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Supreme Court of India
M/S. Baspa Organics Limited. vs United India Insurance Company … on 14 February, 2020Author: Mohan M. Shantanagoudar
Bench: Mohan M. Shantanagoudar, R. Subhash Reddy
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 13401 OF 2015
M/S BASPA ORGANICS LIMITED …APPELLANT
VERSUS
UNITED INDIA INSURANCE COMPANY LTD. …RESPONDENT
JUDGMENT
MOHAN M. SHANTANAGOUDAR, J.
The present appeal arises out of the judgment dated
21.07.2015 passed by the National Consumer Disputes
Redressal Commission, New Delhi (“National Commission”)
dismissing the consumer complaint (Original Petition No. 48 of
2004) filed by the Appellant herein.
2. The facts giving rise to this appeal are as follows:
2.1 One M/s Shrirang Agro Chemical Pvt. Ltd., having its
factory premises in Tarapur, Thane District, was engaged in the
Signature Not Verified
Digitally signed by
GULSHAN KUMAR
business of manufacturing a chemical called Cyper Methnic
ARORA
Date: 2020.02.14
16:47:11 IST
Reason:
Acid Chloride (“CMAC”), an intermediate product used in
1
growing cash crops. The said factory premises had become a
sick unit, and was auctioned off by the Maharashtra State
Financial Corporation (“MSFC”). The bidding took place on
14.03.2001, and on 15.03.2001, the Appellant was declared the
highest bidder, having quoted a price of Rs. 4 crores.
2.2 The Appellant commenced production of CMAC in
November 2001. The previous company (Shrirang Agro
Chemical Pvt. Ltd.) had taken an insurance coverage from the
Respondent, and the Appellant continued this coverage. To this
end, after inspecting the plant and machinery, a Fire and
Special Perils Policy was issued by the Respondent from
12.11.2001 to 11.12.2001 insuring the subject premises for a
total Insured Declared Value of Rs.12.5 crores. The said policy
was continued for the period between 12.12.2001 and
11.01.2002 as well.
2.3 On 03.01.2002, a fire broke out at the factory
premises, based on which the Appellant filed a claim with the
Respondent. On 30.01.2004, based on reports from the three
surveyors, the Respondent repudiated the claim of the
Appellant on two grounds. It was held, firstly, that the Appellant
had purchased the factory premises for only Rs. 4 crores, but
2
had overvalued it and taken a policy for an excessive value of
Rs. 12.5 crores, and secondly, that the Appellant suppressed
the material fact of not being duly licensed for the storage and
use of Hexane at the factory. Aggrieved by such repudiation,
the Appellant filed a consumer complaint before the National
Commission.
3. The National Commission dismissed the Appellant’s
complaint, holding that the repudiation was justified on both
the above counts, i.e., that the Appellant had overstated the
value of the factory while taking insurance, and that the
Appellant was operating without obtaining the requisite licence
for the storage of Hexane. It is against this dismissal that the
Appellant has approached this Court by way of an appeal under
Section 23 of the Consumer Protection Act, 1986.
4. Learned Senior Counsel appearing on behalf of the
Appellant, Shri S.S. Naphade, argued against the appointment
of the third surveyor, S.B. Nalluri & Associates (“third
surveyor”). He contended that once the second surveyor,
Mehta and Padamsey Surveyors Pvt. Ltd. (“second surveyor”),
had clearly assessed the loss and submitted a detailed report
wherein it had ruled out any mala fides on part of the
3
Appellant, there was no occasion to appoint the third surveyor.
Learned Senior Counsel also relied on the notification dated
21.11.2001 issued by the Ministry of Petroleum and Natural Gas
in exercise of its powers under the Essential Commodities Act,
1955 (“the Essential Commodities Act”), to argue that the
Appellant was exempt from obtaining a licence for storage of
Hexane, since according to him, the Appellant had stored less
than 20 kilolitres of Hexane. It was submitted that the said
notification clearly stipulated that there was no requirement of
a licence for storing up to 20 kilolitres of Hexane.
