Supreme Court of India
M/S Shivram Chandra Jagarnath … vs The New India Assurance Company … on 24 January, 2022Author: Hon’Ble Dr. Chandrachud

Bench: Hon’Ble Dr. Chandrachud, Dinesh Maheshwari



Civil Appeal No 2371 of 2019

M/s Shivram Chandra Jagarnath Cold Storage & Anr …. Appellant(s)


New India Assurance Company Limited & Ors ….Respondent(s)


Dr Dhananjaya Y Chandrachud, J

1. The appeal arises from a judgement of the National Consumer Disputes

Redressal Commission1 dated 14 August 2018 in Consumer Case No 37 of 2010.

2. The insurance claim of the appellants arose under a Deterioration of Stock

Policy2 which covered the stock of potatoes stored by the appellant in cold

storage. The relevant terms of the DOS Policy indicated that:

that in consideration of the insured having paid to
the company the premium mentioned in the
schedule hereon the company hereby agrees with
the insured that at any time during the period of
insurance stated in the Schedule II or during any
subsequent period for which the insured pays and
Signature Not Verified the company may accept the premium for the
Digitally signed by
Sanjay Kumar
renewal of this policy the company will indemnify
Date: 2022.02.01
13:37:09 IST the insured in the manner and to the extent

2 “DOS Policy”

hereinafter provided for damage to the stocks
described in schedule II by contamination and/or
deterioration, putrefaction as a result of rise in
temperature in the Refrigeration Chambers
caused by any loss of or damage due to an
accident, as defined hereinafter to the Plant and
Machinery specified in schedule I and
indemnifiable under the Machinery Insurance
Policy in force. The total liability of the Company
under this policy shall be limited to the sum
insured specified in Schedule II.”

3. The proviso to the above provision stipulated that:

“Provided always that:

(i) During the entire period of this insurance the
Insured shall be in possession of a qualified
permission in writing of the competent Licensing
Authority to operate the Cold Storage.

(ii) At the time of loss or damage the said stocks are
contained in the said Refrigeration Chambers.

(iii) The Plant and Machinery specified in schedule I is
insured under the Machinery Insurance Policy in
force and the payment shall have been made or
liability admitted under such insurance; if no
payment shall have been made under such
insurance solely as a result of operation of any
‘Excess’ thereunder Liability of the company under
this Policy shall not be affected.

(iv) The Insured maintains, on a daily basis, a stock
book in the Proforma prescribed by the company,
in which the type, quantity and value of the stocks
stored and the beginning and end of the storage
period are entered for each Refrigeration
chambers separately.

(v) During the entire period of storage the Insured
records in Log Book as per the Proforma supplied
by the company the reading of the temperature
and relative humidity of the Refrigeration
Chambers as also the suction discharge and oil
pressure on four hourly basis throughout the day.

(vi) stock Book, Log Book and all other records of the
Insured relating to the stocks stored shall at all
reasonable times be open to inspections by duly
authorized representatives of the company.”

4. The expression “accident” was defined in clause (a) of the definitions as


“a) Any sudden or unforeseen loss or damage to the
Plant and Machinery described in schedule of this
Policy due to an accident caused covered by the
machinery insurance policy specified in schedule I
and not hereinafter excluded.”

5. Among the exceptions to the DOS Policy, clause (vi) stipulated that the

insurer would not be liable for:

“(vi) Any damage if the temperature in the
Refrigeration chambers does not exceed 4.4
degree Celsius.”

6. Similarly, clause (viii) provided the following exception to the liability of the

insurer in the case of:

“(viii) Any loss arising from improper storage insufficient
circulation of air/non-uniformity of temperature for
whatsoever reasons.”

7. The warranties to the DOS Policy, inter alia, stipulated as follows:

“6. The Insured shall take care to see that:

i) the temperature inside the cold Chambers are
brought down to 34 Degree F (1.1. Degree C) in
all floors of all the chambers before loading
commences and; ii) Further ensure that the temperature in all the
chambers does not exceed 59 Degree F (10
Degree C) during the entire period of loading and
40 Degree F (4.4 Degree C) during the
subsequent period of storage.”

8. On 10 October 2008, the appellants furnished intimation to farmers that the

stock of potatoes had sprouted while in the cold storage. On 13 October 2008, a

claim was submitted to the insurer. Significantly, in the communication of the

appellants dated 14 October 2008, it was stated that the loading of the stock was

carried out at the normal temperature and that until then, the proper temperature

was maintained, which was mentioned in the logbook. The relevant extract from

the communication contains the statement that:

“iii. …at the time of loading, the loading was done at
the normal temperature and till date the proper
temperature was maintained, which is mentioned
in the log-book.”

