Supreme Court of India
NEW INDIA ASSURANCE COMPANY LTD. THROUGH ITS MANAGERversusM/S TATA STEEL LTD.
- Citation
- 2024 INSC 356
- Decided
- 30 April 2024
- Disposal
- Disposed off
- Bench
- SURYA KANT
Holding
The Reinstatement Value Clause formed part of the policy but was rendered ineffective because the insured was unable or unwilling to reinstate, and the insurer was justified in settling the claim on a depreciation basis with a 60% rate, rendering the reliance on Oswal Plastic Industries inapplicable.
Summary
The insured, Tata Steel Ltd., suffered a fire that destroyed its 20‑Hi cold rolling mill and claimed Rs 35.08 crore under a fire policy issued by New India Assurance Co. Ltd. (NIACL). The policy contained a Reinstatement Value Clause, but the insured failed to provide required documents and could not replace the mill with an identical unit, installing only a 6‑Hi mill instead. NIACL therefore invoked the clause’s special provision that rendered it ineffective and settled the claim on a depreciation basis, applying a 60% depreciation to a base value of Rs 20.09 crore, resulting in a payout of Rs 7.88 crore. The insured challenged the applicability of the Reinstatement Value Clause and the depreciation rate, relying on the Oswal Plastic Industries judgment. The Supreme Court held that the clause was part of the policy but became ineffective, that NIACL was justified in using the depreciation method with 60% depreciation, and that the Oswal Plastic Industries precedent was inapplicable. Consequently, the Court set aside the NCDRC order and upheld NIACL’s settlement.
Issues considered
- Whether the Reinstatement Value Clause was part of the insurance policy
- Whether NIACL was justified in computing loss on a depreciation basis and fixing depreciation at 60%
- Whether the insured could rely on the judgment in Oswal Plastic Industries to claim reinstatement value
- To what reliefs the parties are entitled
Legislation cited
Subjects
insurancereinstatement value clausedepreciationclaim settlementpolicy interpretationconsumer disputeNCDRCcivil appealinsurance law
Judgment
[2024] 5 S.C.R. 285 : 2024 INSC 356
New India Assurance Company Ltd.
Through its Manager
v.
M/s Tata Steel Ltd.
(Civil Appeal No. 2759 of 2009)
30 April 2024
[Surya Kant and K.V. Viswanathan,* JJ.]
Issue for Consideration
A claim for 35.08 crores was filed by the insured after the ‘20 Hi Cold
Rolling Mill’ was totally destroyed due to fire. Since running of the
company was important, the Insured got a new 6 Hi Cold Rolling Mill
installed in its unit and commenced production. Admittedly, based
on the interim report of the surveyors, a sum of Rs.4,92,80,905/-
was released in favour of the Insured by NIACL-insurer. Thereafter,
the Insured gave consent for receiving Rs.20.95 Crores as net
adjusted loss. However, the NIACL computed depreciation at 60%
and settled the claim on 03.01.2003 stating the loss amount as
Rs.7.88 Crores. The issues arising for consideration are as follows:
(i) Was the Reinstatement Value Clause part of the policy; (ii)
Was NIACL justified in computing loss on depreciation basis and
fixing depreciation at 60%; (iii) Is the Insured justified in claiming
reinstatement value by placing reliance on the judgment in Oswal
Plastic Industries.
Headnotes
Insurance – Reinstatement value clause – Whether the
memorandum consisting of the Reinstatement Value Clause
was a part of the policy – The Insured contended that the
memorandum containing the Reinstatement Value Clause was
not part of the policy:
Held: The contention of the insured rejected – This is for the reason
that before the NCDRC in the written statement filed by the NIACL it
was specifically pleaded that copy of the fire policy was not attached
with the Reinstatement Value Clause issued along with the policy,
so the answering Respondent-insurer (NIACL) was filing the copy
of the policy with complete terms and conditions and clauses along
with the written statement – In the replication filed by the Insured,
there was no denial of this averment. [Paras 31 and 32]
* Author
286 [2024] 5 S.C.R.
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Insurance – Computation of loss on depreciation basis – Was
NIACL justified in computing loss on depreciation basis and
fixing depreciation at 60%:
Held: It emerges clearly that under the main terms of the policy the
company was to pay the Insured the value of the property at the
time of happening of the destruction (except where NIACL opts to
reinstate) – There was a special memorandum attached to the policy
– That memorandum was the Reinstatement Value Clause which
substituted the basis upon which the amount was payable from the
value on the date of destruction to the cost of replacing or reinstating
the property i.e. property of the same kind or type but not superior
or more extensive than the insured property when new – However,
as it transpires the said memorandum ceased to have any force
since the Insured was unable and unwilling to replace or reinstate
the property – Special Provision 4 (b) of the memorandum applied
and rendered the Reinstatement Value Clause ineffective – Also,
the Insured under Clause 6(b) of the conditions had an obligation to
give NIACL all such further particulars, plans, specifications, books,
vouchers and invoices with respect to the claim – It is sufficiently
brought out that in spite of the surveyors writing to the Insured
repeatedly (on 14.12.1998, 03.05.2002, 24.06.2002 and 07.08.2002),
there was no information forthcoming from the Insured about the
invoices as proof of the value of the damaged equipment and the
cost of the new equipment – Instead, the insured originally undertook
that they will reinstate the damaged property; received the on account
payment of Rs.4,92,80,905/- and informed NIACL that they have
placed order for repair of 20 Hi Cold Rolling Mill – Thereafter by their
letter of 16.06.1999, the Insured sought assessment of net adjusted
loss at Rs.20.95 Crores – The surveyors of NIACL kept asking for
the basic and relevant particulars, the Insured without furnishing
the same kept asking for the settlement of the money – NIACL
did not completely repudiate the claim – NIACL cannot be faulted
for resorting to depreciation method – NIACL was also justified in
writing the letter of 12.11.2002 (to increase the depreciation to 60%)
because after reviving the demand to reinstate the plant, the Insured
failed to furnish the documents required and even admittedly the
plant as allegedly reinstated was of 6 Hi Cold Rolling Plant and
not 20 Hi Cold Rolling Plant – An additional affidavit was also filed
by NIACL before NCDRC to clarify the established practice for
computing depreciation – The base figure of Rs. 20.09 crores was
kept intact – Insured stood to gain by keeping figure at Rs. 20.09
[2024] 5 S.C.R. 287
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
crores – The depreciation at 60% upheld – Thus, the NIACL rightly
ordered the settlement of the claim on 03.01.2003 stating the loss
amount as Rs.7.88 Crores and ordering the balance amount of 2.88
crores be paid after adjusting the on account payment. [Paras 57,
58, 59, 66, 68, 69, 70, 71]
Insurance – Is the Insured justified in claiming reinstatement
value by placing reliance on the judgment in Oswal Plastic
Industries:
Held: No clause similar to the memorandum of reinstatement
value clause appears to have existed in Oswal Plastic Industries
– Oswal Plastic Industries has no application to the facts of the
present case. [Para 75]
Case Law Cited
Oswal Plastic Industries v. Manager, Legal Deptt
N.A.I.C.O. Ltd. [2023] 1 SCR 985 : 2023 SCC OnLine
SC 43; Sri Venkateswara Syndicate v. Oriental Insurance
Co. Ltd. [2009] 14 SCR 57 : (2009) 8 SCC 507;
Dharmendra Goel v. Oriental Insurance Co. Ltd. [2008]
11 SCR 578 : (2008) 8 SCC 279; Sumit Kumar Saha
v. Reliance General Insurance Company Ltd. [2019] 1
SCR 763 : (2019) 16 SCC 370 – held inapplicable.
List of Acts
Insurance Act, 1938; IRDA (Protection of Policyholders’ Interests)
Regulations, 2002.
List of Keywords
Insurance; Reinstatement value clause; Report of the surveyors; Net
adjusted loss; Consumer Complaint; Depreciation; Computation of
loss on depreciation basis; Cost of replacing or reinstating the property.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2759 of 2009
From the Judgment and Order dated 05.08.2008 of the National
Consumers Disputes Redressal Commission, New Delhi in CC No.
233 of 2000
With
Special Leave Petition (Civil) No. 10001 of 2009 and Civil Appeal
Nos. 5242-5243 of 2009
288 [2024] 5 S.C.R.
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Appearances for Parties
Joy Basu, Sanjay Jain, Sr. Advs., Ms. Nandini Gore, Ms. Sonia Nigam,
Akhil Abraham Roy, Mohammad Shahyan Khan, Arvind Thapliyal,
Siddhant Grover, Surya Kapoor for M/S. Karanjawala & Co., Vishnu
Mehra, Ms. Manjeet Chawla, Ms. Harshita Sukhija, Nishank Tripathi,
Yuvraj Sharma, Ms. Palak Jain, Mrs. Manik Karanjawala, Mrs. Usha
Pant Kukreti, Advs. for the appearing parties.
Judgment / Order of the Supreme Court
Judgment
K.V. Viswanathan, J.
