should be interpreted broadly and

if there is any ambiguity, the same should be resolved in favour of

the insured.   On the other hand, the exclusion clauses must be

read narrowly.  The policy and its components must be read as a

whole and given a meaning which furthers the expectations of the

parties and also the business realities.  According to us, the entire

policy should be understood and examined in such a manner and

when that is done, the interpretation becomes a commercially

sensible interpretation.  As far as the present case is concerned, if

we read the tripartite agreement along with the terms of the policy

it is obvious that the Bank insisted that the stock be insured.  The

farmers were told that they would pay the premium.   The cold

store while fixing the rent obviously factored the premium into the

rent.  It was obvious that the intention of the parties was that they

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would be compensated by the insurance company in case of any

untoward loss.   

Whether the farmers are consumers and the issue of privity of contract  

22. One of the main grounds of attack to the judgments of both

the State Commission and the National Commission on behalf of

the insurance company is that the farmer is not a consumer

insofar as the insurance company is concerned.  The contention is

based on the ground that the insurance policy is admittedly only

between the insurance company and the cold store. It is further

urged by Shri Malhotra that the claim of the cold store for damage

to the building, plants and machinery was repudiated by the

insurance company on 16.09.2015.   The cold store has not

challenged the repudiation.  Thereafter,  all the complaints have

been filed through one  counsel  which  indicates that they  have

been orchestrated by the cold store itself.  It is also submitted that

the tripartite  agreement  is  not  relevant as  far as the  insurance

company is concerned since the insurance company is not a

signatory to the tripartite agreement.  It is further contended that

the coverage for the goods was only for the goods owned by the

cold store and not by the farmers who are in the nature of third

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parties.   It is contended that in some cases the tripartite

agreement has not even been signed by the Bank.

23. On the other hand, on behalf of the farmers, it is submitted

that they paid rent to the cold store which included the element of

insurance.   It is submitted that the crops were given on

contractual bailment to the cold store for a valuable consideration

and, therefore, the cold store held the goods as a bailee on behalf

of the farmers.  It is also submitted that in terms of the tripartite

agreement, the cold store  was bound to  take out  an  insurance

policy and the crops and the premises were separately insured and

the insurance was renewed every time for a period of 3 years.  It is

also submitted that insurance company was aware that the

insurance policy had been taken for the benefit of the real owners

i.e. farmers.   

24. To decide these issues, it would be apposite to refer to the

definition of ‘consumer’ under Section 2(d) of the Act, which reads

as follows:­

“2 Definitions. ­  (1) In this Act, unless the context otherwise requires,­

xxx    xxx      xxx

(d) "consumer" means any person who, ­

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(i)   buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or  promised  or  partly  paid  or  partly  promised,  or under any system of deferred payment, when such used is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose; or

(ii) hires or avails of any services for a consideration which has been paid or promised or partly paid and partly  promised, or  under  any system of  deferred payment and includes any beneficiary of such services other than the person who hires or avails of the services for consideration paid or promised, or partly paid and partly promised, or under any system of deferred payment, when such services are availed of with the approval of the first  mentioned person…;”

25. The definition of consumer under the Act is very wide and it

not only includes the person who hires or avails of the services for

consideration but also  includes  the beneficiary of  such services

who may be a person other than the person who hires or avails of

services.  

26. Taking the issue of privity of contract, we are of the considered

view that as far as the Act is concerned, it is not necessary that

there should be privity of contract between the insurance company

and the claimants.   The definition of consumer under Section 2(d)

quoted hereinabove is in 2 parts.   Sub­clause (i) of Section 2(1)(d)

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deals with a person who buys any goods and includes any user of

such goods other than the person who buys such goods as long as

the use is made with the approval of such person.   Therefore, the

definition of consumer even in the 1st  part not only  includes the

person who has purchased but includes any user of the goods so

long as such user is made with the approval of the person who has

purchased the goods.   As far as the definition of the consumer in

relation to hiring or availing of services is concerned, the definition,

in our view, is much wider.   In this part of the section, consumer

includes not only the person who has hired or availed of the

services but also includes any beneficiary of such services.

