M/S. ISNAR AQUA FARMSversusUNITED INDIA INSURANCE CO. LTD.

76               [2023] 11
              SUPREME      S.C.R.REPORTS
                        COURT     76 : 2023 INSC 680 [2023] 11 S.C.R.



                              CASE DETAILS

                       M/S. ISNAR AQUA FARMS
                                       v.
                UNITED INDIA INSURANCE CO. LTD.
                      (Civil Appeal No. 1077 of 2013)
                             AUGUST 08, 2023
           [A. S. BOPANNA AND SANJAY KUMAR, JJ.]

                               HEADNOTES

        Issue for consideration : Appellant, which undertook prawn cultivation,
had obtained insurance coverage from respondent under a prawn insurance
policy. Major outbreak of a bacterial disease called ‘White Spot Disease’ led
to mass mortality of the prawns in the appellant’s farm. The insurance claim
submitted by appellant was repudiated by respondent-insurance company in
its entirety, which was challenged before the National Consumer Disputes
Redressal Commission (NCDRC); and, in this second round of litigation before
this Court, the further issue was whether the claim amount and interest quantified
by NCDRC was just and equitable.
       Insurance – Requirement of uberrima fides:
       Held : Uberrima fides, i.e., good faith, is the requirement in a contract
of insurance – This obligation and duty would rest on both parties not only at
the inception of the contract of insurance but throughout its existence and even
thereafter – On facts, despite the second surveyors report dated 22.09.1995
quantifying the appellant’s loss at `17,64,097/-, the respondent insurance
company chose to repudiate the appellant’s claim in its entirety, basing on the
wholly unfounded assertion that the appellant had failed to maintain and provide
proper records – This was also despite the clear finding of its earlier surveyors,
M/s. Frank and Fair Investigators, that total loss was suffered by the appellant
– Further, having attached great importance to the death certificate given by
the MPEDA/State Fisheries Department in its policy and its prescribed claim
procedure, the insurance company baldly brushed aside the Death Certificate
dated 01.05.1995 furnished by the officials of the State Fisheries Department
                                        76
                M/S. ISNAR AQUA FARMS v.              77
   UNITED INDIA INSURANCE CO. LTD. [SANJAY KUMAR, J.]

at Visakhapatnam – It is not open to an insurance company to ignore or
fail to act upon a certificate or document that it had itself called for from
independent and impartial authorities, subject to just exceptions, merely
because it is averse to it or to its detriment – Having undertaken to indemnify
an insured against possible loss in specified situations, an insurance company
is expected to make good on its promise in a bonafide and fair manner and
not just care for and cater to its own profits. [Paras 12 and 13]
        Insurance – Computation of admissible loss – Methodology:
        Held : On facts, the insurance policy itself provided the method of
computation of the admissible loss –There were three ways of computing
the admissible loss (Input Cost Method; Unit Cost Method and Fortnightly
Valuation Method) – NCDRC had assessed the appellant’s total loss as
`30,69,486.80 and awarded simple interest @ 10% p.a. – However, the
values of loss worked out by the appellant were: `75,98,361/- (as per Input
Cost Method); `75,87,750/- (as per Unit Cost Method); and `79,20,000/-
(as per Fortnightly Valuation Method) – Computations made by appellant
are accurate – Appellant would be entitled to lowest of the aforestated three
valuations, viz., `75,87,750/- – Further, delay on part of insurance company
in settling the appellant’s claim fairly and in a timely manner warrants that
it pays interest on the amount due and payable to appellant – Interest rate
fixed by NCDRC, viz, 10% is just and equitable. [Paras 7, 8 and 14]

        LIST OF CITATIONS AND OTHER REFERENCES

     General Assurance Society Limited v. Chandumull Jain and another
AIR 1966 SC 1644 : [1966] SCR 500 – followed.
      Jacob Punnen and another v. United India Insurance Company
Limited (2022) 3 SCC 655; Modern Insulators Limited v. Oriental Insurance
Company Limited (2000) 2 SCC 734 : [2000] 1 SCR 1076 – relied on.