1. Leave granted in SLP (Civil) No. 10001 of 2009.
2. I.A. No. 48152 of 2022 in Civil Appeal No. 2759 of 2009 is filed by
the Respondent [earlier known as M/s Bhushan Steel and Strips
Ltd, hereinafter referred to as the “Complainant” or the “Insured”]
seeking change of its name in the proceedings to ‘Tata Steel Ltd’. The
Complainant/Insured has filed similar IAs in the connected appeals
filed by it. It is stated that the name of the Complainant/Insured
was changed to ‘Bhushan Steel Ltd’ in the year 2007. Thereafter
while these appeals were pending, the company underwent a
Corporate Insolvency Resolution Process and was successfully
taken over by ‘Tata Steel Ltd’ on 27.11.2018 and was renamed as
‘Tata Steel BSL Ltd’. Thereafter, it is seen that the Complainant/
Insured further underwent a merger/amalgamation and was finally
merged/amalgamated with ‘Tata Steel Ltd’ w.e.f. 11.11.2021. In
view of the said facts, all the applications for change of name are
allowed.
3. These are four Civil Appeals arising out of the proceedings in Original
Petition No. 233 of 2000 before the National Consumer Disputes
Redressal Commission, New Delhi [“NCDRC”].
4. Civil Appeal No. 2759 of 2009 has been filed by the New India
Assurance Company Limited [hereinafter referred to as “NIACL” or
the “Insurer” or the “Insurance Company”] challenging the order
dated 05.08.2008 of the NCDRC. By the said order, the NCDRC
partly allowed the complaint of the Insured. The NCDRC awarded
an amount of Rs.13,15,27,000/- with interest at 10% per annum from
the expiry of two months since the submission of survey report dated
[2024] 5 S.C.R. 289
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
11.12.2001, payable to the Insured. The amount already paid by the
Insurance Company was ordered to be adjusted and a cost of Rs.
50,000/- was also awarded to the Insured. NIACL, in this Appeal,
is aggrieved with the finding that the Complainant’s claim must be
settled, based on calculating depreciation at the rate of 32% - and
not 60%.
5. The Civil Appeal arising out of SLP(Civil) No. 10001 of 2009
has been filed by the Insured/Complainant. The grievance here
is against the dismissal of Misc. Application No. 298 of 2008 in
Original Petition No. 233 of 2000 seeking review of the order
dated 05.08.2008.
6. Civil Appeal Nos. 5242-5243 of 2009 have been filed by the Insured/
Complainant against the main order dated 05.08.2008 (passed in
O.P. No. 233 of 2000) and order dated 29.08.2008 (allowing the
application for rectification and correcting the figure awarded to Rs.
13,51,27,000/- instead of Rs. 13,15,27,000/-) respectively.
7. The grievance pleaded by the Insured/Complainant in its connected
appeals is that the compensation awarded ought to have been greater
because, according to it, the base figure on which the depreciation
of 32% was computed should have been Rs.28 Crores and not
Rs.20,09,95,000/-. The claim was that, so computing, the amount
payable by NIACL should have been Rs. 18.91 Crores.
Brief Summary of Facts:
8. The Insured had taken an insurance policy from NIACL for the
entire machinery and equipment of its mill by paying a premium
of Rs.62,09,655/-. The policy was for the period 29.09.1998
to 28.09.1999. According to the Insured, due to a fire accident
on 12.12.1998, the ‘20 Hi Cold Rolling Mill’ fitted with imported
equipment was fully destroyed resulting in a loss of Rs. 35.08
crores. The incident of fire was intimated to NIACL on 12.12.1998
itself. Surveyors ‘M/s R.K. Singhal and Company Pvt. Ltd.’ and
subsequently ‘M/s A.K. Govil and Associates’ and ‘M/s P.C. Gandhi’
were appointed by NIACL. A claim for Rs. 35.08 crores was filed
on 29.01.1999. According to the Insured, this was based upon
the quotations received from various manufacturers of the said
machinery and the complete details of cost for replacing and/or
repairing the machines.
290 [2024] 5 S.C.R.
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9. The Insured also pleaded that since the running of the company
was important, it got a 6 Hi Cold Rolling Mill installed in its unit and
commenced production by spending Rs.29.60 crores apart from
excise duties.
10. Admittedly, based on the interim report of the surveyors, a sum of
Rs.4,92,80,905/- was released in favour of the Insured by NIACL
on 24.03.1999. According to the Insured, after the release of the
amount, it placed an order with ‘M/s Flat Products Equipments (India)
Limited’ [“M/s Flat Products”] for reinstating the 20 Hi Cold Rolling
machine by replacing the totally damaged and partially damaged
parts for a total sum of Rs.25 crores, and paid Rs.3,75,00,000/- to
M/s Flat Products by way of advance payment. Further, a sum of
Rs.47.50 lacs on account of inspection charges of mill housing
and Rs. 25 lacs for transportation of mill housing were also paid.
According to the Insured, though it lost more than Rs. 25 crores,
in view of the persistence from the Insurance Company, vide letter
dated 16.06.1999, it gave consent for receiving Rs.20.95 Crores as
net adjusted loss to avoid loss of time.
11. According to the Insured, since no response was forthcoming and
the balance amount was not released, Consumer Complaint bearing
Case No. 233 of 2000 was filed by the Insured before the NCDRC
on 30.05.2000.
12. According to NIACL, after receipt of the information about the fire
accident on 12.12.1998, NIACL immediately appointed the surveyors
and soon thereafter, on the basis of the interim survey report, on-
account payments were made. The Joint Surveyors submitted their
report on 11.12.2001. The vigilance complaints were also closed
on 18.01.2002.
13. According to NIACL, it was only on 27.03.2002 that the Insured
informed NIACL about the fact of having already installed a new
6 Hi Cold Rolling Mill and requested them for joint inspection with
the surveyors. In the Joint Surveyors’ Report of 11.12.2001, the
loss was assessed at Rs.19.55 crores on replacement basis and
Rs.13.51 crores on depreciation basis. The surveyors, on 03.05.2002,
requested the Complainant to furnish several information for which
there was no response. It was contended by NIACL that the plea of
the Insured in their letter of 27.03.2002 that it had placed an order
for cold rolling mill on 11.01.1999 and the same was installed in
[2024] 5 S.C.R. 291
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
September-October, 1999 at the cost of Rs. 31.37 crores and the
prayer that the replacement should be treated as reinstatement, is
completely unacceptable. The machine installed is 6 Hi Cold Rolling
as against the damaged mill which was 20 Hi Cold Rolling. According
to NIACL, the claim has been rightly settled at Rs.7.88 Crores.
Proceedings before the NCDRC:
14. Though several other points were argued before us by the Insured,
the point canvassed before the NCDRC [and pleaded in the Insured’s
connected Appeals] related only to the calculation of depreciation. The
argument taken by the Insured before the NCDRC was that NIACL
was not justified in computing depreciation at 60% while the surveyors
in the reports had recommended 32% as depreciation. The NCDRC
observed that the effort by the Insured to install a lesser capacity 6
Hi Cold Rolling Mill was an effort in desperation. It also found the
claim to be genuine. Addressing the issue of depreciation, it held
that after the initial recommendation in the Joint Surveyors’ Report
dated 11.12.2001 of computing 32% depreciation, the surveyors were
persuaded by the letter of the Insurance Company dated 12.11.2002
to increase the depreciation to 60%. An additional affidavit was called
for from the NIACL to justify the depreciation at 60%. After perusing
the affidavit, the NCDRC held that there were no standard guidelines
for calculating depreciation and that it had been calculated differently
for different units. According to the NCDRC, the affidavit quoted the
instances of very high depreciation just to suit the convenience of
NIACL. It may be mentioned that the affidavit relied on certain cases
where depreciation was computed at a maximum rate up to 75% -
80%. The NCDRC held that the issuance of the letter of the Insurance
Company to the Surveyors seeking revision of calculation was issued
eleven months after the Joint Surveyors’ Report dated 11.12.2001
and that this was not a healthy practice. So holding, it maintained
the depreciation at 32% and directed the payments as noted above.
Appeal to this Court:
15. The appeal by NIACL seeks depreciation to be fixed at 60%.
The Insured also in its appeals has focused only on the issue of
depreciation with the argument being that the base figure on which
32% depreciation was calculated should have been Rs.28 crores
and not Rs.20.09 crores. There are no other grounds raised in the
memo of the appeal.
292 [2024] 5 S.C.R.
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16. However, the Insured during the course of submission, while candidly
admitting that no other point had been raised in the memo of appeal,
relied on the judgment in Oswal Plastic Industries v. Manager, Legal
Deptt N.A.I.C.O. Ltd., [2023 SCC OnLine SC 43] to contend that the
reinstatement value should have been awarded in full and that in the
case of reinstatement value no question of depreciation arises. This
argument has been dealt with herein below at an appropriate stage.
