DISTRICT CONSUMER DISPUTES REDRESSAL COMMISSION ERNAKULAM
Dated this the 29th day of February, 2024.
Filed on: 21/11/2019
PRESENT
Shri.D.B.Binu President
Shri.V.Ramachandran Member Smt.Sreevidhia.T.N Member
C.C. No. 453/2019
COMPLAINANT
Vineetha Raju, W/o Raju, Proprietor, M/s Rosmy Tech, Room No. 5/1-23, St. Anns Building, Thottakattukara Aluva-683108.
(Rep. Adv. Tom Joseph, Court Road, Muvattupuzha 686661)
VS
OPPOSITE PARTIES
- 1.M/s The Union Bank of India, Aluva Branch, Ground Floor, 18/471, NH-47, Bypass Junction, Aluva P O-683101, Rep. by its Manager.
(Rep. by Adv. V.A. Ajaikumar, Edathil Building, Market Road, Kochi 35)
- M/s New India Assurance Co. Ltd., Divisional Office, Koduvath Road Blog-, Sub Jail Road, Aluva-683101. Rep. by its manager
(Rep. by Adv. Joy Joseph, J&J Associates, MRRA-82, New JNDJA Lane, Kochi 682028)
F I N A L O R D E R
D.B. Binu, President.
1). A brief statement of facts of this complaint is as stated below:
The complaint lodged under Section 12 (1) of the Consumer Protection Act, 1986, outlines a grievance against two parties by a shopkeeper from Aluva, who operates a hardware store with her family since 2012. This store availed a cash credit facility from the first opposite party (a bank), which acted as an agent or broker for the second opposite party (an insurance company), by hypothecating its stock. The bank took out a shopkeeper's insurance policy on behalf of the complainant from the inception year, with the premium payments being debited from the complainant's account. This arrangement was meant to cover the risk associated with the loan and the stock, with the insurance premiums debited regularly to the loan account.
However, during the severe floods from August 15 to August 20, 2018, the complainant's shop was submerged, resulting in a total loss of stock valued at Rs. 19 lakhs. Upon seeking insurance policy details for claiming the damages, the complainant discovered that the policy had lapsed due to non-payment of the renewal premium. This information was a shock, as the complainant had been under the impression that the policy was being renewed regularly by the first opposite party.
The complainant's request under the Right to Information Act 2005 to the first opposite party yielded the policy documents, revealing a series of policy purchases and renewals from 2012 to 2018, with lapses in timely premium payments leading to the policy's inactivity during the flood. The failure of the first opposite party to remit the premium on time, coupled with the second opposite party's failure to timely intimate their broker about the renewal, was pinpointed as the cause of loss of insurance benefits.
This failure was deemed a deficiency in service, holding both opposite parties jointly and severally liable for the compensation of the flood-induced losses. Despite the complainant's efforts, seeking redress through the Banking Ombudsman and the High Court Legal Services Authority proved fruitless. The complainant seeks compensation of Rs. 19 lakhs for the stock loss, with an additional 12% per annum interest from the complaint filing date until realization, alongside the costs of the proceedings. This case underscores the importance of diligent policy management and the severe consequences of oversight in financial and insurance dealings.
2) Notice
The Commission sent notices to the opposite parties, who subsequently appeared and submitted their versions.
3) THE VERSION OF THE 1ST OPPOSITE PARTY
The bank acknowledges that Raju availed a cash credit limit of Rs. 6,00,000 in 2011, which was closed in March 2019. The credit was secured against the stock of the business through a hypothecation agreement that mandated the insurance of the hypothecated movables against various risks, with the insurance to be done by the borrower and the premium receipts to be delivered to the bank. The agreement allows the bank to insure the goods at the borrower's expense if the borrower fails to do so, but it does not obligate the bank to ensure the movables.
The bank asserts that it was the borrower's responsibility to ensure the hypothecated movables, and that the shopkeeper's insurance policy was indeed taken from the 2nd opposite party (an insurance company) to cover the risks, with premiums paid by debiting the borrower's account. Contrary to the complaint's claim of a loss of stock worth Rs. 19,00,000 due to flooding in August 2018, the bank presents stock statements from September and October 2018 submitted by the complainant, showing no loss or damage to the stock.
The bank denies any failure or deficiency in service, stating that it was not bound to insure the stock in trade and that any omission to renew the policy in time, leading to a lapse in coverage, does not constitute a deficiency on its part. It further references a ruling by the Honourable National Consumer Disputes Redressal Commission in Rahul Electrical vs. State Bank of India, supporting its stance that the bank has no obligation to insure the hypothecated goods on behalf of the borrower.