Therefore, an insured could be a person who hires or avails of the

services of the insurance company but there could be many other

persons who could be the beneficiaries of the services.  It is not

necessary that those beneficiaries should be parties to the contract

of insurance.  They are the consumers not because they are parties

to the contract of insurance but because they are the beneficiaries

of the policy taken out by the insured.   

27. The definition of consumer under the Act is very wide and it

includes beneficiaries who can take benefit of the insurance availed

by the insured.  As far as the present case is concerned, under the

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tripartite agreement entered between the Bank, the cold store and

the farmers, the stock of the farmers was hypothecated as security

with the Bank and the Bank had insisted that the said stock should

be insured with a view to safeguard its interest.  We may refer to the

penultimate clause of the tripartite agreement which reads as

follows:­

“WHEREAS the Third Party has agreed to insure the produce/goods stored in the cold storage to indemnify the  produce in  case  of  any  casualty  or accident by any means to cover the risk and also to cover the loan amount to avoid loss at the cost of the Second Party till the release order or repayment of the loan amount.”

28. The  aforesaid  clause in  unambiguous terms binds the  cold

store to insure the goods, to indemnify the produce, to cover the

risk and cover the loan amount.   This insurance policy has to be

taken at the cost of the second party which is the farmer.

Therefore, there can be no manner of doubt that the farmer is a

beneficiary under the policy. The farmer is, therefore, definitely a

consumer and we uphold the orders of both the Commissions that

the complaint under the Act is maintainable.

29. Shri  Malhotra  in support  of  his  argument  relied upon the

judgement of this Court in  M. C. Chacko v. The State Bank of

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Travancore, Trivandrum4  wherein  the appellant as Manager of

High Land Bank,  Kottayam, had an overdraft  account with the

Bank.   The father of the appellant had executed letters of

guarantee in favour of Bank agreeing to pay the amounts due to

the Bank under the overdraft agreement subject to a limit of

Rs.20,000/­.  The Court held:­  

“10. Even if it be granted that there was an intention to create a charge, the Kottayam Bank not being a party to the deed could enforce the charge only if it was a beneficiary under the terms of the contract, and it is not claimed that the Bank was a beneficiary under the deed Ext. D­1. The suit against M.C. Chacko must therefore be dismissed.”

30. We are of the view that this judgment has no relevance to the

case before us.  This Court held that the Kottayam Bank was not

only not a party to the deed but was also not a beneficiary under

the contract.  In our opinion, the Consumer Protection Act clearly

provides that a beneficiary of the services, other than the insured

is a consumer under the Act.   

General Exclusion Clause No.5

31. It has been urged that there  is  violation of Clause 5 of the

policy  under  the heading of  General  Exclusion wherein  losses of

4 (1969) 2 SCC 343

24

certain types  have  not  been  covered.  The  said  clause reads  as

follows:­

“5. Loss, destruction or damage to bullion or unset precious stones, any curios or works of art  for an amount exceeding Rs.10000/­ goods held in trust or on commission, manuscripts, plans, drawings, securities, obligations or documents of any (illegible) stamps, coins  or  paper  money, cheques,  books of accounts or other business books, computer systems records, explosives unless otherwise expressly stated in the policy.”

32. The argument raised by Shri Malhotra is that since the goods

were held in trust by the cold store, the insurance company is not

liable.  We are not at all impressed with this argument.  This is not

a case where the goods were deposited only on the basis of trust.

The goods were kept in the cold store on payment of rent by the

farmer.  This is  not  a case envisaged under Exclusion Clause 5

quoted hereinabove.   These goods were also not held on

commission.  Shri Rajeev Dhavan, learned senior counsel appearing

for the farmers submits that the relationship between the farmer

and the cold store was of bailor and bailee.   He submits that the

crops were given on contractual bailment to the cold store for

consideration.   