Contentions of NIACL:-
17. Appearing for NIACL, learned Senior Counsel Mr. Sanjay Jain
contended that the insurance policy had a special condition in the
form of Reinstatement Value Clause; that there are two methods of
settlement of a claim depending on the nature of the policy, namely,
the reinstatement value basis and market value basis (or depreciation
basis); that under the Reinstatement Value Clause, the method of
indemnity was to be the “cost of replacing or reinstating the same i.e.
property of the same kind or type but not superior or more extensive
than the insured property when new”; that the reinstatement was to
be carried out by the Insured within 12 months or within such further
extended time; that para 2 of the Special Provisions provided that
until expenditure has been incurred by the Insured in replacing/
reinstating the damaged property, the Insurance Company shall not
be liable to pay any amount in excess of the amount which would
have been payable under the policy, if the said reinstatement clause
had not been incorporated; para 4 of the Special Provisions provided
that if the Insured expressed its intention to replace/reinstate the
damaged property and the Insured is unable or unwilling to replace
the damaged property on the same or another site, the reinstatement
clause was to be rendered ineffective.
18. Adverting to the impugned judgment, learned Senior Counsel
contended that the findings that (i) the insurer, out of sheer
desperation, bought the 6 Hi configuration; (ii) the depreciation rate
as calculated by the NIACL was erroneous; and (iii) NIACL’s letter
to the surveyor asking for a revised calculation was not a healthy
practice, are all erroneous findings which are completely untenable.
According to learned Senior Counsel, the Insured in violation of
the undertaking did not take any steps for reinstatement; that there
was no delay on the part of the Insurance Company and in fact on
account payment of Rs. 4,92,80,905/- had been released as early as
[2024] 5 S.C.R. 293
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
on 24.03.1999; that the NCDRC overlooked the fact that the Insured
did not comeback to the Insurance Company with any information
for about 08 months and only on 26.11.1999, followed by another
letter of 10.02.2000 asked for extension of time limit for reinstatement
of the insured property; that the same was accommodated by the
NIACL and on 07.03.2000, an extension of 12 months was given
and which time limit period was also not adhered to; that the Insured
after receiving the interim payment claimed that Rs. 3.75 crores were
advanced to M/s Flat Products and the said vendor neither repaired
the insured property nor replaced the same; that nearly two years
later on 28.06.2001, M/s Flat Products informed the Insured that
they had lost their expertise and, as such, the delay could not be
attributed to the NIACL; that the Insured informed the NIACL about
having installed a 6 Hi Cold Rolling Mill (as against the insured
property of 20 Hi Cold Rolling Mill), on 27.03.2002, without revealing
the date of actual installation and without giving any comparable
specification, which unilateral act cannot be termed as “an act of
sheer desperation” as termed by the NCDRC.
19. It is submitted by the learned Senior Counsel that under the
aforesaid circumstances, the Reinstatement Value Clause was
rendered inoperative. However, the Insurance Company gave another
opportunity to act in good faith and provide necessary specification
and particulars, which were not provided for, in spite of the undertaking
in the letter of 09.07.2002. Hence, by no stretch of imagination could
the delay be attributable to the Insurance Company.
20. Insofar as the percentage of depreciation was concerned, it was
contended that the NCDRC erroneously disregarded the affidavit
filed by the Insurance Company clarifying the standard practice. On
the finding about the practice adopted by the Insurance Company
as “not being a healthy practice”, Mr. Sanjay Jain submitted that the
NIACL gave ample opportunities to provide cogent material and it
is only upon their failure to furnish the necessary documents, as
obligated in the policy, that NIACL was constrained to settle the
claim on market value basis by applying the necessary percentage
of depreciation. It was contended that in the report of 11.12.2001,
the joint surveyors, while arriving at the depreciation rate of 32%,
did not have any material. Therefore, it was a prudent act on the
part of the NIACL to arrive at a calculation on the basis of market
value with the applicable rates of depreciation, after informing the
294 [2024] 5 S.C.R.
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surveyors that the reinstatement method was not an option any
longer. The learned Senior Counsel submitted that the claim was
finally assessed by the surveyors, who in their survey report dated
07.12.2002 and after computing the balance life of ten years arrived
at the depreciation rate of 60%. Hence, NIACL’s conduct in accepting
that report could not be said to be arbitrary. It was argued that there
was no disagreement on the surveyor’s report.
21. The learned Senior Counsel emphasized that even today, the Insured
has no definite proof available with regard to the actual age of the
mill and as to when it was procured from its vendor; or under what
circumstances and condition the same was procured and other
essential details. In this background, the assessment made by
the surveyors, who are experts, could not be said to be illegal or
untenable. The learned Senior Counsel further submitted that the
recommendation of depreciation at 32% was at the stage when no
material was forthcoming and was not supported by any cogent
material and clarity on this aspect emerged only on the report of
07.12.2002. According to the learned Senior Counsel, ground (D)
in Civil Appeal Nos.5242-5243 of 2009 records an admission of the
Insured about the NCDRC rightly proceeding on depreciation basis.
22. Learned Senior Counsel submitted that there was no ambiguity and
hence there is no room for the applicability of doctrine of contra
proferentem. The survey report of 11.12.2001 was prepared at a
premature stage with all relevant disclaimers. Alternatively, it was
submitted that under Section 64 UM (2) of the Insurance Act, 1938,
the NIACL was entitled to differ from the recommendation of the
surveyor.
23. Learned Senior Counsel strongly refuted the reliance placed in the
convenience compilation, by the Insured on the judgment in Oswal
Plastic Industries (supra). Learned Senior Counsel contended
that Oswal Plastic Industries (supra) was not a case with the
Reinstatement Value Clause as a special condition. Learned Senior
Counsel contended that unlike in Oswal Plastic Industries (supra),
Clause 9 had no application to the facts of the present case. That in
any event documents were not provided by the Insured to NIACL.
Dealing with Regulation 9(3) of the IRDA (Protection of Policyholders’
Interests) Regulations, 2002 [“IRDA Regulations”], learned Senior
Counsel submitted that the joint surveyors report dated 07.12.2002
was for all intents and purposes the original surveyors report and as
[2024] 5 S.C.R. 295
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
such Regulation 9(3) assuming it to be mandatory had no application.
Alternatively, it was contended that Regulation 9(3) is only directory.
24. Insofar as the cross appeal is concerned, the learned Senior Counsel
contended that the claim for the base figure as Rs. 28 crores is
absolutely unjustified, there being no cogent material to support the
same. In fact, the stand of the Insured was that its vendor M/s Flat
Products had expressed its inability due to loss of expertise and the
same was conveyed two years after receiving the advance. For all
these reasons, the learned Senior Counsel prayed that the appeal
of NIACL be allowed and the appeals of the Insured be dismissed.
Contentions of the Insured/Complainant: -
25. Mr. Joy Basu, learned Senior Counsel appearing for the Insured,
at the very outset, contended that the memorandum containing the
Reinstatement Value Clause was never part of the policy document
issued by the NIACL. This memorandum, according to the learned
senior counsel, was never received by the Insured. Without prejudice
to the same, it is contended that Clause 9 of the conditions in the
policy has to be read in conjunction with the Reinstatement Value
Clause. Since, as per para 4, the Reinstatement Value Clause got
extinguished, Clause 9 of the conditions became applicable.
26. Learned Senior Counsel submitted that in terms of Clause 9 where
reinstatement/repair is not possible, the surveyor’s assessment of
reinstatement has to be complied with. Learned senior counsel relied
on the judgment in Oswal Plastic Industries (supra). Learned
Senior Counsel contended that the interpretation of Clause 9 was
laid down only by the Oswal Plastic Industries (supra) judgment
in January, 2023 and as such the Insured should be allowed
to canvass the argument based on Oswal Plastic Industries
(supra). According to learned Senior Counsel, the inability/failure
to reinstate as contemplated in the last part of the Clause 9 is the
failure of the NIACL. Learned Senior Counsel further contended
that it is only with the hope of an expedited settlement that the
Insured accepted the lower figure of Rs. 20.95 Crores. Calculating
on reinstatement basis, the surveyors in their report of 11.12.2001
arrived at the figure of Rs. 19.55 crores without application of any
depreciation. According to the Insured, the amount further due is
Rs.11,80,87,699/-.
296 [2024] 5 S.C.R.
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27. Alternatively, it is submitted by the learned Senior Counsel that even
if the market value basis is to be applied, depreciation has to be
calculated on the sum insured of Rs. 80 crores. To support this plea,
learned Senior Counsel relied on Dharmendra Goel vs. Oriental
Insurance Co. Ltd. (2008) 8 SCC 279. Further, without prejudice,
it is contended that if depreciation was not to be calculated on the
sum insured, then the depreciation has to be calculated on the cost
of the new locally sourced 20 Hi Cold Rolling Machine which would
cost Rs. 25 crores plus taxes totaling Rs 28 crores. Further, it is
contended that the depreciation rate was 32% as mentioned by the
surveyors in their report of 11.12.2001 and NIACL has not adduced
any reasons for deviating from the recommendation of the surveyors.
Learned Senior Counsel submitted that the surveyor’s response of
07.12.2002 was “a reluctant response from an embarrassed surveyor”
to the letter of NIACL dated 12.01.2002 which, according to the learned
senior counsel, was a letter by the insurer asking the surveyors to
compute maximum depreciation. In any event, according to the learned
Senior Counsel, the doctrine of contra proferentem applied and the
interpretation in favour of the Insured should have been adopted. It
was argued that there was a breach of Regulation 9(3) of the IRDA
Regulations. So contending, the learned senior counsel prayed that
the appeal of NIACL be dismissed and the cross appeals of the
Insured be allowed.
Questions before this Court:
28. In the above background, the questions that arise for consideration
are as follows:
i. Was the Reinstatement Value Clause part of the policy?
ii. Was NIACL justified in computing loss on depreciation basis
and fixing depreciation at 60%?
iii. Is the Insured justified in claiming reinstatement value by placing
reliance on the judgment in Oswal Plastic Industries (supra)?
iv. To what reliefs are the parties entitled?
Discussion and Reasons:
29. At the outset, it is important to set out the crucial clauses of the
policy in question.
[2024] 5 S.C.R. 297
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
Fire Policy “C”
In consideration of the insured name in the schedule
hereto having paid to the New India Assurance
Company Limited (hereinafter called the company)
the premium mentioned in the said schedule. THE
COMPANY AGREES (subject to the Condition and
Exclusions contained herein or endorsed or otherwise
expressed hereon) that it after payment of the
premium the property Insured described in the said
schedule or any part of such property, be destroyed
or damaged by:
1. Fire
……
6. ….. 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 will 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 opinion reinstate or replace such
property or any part thereof.
Conditions
……
6. (i) On the happening of any loss or damage the
insured shall forthwith give notice thereof to the
company and shall within 15 days after the loss or
damage or such further time as the Company may in
writing allow in that behalf, deliver to the company;
a. A claim in writing for the loss or damage containing
as particular an account as may be reasonably
practicable of all the several articles or items or
property damaged or destroyed, and of the amount
of the loss or damage thereto respectively, having
regard to their value at the time of the loss or,
b. Particular of all other insurance, if any:
298 [2024] 5 S.C.R.
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The insured shall also at all times at his own expense
produce, procure and give to the company all such
further particulars, plans, specifications, books,
vouchers, invoices, duplicates or copies thereof,
documents investigation reports (internal/external),
proof and information with respect to the claim and
the origin and cause of the insured perils and the
circumstances under which the loss or damage
occurred, and any matter touching the liability or the
amount of the liability of the Company as may be
reasonably required by or on behalf of the Company
together with a declaration on Oath or in other legal
form of the truth of the claim and of any matter
connected therewith.
No claim under this policy shall be payable unless
the terms of this condition have been complied with.
30. Two other important clauses viz., Clause 9 of the Conditions and
the memorandum containing the Reinstatement Value Clause are
extracted below at the appropriate place in the discussion.
Answer to Question No (i) :-
31. There was a debate at the Bar as to whether the memorandum
consisting of the Reinstatement Value Clause (extracted later in
the judgment) was a part of the policy. The argument was raised by
senior counsel for the Insured who contended that the memorandum
containing the Reinstatement Value Clause was not part of the policy.
We reject this contention at the outset. This is for the reason that
before the NCDRC in the written statement filed by the NIACL, in
para 3, it was specifically pleaded as under:
“The copy of the fire policy at pages 13 to 22 is a true
copy of the policy issued by the Respondent. However, the
Reinstatement Value Clause issued along with the policy
is not attached to the same. The answering Respondent
is filing herewith the copy of the policy with complete
terms and conditions and clauses as Annexure R-1 to
this written Statement.”
32. In the replication filed by the Insured, there was no denial of this
averment. Hence, we reject the contention of the Insured that the
[2024] 5 S.C.R. 299
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
memorandum of the Reinstatement Value Clause was not the
part of the policy. There are other factors which establish that
the Reinstatement Value Clause was part of the Policy. They are
discussed hereinbelow. Issue (i), set out above, is answered in favor
of NIACL.
Discussion of Question No. (ii) :-
33. Coming back to the clauses in the insurance policy, it will be seen
that the assurance in the opening clause of the policy was that NIACL
will 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.
In the conditions, it was incorporated that the Insured was at all
times at its own expense to produce, procure and give to NIACL
all such further particulars, plans, specifications, books, vouchers,
invoices, duplicates or copies thereof, documents, investigation
reports (internal/external), proof and information with respect to the
claim and all matters provided for in Clause 6. It is also stipulated
that no claim under this policy was payable unless the terms of this
condition was complied with.
34. Clause 9 of the Conditions states that if NIACL, at its option, reinstate
or replace the property damaged or destroyed, or any part thereof,
instead of paying the amount of loss or damage, or join with any
other company or Insurance in so doing, NIACL shall not be bound
to reinstate exactly or completely but only as circumstances permit
and in reasonably sufficient manner, and in no case shall NIACL be
bound to spend more in reinstatement than it would have cost to
reinstate such property as it was at the time of occurrence of such
loss or damage nor more than the sum insured by the Company
thereon. Clause 9 reads as follows:
“9. If the company at its option, reinstate or replace the
property damaged or destroyed, or any part thereof, instead
of paying the amount of the loss or damage, or join with
any other company or insurance, in so doing, the company
shall not be bound to reinstate exactly or completely but
only as circumstances permit and in reasonably sufficient
manner and in no case shall the company be bound to
spend more in reinstatement than it would have cost
to reinstate such property as it was at the time of the
300 [2024] 5 S.C.R.
Digital Supreme Court Reports
occurrence of such loss or damage nor more than the
sum insured by the Company thereon,
If the Company so elect to reinstate or replace an property
the insured shall at his own expense furnish the company
with such plans, specifications, measurements, quantities
and such other particulars as the company may require, and
no acts done, or caused to be done, by the company with
a view to reinstatement or replacement shall be deemed
an election by the Company to reinstate or replace.
If in any case the Company shall be unable to reinstate
or repair the property hereby insured, because of any
municipal or other regulations in force affecting the
alignment of streets or the construction of buildings or
otherwise, the Company shall, in every such case, only be
liable to pay such sum as would be requisite to reinstate
or repair such property if the same could lawfully be
reinstated to its former condition.”
35. To the policy is attached the memorandum of the Reinstatement
Value Clause which reads as follows:
REINSTATEMENT VALUE CLAUSE
Attached to and forming part of policy No.
It is hereby declared and agreed that in the event of the
property Insured under (Items Nos. of ) the within policy
being destroyed or damaged, the basis upon which the
amount payable under each of the said items of the
policy is to be calculated, shall be the cost of replacing
or reinstating on the same, i.e. property of the same
kind or type but not superior or more extensive than
the insured property when new subject to the following
Special Provisions and subject also to the terms and
conditions of the policy except manner as the same may
be varied hereby.
SPECIAL PROVISIONS
1. The work of the replacement or reinstatement (which
may be carried out upon another site and in any
manner suitable to the requirements of the insured
[2024] 5 S.C.R. 301
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
subject to the liability of the Company not being
thereby increased) must be commenced and carried
out with reasonable dispatch and in any case must be
completed within 12 months after the destruction or
damage or within such further time as the company
may (during the said 12 months) in writing allow;
otherwise no payment beyond the amount which
would have been payable under the policy if this
memorandum had not been incorporated therein
shall be made.
2. Until expenditure has been incurred by the Insured
in replacing or reinstating the property destroyed or
damaged the company shall not be liable for any
payment in excess of the amount which would have
been payable under the policy if this memorandum
had not been incorporated therein.
3. If at the time of replacement or reinstatement the sum
representing the cost which would have been incurred
in replacement or reinstatement if the whole of the
property covered had been destroyed exceeds the
sum insured thereon at the breaking out of any fire or
at the commencement of any destruction of or damage
to such property by any other peril insured against by
this policy, then the Insured shall be considered as
being his own insurer for the excess and shall bear
a rateable proportion of the loss accordingly. Each
item of the policy (it more than one) to which this
Memorandum applies shall be separately subject to
the foregoing provision.
4. This Memorandum shall be without force or effect if:
(a) The Insured fails to intimate to the company
within 6 months from the date of destruction or
damage or such further time as the Company
may in writing allow, his intention to replace or
reinstate the property destroyed or damaged.
(b) The Insured is unable or unwilling to replace or
reinstate the property destroyed or damaged on
the same or another site.
302 [2024] 5 S.C.R.