5. On the other hand, learned Senior Counsel appearing
on behalf of the Respondent, Shri P.P. Malhotra, contended that
repudiation of the claim was justified, inasmuch as the
Appellant had not disclosed that it was not in possession of the
requisite licence for storing Hexane. It was contended that the
Appellant was required to obtain a licence as per either Article
3 or Article 7 of the First Schedule to the Petroleum Rules, 1976
(“1976 Rules”).
5.1 It was further argued that even assuming that the
aforementioned notification dated 21.11.2001 exempted the
Respondent from obtaining a licence for storing Hexane up to
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20 kilolitres, the second surveyor’s report, against which the
Appellant had not raised any objection, was categorical in its
finding that the factory premises held over 90 kilolitres of
Hexane, out of which 79.152 kilolitres of Hexane had suffered
damage. Thus, no reliance could be placed on the exemption
under this notification in the instant facts and circumstances.
5.2 Learned Counsel also argued in favour of the finding
of the National Commission with respect to overvaluation of the
subject factory by the Appellant while taking insurance.
6. At the outset, we must observe that we are at a loss
to understand why the insurance policy was taken by the
Appellant for only one month and extended thereafter, again,
for only one more month. It is also quite perplexing as to why
the Respondent agreed to issue a policy for such a short period
of time, and no plausible reasons are forthcoming from the
records to explain the peculiar nature of this transaction.
7. Be that as it may, upon perusing the material on
record and after hearing the learned counsel, we find that two
issues arise in the instant case, to determine whether
repudiation of the claim was justified for breach of policy terms:
5
(i) whether the Appellant was not duly licensed to store
Hexane, and therefore had suppressed a material fact, thus
breaching Clause 1 of the policy, and
(ii) whether the Appellant overvalued the subject factory
while taking insurance, amounting to fraud under Clause 8 of
the policy.
8. In this regard, we find it relevant to reproduce the
said clauses of the insurance policy:
“1. This policy shall be voidable in the event of mis-
representation, mis-description or non-disclosure of
any material particular.
xxx
8. If the claim be in any respect fraudulent, or if any
false declaration be made or used in support thereof
or if any fraudulent means or devices are used by the
insured or any one acting on his behalf to obtain any
benefit under the policy or if the loss or damage be
occasioned by the willful act, or with the connivance
of the insured, all benefits under this policy shall be
forfeited.”
9. With respect to the question of licensing, the
Respondent’s case is that the Appellant had not disclosed that
it had stored Hexane without having obtained a licence for the
same, as required under the 1976 Rules. In this respect, the
Respondent has relied on Articles 3 and 7 of the First Schedule
to the 1976 Rules. Articles 3 and 7 specifically refer to
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petroleum Class A, which is defined as follows under Section
2(b) of the Petroleum Act, 1934 (“the Petroleum Act”):
“(b) “petroleum Class A” means petroleum having a
flash-point below twenty-three degree centigrade”.
10. To show that Hexane falls within Class A, learned
Counsel for the Respondent has drawn our attention to
literature from the National Fire Protection Association (“the
NFPA”), an international non-profit organisation working
towards eliminating death, injury, property and economic loss
due to fire. As per the records of physical properties of selected
chemicals prepared by the NFPA, the flash point of n-Hexane is
-23°C.1 Admittedly, the substance being stored by the Appellant
was n-Hexane, or normal Hexane. Indeed, as per nomenclature
adopted by the International Union of Pure and Applied
Chemistry, the substance carrying the molecular formula C 6H14
is known as “Hexane” or “n-Hexane”. 2 This is also supported
by Bretherick’s Handbook of Reactive Chemical Hazards ,
referred to by the Respondent, which notes that Hexane,
1
NFPA 497, Recommended Practice for the Classification of
Flammable Liquids, Gases, or Vapors and of Hazardous (Classified)
Locations for Electrical Installations in Chemical Process Areas (2017
edition).
2
National Center for Biotechnology Information, PubChem
Compound Database, available at
https://pubchem.ncbi.nlm.nih.gov/compound/Hexane.
7
having the formula C6H14, has a flash point of -23°C. 3 Since the
flash point of the substance is well below 23°C, it can safely be
said that it falls under the category of petroleum Class A.