25

33. In the  present case, as  pointed  out  above, the farmer  had

agreed to pay consideration to  the cold store  and,  therefore, the

goods were not held in trust per se but the goods were held by cold

store as bailee of the goods for consideration.  The possession of the

farm produce was handed over by the bailor, i.e. farmer to the cold

store i.e. the bailee, in terms of the contract.  There may be inter se

rights and liabilities between the farmer and the cold store but it

cannot be said that the goods were held ‘in trust’.  The goods were

also not held  ‘on commission’.  No commission was payable and

only rental was paid.  Therefore, we reject this argument on behalf

of the insurance company.   

General Condition Nos. 1 & 8:

34. Shri Malhotra has placed reliance on Condition Nos. 1 & 8 of

Part B of the General Conditions of the Insurance Policy:­  

“(B) GENERAL CONDITIONS:

1. This policy shall be voidable in the event of misrepresentation, mis­description or non­ disclosure of any material particular.

xxx          xxx xxx

8. If the claim be in any respect fraudulent, or  if any  false declaration be  made or  used  in support thereof  or if  any fraudulent  means  or  devices  are used by the insured or anyone acting on his behalf to obtain any benefit under the policy or if the loss

26

or damage be occasioned by the willful act, or with the connivance of the insured, all benefits under this policy shall be forfeited.”

35. The contention of Shri Malhotra is that the insurance company

was not informed by the Bank, the cold store or the farmers that

the farm produce or the insured goods belong to the farmers and

therefore the policy is voidable.   At the outset, we may note that

misrepresentation or misdescription only makes the policy voidable.

The insurance company never chose to declare the policy void for 3

long years when it was in existence and, at this stage, cannot be

permitted to  wriggle out of its liability  by taking this objection.

Even otherwise, we are of the view that the submission made on

behalf of the insurance company is without any substance.   The

policies of insurance clearly show that the premises was separately

insured  for  Rs.5  crores  and  the  stock  in  trade  were insured  for

Rs.30 crores.  This insurance was taken not only for the year when

the fire took place but was renewed for 3 long years.  The insurance

policy had an Agreed Bank Clause which reads as follows:­

“(1) AGREED BANK CLAUSE:

It is hereby declared and agreed:­

(i) That upon any monies becoming payable under this policy the same shall be paid by the company to the bank and such part of any monies so paid as may relate to the interests of other parties insured

27

hereunder shall be received by the Bank as Agents for such other parties.

(ii) That the receipts of the Bank shall be complete discharge of the company thereon and shall be binding on all the parties insured hereunder.”

36. The aforesaid clause itself clearly indicates that it was agreed

by the  insurance company that  upon any amount being payable

under the policy in question, the same would be paid to the Bank

and the amount so paid “may relate to the interests of other

parties”.  The said amount would be received by the Bank as agent

for other parties.   Therefore, the insurance policy itself envisaged

that there were interest of other parties and not only the Bank and

the insured.  Therefore, it was for the insurance company to verify

and find out who was the owner of the goods.  It could not presume

that all the goods belong to the cold store.  The assumption of the

insurance company that it had insured the goods belonging to the

cold store itself has no factual basis.   It is a well­known fact that

cold stores  are constructed in such  a  way that there  are  many

compartments in the cold store.  Any person can deposit a small or

large amount of goods to be kept in cold store.   Normally, it is the

goods of third parties which are stored in a cold store and,

therefore,  we are dealing with a policy of insurance whereby the

premises and the stock and goods in a cold store have been

28

insured.   The natural corollary would be that the insurance

company should have  known that the  goods belong to the third

parties.   From the policy of  insurance, we find that in respect of

description of risk, the insurance covers “Stock of Guntur

Chillies/Byadigi Chillies/Other variety Chillies, Jawar Seeds,

Bengal Garam,  Red Gram, Tambrind, Coriander Seeds & Other

pulses.”

37. This stock in trade was covered for a sum of Rs.30 crores and

premium was charged accordingly.  A prudent insurance company

before issuing a policy of such a heavy amount, must or at least

should have ascertained the value and the nature of the goods.

