IMPORTANT POINTS
(1) Once bank exercised liberty to effect insurance, it was implicit that such insurance ought to have covered entire set of hypothecated assets, against which credit facilities were extended.
(2) If bank effected insurance, that policy would have to carry the features which a borrower’s policy would have covered as per terms of deeds or agreements.

JUDGMENT

Aniruddha Bose, J.

The appellant, Canara Bank, had extended credit facilities to the respondent-Company, Leatheroid Plastics Private Limited under different heads. The respondent had been having banking relationship with the appellant since 1980. The credit facilities involved in this appeal included restructuring of past debt-repayment. The arrangement of extending such credit was agreed upon on 4th January 2001. The bank agreed to extend the following financial facilities to the respondent, against mortgage of land, buildings stocks etc; towards security:-

Two documents were executed on that date, i.e. 4th January 2001 for such purpose. One was a deed of hypothecation and the other an agreement of collateral security for machinery and vehicles. The former contemplated hypothecation of plant, machinery, tools and accessories already purchased as also the machinery to be purchased, which "are erected/to be erected/kept/to be kept or in transit for being erected at the premises in the occupation of the borrower" in relation to term loan of Rs.15 lacs. The latter agreement covered credit facilities under other heads and also contemplated hypothecation of additional security "plant, machinery, tools and accessories and motor vehicles" already purchased and to be purchased. Particulars of the hypothecated assets were listed in the schedules to the two deeds. Under the respective deeds/agreements, it was borrower's obligation to keep the hypothecated assets insured but the bank retained the liberty to obtain insurance coverage of such assets. The bank had exercised the option of effecting the policy, which was permissible under both the agreements and debited the premium from the respondent's account. The entire set of hypothecated assets, however, was not covered by the policy. The said policy covered stocks-in-process and building for Rs.50 lacs, Rs.2 lacs and Rs.28.88 lacs. No coverage was taken for plant, machinery and accessories etc.

2. There was a fire in the premises of the respondent little beyond the midnight hours of 27th August 2001, which caused damage to their stocks and machineries. The respondent lodged claim with New India Assurance Company, Kanta Nagar branch. It is the contention of the respondent that from the survey undertaken in pursuance of such claim, they came to learn that the policy did not cover plant, machinery and accessories etc. The respondent's own assessment of replacement value of these uncovered assets was Rs.1.50 crores. The respondent also claimed to have had spent Rs.6.50 lacs on the machinery on order and overhaul for restarting the unit. The unit had to remain shut for some time on environmental issues. The appellant, however, had valued the same for Rs. 31.76 lacs. The respondent received insurance claim for Rs.34,92,970/-.

3. The respondent under those circumstances became liable, as part of their debt repayment obligation, for the price of such uncovered hypothecated assets damaged by fire. The petition of complaint before the Commission, however, was founded on loss on account of portion of the assets left uncovered in the insurance policy. The Bank had initiated recovery process before the forum constituted for such recovery. But for the purpose of adjudication of this appeal, we do not consider it necessary to give details of particulars and status of such proceedings. The respondent approached the National Consumer Disputes Redressal Commission, New Delhi (the Commission) with an original petition for compensati