11. Against this backdrop, we find it useful to refer to the
relevant Articles of the First Schedule to the 1976 Rules, which
were the rules in force as on the date of the incident:
FIRST SCHEDULE
Article Form Purpose Authority Fee
of for empower
licence which ed to
granted grant
licence
1 2 3 4 5
3 X To import District Rs. 20 for every
and store Authority calendar year or
petroleu part thereof. m Class
A in
quantity
not
exceedin
g 300
litres.
xx xx xx xx xx
6 XIII To import Chief
and store Controller
petroleu or a
m in an Controller
installati of
on. Explosives
3
BRETHERICK’S HANDBOOK OF REACTIVE CHEMICAL HAZARDS, Vol. I, 2032
(PG Urben ed., 7th edition, 2006).
8
authorised
in this
behalf by
the Chief
Controller.
7 XIV To import Petroleum Class B
and store – When stored in
otherwis bulk or with any
e than in other class of
bulk (a) petroleum or
petroleu when stored in
m Class quantities
A in exceeding 25,000
quantitie litres. The same
s fee as laid down
exceedin for petroleum
g 300 Class A.
litres, (b)
petroleu
m Class
B in
quantitie
s
exceedin
g 25,000
litres (c)
petroleu
m Class
C in
quantitie
s
exceedin
g 45,000
litres or
(d) partly
one class
and
partly
two class
of
petroleu
9
m.
12. Before looking into whether the Appellant was
required to obtain a licence under the provisions reproduced
above, it is relevant to note that the Appellant has not
challenged the second surveyor’s report, or its finding that the
factory premises contained over 90 kilolitres of Hexane, out of
which 79.152 kilolitres were damaged. On the contrary, the
Appellant seeks to rely on the report heavily.
13. The Respondent has contended that the Appellant
was required to obtain a valid licence under the Petroleum Act
and the 1976 Rules. In this regard, it is pertinent to note that
Section 8 of the Petroleum Act makes it clear that storage of
small quantities of petroleum Class A does not require any
licence. It reads:
“8. No licence needed for import, transport or
storage of small quantities of petroleum Class
A.—(1) Notwithstanding anything contained in this
Chapter, a person need not obtain a licence for the
import, transport or storage of petroleum Class A not
intended for sale if the total quantity in his
possession does not exceed thirty litres.
(2) Petroleum Class A possessed without a licence
under this section shall be kept in securely stoppered
receptacles of glass, stoneware or metal which shall
not, in the case of receptacles of glass or stoneware,
exceed one litre in capacity or, in the case of
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receptacles of metal exceed twenty-five litres in
capacity.”
13.1 Therefore, it is evident that for the storage of
petroleum Class A less than 30 litres in quantity, no licence is
required under the Petroleum Act or rules thereunder. As per
Article 3, a licence issued by the District Authority is required
for importing and storing petroleum Class A in a quantity not
exceeding 300 litres. Thus, the Respondent may be justified in
arguing that for storage of petroleum Class A ranging from 30
litres to 300 litres in quantity, a licence under Article 3 may be
required. However, in the instant case, it is clear that the
Appellant had stored much more than 300 litres of Hexane, and
therefore, a licence under Article 3 would not be sufficient.
14. The Respondent also drew our attention to Article 7
of the 1976 Rules to further its argument on the requirement of
the licence. Article 7 deals with storage of certain forms of
petroleum otherwise than in bulk. The expression “ petroleum in
bulk” is defined in clause (xv) of Rule 2 of the 1976 Rules as
follows:
“(xv) “petroleum in bulk” means petroleum
contained in a tank irrespective of the quantity of
petroleum contained therein” (emphasis supplied)
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14.1 In turn, the term “tank” is defined in clause (xxii) of
Rule 2 in the following manner:
“(xxii) “tank” means a receptacle for petroleum
exceeding 1000 litres in capacity”
15. From the definitions reproduced above, it becomes
evident that irrespective of the quantity of petroleum, when
petroleum is stored in a tank, it is referred to as “ petroleum in
bulk” under the 1976 Rules. As mentioned earlier, Article 7, on
which the Respondent seeks to place reliance, deals with the
grant of a licence for storage of petroleum otherwise than in
bulk, i.e. otherwise than in a tank. In other words, for petroleum
Class A exceeding 300 litres, a licence under Article 7 is
required when it is not being stored in receptacles exceeding
1000 litres in capacity.