The insurance company before us is one of the largest nationalised

insurance companies and a presumption has to be drawn that it

must have verified the details before insurance policy was issued.

If verification had been done by a visit to the cold store, it could

have been easily found out who are the owners of the stock.   In

case, the insurance company has chosen not to verify the stock it

cannot take  advantage  of its  own negligence.  The  principle  of

uberrima fides  has no application because the cold store had

declared all  necessary  facts.  The bank clause clearly  indicated

that the goods were hypothecated/pledged to the Bank.  Therefore,

29

the insurance company now cannot turn around and claim that

the names of the owners were not supplied to  it  at the time of

insurance.  We also cannot lose sight of the fact that the insurance

policy was renewed at  least twice.   Therefore, the policy was in

existence for 3 years and it  is in the 3rd  year that the fire took

place.  If the insurance company chooses not to even write a letter

to the insured or take any steps to verify the value of the goods

and ownership of the goods, it cannot now turn around and urge

that it was not aware about the nature or ownership of the goods.   

Fraudulent Claim  

38. The insurance company also contends that the whole scheme

is fraudulent and that no farmer in his right senses would store

agricultural produce for such a long time.  This argument is totally

baseless.

39. Byadgi Chilli is the major component of the goods that were

stored in the cold store.  It is a very famous variety of chilli and is

produced in two types – dabbi and kaddi.  One of the main uses of

this chilli is not only as an item of food but as an item to extract

red colour pigment which is used in the manufacture of lipsticks,

nail polishes, and other cosmetics etc.   The material extracted is

30

called oleoresin, which is a red oil extracted from the pods.  Many

cold stores have been constructed in the area where this chilli is

grown because if these chillies are stored at a low temperature of 4

to 6 degree Celsius, the colour and purity is maintained and it also

increases the amount of  oleoresin which can be extracted  from

chilli by about 30% to 40%.   As such the farmers took a

commercial decision to store the chillies because after storing it,

the value would go higher.   

40. The insurance company also urged that some of the tripartite

agreements are not signed by the officials of the Bank. It is urged

that this shows that the agreements cannot be relied upon.   We

are not at all in agreement with this submission.   As long as the

parties to the tripartite agreement i.e. the Bank, the farmer and

the cold store, are not disputing the correctness of the agreement,

there is no reason why we should not accept the same to be a

genuine document.  

Non­disclosure of material facts:

41. It has been urged on behalf  of  the  insurance company that

while submitting the proposal form on 21.03.2013, the cold store

had not listed out the names of the parties who had an insurable

31

interest including the financial institutions.   It is, therefore,

submitted that the cold store deliberately did not disclose the fact

that the produce belonged to the farmers.   Shri Malhotra placed

reliance on the judgment in Satwant Kaur Sandhu v. New India

Assurance Co. Ltd.5 wherein it was held that:

“25. The upshot of the entire discussion is that in a contract of insurance, any fact which would influence the mind of a prudent insurer in deciding whether to accept or not to accept the risk is a “material fact”. If the proposer has knowledge of such fact,  he is obliged to  disclose it  particularly while answering questions in the proposal form. Needless to emphasise that any inaccurate answer will entitle the insurer to repudiate his liability because there is clear presumption that any information sought for in the proposal form is material for the purpose of entering into a contract of insurance.”

42. At the outset, we may mention that the initial insurance policy

was taken in the year 2011, if not earlier, and that proposal form

was very material. The same has not been produced by the

insurance company before us.   Thereafter, it was only renewal of

the policy.   Furthermore, if a column is left blank, again the

insurance company should have asked  the insured  to fill in the

column.  There is no wrong information given in the proposal form

though it may be true that all the requisite  information was not

5 (2009) 8 SCC 316

32

supplied.  The column requires listing out the parties who have an

insurable interest including financial institutions.  Since the policy

had a bank clause, the name of Canara Bank should have been

mentioned in  column 5.  That  was  not there.   If the insurance

company while accepting the proposal form does not ask the

insured to clarify any ambiguities then the insurance company after

accepting the premium cannot now urge that there was a wrong

declaration made by the insured.   In case the insured had written

that there  were  no  persons  who  had an insurable interest, the

position may have been different but leaving out the column blank

does not mean that there was some misdeclaration of facts.  We are,

therefore,  clearly  of the  view  that the judgment  of this  Court in

Satwant Kaur Sandhu’s case (supra) is not applicable to the facts

of the present case.   