The bank concludes that the complaint lacks merit, asserting that the complainant has not demonstrated any loss or damage to the insured stock, and as such, there is no deficiency of service. It argues that the complaint should be dismissed, and the complainant is not entitled to any compensation from the 1st opposite party, suggesting the complaint is frivolous and should be dismissed with costs to the 1st opposite party. This defense emphasizes the responsibility of the borrower to insure the goods and challenges the basis of the complainant's claim for compensation.
4) THE VERSION OF THE SECOND OPPOSITE PARTY
The complainant, being a commercial establishment engaged in business activities, does not qualify as a consumer under the Consumer Protection (CP) Act. Therefore, the company posits that the complaint should be dismissed on this basis alone, as there was no valid insurance policy covering the damaged property on the date of the alleged loss, indicating no contractual relationship with the complainant in this context.
The insurance company clarifies that insurance policies covering property damage are annual, with renewal being at the discretion of the insured, without a mandatory requirement for the insurer to issue renewal notices. The complainant admitted that at the time of the loss, the damaged property was not covered under a policy by this Opposite Party, highlighting a lapse in coverage from the expiration of the previous policy on June 3, 2017, until its renewal on November 14, 2018, which was after the date of the alleged loss on August 15, 2018.
The submission further addresses various paragraphs of the complaint, denying allegations of deficiency in service or unfair trade practices, stating that there was no omission in sending renewal notices, and emphasizing that the responsibility for ensuring coverage lies with the complainant or her bankers. The insurance company argues that the complainant's efforts to claim compensation are an attempt at unlawful enrichment, noting that previous complaints filed by the complainant in other lawful authorities were unsuccessful.
Conclusively, Opposite Party No. 2 requests the commission to dismiss the complaint, asserting that there was no deficiency of service on their part, no valid insurance policy at the time of the loss, and hence, no claim is payable to the complainant. They also reserve the right to file additional versions and produce documents supporting their contentions as necessary, seeking other reliefs deemed fit by the commission in the facts and circumstances of the case.
5) . Evidence
The complainant had filed a proof affidavit and 6 documents that were marked as Exhibits-A-1 to A-6. The complainant was examined as PW1.
Exhibit A1: Copies of the Overdraft (OD) agreements for the period from 2011 to 2019 and the insurance policies for the period from 2011 to 2019.
Exhibit A2: Copy of the policy schedule for the period from June 4, 2016, to June 3, 2017.
Exhibit A3: A copy of the complaint submitted to the Banking Ombudsman.
Exhibit A4: Copy of the reply filed by the 1st opposite party before the Ombudsman.
Exhibit A5: Copy of the complaint lodged before the High Court Legal Services Authority.
Exhibit A6: Documentation evidencing that the damaged stocks, affected by the flood, were valued at Rs. 7,65,705.
The 1st Opposite Party had filed one document that was marked as Exhibits-B-1
Exhibits-B-1 True copy of Stock Statement dated 05.09.2018 submitted by the Complainant to the 1st Opposite Party.
6) The main points to be analysed in this case are as follows:
i) Whether the complaint is maintainable or not?
ii) Whether there is any deficiency in service or unfair trade practice from the side of the opposite party to the complainant?
iii) If so, whether the complainant is entitled to get any relief from the side of the opposite party?
iv) Costs of the proceedings if any?
7) The issues mentioned above are considered together and are answered as follows:
As per Section 2 (1) (d) of the Consumer Protection Act,1986, a consumer is a person who buys any goods or hires or avails of any services for a consideration that has been paid or promised or partly paid and partly promised, or under any system of deferred payment. The complainant had produced true Copies of the Overdraft (OD) agreements for the period from 2011 to 2019 and the insurance policies for the period from 2011 to 2019. (EXHIBIT A-1). Hence, the complainant is a consumer as defined under the Consumer Protection Act, 1986 (Point No. i) goes against the opposite parties.
The essence of the complaint lies in the failure of the 1st opposite party to fulfil their obligation to pay the premium necessary to reinstate the insurance coverage for the shop's stock, which was hypothecated to them.
We have heard Sri. Tom Joseph, the learned counsel appearing for the complainant. The above mentioned lapses constituted a deficiency in service, rendering both opposite parties jointly and severally responsible for compensating the losses incurred due to the flood. Supporting evidence has been provided through Exhibits A1 to A6, presented on behalf of the complainant. During the proceedings, PW1 was examined, and Exhibit B1 was introduced by the opposite parties.