9. The claim form which was lodged on 11 November 2008 required a

specific disclosure in Clause 12 of what, according to the insured, was the cause

for the deterioration of the stock. The query was not filled up. Subsequently, on

17 February 2009, the statement of the representative of the first appellant was

recorded by the surveyor in which it was asserted that the main cause for rotting

of the potatoes was a rise in the temperature in the months of September and

October; and that the appellants had regularly checked the temperature recorded

in the logbook which the operator had erroneously recorded. This was a clear

departure from the earlier statement that the required temperature had been

maintained, as recorded in the log sheets.

10. The log sheets which have been produced by the appellants on the record

indicate that the temperature was well within the stipulated range of 4.4 0 C (400 F)

prior to 18 October 2008. The material which has been placed on the record

indicates that the case of the appellants, as evidenced in the letter dated 14

October 2008, was that both at the time of loading and until the date of the

communication, the proper temperature was maintained. This submission is, in

fact, borne out by the log sheet. The exceptions to the Policy made it abundantly

clear that the insurer would not be liable for any damage if the temperature in the

Refrigeration Chamber did not exceed 4.4 0 C. Consequently, clause 6 of the

warranties required the insurer to ensure that during the period of storage, the

temperature did not exceed 40 0 F (4.40 C). Having regard to the specific terms of

the policy, the admission of the appellants that the temperature was maintained

at all material times, would clearly attract the exceptions to the policy.

11. Mr Sanjeev Kumar, counsel appearing on behalf of the appellants,

however, sought to rely on the conclusion which was reflected in the report of the

surveyor. The conclusion is as follows:

“In my opinion the sprouting could have taken
place only due to higher humidity and temperature
in the chamber, which however does not tally with
the dry and wet bulb temperatures recorded in the
log book. There seems to be no other cause for
the sprouting.

The loading was within the licensed capacity, as
per computerized stock details provided.”

12. The above conclusion cannot be read in isolation from the entirety of the

surveyor’s report. On the contrary, the report contains a specific finding that the

temperature had not exceeded 400 F. Further, the surveyor notes that there is a

contradiction in the statements of the appellants dated 14 October 2008 and 17

February 2009. The appellants had earlier stated on 14 October 2008 that the

temperature of the storage was maintained within permissible limits, but claimed

on 17 February 2009 that the sprouting was a result of the rise in the temperature

in the months of September and October, and the operator had erroneously

recorded the temperature. The surveyor specifically notes that “there is no

evidence in support of rise in temperature…the evidence in the shape of

logbooks and earlier statements of the insured establishes that the temperature

never exceeded 40 Deg F till 14 October 2008”. Therefore, the surveyor

observed that the claim could not be accepted in view of clause (vi) of the

exceptions to the policy. Thus, the insurer accordingly disclaimed any liability. In

Sikka Papers Ltd. v. National Insurance Company Ltd. & Ors.3, this Court

3 (2009) 7 SCC 777

observed that although the surveyor’s report is not the last word, there must be a

legitimate reason to depart from it. In the present case, the appellants have not

advanced any legitimate reasons to depart from the surveyor’s report and in fact

have relied on a portion of the report to buttress the submission that the

temperature of the cold storage had arisen over 40 0 F, which as we have

highlighted above is a partial reading of the report.

13. MN Srinivasan and K Kannan in Principles of Insurance Law have

explained the role of exceptions in an insurance policy. The insurer seeks to

indemnify the insured only against such losses that are “caused by certain perils

arising under normal conditions whose effects are statistically estimated.” The

insurer may not wish to accept liability for other perils that may result in losses

that are of great magnitude. Thus, exceptions are inserted to exempt the liability

of the insurer for which it would be otherwise liable. 4 Likewise, AW Baker in The

Law Relating to Accidental Insurance states that ‘excepted clauses’ are inserted

ex abundanti cautela in insurance policies to inform the insured that losses

attributable to excepted causes will not be indemnifiable. In New India

Assurance Company Ltd. v. Rajeshwar Sharma & Anr.5, the following extract

from The Law Relating to Accidental Insurance was relied upon by a two-judge

Bench of this Court, of which one of us (Justice DY Chandrachud) was a part:

“The object of exceptions is to define with greater
precision the scope of the policy by making clear
what is intended to be excluded and contrasting
with what is intended to be included.

Since exceptions are inserted in the policy mainly
for the purpose of exempting the insurers from
liability for a loss which, but for the exception,
would be covered by the policy, they are

4 MK Srinivasan & K Kannan, Principles of Insurance Law (LexisNexis India, 10th Ed., 2018)
5 (2019) 2 SCC 671

construed against the insurers with utmost
strictness and it is the duty of the insurers to
except their liability in clean and unambiguous
terms. The onus of proving that the loss falls
within the exception lies upon the insurers, unless
by proving the language of the exception, the
assured is expressly required to prove that, in the
circumstances, the exception does not apply.”6

14. In New India Assurance (supra), it was held that if there is no ambiguity in

the clause exempting the insurer from a liability arising from an excepted cause,

the insurance claim can be rejected by the insurer. In Oriental Insurance Co.