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36. The memorandum of the Reinstatement Value Clause stipulates that
it was declared and agreed that in the event of the property Insured
under the policy being destroyed or damaged,
a. The basis upon which the amount payable under each of the
said items of the policy is to be calculated, shall be the cost of
replacing or reinstating on the same, i.e. property of the same
kind or type but not superior or more extensive than the insured
property when new subject to the following Special Provisions
and subject also to the terms and conditions of the policy except
manner as the same may be varied hereby.
b. The Special Provisions stipulate that the work of the replacement
or reinstatement must be commenced and carried out with
reasonable dispatch and in any case must be completed within
12 months after the destruction or damage or within such further
time as the company may (during the said 12 months) in writing
allow; otherwise no payment beyond the amount which would
have been payable under the policy if this memorandum had
not been incorporated therein shall be made.
c. Until expenditure has been incurred by the insured in replacing
the property destroyed or damaged, the company shall not be
liable for any payment in excess of the amount which would
have been payable under the policy if this memorandum had
not been incorporated therein.
d. If at the time of replacement or reinstatement the sum
representing the cost which would have been incurred in
replacement or reinstatement if the whole of the property
covered had been destroyed exceeds the sum insured thereon
at the breaking out of any fire or at the commencement of
any destruction of or damage to such property by any other
peril insured against by this policy, then the Insured shall be
considered as being his own insurer for the excess and shall
bear a rateable proportion of the loss accordingly. Each item of
the policy (if more than one) to which this memorandum applies
was to be separately subject to the following provisions.
e. This Memorandum was to be without force or effect if
i. The Insured fails to intimate to the company within 6 months
from the date of destruction or damage or such further
[2024] 5 S.C.R. 303
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
time as the Company may in writing allow, his intention to
replace or reinstate the property destroyed or damaged.
ii. The Insured is unable or unwilling to replace or reinstate
the property destroyed or damaged on the same or
another site.”
37. It is very clear from the above that the original terms of the policy
which provided for payment by NIACL of the value of the property
at the time of the happening of its destruction or the amount of such
damage was varied and the basis was changed. The changed basis
under the Memorandum of the Reinstatement Value Clause was
that the amount payable was to be calculated based on the cost of
replacing or reinstating the same, i.e. property of the same kind or
type but not superior or more extensive than the insured property
when new.
38. It is also clear that in view of the Reinstatement Value Clause, the
question of NIACL on the facts of the present case opting to reinstate
or replace under Clause 9 of the conditions of the policy does not
arise and with the same reasoning, the question of the applicability
of Clause 9 itself cannot arise.
Relevant Facts as they unfolded:-
39. At this stage, it is important to deal with the correspondence that
was exchanged between the parties to bring out as to how under
the Reinstatement Value Clause, it was the Insured who attempted
to reinstate or replace the property which was destroyed. As will be
clear from the sequence of the events, it was the Insured who was
either unable to or unwilling thereafter to reinstate the property. Let
us see how the facts unfolded. On 12.12.1998 i.e., the date of the
fire, the Insured intimated NIACL and requested for the surveyors
to be deputed. On 14.12.1998, the surveyors wrote to the Insured
requesting for various information including year wise capitalization,
balance sheets of the previous two years, copy of the original invoices
of affected items as well as fresh proforma invoice and the logbook
and any other maintenance record. In the reply of 18.12.1998, crucial
information with regard to the original invoice as well as proforma
invoice were not furnished. An interim survey report was prepared
on 04.02.1999 by the three surveyors in the joint report and that
report had the following disclaimer:
304 [2024] 5 S.C.R.
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“Based on the physical inspection carried out and limited
information made available by the Insured till then, the
above surveyors submitted their joint survey report on
22nd December 1998. Subsequently, the underwriters
appointed P.C. Gandhi & Associates as another joint
surveyors. The joint surveyors visited the insured factory
jointly and severally on various dates and carried out
detailed physical inspection of the subject machine besides
carrying out protracted discussions with the Insured official
accompanied by Supplier/Manufacturers of the Mill.”
40. The interim survey report noticed that the claim was for Rs.35
Crores and the effective claim excluding excise duty was Rs.30.28
crores. Dealing with the assessment of loss, in Para 14, it was
mentioned in the report that the Insured lodged their claim based
on the price breakup given by manufacturers which included cost
of supply, installation and commissioning but excluded excise, sales
tax, transportation and civil works. The report mentioned that the
price break-up given was accepted in general at that stage and that
comparable cost could not be possible from an alternative source.
Most importantly, in Para 14 (1.4), it was provided as under:
“Policy provides for Reinstatement clause and Insured have
confirmed verbally that they would reinstate the damages
without any delay. At this stage, reasonable depreciation
and salvage are adjusted for considering conservative on
Account Payment.”
41. This clause also reinforces the fact that Reinstatement Value Clause
proving for reinstatement by the Insured was part of the policy. So
finding at Para 15, the surveyor in their interim report concluded as
under:
“It may be noted that while assessing the provisional loss,
substantial margin has been kept, even after considering
the depreciation etc. Based on the limited verification
carried out till now, we are of considered opinion that
the minimum loss on Reinstatement Value Basis is like
to be around Rs. 1500 lacs and the maximum loss on
Reinstatement Value Basis after more detailed verifications
has been estimated at around Rs. 2500 lacs.
[2024] 5 S.C.R. 305
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
In consideration of the Insured’s request for an On Account
Payment, should be Underwriters so desire, they may
consider an On Account Payment of upto Rs. 720 Lacs
at this stage.”
It was clearly mentioned that the report was issued without prejudice,
and subject to terms and conditions of the relevant insurance policy.
42. This report was followed by a letter issued by the Insured on
10.02.1999.
“We undertake that reinstatement of damaged property
on account of fire loss caused on 12.12.1998, shall be
carried out by us within the stipulated time as per fire policy
No.1132160705785. We confirm that suggestions given in
the TAC and LPA report will be complied with during the
reinstatement of the mill.”
On 24.03.1999, on account payment of Rs. 4,98,80,905/- was made.
43. Thereafter, on 10.06.1999, the Insured wrote to M/s Flat Products
placing an order for repair of the ‘20 Hi Cold Rolling Mill’ and paying
them an amount of Rs. 3.75 crores as 15% advance. It transpires
that on 06.10.1999, the Chief Vigilance Officer of NIACL addressed
a letter to the General Manager, NIACL furnishing a report about
an anonymous complaint received stating that the fire was due to
arson and that there has been inflated assessments resulting in
approval of huge on account payments. The report concluded that
there was no indication that the fire was due to arson but there were
indications that the loss could have been assessed for highly inflated
amount. The Chief Vigilance Officer sounded a note of caution to
the following effect:
“Therefore, adequate precautions should be taken before
a final decision is taken in respect of the claim. We would
like to suggest that an opinion of technical expert in
the concerned field may be taken regarding extent and
assessment of loss in order to arrive at the actual loss
sustained by the claimant. You may also examine the
feasibility of having into depth technical investigation into
various objects of the claim.”
44. When matter stood thus on 16.06.1999, the Insured wrote to the
surveyors stating as under:
306 [2024] 5 S.C.R.
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“However, against contract price of Rs. 25 crores, we
agree and confirm to the assessment of the net adjusted
loss of Rs. 20,95,00,000/- (Indian Rupees Twenty Crores
Ninety Five Lakhs Only) after taking into account the items
of salvage & excess as applicable under the terms and
conditions of the policy.”
45. On 27.10.1999, the Insured wrote a letter to NIACL (inter alia referring
to the earlier letters of 21.08.1999, 05.10.1999 & 12.10.1999) stating
that in spite of the expiry of ten months, the claim amount has not
been settled, and that the supplier was asking them to make further
payment otherwise the work would not start. So stating a request was
made for the settlement of the claim at the earliest. This was followed
by another letter of 26.11.1999 stating that since the claim had not
yet been settled they could not progress in the reinstatement of the
mill. They also sought extension of 24 months for the reinstatement
of the mill.
46. The Insured also wrote a letter of 16.12.1999 referring to their earlier
letter of 23.07.1999 to the effect that the original invoices in respect
of Cold Rolling Mill were not available with them; that their supplier
M/s Flat Products has confirmed that the sale bill of the 20 Hi Cold
Rolling Mill is not available with them; they furnished a letter of M/s
Mukand Limited, Thane dated 09.12.1999 addressed to M/s Flat
Products confirming that two number of Mill Housings were supplied
by them to M/s Precision Equipment, a sister concern of M/s Flat
Products; a letter of M/s Flat Products dated 09.12.1999 that two
numbers of SENDZIMIR were sold to M/s Jawahar Metal Industries
Pvt. Limited, the previous name of the Insured and that housing for
these mills were procured from M/s Mukand Ltd. vide their invoice
dated 23.03.1988 and 09.01.1989.
47. In substance, no concrete information was forthcoming from the
Insured, and while claiming that the invoices were not available
certain indirect evidence in the form of certificates for part supply
were attempted to be furnished. Most importantly these certificates
were of dates which were after the fire.