A critical argument raised by the 1st opposite party suggests they are not obligated to renew the insurance policy. However, a detailed examination of the Exhibit A1 series of insurance policies reveals that the 1st opposite party, acting as the policy's agent/broker, has historically undertaken the renewal of the policy by debiting the premium from the complainant's account. This is further corroborated by Clause 4 of the Exhibit A1 Overdraft (OD) agreement, which explicitly obligates the 1st opposite party to timely renew the policy. The precedent set by the Honorable National Consumer Disputes Redressal Commission in the case of PUNJAB & SIND Bank vs. Manojkumar is directly relevant and supports the complainant's position.
In response to the assertions made by the 2nd opposite party, who argued the absence of a direct contract with the complainant, it must be noted that they had provided insurance coverage for the complainant's stock-in-trade up until 2018. As such, it was incumbent upon them to notify the complainant about the policy's renewal status. The evidence, particularly Exhibit A6, demonstrates that the flood-damaged stock was valued at Rs. 7,65,705, establishing the complainant's entitlement to the relief sought in the complaint.
Consequently, the complainant requests that the complaint be upheld and the sought-after relief be granted.
Sri. V.A. Ajaikumar,, the learned counsel appearing for the 1st Opposite Party, submitted argument notes countering the complaint by the proprietor of M/s. Rosmy Tech, who seeks Rs. 19,00,000 with interest as compensation for alleged stock loss due to flood damage, attributed to the non-renewal of insurance by the 1st Opposite Party (the bank). Both the 1st and 2nd Opposite Parties have disputed the claims.
The crux of Ajaikumar's argument hinges on the Hypothecation Agreement and a Stock Statement (Exhibit B1), which indicate it was the complainant's responsibility to insure the hypothecated goods. The Stock Statement reflects no loss or damage to the stock during the flood, contradicting the claim of a Rs. 19,00,000 losses. The complainant, during cross-examination, failed to produce evidence substantiating the claimed loss, and the goods being hardware items, are argued to be unlikely affected by water damage.
He asserts that under the Hypothecation Agreement, the bank is not obligated to insure the hypothecated goods; it is a discretionary measure if the borrower fails to do so. This stance is supported by the ruling in Rahul Electrical Vs. State Bank of India by the National Consumer Disputes Redressal Commission, which states the bank has no duty to insure the goods unless the borrower neglects to and even then, the insurance costs can be charged to the borrower.
The submission also critiques the validity of Exhibit A6, a statement from a Chartered Accountant, for not being substantiated by examination. Given the lack of concrete evidence of loss and the intact stock as per Exhibit B1, Ajaikumar concludes the complaint is frivolous and requests its dismissal, arguing there's no service deficiency on part of the 1st Opposite Party.
Sri. Joy Joseph, the learned counsel appearing for the second Opposite Party, submitted an argument note challenging the complainant's case on several grounds.
Joseph argues that the complaint lacks legal and factual grounds against the 2nd OP because there was no active insurance policy covering the alleged loss. Since the damaged property was not insured with the 2nd OP at the time of loss, and no claim was reported to them, Joseph asserts that there is no consumer relationship or dispute under the Consumer Protection (CP) Act, negating any allegations of service deficiency or unfair trade practice.
Joseph emphasizes that the complaint improperly targets the 1st OP for failing to secure insurance for the hypothecated property damaged in the flood, noting the complainant's admission that the property was uninsured at the loss time. He points out inconsistencies in policy renewal practices by the complainant or their bankers, highlighting gaps between policy expirations and renewals, suggesting negligence on their part rather than the insurer's.
The argument extends to legal obligations under the Insurance Act, 1938, specifying that insurance coverage commences only upon premium receipt, and in this case, no premium was paid for the period leading up to the loss. Joseph also refutes any obligation on the part of the 2nd OP to send renewal notices, arguing that it is the property owner's responsibility to maintain continuous insurance coverage.
Joseph further clarifies the roles and responsibilities defined in the Hypothecation Agreement and other relevant documents, asserting that the duty to procure insurance was solely the complainants. He concludes by stating that the 2nd OP, governed by the Insurance Act and not party to the Hypothecation Agreement, cannot be held liable for the complainant's failure to secure insurance, requesting the complaint against the 2nd OP be dismissed.
In the case of Punjab & Sind Bank vs. Manoj Kumar Vijan (deceased) & Others, decided on January 25, 2019, by the Honorable National Consumer Disputes Redressal Commission and reported in (2019) CPJ 424 (NC), the Consumer Protection Act, 1986, specifically Sections 2(1)(g), 14(1)(d), and 21(a)(ii), was invoked in relation to banking and financial institutions' services. The issue centered on a fire accident claim that was denied by the insurance company due to the lapse of the policy caused by non-payment of the premium. The the Honorable State Commission found in favour of the complainant, leading to an appeal.