Ltd. v. Sony Cheriyan7, a two-judge Bench of this Court observed that an

insurance policy must be strictly construed to identify the extent of the insurer’s

liability. This Court held that where a truck was insured only for carrying

unhazardous goods in terms of the permit issued under the Motor Vehicles Act

1988, an insurance claim could not have been raised when the truck caught fire

while carrying ether solvent which is classified as a hazardous substance under

Table III to Rule 137 of the Central Motor Vehicles Rules 1989. Though the rules

mentioned ‘ethyl ether’ as a hazardous substance, this Court observed that ether

solvent is only a descriptive term for ether and ether and ethyl ether are the same

substance. This Court held thus:

“17. The insurance policy between the insurer
and the insured represents a contract between
the parties. Since the insurer undertakes to
compensate the loss suffered by the insured
on account of risks covered by the insurance
policy, the terms of the agreement have to be
strictly construed to determine the liability of
the insurer. The insured cannot claim anything
more than what is covered by the insurance
policy. That being so, the insured has also to act
strictly in accordance with the statutory limitations
or terms of the policy expressly set out therein.

18. In the instant case, while specifying the

6 AW Baker Welford, The Law Relating to Accidental Insurance (Butterworth & Company, 1923), p.126
7 (1999) 6 SCC 451

“Limitations as to Use”, it was clearly mentioned
that the policy was meant to cover only carriage of
goods as defined within the meaning of the Motor
Vehicles Act, 1988. The “permit” granted to the
respondent under the Act specified the nature of
goods which he could carry on the vehicle. It was
provided in the “permit” itself that the respondent
could carry “all kinds of unhazardous goods
including fish except those prohibited. It is obvious
that the “permit” was not granted for carrying
hazardous goods. It has already been specified
above the ether which was being transported by
the respondent in his vehicle is a hazardous
substance indicated in Table III under Rules 137.
There was, therefore, a specific prohibition
operating against the respondent from carrying a
hazardous and, that too, flammable substance in
his vehicle which, under the “permit” granted to
him, could be utilised only for carrying
unhazardous goods under the Motor Vehicles
Act.” (emphasis supplied)

In a similar vein, a two-judge Bench of this Court in Oriental Insurance Co. Ltd.

v. Samayanallur Primary Agriculture Coop. Bank8 held that an insurance

policy must be construed only with reference to its stipulations and no artificial

meaning can be given to the words of the policy. This Court observed that a cash

box cannot be classified as a ‘safe’ within the meaning of a burglary insurance

policy and the insurer was exempted from any liability arising from the theft of

jewelry and cash from the cash box. The exceptions to an insurance policy must

be construed strictly since they reflect the agreement between the parties with

respect to the losses that are covered by the insurance policy. Any departure

from this principle is possible only if the terms of the policy are ambiguous or

unclear. In Sangrur Sales Corporation v. United India Insurance Company

Ltd. & Anr.9, a two-judge Bench of this Court, of which one of us (Justice DY

Chandrachud) was a part, held that in the event two constructions are possible or

if there is any ambiguity, a construction that is beneficial to the insured should be

8 (1999) 8 SCC 543
9 (2020) 16 SCC 292

adopted consistent with the purpose of the policy.

15. Another instance where exception clauses may be interpreted to the

benefit of the insured is when the exception clauses are too wide and not

consistent with the main purpose or object of the insurance policy. In BV

Nagaraju v. Oriental Insurance Co. Ltd., Divisional Officer, Hassan 10, a two-

judge Bench of this Court read down an exception clause to serve the main

purpose of the policy. However, this Court clarified that the breach of the

exception clause was not so fundamental in nature that would have led to the

repudiation of the insurance policy. In that case, the terms of the insurance policy

allowed an insured vehicle to carry six workmen, excluding the driver. When the

vehicle met with an accident, it was carrying nine persons apart from the driver.

The insured had moved a claim for repair of the vehicle, which was rejected by

the insurer. Allowing the claim, this Court held thus:

“7. It is plain from the terms of the Insurance
Policy that the insured vehicle was entitled to
carry 6 workmen, excluding the driver. If those
6 workmen when travelling in the vehicle, are
assumed not to have increased any risk from
the point of view of the Insurance Company on
occurring of an accident, how could those
added persons be said to have contributed to
the causing of it is the poser, keeping apart
the load it was carrying. Here, it is nobody’s
case that the driver of the insured vehicle was
responsible for the accident. In fact, it was not
disputed that the oncoming vehicle had
collided head-on against the insured vehicle,
which resulted in the damage. Merely by lifting
a person or two, or even three, by the driver or
the cleaner of the vehicle, without the
knowledge of the owner, cannot be said to be
such a fundamental breach that the owner
should, in all events, be denied
indemnification. The misuse of the vehicle was
somewhat irregular though, but not so
fundamental in nature so as to put an end to

