Beneficiaries of insurance taken by the insured are also consumer

CANARA BANK (PETITIONER) VS. UNITED INDIA INSURANCE CO. LTD. (RESPONDENT)- SUPREME COURT OF INDIA
DATED: 06/02/2020

THE APEX COURT HELD THAT

Beneficiaries of policies taken by the insured are also consumers under the Consumer Protection Act, 2019.

BRIEF FACTS

1. The most of the claimants, hereinafter referred to as 'the farmers', had grown Byadgi Chilli Crop during the year 2012-¬2013. 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.

2. The cold store was insured with the United India Insurance Company Limited, hereinafter referred to as 'the insurance company'.

3. 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.

5. 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 companyon 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.

6. 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.

7. 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 2012¬2013 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.

8. STAND OF FARMERS ;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.

9. STAND OF INSURANCE COMPANY 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.

10. STAND OF COLD STORAGE- 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.

11. 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 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.

12. THE NATIONAL CONSUMER DISPUTE RESOLUTION COMMISSION: 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 annum to 12% per annum.

13. APPEAL BEFORE SUPREME COURT& OBSERVATIONS

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

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 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 thirdparties. It is contended that in some cases the tripartite agreement has not even been signed by the Bank.

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.

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 xxxxxx

(d) "consumer" means any person who, ¬

(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…;”

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.

14. 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. Sub¬clause (i) of Section 2(1)(d) 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.

15. 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.

THE APEX COURT DISPOSE OF THE APPEALS AS FOLLOWS

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 @ 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.

7) Thereafter, the insurance company shall deposit the amount payable to the farmers with the State Commission on or before 30.04.2020.

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.