The bank had initially purchased the insurance policy in 2011, paying the premium by debiting it from the borrower's account. This practice of reviving the policy by paying the premium continued, with the costs debited from the respondent's account. This established a precedent where the respondent was under the impression that the bank would maintain the policy in force by handling the premiums in the same manner. There was no evidence to suggest that the respondents had ever challenged this practice.
However, the bank failed to inform the complainants that the premium had not been paid after December 20, 2013, leaving them unaware and assuming the policy was active. The bank's silence and inaction, despite previously assuming the responsibility of premium payments, constituted a failure in service delivery, amounting to a proven deficiency.
Having considered the complaint, versions, and arguments presented by both parties, the evidence provided, and relevant laws and judgments, the Commission hereby summarizes as follows:
Deficiency in Service and Negligence:
Upon careful examination of the evidence, including Exhibits A1 to A6, and the arguments put forth, it is evident that the 1st Opposite Party had a tacit agreement to renew the insurance policy, as evidenced by their consistent practice of debiting the premium from the complainant's account. This established a legitimate expectation on the part of the complainant for continuation of the policy coverage, which the 1st Opposite Party failed to fulfill.
The Honorable commission draws attention to the case Punjab & Sind Bank vs. Manoj Kumar Vijan (2019) CPJ 424 (NC), which elucidates the obligation of the service provider to act in the best interest of the consumer. Despite the discretionary power regarding the insurance of hypothecated goods, the consistent action of renewing the policy constituted an implied service, the failure of which amounts to deficiency.
The argument presented by the 2nd Opposite Party, emphasizing the complainant's status as a commercial entity, fails to recognize the applicability of the Consumer Protection Act, 1986, to cases where services related to commercial purposes suffer due to negligence or deficiency.
The evidence submitted, particularly Exhibit A6, clearly documents the loss suffered by the complainant due to the flood, contradicting the 1st Opposite Party's claim of no damage. The lack of notification about the policy lapse further establishes negligence on the part of both Opposite Parties.
Liability of the Opposite Parties:
Both Opposite Parties are found jointly and severally liable for the deficiency in service. The 1st Opposite Party's failure to renew the insurance policy and the 2nd Opposite Party's failure to notify the complainant of the policy's status directly resulted in the complainant's financial loss.
We conclude that issues number I to IV are resolved in favor of the complainant due to significant service deficiencies on the part and unfair trade practices of the opposite parties. As a result, the complainant has endured considerable inconvenience, mental distress, hardships, and financial loss stemming from the negligence of the opposite parties.
In view of the above facts and circumstances of the case, we are of the opinion that the opposite parties are liable to compensate the complainant.
Hence the prayer is partly allowed as follows:
- The Opposite Parties shall pay the complainant a sum of ₹19,00,000/- (Nineteen Lakhs only) for the loss of stock, as evidenced by Exhibit A-6.
- The Opposite Parties shall also pay the complainant a sum of ₹20,000/- (Twenty Thousand Rupees Only) towards the cost of the proceedings.
The Opposite Parties are jointly and severally responsible for complying with the directions mentioned above, which must be fulfilled within 30 days from the date they receive a copy of this order. In case of non-compliance with the directives outlined in point I above, an interest rate of 9% per annum will be imposed from the date the complaint was filed (21-11-2019) until the full payment is realized.
Pronounced in the Open Commission on this the 29th day of February, 2024
Sd/-
D.B.Binu, President
Sd/-
V. Ramachandran, Member
Sd/-
Sreevidhia.T.N, Member
Forwarded/By Order
Assistant Registrar
APPENDIX
COMPLAINANT EVIDENCE
Exhibit A1: Copies of the Overdraft (OD) agreements for the period from 2011 to 2019 and the insurance policies for the period from 2011 to 2019.
Exhibit A2: Copy of the policy schedule for the period from June 4, 2016, to June 3, 2017.
Exhibit A3: A copy of the complaint submitted to the Banking Ombudsman.
Exhibit A4: Copy of the reply filed by the 1st opposite party before the Ombudsman.
Exhibit A5: Copy of the complaint lodged before the High Court Legal Services Authority.
Exhibit A6: Documentation evidencing that the damaged stocks, affected by the flood, were valued at Rs. 7,65,705.
OPPOSITE PARTY’S EVIDENCE
Exhibits-B-1 True copy of Stock Statement dated 05.09.2018 submitted by the Complainant to the 1st Opposite Party.
Despatch date:
By hand: By post
kp/
CC No. 453/2019
Order Date: 29/02/2024