10 (1996) 4 SCC 647

the contract, unless some factors existed
which, by themselves, had gone to contribute
to the causing of the accident. In the instant
case, however, we find no such contributory
factor. In Skandia case [(1987) 2 SCC 654] this
Court paved the way towards reading down the
contractual clause by observing as follows: (SCC
pp. 665-66, para 14)

“… When the option is between opting for a view
which will relieve the distress and misery of the
victims of accidents or their dependants on the
one hand and the equally plausible view which will
reduce the profitability of the insurer in regard to
the occupational hazard undertaken by him by
way of business activity, there is hardly any
choice. The Court cannot but opt for the former
view. Even if one were to make a strictly
doctrinaire approach, the very same conclusion
would emerge in obeisance to the doctrine of
‘reading down’ the exclusion clause in the light of
the ‘main purpose’ of the provision so that the
‘exclusion clause’ does not cross swords with the
‘main purpose’ highlighted earlier. The effort must
be to harmonize the two instead of allowing the
exclusion clause to snipe successfully at the main
purpose. The theory which needs no support is
supported by Carter’s ‘Breach of Contract’ vide
paragraph 251. To quote:

“Notwithstanding the general ability of contracting
parties to agree to exclusion clauses which
operate to define obligations there exists a rule,
usually referred to as the ‘main purpose rule’,
which may limit the application of wide exclusion
clauses defining a promisor’s contractual
obligations. For example, in Glynn v. Margetson &
Co. [1893 AC 351 : (1891-94) All ER Rep 693]
(AC at p. 357), Lord Halsbury, L.C. stated:

‘It seems to me that in construing this document,
which is a contract of carriage between the
parties, one must in the first instance look at the
whole instrument and not at one part of it only.
Looking at the whole instrument, and seeing what
one must regard … as its main purpose, one must
reject words, indeed whole provisions, if they are
inconsistent with what one assumes to be the
main purpose of the contract.’

Although this rule played a role in the
development of the doctrine of fundamental
breach, the continued validity of the rule was
acknowledged when the doctrine was rejected
by the House of Lords in Suisse Atlantique
Societe d’ Armement Maritime SA v. NV
Rotterdamsche Kolen Centrale [(1967) 1 AC
361 : (1966) 2 All ER 61 : (1966) 2 WLR

944]. Accordingly, wide exclusion clauses will
be read down to the extent to which they are
inconsistent with the main purpose, or object
of the contract.” (emphasis added)

16. In the present case, there is no ambiguity in the terms of the exception.

The exception to the DOS Policy clearly provides that the insurer would not be

liable for “[a]ny damage if the temperature in the Refrigeration chambers does not

exceed 4.4 degree Celsius.” The surveyor’s report indicates that the temperature

never exceeded 400 F, which was also accepted by the appellants in their

communication dated 14 October 2008. The assertion that the rotting of the

potatoes resulted from a higher temperature was only made on 17 February

2009, which the NCDRC in its impugned judgement dated 14 August 2018 has

characterised as an “afterthought”. Thus, in terms of the insurance policy, the

insurer is not liable for damage caused to the potatoes as the temperature of the

storage did not rise above 400 F. Further, unlike in BV Nagaraju (supra), the

exception, in this case, is neither too wide nor in conflict with the main purpose of

the insurance policy. The insurance policy covers the deterioration of potatoes

that have been stocked in cold storage by the appellants. The temperature of the

cold storage is fundamental to the health of the potatoes relating to which the

policy has been undertaken. This is distinguishable from the exception relating to

the number of persons a vehicle can carry, which was the subject matter of the

exception in BV Nagaraju (supra). The insurer has identified a temperature of 40 0

F as the optimum temperature, at which rotting of the potatoes should not occur

and thus has exempted itself of any liability resulting from the deterioration of

potatoes occurring at a temperature that is below or equivalent to 40 0 F. There is

no reason to read down clause (vi) of exceptions to the DOS Policy because it is

not in conflict with the main purpose of the policy.

17. Therefore, we have, for the reasons indicated above, accepted the

submission which has been urged on behalf of the insurer by Ms Awantika

Manohar, learned counsel that the claim was correctly repudiated by the insurer,

having regard to the specific exceptions in the policy.

18. In this backdrop, the judgement of the NCDRC rejecting the consumer

complaint does not warrant interference. The appeal shall accordingly stand


19. Pending application, if any, stands disposed of.

[Dr Dhananjaya Y Chandrachud]

[Dinesh Maheshwari]

New Delhi;
January 24, 2022



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