        OTHER CASE DETAILS INCLUDING IMPUGNED
               ORDER AND APPEARANCES

        CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1077 of
2013.
78           SUPREME COURT REPORTS                         [2023] 11 S.C.R.


      From the Judgment and Order dated 21.07.2011 of the National
Consumer Disputes Redressal Commission, Delhi in Original Petition No.
55 of 1996.
      Appearances:
     Sridher Potaraju, K. P. Sundar Rao, Aayush, Rajat Srivastava, Sumit
Panwar, C. K. Rai, Advs. for the Appellant.
       Pramit Saxena, A. K. De, Zahid Ali Khan, Ms. Ananya De, Advs.
for the Respondent.

       JUDGMENT / ORDER OF THE SUPREME COURT

                               JUDGMENT
      SANJAY KUMAR, J.
       1. Being the second round of litigation before this Court, the issues
that arise for consideration in this appeal fall within a narrow compass.
        2. During the year 1994, the appellant, a registered partnership firm,
undertook prawn cultivation in an extent of 100 acres, with a water-spread
area of 68 acres, at Vakapadu Village in S. Rayavaram Mandal of erstwhile
Visakhapatnam District. It obtained insurance coverage from the respondent
Insurance Company for a period of five months from 7-10.09.1994 in
relation to all the 37 ponds in its operation, covering 22,67,000 prawns,
for a maximum insured value of `1,20,00,000/-. The appellant paid a total
premium of `2,44,800/- along with sales tax of `12,240/- and was issued
a ‘Brackish Water Prawn Insurance Policy’ by the respondent Insurance
Company on 25.11.1994. At the time of insurance, the prawn larvae were
stated to be at PL 20 stage and the date of their stocking in the ponds
was 7-10.09.1994. The insurance policy indicated that the expected yield
for 22,67,000 prawn larvae, in terms of weight, was 80.400 kgs. and the
average body weight of the prawns, at full size, ranged from 11 grams to
33.5 grams each. The expected dates of harvesting were from 07.02.1995 to
11.02.1995. The policy provided that the insurance period would be split up
into fortnights and each calendar month was to be treated as two fortnights,
irrespective of the number of days in the month. The policy further stipulated
that a loss due to any peril covered thereunder would be treated as a total
loss if the loss percentage at any particular stage was equal to or exceeded
                M/S. ISNAR AQUA FARMS v.              79
   UNITED INDIA INSURANCE CO. LTD. [SANJAY KUMAR, J.]

80% of the total population of the prawns in the pond and no claim would
be admissible under the policy if the loss percentage in a pond due to any
of the covered perils was below 80%. A separate table was appended to the
policy, indicating the maximum liability, in terms of percentages of the sum
insured, during the ten fortnights covered by the insurance policy.
       3. While so, there was a major outbreak of a bacterial disease called
‘White Spot Disease’ along the east coast of Andhra Pradesh, which led to
mass mortality of prawns in the area, including the appellant’s farm. This
led to invocation of the insurance policy by the appellant. However, upon
submission of a claim thereunder by the appellant and after two separate
surveys were conducted at its own behest, the respondent insurance company
repudiated the appellant’s claim in its entirety, under letter dated 15.07.1997.
According to the insurance company, there was a breach by the appellant
of the policy conditions, inasmuch as records were not maintained properly
and accurately; records were not produced at the time of the survey; and
whatever records were produced were unsubstantiated.
       4. Aggrieved thereby, the appellant instituted Original Petition No.
55 of 1996 before the National Consumer Disputes Redressal Commission,
New Delhi [for brevity, ‘the NCDRC’]. The appellant prayed for a sum of
`75,98,362/- towards the loss suffered by it along with interest thereon @
24% per annum and compensation of `10,00,000/-. By common order dated
29.04.2004, the NCDRC disposed of the appellant’s Original Petition No. 55 of
1996 along with Original Petition No. 54 of 1996 filed against the respondent
insurance company by one Mr. V.V. Rama Raju, a similarly situated prawn
cultivator from Visakhapatnam, Andhra Pradesh. The NCDRC recorded a clear
finding therein that the repudiation of the appellant’s claim by the respondent
insurance company was unjustifiable. It was noted that insurance coverage
was provided after thorough inspection of the appellant’s ponds by the senior
officers of the insurance company on 25.11.1994, who were fully satisfied in
all respects, and only thereafter, the policy was issued upon payment of the
premium. The NCDRC therefore opined that it was totally unreasonable on the
part of the insurance company to allege that the appellant was not maintaining
proper records on 2-3.12.1994. Reference was made to the two surveyors’
reports and accepting the salvage value suggested by one of them, the NCDRC
held that the appellant was entitled to a sum of `17,64,097/- with interest
80            SUPREME COURT REPORTS                           [2023] 11 S.C.R.


