Holding

The Supreme Court held that the claimants are entitled to the full amounts under the insurance policies and, by virtue of the valid assignment, the banks are entitled to receive the payment directly from the insurer.

Summary

Krishna Food & Baking Industry Ltd. and its sister concern operated bakery units in Srinagar that were destroyed by a terrorist fire in 1991. The companies had three insurance policies covering terrorism and fire and claimed full loss for building, plant, machinery, raw materials and stocks. The National Consumer Disputes Redressal Commission allowed only reduced amounts, citing that some stocks were unfit for human consumption and alleging pilferage by intruders and staff. On appeal, the Supreme Court held that the reductions were unjustified, that the loss was covered by the policies, and that the banks to which the policies were assigned were entitled to receive the insurance proceeds directly. Consequently, the insurance company's appeals were dismissed, while the appeals of the complainants and Canara Bank were allowed, directing payment of the full adjudicated sums with interest.

Issues considered

The extent of loss payable under the insurance policies covering terrorism and fire.
Whether the National Commission was justified in reducing the claim on the basis of unfit stocks and alleged pilferage.
Whether the assignment of the insurance policies to Canara Bank entitles the bank to receive the insurance proceeds directly without filing a suit.
The applicability of the Insurance Act, 1938 and the Transfer of Property Act, 1882 to the assignment of insurance claims.

Legislation cited

Consumer Protection Act, 1986s. 23
Insurance Act, 1938s. 38
Transfer of Property Act, 1882s. 130, s. 135

Subjects

insurance claimterrorismfirepolicy assignmentconsumer protectionNational Consumer Disputes Redressal Commissionpilferage allegationunfit stockbank mortgageinterest

Judgment

>-----
[2008) 15 S.C.R. 668

A M/S. KRISHNA FOOD & BAKING INDUSTRY P. LTD. ).....
v.
. M/S. NEW ·INDIA ASSURANCE CO. LTD. & ANR.
· (Civil Appeal No. 7515 of 2001)

NOVEMBER 1, 2008
B
[C.K; THAKKER AND D.K. JAIN, JJ.]

f
Consumer Protection Act, 1986 - s. 23 - Insurance y :.

policy against terrorism and fire - Units engaged in
cmanufacturing bakery products in Srinagar - Suspension of
operation of units, following casualty by terrorist attack -
Chairman migrated to Delhi - Thereafter, units set on fire in
terrorist attack - Damage to plant, machinery, stocks and raw
materials in the units - Insurance claim - Partly allowed by
D National· Commission - On appeal, held: Complainants
established their claims - Units could not do business and
produce goods because of terrorism - Thus, National
Commission not justified in reducing any amount on the
gro£Jnd that certain stocks and. raw materials were unfit for
E human consumption - However, it was right in rejecting the
plea as regard pilferage by intruders and staff members as
no material was produced in support thereof - Complainants
entitled to compensation towards building, plant, machinery
and electricity fittings, raw materials and stocks - As insurance
F
policies assigned in favour of Bank, Insurance company to
pay the entire amount to Bank directly.
i
Insurance Act, 1938 - s. 38 - Transfer of Property Act,
1882 - ss. 130 and 135 - Insurance policies assigned in
favour of Bank by complainant - Insurance claim -
.G Entitlement of Bank - Held: When decree is passed in favour
of complainants, bank is entitled to said amount - Bank not
required to file suit in a competent court of law and obtain a
decree in its favour - Bank is entitled to the amount directly >--
from the Insurance Company.
H 668
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 669
INDIA ASSURANCE CO. LTD. & ANR.

Two units-KB Company and KF Mill were A
manufacturing bakery items in Srinagar. RK was the
Chairman of the Company and the main partner of the
Mill. The son of the complainant-chairman was killed in
terrorist attack. Subsequently, operations of both the
units were suspended. The Chairman of the Company left 8
Srinagar and went to Delhi. The 'watch and ward staff'
were looking after the premises, stocks and raw materials
lying in the units. It is the complainant's case that certain
terrorists attacked the Company as well as the Mill and
set them on fire. The building, plant, machinery and C
electricity fittings were substantially damaged; and the
raw materials and the stocks lying in the units were either
destroyed or substantially damaged. The complainants
had obtained three separate insurance policies covering
-
several acts including terrorism and fire. In view thereof,
the complainants requested the Insurance Company to 0
.. ( get the survey done but no action was taken. The
complainants got the survey done through the surveyors
and demanded certain amount. However, the Insurance
Company did not make payment. The complainants filed
complaints before the National Commission. It raised the E
claim; however, the Insurance Company repudiated it.
After a long time, the Insurance Company got the survey
done. The surveyors observed that substantial damage
was not caused to building, plant, machinery and
electricity fittings and as regard raw-materials and stocks, F
the stocks had become unfit for hum.an consumption;
and there was pilferage of stocks and raw materials by
intruders as well as by staff members of the Company
and Mill, thus, the complainants were not entitled to the
amount claimed. G

