Supreme Court of India
Oriental Insurance Company Ltd. vs National Bulk Handling … on 12 February, 2020Author: R. Subhash Reddy

C.A.No.10409 of 2016 1




CIVIL APPEAL NO. 10409 OF 2016

Oriental Insurance Co. Ltd. …Appellant


National Bulk Handling
Corporation Pvt. Ltd. …Respondent



1. This civil appeal is filed under Section 23 of the

Consumer Protection Act, 1986, by the opposite party,

in Consumer Case No.2 of 2010, filed before the

National Consumer Disputes Redressal Commission, New

Delhi, aggrieved by the judgment and order dated

22.06.2016. The above said complaint is disposed of by

Signature Not Verified
impugned order, directing the appellant-opposite party
Digitally signed by
Date: 2020.02.12

to pay a sum of Rs.3,46,87,113/- (Rupees Three Crores
15:40:56 IST

Forty Six Lakhs Eighty Seven Thousand One Hundred and
C.A.No.10409 of 2016 2

Thirteen) to the respondent-complainant as per the

insurance policy with interest @ 9% per annum with

effect from six months from the date of lodgement of

the claim, till the date of payment.

2. The respondent-complainant is a Collateral

Management Company, which undertakes to store the

commodities pledged by the farmers, traders and

manufacturers etc., in availing loan from lending banks

and other institutions. In case of any loss of the

pledged commodities, the respondent-complainant is

liable to make good the loss to the lending bank. The

respondent-Collateral Management Company, took

Fidelity Guarantee Insurance Policy from the appellant-

opposite party, in respect of the pledged commodities

stored in warehouses/godowns at several places.

3. The three firms namely S.K. Sales Corporation,

Navbharat Commodities and Navbharat Agro Products,

entered into agreements with the respondent-complainant

for storing commodities including urad and mentha oil

in their warehouse at Gadarpur in District Udham Singh

Nagar, Uttarakhand. The respondent-Company was

appointed as the Collateral Manager for the said
C.A.No.10409 of 2016 3

commodities, which has deployed security guards hired

by it from the security agency, besides its own field

staff. Coming to know that on 06.11.2008, the stored

commodity of urad was unauthorizedly removed from the

godown, which was pledged to HDFC Bank, the respondent

dispatched a team of its officers to investigate the

same. The report dated 16.11.2008 of the investigating

agency revealed certain omissions and commissions by

the concerned employees of the respondent in connivance

with the borrowers. Coming to know of such unauthorized

removal of urad, the respondent has taken steps to

prevent further possible loss to oil and wheat. 601

barrels of oil were shifted to a godown at Bazpur,

where a quality check was conducted. On making such

quality check, laboratory report revealed that the

mentha oil was substituted by water in the barrels.

Thereupon, claim was lodged by the respondent with the

appellant on 08.11.2008 and further a complaint was

also lodged at the Police Station upon which, an FIR

was registered on 19.11.2008.

4. The respondent-complainant made a claim with

appellant, alleging that the commodities were
C.A.No.10409 of 2016 4

removed/substituted in connivance with the employees

which was an act of infidelity covered by the insurance

policy taken by it. It is alleged that the employees

have committed criminal breach of trust, with a view to

cause loss to the banks and the complainant. When the

claim was not accepted, the respondent-complainant

approached the National Commission, claiming an amount

of Rs.4,17,84,213/-(Rupees Four Crores Seventeen Lakhs

Eighty Four Thousand Two Hundred and Thirteen). The

said claim included loss of stock of urad payable to

HDFC Bank for an amount of Rs. 70,97,100/-

(Rupees Seventy Lakhs Ninety Seven Thousand One

Hundred) and further loss of Rs. 3,46,87,113/-(Rupees

Three Crores Forty Six Lakhs Eighty Seven Thousand One

Hundred and Thirteen Only) payable to State Bank of

India for the stock commodity of mentha oil. The said

claim was contested and opposed by the appellant-

opposite party. By considering the submissions on both

sides and other relevant material placed on record, the

National Commission, by impugned order, allowed the

claim of Rs.3,46,87,113/- along with interest @ 9% per
C.A.No.10409 of 2016 5

annum towards the loss of mentha oil but at the same

time rejected the claim so far as urad is concerned.