thereon @ 9% per annum from 01.07.1995 till realization. Original Petition
No. 54 of 1996 filed by Mr. V.V. Rama Raju, the other prawn cultivator, was
also disposed of on similar lines, awarding him a sum of `24,97,609/- with
interest thereon @ 9% per annum.
       5. Dissatisfied with the common order passed by the NCDRC, both
the claimants and the insurance company approached this Court, by way of
a batch of appeals, viz., Civil Appeal Nos. 5294, 7091, 8051 and 4182 of
2004. By order dated 10.11.2009, this Court disposed of the appeals, opining
that the NCDRC had not calculated the compensation properly, including the
interest to be paid to the claimants. The matter was accordingly remanded to
the NCDRC for an expeditious decision in that regard.
       6. It is on the strength of this remand order that the NCDRC again
undertook the exercise of quantification of the amount to be paid to the
claimants and the interest to be awarded to them, leading to the order impugned
presently by the appellant. Insofar as the appellant is concerned, the NCDRC
took note of the survey report dated 01.09.1995 procured by the insurance
company from M/s. Frank & Fair Investigators, Rajahmundry, wherein it was
confirmed that it was a case of severe loss due to disease. The NCDRC also
took note of the Death Certificate dated 01.05.1995 issued by the Regional
Deputy Director of Fisheries, Andhra Pradesh, Visakhapatnam, and the
Inspector of the Fisheries Branch, Visakhapatnam, which certified that the
total weight of dead prawns was 50,585 kgs.; that the average body weight
of the dead prawns was 17.78 grams each; and that the total value of the
prawns at the time of death, in terms of incurred expenses, was `94,97,952/-.
The cause of death of the prawns was noted in this certificate as ‘White Spot
Disease’. As regards the second survey report dated 22.09.1995 procured by
the insurance company from the team comprising A.R. Rao, P.S. Ramnathan
and B. Nageswara Rao, the NCDRC noted that several conclusions/remarks
made therein were in the nature of value judgments/surmises, which were not
supported by the evidence on record or even the contents of the report itself. The
observation of these surveyors to the effect that the records were not submitted
by all or any of the farmers, including the appellant, was dismissed by the
NCDRC as a ‘sweeping’ remark. Having stated so, the NCDRC surprisingly
accepted the estimation of the average body weight of each prawn by these
surveyors at 9.086 grams and their valuation of the total loss, based thereon, as
                M/S. ISNAR AQUA FARMS v.              81
   UNITED INDIA INSURANCE CO. LTD. [SANJAY KUMAR, J.]

`30,69,486.80. The NCDRC however rejected the deductions from this
amount proposed by these surveyors and assessed the appellant’s total loss
as 30,69,486.80. Simple interest was awarded thereon @ 10% per annum
from the date of the complaint. Dissatisfied with the quantum of the amount
and the interest awarded thereon, the appellant is again before this Court.
     7. Significantly, the insurance policy itself provided the method of
computation of the admissible loss. It stated as follows:
     “In the event of loss, all loss adjustment will be made on declared
     value/unit cost basis or input cost (production cost) basis, whichever
     is less.
     For a loss to be admissible the agreed mortality rate will be on the
     residual stock as on date anterior to loss. The residual quantity
     being as per the cumulative mortality percentage for the applicable
     fortnight as per the valuation table or actual as per pond record,
     whichever is less.”
      8. Therefore, the three ways of computing the admissible loss are: -
      (i)    Input Cost Method: 80% of the value of inputs on the date of
             the loss.
      (ii)   Unit Cost Method: The actual survival number is calculated
             on the date anterior to the loss. The prevailing average body
             weight is applied to that number and then multiplied by the
             unit cost of 150 per kilogram.
      (iii) Fortnightly Valuation Method: As the crop period was up
            to ten fortnights, the maximum claim admissible in the first
            fortnight is 25% of the sum assured and scales up through the
            fortnights proportionately.
       9. The admissible loss is the lowest of the values computed on the
strength of the above three calculation methods. The following values of loss
were worked out by the appellant: Input Cost Method – `75,98,361/-; Unit
Cost Method - `75,87,750/-; and Fortnightly Valuation Method – `79,20,000/-
. The respondent insurance company, however, disputes the same. Thus, the
issue primarily boils down to quantifying the insurance amount payable to
the appellant, in terms of the aforestated three methodologies.
82            SUPREME COURT REPORTS                          [2023] 11 S.C.R.


       10. As noted hereinbefore, the NCDRC deemed it fit to place reliance
on a part of the report dated 22.09.1995 of the three surveyors, despite
rejecting several observations made therein as baseless value judgments
and surmises. In such a situation, the average body weight of each prawn
assessed by those valuers was equally suspect. It may also be noted that
the earlier report dated 01.09.1995 of M/s. Frank & Fair Investigators had
estimated the average body weight of the dead prawns/salvaged prawns to be
between 10 grams to 12 grams each. This report also recorded that Professor
M.Rama Seshaiah from the Department of Marine Living Resources had
visited the appellant’s prawn farm on 02.12.1994 and had observed, when
the cast nets were hauled in 6 to 8 ponds, that the salvaged prawns/dead
prawns were not more than 12 grams in weight each. Similarly, Dr. G.
Sudhakar Rao, Scientist, CMERI, had stated that the average weight of the
dead prawns was not more than 10 grams each. It is an admitted fact that the
average body weight of the prawns would decrease drastically upon death.
Therefore, if the earlier survey report placed the average body weight of the
dead prawns between 10 grams to 12 grams each, their weight while they
were alive would have been far higher. This estimation is fortified by the
Death Certificate dated 01.05.1995 issued by the Directorate of Fisheries,
Andhra Pradesh, Visakhapatnam, which confirmed that the average weight
of each prawn at the time of death/loss would have been 17.78 grams. This
figure is more logical and acceptable, as the insurance policy itself envisaged
the average body weight of the prawns to go up to 33 grams at the time of
yield, which was just two months after the outbreak of the fatal disease.
       11. The respondent insurance company seeks to wash its hands off the
aforestated Death Certificate dated 01.05.1995 and dismiss it altogether. It may,
however, be noted that in its written statement filed before the NCDRC, the
insurance company had itself stated that it was the duty of the claimant/insured
to obtain the death certificate from the Marine Products Export Development
Authority (MPEDA), Ministry of Commerce and Industry, Government of India,
or from the State Fisheries Department. Reference was made by the insurance
company to its letter dated 17.04.1995 addressed to the appellant, wherein it
had pointed out that it was clearly mentioned in the claim form that the death
certificate must be signed either by the MPEDA authorities or by the State
Fisheries Department and called upon the appellant to obtain the certificate from
either of the authorities and submit it to the company for further action. In the
                M/S. ISNAR AQUA FARMS v.              83
   UNITED INDIA INSURANCE CO. LTD. [SANJAY KUMAR, J.]

light of the insurance company’s own direction and its tacit recognition of the
value and importance to be attached to the death certificate from either of these
independent bodies, it is not open to it to dismiss the Death Certificate dated
01.05.1995 issued by the officials of the Directorate of Fisheries, Visakhapatnam.
Pertinent to note, under Clause 10 of the insurance policy, the claims procedure
required the insured/claimant to furnish a fully completed claim form along
with a death certificate with details, certified by officials of the Directorate of
Fisheries/MPEDA.
        12. Be it noted, in General Assurance Society Limited Vs.
Chandumull Jain and another [AIR 1966 SC 1644], a Constitution Bench
had observed, in the context of the insured, that uberrima fides, i.e., good
faith, is the requirement in a contract of insurance. More recently, in Jacob
Punnen and another Vs. United India Insurance Company Limited [(2022)
3 SCC 655], this Court affirmed and reiterated the edict laid down earlier
in Modern Insulators Limited Vs. Oriental Insurance Company Limited
[(2000) 2 SCC 734], that it is the fundamental principle of insurance law
that utmost good faith must be observed by the contracting parties; that
good faith forbids either party from non-disclosure of the facts which the
party knows; and that the insured has a duty to disclose and similarly it is
the duty of the insurance company to disclose all material facts within their
knowledge since the obligation of good faith applies to both equally. This
obligation and duty would rest on both parties not only at the inception of
the contract of insurance but throughout its existence and even thereafter.
       13. Applying this standard presently, it may be noted that despite the
second surveyors report dated 22.09.1995 quantifying the appellant’s loss
at `17,64,097/-, the respondent insurance company chose to repudiate the
appellant’s claim in its entirety, basing on the wholly unfounded assertion
that the appellant had failed to maintain and provide proper records. This
was also despite the clear finding of its earlier surveyors, M/s. Frank and Fair
Investigators, that total loss was suffered by the appellant. Further, having
attached great importance to the death certificate given by the MPEDA/
State Fisheries Department in its policy and its prescribed claim procedure,
the insurance company baldly brushed aside the Death Certificate dated
01.05.1995 furnished by the officials of the State Fisheries Department at
Visakhapatnam. Merely because the contents thereof were not to its liking,
84            SUPREME COURT REPORTS                             [2023] 11 S.C.R.


the insurance company could not have ignored the same and swept it under
the carpet. More so, as such certification was being made by impartial and
independent bodies of significant stature and that, perhaps, was precisely the
reason why the insurance company had attached such importance to it in its
norms. In any event, it is not open to an insurance company to ignore or fail to
act upon a certificate or document that it had itself called for from independent
and impartial authorities, subject to just exceptions, merely because it is averse
to it or to its detriment. Having undertaken to indemnify an insured against
possible loss in specified situations, an insurance company is expected to make
good on its promise in a bonafide and fair manner and not just care for and cater
to its own profits. In effect, the action of the insurance company in refusing to
act upon the Death Certificate dated 01.05.1995 issued by the Directorate of
Fisheries, Visakhapatnam, cannot be countenanced.
        14. Computations made by the appellant and recorded by the NCDRC in
paragraph 21 of the order under challenge, viz, ` 75,98,361/- (as per Input Cost
Method) and ` 75,87,750/- (as per Unit Cost Method) are found to be accurate,
in terms of the figures mentioned in the Death Certificate dated 01.05.1995. As
per the Fortnightly Valuation Method, the loss would work out to ` 79,20,000/-.
Admittedly, the appellant would be entitled to the lowest of the aforestated three
valuations, viz., ` 75,87,750/-. As the respondent company would have already
paid the appellant the amount quantified by the NCDRC in the impugned order,
viz., ` 30,69,486.80, the appellant would be entitled to receive the balance
amount of ` 45,18,263.20. The delay on the part of the insurance company in
settling the appellant’s claim fairly and in a timely manner warrants that it pays
interest on the amount due and payable to the appellant in terms of this order.
      15. Though the appellant claims that bank deposit interest rates ranged
between 12% to 13% during the financial year 1995-1996, we find from the
RBI statement, relied upon in this regard, that the interest rate for the financial
year 1994-95 was 11% and for the year 1996-97, it was between 11% to 13%.
That being so, the interest rate fixed by the NCDRC, viz, 10% is held to be just
and equitable.
       16. The sum of ` 45,18,263.20 shall be remitted by the respondent
insurance company to the appellant, with simple interest thereon @ 10% from
the date of the complaint till the date of realization, within six weeks from today.
                 M/S. ISNAR AQUA FARMS v.              85
    UNITED INDIA INSURANCE CO. LTD. [SANJAY KUMAR, J.]

       The appeal is disposed of accordingly.
       Parties shall bear their own costs.

Headnotes prepared by:                          Appeal disposed of.
Bibhuti Bhushan Bose