43. As already  held above, the insurance company itself could

have also taken some initiative in the matter.   To make a contract

void the non­disclosure should be of some very material fact.   No

doubt, it would have been better if the Bank and the insured had

given at least 1 tripartite agreement to the insurance company but,

in our view,  in the peculiar  facts of  this case, not disclosing the

tripartite agreement or the names of the owners cannot be said to

33

be such a material fact as to make the policy void or voidable.  We

are clearly of the view that there is  no fraudulent claim  made.

There is  no false  declaration  made  and  neither is the loss and

damage occasioned by any wilful act or connivance of the insured.   

44. In view of the above discussion, we are clearly of the view that

the insurance company under the insurance policy is liable to

indemnify the cold store with regard to the value of goods and since

the farmers are the beneficiaries, they are entitled to get the amount

payable under the policy.  However, this will obviously be subject to

the bank clause which we have already referred to above.

34

Appeal of the Bank

45. The Bank has raised objections to the interest portion of the

amount being given to the farmers.  Otherwise it supports the case

of the farmers.  Reliance  has  been placed  on the  bank clause

already quoted above and it is submitted that the direction of the

National Commission to pay the interest to the farmers is against

the Agreed Bank Clause in terms of which the money is to be paid

to the Bank till the outstandings of the Bank are covered.   Shri

Dhruv Mehta, learned senior counsel for the Bank submits that

since the farmers are claiming benefit of the policy, they cannot

urge that the bank clause is not applicable.  It is further submitted

by him that the National Commission has to decide questions on

the basis of legal considerations and equitable considerations or

equity has no role to play in such matters.  On the other hand, it

has been urged by Dr. Rajeev Dhavan that the bank clause is only

a processual clause.   

46. We cannot  accept the  submission of  Dr.  Dhavan  that the

bank clause lays down only a process.  The insurance policy is a

contract and the amount has to be paid as per the terms of the

contract.   In our view, the National Commission could not have

35

ordered that the interest on the amount payable to the farmers

should not be paid to the Bank till the liabilities of the Bank are

paid  out.  Arguments  have  been addressed before  us that this

Court may exercise its power under Article 142 of the Constitution

of India to ensure that justice is done to the farmers.  We feel that

there is no need to invoke the jurisdiction under Article 142

because even after paying off the dues of the Bank, some amount

of the value of the goods along with  interest thereupon will  be

payable to the farmers.

Whether there was a deficiency in service on the part of the Bank

47. It was urged on behalf of the insurance company that there is

deficiency of service by the Bank and, in fact, it was argued that

the Bank connived with the  farmers because  it  did not  get  the

valuation of  the products done properly and further, it took no

steps to sell the agricultural produce after one year which liberty it

had in terms of the tripartite agreement.  We find no force in this

argument.  As already  pointed out above, the value  of  Byadgi

chillies which was the major agricultural  produce stored  in the

cold store rises the longer it is kept in the cold store.   Therefore,

the Bank could have taken a commercial decision not to sell the

36

produce because the product was not deteriorating in any manner

and its value was not diminishing.

48. The State Commission had held that there was deficiency on

behalf of the Bank in rendering services but the National

Commission held otherwise.  We are of the view that the Bank was

remiss to a limited extent.   When the Bank issues loans against

the hypothecation of goods, as in the present case, and insists that

the goods should be insured to safeguard its outstandings then a

duty lies upon the Bank to inform the insurance company of the

policy.   If  both the Bank and the insurance company had done

what would be expected of good financial institutions, there would

have been no needless litigation.   The matter has dragged to this

stage only because the names of the farmers were not mentioned

in the policy or because the tripartite agreement was not handed

over to the insurance company.  The Bank, as a prudent financial

institution, should have insisted that the tripartite agreement

should also be handed over to the insurance company.  Therefore,

we feel that there is some level of deficiency on behalf of the Bank.

