IMPORTANT POINTS
(1) Proposal does not conclude contract – A contract postulates an agreement between parties.
(2) Court through its interpretative process cannot rewrite or create a new contract between parties.

JUDGM ENT

Dr. DhananjayaY. Chandrachud, J.

1. The National Consumer Disputes Redressal Commission [“National Commission”] allowed an appeal instituted by the first respondent and set aside the decision of the State Consumer Disputes Redressal Commission of Gujarat [“State Commission”]. The State Commission found substance in the consumer complaint of the appellants and decreed their claim for compensation in the amount of Rs 53,66,877 with interest at 9 percent per annum. In addition, the State Commission awarded Rs 25,000 towards mental agony and Rs 5,000 towards litigation costs. The claim of the appellants arose under an insurance cover pertaining to goods hypothecated by the appellants with the first respondent under a cash credit facility. The insurer, New India Assurance Company Limited, repudiated the claim of the appellants. As a consequence of the order of the National Commission which is challenged in the present appeal, the claim of the appellants stands rejected.

2. On 31 May 1998, the appellants and the first respondent entered into an agreement for a cash credit facility. In terms of clause 15 of the agreement, the appellants were under an obligation to insure the goods which were hypothecated to the bank. Clause 15 also contained a stipulation that in the event that the appellants failed to insure the goods, it was open to the bank to secure a cover of insurance for the goods and to recover the expenses incurred along with the premium from the appellants. The clause is extracted below:

“(15) We have to insure the goods given in hypothecation to the Bank against fire etc. at our own costs in favour of the Bank and if we fail to take insurance then the Bank can take the insurance and can recover all the expenses incurred and also the premium amount borne by them from us as the Bank has Right as per this Document.”

3. The first respondent bank has stated that it was acting as a corporate agent of the insurer and, as a matter of routine practice, obtained policies for all its borrowers. As a practice, the first respondent upon receipt of an intimation, would remit the premium payable on behalf of the borrowers. The same course of action was followed by the first respondent under the lending facility granted to the appellants. The first respondent obtained the first insurance policy for the period 1998-99 in the sum of Rs 60 lakhs from the insurer, who is the third respondent to the appeal. The insurance policy covered a specific location of the borrower where the goods were stored, namely:

“12/1123-1124, Basement, Meghdoot Apartment, Surat”

4. The policies of insurance for the succeeding years 1999-2000, 2000-2001 and 2001-02 covered the goods of the borrower stored at the above premises. From 2001, the insurance policy was renamed as a ‘Standard Fire and Special Perils Policy’. The perils insured included those occasioned by storm, tornado, flood and inundation. These together are referred to as “STFI Perils”. In 2001-02 the value of the insurance cover was enhanced by an amount of Rs 25 lakhs so as to increase the total sum insured to Rs 85 lakhs. For 2002-03, the insurer issued a policy covering a sum insured of Rs 25 lakhs in terms of the same location at Meghdoot Apartment, Surat noted above. However, a separate insurance cover in the amount of Rs 60 lakhs was issued in respect of the goods stored at following location:

“B-205, Plot No 17-B, Village Karnaj”

5. Similarly, for 2003-04 and 2004-05 there were two insurance covers; one in the amount of Rs 25 lakhs in respect of the location at Meghdoot Apartment, Surat and the second in the amount of Rs 60 lakhs covering the location at B- 205, Plot 17-B, Village Karnaj. For 2005-06 and 2006-07, the position of the insurance cover is reflected in an extract from a tabulated chart filed by the insurer: