The borrower bears the primary responsibility for insuring and renewing coverage of hypothecated assets, failing which they cannot claim against the bank for losses incurred from a policy lapse.

JUDGMENT :

(K.R. SHRIRAM, CJ.)

This is the first appeal against an order and judgment passed by the Principal District Judge, Tiruppur, on 1^st August, 2023 decreeing a suit that was filed by respondents 1 to 3. For ease of reference and understanding, we would identify the parties by the original description i.e., appellants will be referred to as “defendants (defendant bank)” and respondents 1 to 3 will be referred to as “plaintiffs”.

2. First plaintiff, a registered partnership firm, was carrying on business of producing knit fabrics on job works. First plaintiff's factory was situated at 17A, SPA Export Compound, Kallampalayam, Tiruppur. Pursuant to a loan application that was filed by plaintiffs for the purpose of their business in purchasing machineries and working capital requirement, defendant bank sanctioned a term loan of Rs.108.97 lakhs and Rs.10 lakhs as working capital. As per the agreement between plaintiffs and defendant bank, the loan was secured by hypothecation of machineries and accessories purchased/proposed to be purchased by plaintiffs. Collateral security of the land and residential building was also given by plaintiffs. The agreement between plaintiffs and defendant bank also provided for insuring the machineries and accessories in the joint names of plaintiffs and defendant bank. The policy was to be current during the term of the loan.

3. Pursuant to the agreement for term loan and Take Delivery Letter annexed to DPN (Demand Promissory Note) dated 14^th January, 2015 (Exs.B4 and B2) respectively, the amounts, as noted above, were sanctioned/released.

4. On 8^th March, 2017, defendant bank obtained a fire insurance policy to cover the assets mentioned therein. Defendant No.3-New India Assurance Company Limited (insurance company) issued a Standard Fire and Special Perils Policy, in which the insured is shown as defendant bank and second plaintiff, the partner of plaintiff No.1, as assured. The period of insurance was from 08.03.2017 up to 07.03.2018. The policy came to be issued pursuant to a proposal dated 08.03.2017, that defendant bank had submitted.

5. On 5^th March, 2018, the insurance company, issued a renewal notice which was received by defendant No.1 only on or about 12^th March, 2018 informing defendant No.1 that the policy was expiring on 07.03.2018 and, therefore, advised them that the policy has to be renewed. In the meanwhile, on 10^th March, 2018, there was a fire accident in the premises of plaintiffs and the entire factory got gutted. All plant and machineries came to be destroyed in the fire.

6. When it was informed about the loss due to the fire, the insurance company declined to pay on the ground that the policy had lapsed before the incident of fire happened, in effect, there was no policy in place.

7. Notwithstanding the loss of machineries by fire, after defendant bank initiated SARFAESI proceedings, the claim of defendant bank has been settled on 14.09.2021. In the meanwhile, plaintiffs filed the suit on 28^th November, 2018.

8. According to plaintiffs, defendant bank, which was in a dominating position, was the agent of insurance company and defendant bank undertook the responsibility of obtaining insurance cover from insurance company, and because defendant bank failed to renew the policy, plaintiffs were unable to recover the insured value of the goods and, hence, defendant bank was liable to pay for the loss suf