49. In view of the aforesaid, we feel that the Bank cannot claim

interest at the contractual rate and is not entitled to claim interest

37

at the contractual rate because the farmers  have been driven

through a long drawn litigation which could have been easily

avoided if the Bank had itself sent the copy of the tripartite

agreement to the insurance company or insisted that the insured

should send the same to the insurance company.  We accordingly

hold that the Bank cannot claim interest at the contractual rate.

We are therefore, of the view that the Bank would be entitled to

charge simple interest right from the date of grant of loan at the

rate of 12% per annum.

The amount of claim payable:

50. The farmers in their appeal have claimed that in terms of the

policy of insurance the value of the goods was to be assessed on the

date of fire and the value was not to be assessed as mentioned on

the date  when  the goods were  stored  in  the  cold  store.   In this

regard, we may make reference to the opening portion of the

insurance policy  wherein the insurance company  has agreed to

insure the goods.  Relevant portion of the insurance policy reads as

follows:­

“IN CONSIDERATION of the  insured named in the schedule hereto having paid to the United India Insurance Company Limited  (hereinafter called the Company) the full  premium mentioned in the said

38

schedule.   The Company Agrees (Subject to the conditions and exclusions contained herein or endorsed or otherwise expressed hereon) that if after payment of the premium the property insured described in the said schedule or any part of such property be destroyed or damaged by any of the perils specified hereunder during the period of insurance named in the said schedule or of any subsequent period in respect of which the insured shall have paid and the Company shall  have accepted the premium required for the renewal of the policy, the Company shall pay to the insured the value of the property at the time of the happening of its destruction or the amount of such damage or at its option reinstate or replace such property or any part thereof.”

51. The highlighted portion of the aforesaid clause leaves no

manner of doubt that the insurance company in consideration of

the premium received had agreed to either reinstate the goods or

replace the same or pay to the insured the value of the property at

the time  of  happening  of its  destruction  or  damage.  The  State

Commission and the National Commission had rejected the claim of

the farmers in this regard on the ground that the variety­wise

periodic report of the Bengaluru market, produced by the farmers,

showed that the range between minimum and maximum price for

Byadgi  and Guntur  chillies  etc. is  very vast  and  to  arrive  at  an

average  price  would  mean construing that  all the  chillies  are  of

standard quality.   According to the National Commission, this

39

would be a speculative exercise based on the assumption that the

entire quantity of chillies is of the same class and characteristic.

52. At the time when the farmers deposited the goods with the cold

store there were handed over warehouse receipts which not  only

gave identity of the agricultural produce but also reflected the

quantity of  the agricultural produce and its market value on the

date when this produce was stored in the cold store.  However, the

quality of the produce is not reflected in the warehouse receipts.   

53. Though we hold that in terms of the clause discussed above

the insurance company is liable to pay the value of the goods as

on the date of the fire, we feel that the National Commission was

right when it   came to the conclusion that it was not possible to

award an amount based on the variety­wise periodic report of the

Bengaluru market.  This is the  only  evidence  produced  by the

farmers  and brought to  our notice to  support their  contention.

The National Commission is right that the difference between

minimum price for which this product was sold during the period

14.12.2013 to 14.01.2014 and the maximum price for the same

agricultural  produce during  this  period  is  so  high that  without

exactly knowing what was the quality of agricultural produce, it

40

would not be possible to ascertain what was the price on the date

of fire.   To give an example, Byadgi chillies have a price range of

Rs.  3,200  per  quintal to  Rs.  17,300 per  quintal i.e.  Rs.32  per

kilogram to Rs.173 per kilogram.  There is no way for any Court to

determine what the exact price would have been without having

the benefit of the quality of produce.   Unfortunately, even in the

warehouse receipts there is no gradation or reflection of the quality

of the produce.