16. In this regard, we may also refer to Condition 2 of
Form XIV of the Second Schedule to the 1976 Rules. Form XIV
corresponds to the licence granted under Article 7 of the First
Schedule, and Condition 2 of the said Form reads as follows:
“2. The petroleum shall be stored only in the storage
shed which shall be constructed of suitable non-
combustible materials, provided that when no
petroleum Class A is stored, the beams, rafters,
columns, windows and doors may be of wood.”
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(emphasis supplied)
16.1 In turn, the term “store shed” is defined in clause
(xxi) of Rule 2 as follows:
“(xxi) “store shed” means a building used for the
storage of petroleum otherwise than in bulk, whether
forming part of an installation or not, but does not
include a building used for the stores of petroleum
exempt from licence under Sections 7,8 or 9 of the
Act”
16.2 A store shed, therefore, is a building where
petroleum is stored otherwise than in bulk, i.e., otherwise than
in receptacles with a capacity of over 1000 litres. Most
significantly, clause (xxi) of Rule 2 states that a store shed may
be a part of an “installation”. At this juncture, it is relevant to
note that this term is also defined under the 1976 Rules, in
clause (xiv) of Rule 2:
“(xiv) “installation” means any premises wherein any
place has been specially prepared for the storage of
petroleum in bulk, but does not include a well-head
tank or service station”
17. Upon reading the definitions of “store shed” and
“installation” together, it becomes clear that “ installation”
carries a much broader meaning. In order for any premises to
be an “installation” under the 1976 Rules, it must necessarily
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contain a place specially prepared to store petroleum in bulk. In
other words, such a place must have the capacity to hold
receptacles with a capacity of 1000 litres or more (which would
be nothing but a “tank” as defined under the 1976 Rules). At
the same time, an installation may also have the capacity to
store petroleum otherwise than in bulk. An installation,
therefore, may consist of both tanks and storage sheds, or it
may consist only of tanks.
18. In the instant case, the second surveyor had clearly
stated that the Hexane had leaked from the tanks in which it
was stored. However, it is not clear from the material on record
whether or not the term “tank” was assigned the same
meaning as under the 1976 Rules. If the tanks referred to by
the second surveyor were receptacles that could not store
more than 1000 litres of petroleum, then they would not
constitute “tanks” under the 1976 Rules, and the petroleum
stored in such tanks would fall under the category of petroleum
stored “otherwise than in bulk”. In such a case, a licence would
be required under Article 7.
19. At this stage, we may fruitfully refer to the
application preferred by the Appellant to obtain a licence under
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Article 6 of the First Schedule to the 1976 Rules, which pertains
to the import and storage of petroleum in an installation, vide
letter dated 22.10.2001. In its response to the above
application, the Controller of Explosives, Nagpur noted vide
letter dated 05.11.2001, that the drawings of the site and
layout of the proposed installation had been approved, subject
to the condition that the pump/motor to be incorporated were
flame proof, in accordance with IS:2148. Further, the Appellant
was asked to submit certain documents that were necessary in
connection with the grant of the licence applied for, such as an
application under Form VIII (which is an application for the
grant, amendment, renewal, or transfer of a licence to import
and store petroleum), a Safety and Test Certificate required
under Rule 130 and 126 of the 1976 Rules issued by a
competent person, a No-Objection Certificate from the Local
District Authority along with the site plan duly endorsed by
such authority, and so on. Additionally, the Appellant was
directed to comply with the provisions of the Solvent, Raffinate
and Slop (Acquisition, Sale, Storage and Prevention of Use in
Automobiles) Order, 2000 (“the 2000 Order”).
15
20. The above communication clearly indicates that even
the Controller of Explosives was of the opinion that the
premises where the Appellant was storing Hexane amounted to
an “installation”. As we have discussed supra, for a premises to
be considered as an installation, it must contain a place
prepared to hold “tanks” as defined under the 1976 Rules. This
strongly suggests that the “tanks” referred to by the second
surveyor were indeed “tanks” as envisaged under the 1976
Rules. In our considered view, this shows that the Appellant
may well have been required to obtain a licence under Article 6
itself.