48. Another letter of 10.02.2000 repeating the same request for payment
was made by the Insured. The NIACL responded by their letter of
07.03.2000 granting extension of 12 months for reinstatement of the
damaged mill. All these clearly indicate that the Reinstatement Value
[2024] 5 S.C.R. 307
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
Clause was part of the policy and that the Insured had agreed to
reinstate in accordance with the said clause. Thereafter, the Insured
wrote a letter dated 28.04.2000 clearly setting out the following:
“This has reference to the correspondence in connection
with the above referred claim. After detailed discussions
on various occasions with the loss assessors appointed
by you, we accepted the settlement arrived at by the
surveyor on repair loss basis. As desired by the surveyors,
we gave a letter of acceptance vide letter dated 16.6.99
for the assessment of the net adjusted loss of Rs. 20.95
Crores after taking into account the items of salvage and
excesses as applicable under the terms of the policy
(copy enclosed). It is regretted that even after releasing
on account payment of Rs. 5 Crore on 24th March, 1999
the matter is lying pending for the last about 1½ year in
spite of our various meetings with you and also various
letters written from time to time.”
49. It is very clear from this letter that the Insured accepted the net
adjusted loss of Rs.20.95 Crores and a letter accepting the same
dated 16.06.1999 was given to the surveyor. Thereafter, the Insured,
getting no response, on 30.05.2000, filed the Consumer Complaint
No. 233 of 2000 for the following reliefs:
a) Rs. 15.95 crores on account of balance claim for fire loss.
b) Interest @ 18% from 16.06.1999 till its actual payment.
c) Rs. 73 lacs on account of inspection and transportation charges.
d) Damages @ Rs. 3 crores per month since August, 1999 till the
release of payment as prayed for under claim (a).
50. From the written statement, apart from the other facts, it was set out
that on 06.10.1999, the Chief Vigilance Officer has suggested that the
opinion of technical expert be taken before taking the final decision
in the matter. Thereafter, further complaints were received resulting
in the appointment of M/s J. Basheer & Associates who submitted
their report on 10.04.2000. It was also averred that on 26.07.2000,
the CBI approached NIACL with respect to some complaint filed by
the Respondent and in that context, the CBI had called the officials of
NIACL on 26.07.2000, 20.03.2001, 29.03.2001. Earlier on 16.04.2000,
308 [2024] 5 S.C.R.
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the CBI requisitioned the Respondent’s claim file pertaining to the
case. It was averred that on 18.09.2000, NIACL appointed M/s Allianz
Zentrum Fur Technik GmBH, Germany who gave their opinion on
26.10.2000. Since that report was not based on physical examination,
Allianz was called to do a physical examination and the detailed
report came on 10.07.2001. On 11.12.2001, according to NIACL,
the Joint Surveyors submitted their report where they assessed the
loss of the damaged mill at 19.55 crores on replacement basis and
13.51 crores on depreciation basis. It was only on 18.01.2002, the
Chief Vigilance Officer closed the complaints received.
51. It was averred in the Written Statement that on 27.03.2002, the
Insured for the first time informed NIACL that they had already
installed a new Cold Rolling Mill. An undated letter was annexed
purportedly informing the same facts. NIACL averred that the said
undated letter was not received. The NIACL submitted that the said
letter of 27.03.2002 was sent to the surveyors. In pursuance thereof,
the surveyors wrote a letter dated 03.05.2002 requesting for the
following information:
i. Copy of the order placed with M/s Flat Products.
ii. Copy of the quotation submitted by M/s Flat Products prior to
placement of the order and copy of the inquiry floated by them.
iii. Whether the interest of any financial institutions or banks or any
of the sister concerns or private companies exists in the new
Mill or not? If yes, please submit relevant documents.
iv. Certificate of the Chartered Accountant confirming date of
capitalization for the said Mill. The certificate should endorse
all the invoices forming part of the Mill capitalization. One set
of invoices may be submitted along with the certificate.
52. There was no response resulting in the surveyors writing another
letter of 24.06.2002. On 09.07.2002, the insured sought two week’s
time to submit the information. With no information forthcoming, on
07.08.2002, once again the surveyors wrote to the Insured. Thereafter,
it was submitted that till date the mill has not been reinstated. NIACL
submitted that the claim that, at the cost of Rs.31.37 crores, the cold
rolling mill was installed, is absolutely incorrect. It was averred that
Cold Rolling Mill installed by the complainant is a 6 Hi Cold Rolling
Mill whereas the damaged mill was 20 Hi Cold Rolling Mill and that
[2024] 5 S.C.R. 309
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
the two mills are of different models and that 6 Hi Cold Rolling Mill
cannot be treated as reinstatement. So contending, it was pleaded
that the surveyors had submitted their report on 11.12.2001 in
which they had assessed the Insured’s loss at Rs.13.51 crores
on depreciation basis and Rs.19.55 crores on reinstatement basis
and that the Insured has not submitted any document/material for
reinstatement.
53. It is also important to note that on 28.06.2001, M/s Flat Products, with
whom the insured was on talks with for reinstatement, had written
to the Insured clearly indicating in that letter as follows:
“…. In the meantime, the specialists and designers who
were engaged for the manufacturing/repairs of 20 Hi
1250mm wide mill for cold rolling mild steel have left our
company and we are now not in position to repair/supply
your 20 Hi, 1250mm wide mill for Cold Rolling Mild Steel.
This fact was also made known to the Inspecting team
from Germany by our Director, Sh. D.D. Sengupta, to
survey the loss of the aforesaid machine.”
NIACL Letter to Surveyors:-
54. On 12.11.2002, NIACL wrote to the surveyors stating that the insured
are unable to produce invoices to establish the cost and age of
the mill affected in the said occurrence that considerable time has
elapsed and since the Insured has not been able to establish and
substantiate its claim, NIACL may consider the claim on depreciated
value basis taking into account the maximum depreciation applicable
to such mill. The surveyors were asked to have the workings on the
above lines.
Response of the Surveyors:-
55. In response, on 07.12.2022, the surveyors wrote to the NIACL
stating that in spite of several reminders the Insured as on date
had not submitted any clarification/details and as such the matter
had remained pending. As requested by the NIACL, an alternative
assessment by considering maximum depreciation was submitted
with the recommendation of 60% depreciation fixing loss at Rs.7.90
Crores.
56. It was explained that in the report of 11.12.2001, the depreciation was
adjusted to 32% considering the average life of the mill as 25 years.
310 [2024] 5 S.C.R.
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That is 32% on overall for a period of usage of eight years at 4% per
year. Eight years were arrived at since the mill was installed in 1989
and the fire was happened in 1999. The balance life of mill was taken
as 17 years. In the letter it was clarified that as the machine was
running at its optimum capacity, it was their opinion that the residual
life as per the calculations should be 40% thereby implying applicable
depreciation of 60% and that when 60% depreciation is considered
the sum insured is deemed to be adequate. The residual life was
taken as less than 10 years. On 03.01.2003, the NIACL addressed
a letter to Insured stating that the loss amount as sanctioned would
be Rs. 7.88 crores and since Rs. 5 crores (after deducting TDS) has
already been paid, the balance amount would be Rs. 2.88 crores.
Answers to Question No. (ii):
a) Adoption of the Depreciation Method
57. From what has been discussed above, it emerges clearly that
under the main terms of the policy the company was to pay the
Insured the value of the property at the time of happening of the
destruction (except where NIACL opts to reinstate). There was a
special memorandum attached to the policy. That memorandum
was the Reinstatement Value Clause which substituted the basis
upon which the amount was payable from the value on the date of
destruction to the cost of replacing or reinstating the property i.e.
property of the same kind or type but not superior or more extensive
than the insured property when new. However, as it transpires the said
memorandum ceased to have any force since the Insured was unable
and unwilling to replace or reinstate the property. Special Provision
4 (b) of the memorandum applied and rendered the Reinstatement
Value Clause ineffective.
58. It is also amply clear that once we revert back to the original policy
with its conditions, the Insured under Clause 6(b) of the conditions
had an obligation to give NIACL all such further particulars, plans,
specifications, books, vouchers and invoices with respect to the claim.
It is also set out that no claim under the policy was to be payable
unless the terms of these conditions were duly complied with. It is
sufficiently brought out that in spite of the surveyors writing to the
Insured repeatedly (on 14.12.1998, 03.05.2002, 24.06.2002 and
07.08.2002), there was no information forthcoming from the Insured
about the invoices as proof of the value of the damaged equipment
[2024] 5 S.C.R. 311
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
and the cost of the new equipment. Instead, the Insured originally
undertook that they will reinstate the damaged property; received the
on account payment of Rs.4,92,80,905/- (i.e. Rs.05 Crores minus
TDS) and informed NIACL that they have placed order for repair of
20 Hi Cold Rolling Mill to M/s Flat Products and paid them Rs. 3.75
crores. Thereafter by their letter of 16.06.1999, the Insured sought
assessment of net adjusted loss at Rs.20.95 Crores. After this, without
showing any progress merely letters were written repeatedly asking
for early settlement. The scenario was while the surveyors of NIACL
kept asking for the basic and relevant particulars, the Insured without
furnishing the same kept asking for the settlement of the money.