5. We have heard Sri. Vishnu Mehra, learned counsel

appearing for the appellant-Company and Sri. C.U.

Singh, learned senior counsel appearing for the

respondent-complainant. Learned counsel for the

appellant, by taking us to the material placed on

record and the impugned order, mainly contended that

the respondent-complainant has failed to prove that any

employee is involved in removing/substituting mentha

oil with water in 601 barrels, which was stored in the

godown. It is submitted that even as per the

investigation reports, seals were intact, as such, in

absence of any finding with regard to tampering of

seals, there is no basis for the claim of the

respondent-complainant. Further it is stated that as

per the terms of the contract of insurance, the claim

was not made immediately. As such, respondent has

violated the terms and conditions of the contract of

insurance. It is submitted that National Commission

fell in error in allowing the claim of Rs.3,46,87,113/-

towards the loss of mentha oil, as claimed by the
C.A.No.10409 of 2016 6

respondent- complainant. It is further submitted that

even in the impugned order, the National Commission did

not name any employee of the respondent, who was

allegedly involved in substituting the mentha oil with

water. Thus, it is submitted that the impugned order is

fit to be set aside, by allowing the appeal.

6. On the other hand, Sri. C.U. Singh, learned senior

counsel, by referring to the survey report of the

appellant-Company and other material, has submitted

that even as per the survey report of the appellant-

Company, the commodity of mentha oil was removed, by

substituting with water, by the borrowers, in

connivance with employees. Further, it is submitted

that on the complaint made by the respondent, the

owners of the commodity who have pledged the goods to

the bank and also the employees of the respondent, were

charge-sheeted for offences under Sections 420, 406,

405, 415, 427 of the Indian Penal Code and the case is

pending trial. It is submitted that the survey report

itself indicates involvement of the employees of the

respondent, as such, claim is covered by the insurance

policy. It is submitted that after filing of the
C.A.No.10409 of 2016 7

complaint, when the claim is repudiated, such rejection

order also is questioned by way of amendment. It is

submitted that when the impugned order is read in

entirety with regard to urad and mentha oil, it is

clear that the warehouse Supervisor Mr. Narender Yadav

and security guard Mr. Ram Singh were involved in

removal/substitution of mentha oil with water.

7. Learned counsel by taking us to the survey report,

has also submitted that the survey report itself

indicates for prosecuting borrowers as well as

employees of the respondent, as such, there is no basis

for the allegation of the appellant that employees were

not involved. It is submitted that when it has come to

light that mentha oil was substituted by water, 100 per

cent sampling was undertaken, which was completed on

12.11.2008 and the investigation report was submitted

to the respondent-complainant on 14.11.2008 and the

matter was reported to the insurer on 18.11.2008, as

such, there is no violation of condition no.1 of the

policy. Learned counsel, explaining the scope of

Fidelity Guarantee Insurance Policy, has placed

reliance on a judgment of this Court, in the case of
C.A.No.10409 of 2016 8

Food Corporation of India Vs. New India Assurance Co.

Ltd. and Others1 and a recent judgment of this Court

dated 24.01.2020, in the case of Gurshinder Singh Vs.

Shriram General Insurance Co. Ltd. & Anr.2

8. Upon hearing the learned counsels on both sides

and on perusal of the impugned order and other material

placed on record, we do not find any merit in any of

the contentions advanced by learned counsel for the

appellant. The aforesaid judgments relied on by

learned counsel for the respondent, though relate to

insurance claims, but the issues decided in the

aforesaid judgments, have no direct bearing on the

issues which arise for consideration in this case.