21. It is not the case of the Appellant that it provided the
documents stipulated by the Controller of Explosives. No
further communication between the Appellant and the said
authority has been placed on record either. There is nothing on
record to show that a licence under Article 6 was granted to the
Appellant.
22. In light of the above discussion, we are of the view
that the Appellant was required to obtain a licence under the
1976 Rules for the storage of Hexane, be it under Article 6 or 7,
and has failed to show that it possessed any such licence.
16
23. Having examined the scheme of the 1976 Rules with
respect to licensing requirements, we may now turn to the
Appellant’s contention that it was exempt from obtaining a
licence under the said rules, by virtue of the notification dated
21.11.2001 issued by the Ministry of Petroleum and Natural
Gas, amending the 2000 Order. The relevant clause of the
amended order that is being relied upon by the Appellant is as
follows:
“3. Restriction on sale and use of solvents,
raffinates, slops and other product:-
(1) No person shall either acquire, store or sell
solvents included in the Schedule, without a licence
issued by the State Government or the District
Magistrate or any other Officer authorised by the
Central or the State Government;
Provided that no such licence shall be required for
consumption of 50 KLs per month or less and storage
of 20 KLs or less of solvents listed in the Schedule
combined.”
24. Evidently, there is an exemption carved out in the
proviso dispensing with the need for a licence in the cases laid
down thereunder. Significantly, Hexane is mentioned in the
Schedule referred to in the above clause, making it clear that
the substance is governed by the same. The Appellant seeks to
argue that pursuant to the above proviso, it was not required to
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obtain a licence under the 1976 Rules for the storage of
Hexane on its premises. In order to determine whether the
reference to a “licence” in the said clause includes licences
under the Petroleum Act, it is essential to examine the
background and scheme of the 2000 Order.
25. A glance at the notification dated 21.11.2001,
amending the 2000 Order, as well as the said order itself,
reveals that both were issued in exercise of the powers of the
Central Government under Section 3(1) of the Essential
Commodities Act. This statute, as is evident from its Statement
of Objects and Reasons, was enacted to provide for the control
of the production, supply and distribution of and trade and
commerce in certain commodities, in the interest of the general
public. Further, Section 3 empowers the Central Government to
pass orders providing for the regulation or prohibition of the
production, supply and distribution of any essential commodity,
and trade and commerce therein, under certain conditions.
Section 3(1), in particular, reads as follows:
“3. Powers to control production, supply,
distribution, etc., of essential commodities.―
(1) If the Central Government is of opinion that it is
necessary or expedient so to do for maintaining or
increasing supplies of any essential commodity or for
18
securing their equitable distribution and availability
at fair prices, or for securing any essential
commodity for the defence of India or the efficient
conduct of military operations, it may, by order,
provide for regulating or prohibiting the production,
supply and distribution thereof and trade and
commerce therein.”
26. Clearly, orders under Section 3(1) may pertain to the
following objectives:
(i) maintaining or increasing supplies of any essential
commodity;
(ii) securing the equitable distribution and availability at
fair prices of such commodity; or,
(iii) securing any essential commodity for the defence of
India or the efficient conduct of military operations.
27. Furthermore, Section 3(2) contemplates particular
aspects with respect to which orders may be passed in exercise
of the power under Section 3(1). In this regard, it is relevant to
refer to clause (d) of Section 3(2):
“(2) Without prejudice to the generality of the powers
conferred by sub-section (1), an order made
thereunder may provide―
xxx
19
(d) for regulating by licences, permits or otherwise
the storage, transport, distribution, disposal,
acquisition, use or consumption of, any essential
commodity”.
28. Thus, it is clear that the Central Government has the
power to pass orders under the Essential Commodities Act to
provide for licensing regimes governing the storage of an
essential commodity, in pursuance of the three objectives set
out in Section 3(1). The 2000 Order, in our considered view, is
one such order, providing for a licensing regime regulating the
acquisition, sale, storage and prevention of use in automobiles
of solvents, raffinates and slops, particularly for the purposes of
the Essential Commodities Act. There is nothing in the said
order to suggest that it intends to replace or modify any other
existing licensing regime under any other law in force, including
the Petroleum Act and the rules formulated thereunder.