59. Fortunately for the Insured, NIACL did not completely repudiate the
claim. Instead faced with the letters of the Insured dated 16.06.1999
admitting to the value at Rs.20.95 Crores and the letter of M/s Flat
Products of 28.06.2001 throwing up their hands and informing the
Insured about them having lost their expertise, NIACL resorted to
settling the claim under the opening clause of the policy by agreeing to
pay the Insured the value of the property at the time of the happening
of the destruction. (Depreciation Method)
60. We are not in a position to fault NIACL for resorting to this method
of settlement.
b) Quantum of Base Figure: -
61. NIACL also applied depreciation at the rate of 60% on the figure
of Rs.20.09 Crores. Whether this was a correct percentage of
depreciation was really the only dispute that was adjudicated before
the original forum. The Insured has a two-fold case to challenge
the basis of settlement adopted by NIACL before this Court. First,
they contend that the base figure should have been Rs.28 Crores
based on the figure they say M/s Flat Products was to charge them
for reinstating the 20 Hi Cold Rolling Mill and after adding taxes to
the figure of Rs. 25 crores, they arrive at a base figure of Rs. 28
crores. This contention is totally untenable for the following reasons.
a. Firstly, by their letter of 16.06.1999, they categorically agree
and confirm to the assessment of the net adjusted loss at
Rs.20.95 Crores.
b. Secondly, there was no proof forthcoming from the Insured.
Since no invoices were furnished to state that the value of the
312 [2024] 5 S.C.R.
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property on the date of the loss was Rs. 25 crores, the post
incident certificates produced along with the letter of 09.12.1999
of M/s Mukand Limited and the letter of M/s Flat Products dated
09.12.1999 attempting to make a remote connection with the
value of the damaged property do not inspire any confidence.
In any event, they are not invoices depicting the value of the
property at the time of its installation.
c. In any event, the surveyors, based on their expertise, having
assessed the value at Rs.20.09 Crores, there is no reason to
countenance the submission that the base figure on which the
depreciation should have been calculated was Rs. 28 crores.
c) Percentage of Depreciation: -
62. The next facet of the submission is that even if the value was to be
taken as Rs.20.09 Crores of the property, the depreciation should
have been computed at 32% as was mentioned in the report of the
surveyors dated 11.12.2001. No doubt in the 11.12.2001 report of
the joint surveyors while calculating depreciated value basis, 32%
was taken by the surveyors but even this report carried a number
of disclaimers. First of all, the surveyors state that the report is
issued without prejudice and they extract the interim survey report
of 04.02.1999. The surveyors set out in para 5.21 as follows:
“Loss Assessment on Depreciation Basis
(a) It is understood that Insured have not yet completed
repairs/reinstatement. The delay in the process was
Insured’s desired to have additional fund to proceed
with repairs, which of course is not warranted under
the policy.
(b) Insurer had several issued to be resolved before
advising us in November 2001 to proceed with final
assessment of loss.
(c) Pending reinstatement, we have assessed the
loss on depreciated value basis under summary of
assessed loss.”
63. As is clear from the above, the NIACL has several issues to
be resolved before advising the surveyors to proceed with the
assessment in November, 2001 and that pending reinstatement they
[2024] 5 S.C.R. 313
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
had assessed the loss on depreciated value basis. After this report of
11.12.2001, it was the Insured who tried to open the matter again by
writing a letter of 27.03.2002 stating that they had already installed a
new Cold Rolling Mill. Strangely, this was after the admitted letter of
28.06.2001 by M/s Flat Products stating that they are not in a position
to repair the 20 Hi Cold Rolling Mill since the experts have left the
company. However, by the letter of 27.03.2002, the Insured wanted
to treat the purported installation of 6 Hi Cold Rolling Mill as a valid
reinstatement to stake a claim on reinstatement value basis. This
claim of the NIACL is that particulars were sought for on 03.05.2002
and 24.06.2002 and the Insured on 09.07.2002 sought two weeks’
time to submit the information, but nothing was forthcoming, resulting
in the surveyors writing to the Insured again on 07.08.2002. It was
in this background that NIACL wrote the letter of 12.11.2002 in the
following terms:
“With reference to the above, we have noted that the
insured are unable to produce invoices to establish
the actual cost and age of the Mill affected in the said
occurrence.
As considerable time has elapsed and since the insured
has not been able to establish and substantiate their claim,
we may consider the claim on depreciated value basis
taking into account the maximum depreciation applicable
to such Mill. As such, we request you to let us have our
working on the above lines to enable us to put up the
matter to the competent authority for their consideration.”
64. Learned Senior Counsel Mr. Joy Basu for the Insured argued that this
letter was an attempt to goad the surveyors and that the response
of surveyors dated 07.12.2002 was a reluctant response from an
embarrassed surveyor. We are not prepared to countenance the
submission of Mr. Joy Basu, learned Senior Counsel. In fact, the
Insured is fortunate that there was no total repudiation for non supply
of relevant documents.
65. In fact the sequence of events shows the following; soon after the
claim, there was an interim survey of 04.02.1999 where minimum
loss on reinstatement value basis was estimated to be around
Rs.15 crores and maximum loss on reinstatement value basis was
estimated to be Rs.25 crores. An on-account payment of Rs. 7.20
314 [2024] 5 S.C.R.
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crores was recommended. Thereafter, it is interesting to note that
from the 11.12.2001 report that between December, 1998 and July
1999 there were talks and inspections with suppliers/manufacturers
and the officials of the Insured. It further appears that the loss
assessment exercise was complete by July, 1999 and the report was
held back due to investigation by other agencies. This is clear from
the following preliminary portion of the 11.12.2001 report:
“1.00 INSTRUCTIONS
Instructions were received from New India Assurance
Co. Ltd. Regional Office II, New Delhi on 13.12.98 by
R.K. Singhal & Company Private Ltd. to survey and
assess the damage to Insured’s 20 HI Rolling Mill due
to a fire that broke out in Insured’s factory in the evening
of 12th December. Accordingly Mr. R.K. Singhal visited
Insured’s factory on 13th December 98 and carried out
a preliminary inspection of the subject machine. A.K.
Govil & Associates were subsequently co-opted as joint
surveyors by Regional Office vide their Facsimile of 16th
December. Their representatives visited Insured factory
on 17th December in order to carry out the necessary
inspection. Based on the physical inspection carried out
and limited information made available by the Insured till
then, the above surveyors submitted their join preliminary
survey report on 22nd December 1998. Subsequently
the underwriters appointed P.C. Gandhi & Associates as
another joint surveyors. The joint surveyors visited the
Insured factory jointly and severally on various dates and
carried out detailed physical inspection of the subject
machine besides carrying out protracted discussions
with the Insured official accompanied by Suppliers/
Manufacturers of the Mill.
Accordingly, matter was discussed with insurers
several occasions and loss assessment exercise was
almost complete by July -1999.
We understand that insurer had received some complaint
concerning subject loss and the matter went into
investigations by various agencies one after another.
[2024] 5 S.C.R. 315
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
Insurer had also referred some matters to us and necessary
information and assistance were extended to the insurer
as well as concerned agencies.
Insurer have now advised us in the month of November
2001 to submit final loss assessment report.
In view of the above, this final survey report is issued
without prejudice and is based on documents submitted
by the insured and physical verification carried out by us.
We have in our “Interim Survey Report” dated 04.02.1999
discussed the following in details.
The above details are not being repeated and final survey
report may therefore be read in conjunction with our earlier
report.”
[Emphasis Supplied]
66. This is important because nowhere the 11.12.2001 report makes any
reference to the 28.06.2001 letter of M/s Flat Products expressing
their inability to reinstate the plant. There is a reference in Para 6.3
of the 11.12.2001 report to a meeting at the plant site on 19.06.2001
wherein the surveyors were given to believe that the Insured still
desires to reinstate the mill. However, this was on condition that
they will do so only after receiving further payment. Based on the
inspection and negotiations that were carried out up to July, 1999,
summary of assessed loss in para 5.23 was drawn up. This was
fixed for replacement/repair at Rs.19.55 Crores (after deductibles
like salvage etc). What is crucial is also that on this figure itself
depreciation at 32% was worked out. The base figure was arrived
at on reinstatement basis only and the same was adopted for the
depreciation basis also. No doubt, depreciation was worked at 32%.
This discussion is significant since the grievance of the Insured is
that the NIACL ought not to have written the letter of 12.11.2002. We
reject this contention. The NIACL was justified in writing the letter
of 12.11.2002 because after reviving their demand to reinstate the
plant, the Insured failed to furnish the documents required and even
admittedly the plant as allegedly reinstated was of 6 Hi Cold Rolling
Plant and not 20 Hi Cold Rolling Plant. In this scenario, one cannot
fault the NIACL for writing the letter of 12.11.2002 particularly when
the report of 11.12.2001 was before the new offer for reinstatement
316 [2024] 5 S.C.R.
