Supreme Court

Canara Bank v. M/s United India Insurance Co. Ltd. & Ors

MANU/SC/0131/2020

06.02.2020

Insurance

Beneficiaries of policy taken out by insured are also consumers under Consumer Protection Act, 1986, even if, they are not parties to contract of insurance

The facts of the case are, claimants, referred to as ‘the farmers’, had grown Byadgi Chilli Crop during the year 2012­2013. These farmers had stored their agricultural produce in a cold store run by a partnership firm and also obtained loans from Canara 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 insurance company. A fire took place in the cold store and entire building of the cold store and the entire stock of agricultural produce was destroyed.

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 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. 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.

The State Commission vide judgment 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 cold store and the insurance company were held jointly and severely liable.

Aggrieved by the aforesaid judgment 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 annum to 12% per annum.

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 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. The penultimate clause of the tripartite agreement 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 the orders of both the Commissions that the complaint under the Act is maintainable are upheld.

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 present Court should not accept the same to be a genuine document.

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

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. The insurance policy is a contract and the amount has to be paid as per the terms of the contract.

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. Appeals are disposed of.

Tags : Policy Beneficiaries Indemnification

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