9. It is not in dispute that the insurance policy for

fidelity guarantee was in force during the relevant

time, which was obtained by the respondent-complainant.

Fidelity Guarantee is different from contingency

guarantee. The insurance under it, is for honesty,

against negligence or for being faithful and loyal to

its employees. The protection afforded is different

than in normal insurance policies. Precisely, it is a

1 (1994) 3 SCC 324
2 C.A. No. 653 of 2020
C.A.No.10409 of 2016 9

contract whereby, for a consideration, one agrees to

indemnify another, against loss, arising from the

breach of honesty, integrity or fidelity of an employee

or other person holding a position of trust. In Black’s

Law Dictionary, fidelity insurance is explained as


“Fidelity Insurance- Form of insurance in which

the insurer undertakes to guarantee the fidelity of an

officer, agent or employee of the assured or rather to

indemnify the latter for losses caused by dishonesty or

a want of fidelity on the part of such person.”

As such, the insurance policy of fidelity guarantee is

to be construed as a policy, intended to protect the

assured against the contingency of a breach of fidelity

on the part of a person in whom confidence has been


10. The impugned order is assailed mainly on the

ground that the respondent has failed to prove

involvement of any of the employees of the respondent-

Company, as such, there cannot be any liability on the

appellant-insurance company. It is not in dispute that

the pledged goods of 601 barrels of mentha oil was
C.A.No.10409 of 2016 10

stored in the warehouse. The survey report dated

26.03.2009, itself indicates the involvement of

employees of the respondent-Company in removing 601

barrels of mentha oil stored by the respondent-Company.

Immediately, after confirmation and 100 per cent

sampling, it was disclosed that in all the barrels, the

mentha oil was substituted with water, a complaint was

lodged by the respondent-complainant on 18.11.2008

before the Gadarpur Police Station. In the complaint

filed, specific allegation is made about involvement of

staff of the respondent-Company.

11. There is a specific observation in the survey

report that the security guard of the respondent-

Company had allowed Mr. Sanjeev Chhabra(owner) to lift

the stock. Referring to the complaint made by the

respondent-Company to the Police, a request is made to

take action against owners as well as the employees

namely Mr. Narender Singh Yadav, who was the Warehouse

Supervisor, Cluster Head Mr. Anil Saxena, Warehouse

Executive Mr. Aneesh Mohd. and Security Guard Mr. Ram

Singh for committing crime under various Sections of

the Indian Penal Code. If the entire material is taken
C.A.No.10409 of 2016 11

into consideration, it is clear that there is a clear

involvement of the employees of respondent and other

contract employees in substituting the mentha oil

barrels with water. It is also argued by learned

counsel for the appellant that during the inspection,

seals were found to be intact but it does not make any

difference in as much as 100 per cent sampling proved

that all barrels which were earlier filled with mentha

oil, were substituted with water.

12. There is yet another contention advanced by

learned counsel for the appellant that there was a

delay in lodging the complaint, as such, it is in

violation of condition no.1 of the contract of

insurance. It is clear from the impugned order and

other material placed on record, when it has come to

the notice of the respondent, that mentha oil was

substituted by water in the barrels, respondent

undertook 100 per cent sampling, by sending the samples

drawn from the barrels to the laboratory and such

sampling was completed only on 12.11.2008 and the

investigation report came to be submitted to the

respondent-Company on 14.11.2008. Before that
C.A.No.10409 of 2016 12

respondents were not aware of mentha oil substituted by

water in all the barrels. Thereafter, claim was made

before the appellant on 18.11.2008.

13. In that view of the matter, it cannot be said that

there is any delay on the part of the respondent in

lodging the claim, so as to accept that there is

breach of condition no. 1 of the policy.

14. For the aforesaid reasons and in view of the

findings recorded in the impugned order, we do not find

any merit in this appeal, so as to interfere with the

same. The appeal is, accordingly, dismissed with no

order as to costs.



February 12, 2020


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