54. We, therefore, affirm the decision of the National Commission

that the value of the goods as reflected in the warehouse receipts

should be taken to be the value on the date of fire.  We may add

that this value is not very different from the median value for most

of the products.   We rely upon the value given in the warehouse

receipts because that was the value which was given by the

farmers, not knowing that their product is going to be burnt, and

was accepted by the cold store, which must have known the value

of the  product in the local  market  and accepted  by the  Bank,

which on the basis of such surety advanced the loan.

55. In view of the aforesaid discussion, we are of the view that

the Bank shall be entitled to recover the principal amount

41

advanced by it to each one of the farmers along with the simple

interest at the rate of 12% per annum from the date of advancing

of loan till repayment thereof.  The insurance company is liable to

pay the value of goods as reflected in the warehouse receipts of

each farmer  along  with  simple interest  at the rate  of  12% per

annum from the date of fire till payment of the amount.  The dues

of the Bank till the date of fire will have to be first determined and,

thereafter, the excess will be payable to the farmer along with the

interest.   

56. To clarify the issue we take the example of the first farmer­

Thippa Reddy at Sr. No.1, in whose Account No.1425844005736,

the loan of  Rs.10,00,000/­  was sanctioned on 30.08.2011.  The

insurance company has worked out his outstanding on the date of

incident at  Rs.13,57,307/­ whereas  the value of the goods was

2,00,2000 as per the warehouse receipt.   If  we calculate simple

interest  at  the rate of  12% per annum on Rs.10,00,000/­  from

30.08.2011 till 14.01.2014, it works out to Rs.2,84,712/­

approximately.  Obviously, if the farmer  has  paid  any  amount

towards the loan that will also have to be adjusted but for the sake

42

of clarification, we are assuming that no amount has been paid.

Therefore,  with  effect from 14.01.2014, the insurance  company

shall be liable to pay interest on 10,00,000/­ at the rate of 12%

per annum to the Bank and shall also be liable to pay a sum of

Rs.7,17,288/­ along with interest at the rate of 12% per annum

from 14.01.2014 till payment to the farmer.   

57. In view  of the above,  we  dispose of the  appeals  with the

following directions:

1.That the insurance company shall  be  liable to pay to

each one of the  farmers the value of  his  goods to be

assessed as per the rate mentioned on the warehouse

receipts when the goods were stored in the Cold Store

in terms of our direction given hereinabove along with

interest at the rate of 12% per annum from the date of

fire till payment or deposit thereof.

2.That the Canara Bank shall file certified statements of

accounts before the Karnataka State Consumer

Disputes Redressal  Commission showing the principal

amount of loan advanced to each farmer and the

amount due to the Bank by calculating simple interest

43

@ 12% p.a. up to 13.01.2014 i.e. payable by 14.01.2014

after adjusting the payments which the Bank may have

received in the loan account.

3.The Bank in the statement of accounts shall also set out

the amount due with the aforesaid rate of interest up to

30.04.2020.

4.The aforesaid statement be filed before the State

Commission on or before 02.03.2020.

5.That  thereafter, the State  Commission  in each appeal

shall  determine the amount payable to  the  farmer by

calculating it in terms of the clarification given above i.e.

after adjusting the amount due to the Bank as on

14.01.2014.  This  exercise  be completed on or  before

31.03.2020.

6.Out of the aforesaid amount, the  Insurance Company

shall pay the amount of loan along with simple interest

at the rate of 12% per annum from the date of

advancement of loan to the date of payment directly to

the Bank.   

44

7.Thereafter, the insurance company shall deposit the

amount payable to the farmers with the State

Commission on or before 30.04.2020.

58. All appeals are disposed of in the aforesaid terms.  No order

as to costs.   Pending  application(s), if any, shall also stand(s)

disposed of.

…………………………….J. (S. Abdul Nazeer)

…………………………….J. (Deepak Gupta)

New Delhi February 06, 2020

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