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by the Insured’s letter of 27.03.2002. Admittedly the report was based
on discussions that took place till July, 1999
67. In fact, the surveyors, after receiving the letter of 10.11.2002 should
have reassessed the value on depreciated value basis which would
be to value the loss as per the opening clause of the policy i.e.
arrive at the value of the property at the time of happening of its
destruction. This was not done and in the response of 07.12.2002
the base value was kept at Rs.20.09 Crores and applied depreciation
at 60% on the following justification:
“As the machine was running at its optimum capacity, we
are of the opinion that its residual life should not have
be less than 10 years i.e. residual life as per our above
calculation should be 40% thereby implying maximum
applicable depreciation of 60%”
68. The Insured has stood to gain by keeping the base figure at Rs.20.09
Crores as value for the depreciated basis also. That was a value
arrived at by the surveyors based on their expert assessment.
69. Dealing with the grievance that 60% depreciation had no basis, the
NCDRC called for an additional affidavit from NIACL. The NIACL in
the affidavit set out as follows:
“2. There are no written guidelines for computing
depreciation @ 4% per year. However, there is established
practice to calculate the depreciation in the case of old
machinery @ 5% per year upto maximum of 75% - 80%.
The Surveyors M/s. P.C. Gandhi and Associates assessed
the claim of M/s. Transpek Industries Ltd. by computing
the depreciation of 75%. In the case of M/s. Modem Denim
Ltd. the Surveyor applied the depreciation of 50% for 10
years usage considering 20 years machine line. Copy of
Surveyor’s letter dated 20th December, 2006 is Exhibit
R-1. The copy of the Surveyor’s report dated 19th March
2003 with respect to M/s. Transpek Industries Ltd. is
Exhibit R-2 hereto. The copy of the Surveyor report dated
25th February, 2003 with respect to Modem Denim Ltd.
is Exhibit R-3 hereto.”
70. The surveyors had offered justification in their response dated
07.12.2002 for providing depreciation at the rate of 60%. The
[2024] 5 S.C.R. 317
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
Additional Affidavit also clarifies the established practice. It should not
be forgotten that the base figure of Rs.20.09 crores was kept intact.
We set aside the finding of the NCDRC that the practice adopted in
the instant case was not a healthy practice by the NIACL. We uphold
the percentage of depreciation at 60%. We have not disturbed the
base value of Rs.20.09 crores as no arguments on that score were
advanced by the NIACL.
71. In view of the above discussion, the NIACL rightly ordered the
settlement of the claim on 03.01.2003 stating the loss amount as
Rs.7.88 Crores and ordering the balance amount of 2.88 crores be
paid after adjusting the on account payment.
Question No.(iii) - Applicability of the Judgment in Oswal Plastic
Industries (supra)
72. The only other question that remains to be answered is the argument
based on the judgment in Oswal Plastic Industries (supra). Firstly,
no factual foundation was placed to raise this submission. Even
in the Civil Appeals of the Insured the only ground was based on
the correct base figure and the applicable rates of depreciation.
In fact, the Insured in ground (D) in Civil Appeal 5242-5243 of
2009 admitted that the NCDRC rightly proceeded to determine the
compensation on depreciation basis. Ground (D) reads as follows:
“Because the Hon’ble National Commission rightly
proceeded on the premise that reinstatement of the
machine is no longer possible and that the compensation
to the appellant is therefore to be determined on
depreciation basis, i.e., value of the machine on the
date of loss.”
73. Further in the case of Oswal Plastic Industries (supra), as is
clear from para 2 of the said judgment, it appears the policy was on
reinstatement value basis. The complainant there claimed that he
had purchased the machinery to replace the damage in machinery
at the cost of 1,34,07,836/-. However, the surveyor had assessed
the loss on reinstatement basis 29,17,500/-. The NCDRC had
awarded compensation on depreciated basis. Before this Court,
the complainant relied on Clause 9 of the conditions, particularly
the second para, which Clause 9 was similar to the Clause 9 in the
present case. Even the Insurance Company contended as follows:
318 [2024] 5 S.C.R.
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12. It is submitted that as rightly observed by the NCDRC
that the goods insured were to be replaced on “as is
basis” i.e., if the machinery is an old machinery, it is to be
replaced by an old machinery and therefore, as the actual
reinstatement has not been done by the complainant or
by the insurance company and the money is to be paid
to the insured on reinstatement basis, one has to find out
the value of the machinery on replacement basis i.e., the
value of the old machinery, which can be calculated only
through deducting the value of the depreciation from the
current value of the machinery.
74. It appears that even the Insured does not appear to have disputed
that the payment ought to have been on reinstatement basis and
the money is to be paid on reinstatement basis. Further, no clause
similar to the memorandum of reinstatement value clause appears
to have existed in Oswal Plastic Industries (supra).
75. In any event, independent of the above, no argument was raised in
the NCDRC and even in the memo of appeal here based on second
para of Clause 9. At the stage of final arguments in the appeals, we
are not prepared to permit this ambush argument by allowing the
Insured to mechanically rely on Oswal Plastic Industries (supra)
without establishing the factual similarity by laying an appropriate
foundation in the courts below. Hence, Oswal Plastic Industries
(supra) has no application to the facts of the present case.
IRDA Regulations
76. In so far as the argument based on Regulation 9(3) of the IRDA
(Protection of Policyholders’ Interests) Regulations, 2002, we find there
is no breach thereof. Regulation 9(3) of the IRDA reads as follows:
9. Claim procedure in respect of a general insurance
policy
xxx
(3) If an insurer, on the receipt of a survey report, finds that
it is incomplete in any respect, he shall require the surveyor
under intimation to the insured, to furnish an additional
report on certain specific issues as may be required by
the insurer. Such a request may be made by the insurer
within 15 days of the receipt of the original survey report.
[2024] 5 S.C.R. 319
New India Assurance Company Ltd. Through its Manager v.
M/s Tata Steel Ltd.
Provided that the facility of calling for an additional report
by the insurer shall not be resorted to more than once in
the case of a claim.
77. This clause has no application to the facts of the present case. As
has been illustrated above, the second report of 11.12.2001 was
based on negotiations held up to July, 1999. Thereafter there were
several developments including the Insured’s claim to first give up
reinstatement and then reintroduce the claim for reinstating the mill.
Several letters were written for furnishing crucial documents which
were not forthcoming from the Insured. Learned Senior Counsel,
Mr. Sanjay Jain contends that NIACL could have repudiated the
claim for non supply of documents. Be that as it may, we are not
called upon to decide that issue at this stage since NIACL has on
its own settled the claim by their letter of 03.01.2003. When NIACL,
on the facts of the present case, wrote the letter for assessing on
depreciation basis, it is not a case of a clarification being sought in
an incomplete report. Hence, on the facts of the present case, we
do not find any violation of the Regulation 9(3). In the absence of
any ambiguity we also do not find scope for applying the doctrine
of contra proferentem.
78. A feeble argument was sought to be advanced to the effect that the
depreciation should have been calculated on the sum insured. The
judgments in Sri Venkateswara Syndicate v. Oriental Insurance Co.
Ltd 2009 (8) SCC 507 and on Dharmendra Goel (supra) as well as
Sumit Kumar Saha v. Reliance General Insurance Company Ltd.,
(2019) 16 SCC 370 cited by the Insured have no application to the
facts of the present case. In Dharmendra Goel (supra) and Sumit
Kumar Saha (supra), the claimants never conceded for settlement
of the claim at a value lesser and different from the sum insured
as in the present case. Hence, there can be no case that the sum
insured should be taken as the basis for calculating depreciation.
79. As far as Sri Venkateswara Syndicate (supra) is concerned, this
Court had held that the insurance company cannot go on appointing
surveyors one after another so as to get a tailor-made report to the
satisfaction of the officer concerned of the insurance company; and
that if for any reason, the report of the surveyors is not acceptable,
the insurer has to give valid reason for not accepting the report. This
case has no applicability to the facts of the present matter.
320 [2024] 5 S.C.R.
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80. In this case, as discussed hereinabove, the Insurer was fully justified
in writing the letter dated 12.11.2002 to the Surveyor requesting them
to re-assess the settlement amount. It was only the final response
by the surveyors on 07.12.2002 that gave a clear picture as to the
base figure and the applicable rates of the depreciation since the
method of settlement was to be the depreciation basis and not
reinstatement basis.
81. In view of the above, all the findings to the contrary recorded by
the NCDRC are held to be erroneous and are herewith set aside.
Conclusion
82. For the above reasons, we allow Civil Appeal No. 2759 of 2009 of
NIACL and set aside the order of the NCDRC in O.P. No. 233 of
2000 dated 05.08.2008. We hold that the claim was rightly settled
by the NIACL letter dated 03.01.2003 which determined the loss
amount payable at Rs.7.88 crores after applying 60% depreciation.
We dismiss Civil Appeal arising out of SLP (Civil) No. 10001 of
2009 and Civil Appeal Nos. 5242-5243 of 2009 filed by the Insured-
respondent. Consequently, the Original Complaint OP No.233 of
2000 before the NCDRC will stand dismissed. No order as to costs.
Headnotes prepared by: Ankit Gyan Result of the case:
Appeals disposed of.
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