29. In fact, we find that the notifications issued in
pursuance of the 2000 Order set to rest any residual doubt in
this regard. For instance, a perusal of G.R.S. 578(E), an order
dated 30.06.2000 issued by the Central Government under
Clause 3 of the 2000 Order, clearly reveals that the licence
being referred to under the order is the Solvent, Raffinate and
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Slop Licence. The said notification reiterates that the said
licence is to be issued by the State Government, District
Magistrate, or the officer authorised by the Central or State
Government, as also mentioned in Clause 3(1) of the 2000
Order.
30. There cannot be any dispute that the licence issued
under the Essential Commodities Act and control orders are for
a different purpose altogether compared to the Petroleum Act.
Thus, it is clear that the licensing regime envisaged in clause 3
of the 2000 Order, and the exemption granted thereto, is in
addition to the licensing requirements under the Petroleum Act.
The direction of the Controller of Explosives vide letter dated
05.11.2001 to comply with the requirements under the 2000
Order is an additional requirement to be complied with in order
to obtain a licence under the Petroleum Act. It cannot be said
that an exemption from obtaining a licence under the 2000
Order would amount to an exemption to obtain a licence under
the Petroleum Act. Hence, even assuming that the Appellant
was exempt from obtaining a licence under the 2000 Order by
virtue of the said exemption, the Appellant was still required to
obtain a licence in accordance with the 1976 Rules. We hasten
21
to add here that, as already mentioned supra, the quantity of
Hexane stored by the Appellant was more than 20 kilolitres.
Hence, the Appellant was required to obtain a licence under the
2000 Order as well.
31. From the above discussion, it is evident that the 1976
Rules prescribed that a licence had to be obtained for the
purposes of storing Hexane of the quantity involved in the
instant case, and the Appellant has failed to comply with this
requirement. In the absence of such a licence, the Appellant
could not have lawfully stored Hexane. Therefore, we are of the
view that the non-disclosure of the non-possession of a licence
was of a material nature, and constituted a violation of
Condition 1 of the insurance policy. As a result, we are inclined
to affirm the finding of the National Commission that the
Respondent was justified in repudiating the claim of the
Appellant on this ground.
32. The second issue, regarding the overvaluation of the
subject factory, was not seriously argued by either party.
Moreover, it is a question of fact, which this Court generally
does not probe deeply. Thus, we shall refrain from examining
the merits thereof. The same is also unnecessary in light of our
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above finding that the repudiation of the instant claim was
justified on the ground pertaining to the Appellant lacking a
licence for storing Hexane under the Petroleum Act and 1976
Rules.
33. Before we part with this matter, we may note that
some objection was raised by the Appellant against the
appointment of the third surveyor by the Respondent. Suffice it
to state that the appointment of the third surveyor was for the
limited purpose of examining whether the Appellant was in
possession of the requisite licences for the storage of Hexane.
Moreover, neither did the findings of the third surveyor disturb
the findings of the second surveyor, nor were they material to
the conclusion against the Appellant arrived at by the National
Commission. The second surveyor had given a categorical
finding that about 90 kilolitres of Hexane were stored in the
factory premises, and this finding has not been challenged by
the Appellant. At the same time, while the findings of the third
surveyor supplement the reasoning of the National Commission
vis-à-vis the absence of a licence under the Petroleum Act and
1976 Rules, they are not crucial to this conclusion, inasmuch as
the Appellant itself never contended that it was in possession of
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the requisite licences for the storage of Hexane. As a result, we
find that irrespective of whether or not the appointment of the
third surveyor was proper, the findings of the said surveyor do
not materially affect the outcome of the instant case.
34. In light of the above discussion, we find no reason to
interfere with the conclusion in the impugned judgement of the
National Commission that the repudiation of the claim was
justified for breach of Clauses 1 and 8 of the insurance policy.
35. The instant appeal is therefore dismissed. Ordered
accordingly.
…..……………………………………..J.
(MOHAN M. SHANTANAGOUDAR)
.…………………………………………J.
(R. SUBHASH REDDY)
New Delhi;
February 14, 2020
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