With regard to the stocks kept in the godown of the
Mill, covered by policy no. 1131190000249, the
complainants raised a claim for Rs.37,78,618/-. The
National Commission held that the complainants were
H
670 SUPREME COURT Rl;PORTS [2008]. 15 S.C.R.

A entitled to Rs.5, 18,619/- as recommended by the
Surveyors of the Insurance Company. With regard to the
raw material, covered by policy ·no. 1131190000312, the
complainants claimed _Rs.25,58, 798/~. The Nation~I
Commission held that the complainants were entitled to
8 Rs.4,53, 122/- as per the Surveyors Report at instance of
the Insurance Company. The claim of building, plant,
machinery and electricity fittings, was covered by policy
No.11.31190000313. It was for Rs. 53 lakhs. The National·
Commission held that the complainant's were ~ntitled to
C Rs.31,373/- as assessed by Insurance Company, with
12% interest. However, it rejected the prayer of the Banks
that the amount claimed by the complainants be given to
them directly as the insurance policies had been assigned
in their favour. Hence the appeals.

D Disposing of the appeals, th~ Court

HELD: 1.1. It is clear that the complainants were able ' ·~.
to establish the claims puf forward by them. The
Insurance Policy covered several acts including
E terrorism and fire. It has come in evidence and has been
believe~ by National Commission that the son of the
Managing Director was killed in March, 1990 by terrorist
attack. It is in the light of the said incident that the
Managing Director had to leave Srinagar and to return to
Delhi. It was because of the said incident that the
F
operation of both the units was suspended. Thus, it was
not a case wherein the complainants did not undertake
the activities which were required to be undertaken by
-
them, but they could not operate the units and carry on
business. Therefore, no fault could be found against the
G complainants for suspending the Q_peration of both the
units. The.complainants obviously cannot suffer because
of noJ1-production in the Mill as well as in the Company.
The National Commission was, therefore, not right in
reducing a~y amount on the groµnd that certain stocks
H
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 671
INDIA ASSURANCE CO. LTD. & ANR.

and raw materials were unfit for human consumption. It A
was not intentional or deliberate act on the parf of the
complainants in stopping production and allowing the
stocks and raw materials to get spoiled or damaged and
by making them unfit for human consumption. It was
because of the militant activities and terrorism that the B
Company and the Mill could not do business and
produce goods. Therefore, reduction of amount by the
National Commission on that count was unjustified. [Para
31] [686-F, G, H; 687-A, B, C]
1.2. As regards pilferage by intruders and staff
c
members, except ipse dixit on the part of the Insurance
Company, no material whatsoever has been placed on
record in support of such allegation. The National
Commission was justified in not accepting such bare
assertion without any evidence or concrete material in D
support of such plea. In fact, a finding has been recorded
by the National Commission that the godowns were 'full'
when they were set on fire. 'Watch and ward staff' were
protecting the Mill and the Company. There was also a
'Police post' nearby both the units. Further, the report E
submitted by the surveyor of the Insurance Company as
to pilferage was not reliable. In Shyam Sunder Narang's
case an adverse comment had been made by the
National Commission against the report submitted by the
surveyor. Hence, the National Commission was right in F
not believing 'pilferage. theory' advanced by the Insurance
Company. Furthermore, nothing has been shown from
whic~ such an inference could be drawn by a reasonable
and prudent man as to pilferage by intruders or staff·
menibers. The National Commission was wholly right in . G
negativing the contention of the Insurance Company that ·
substantial part of stocks and raw materials had been
taken away by intruders or staff members. Therefore, no
reduction could be allowed on that count. [Paras 32 and
33] [687-D-H; 688-A, B] H
672 SUPREME COURT REPORTS [2008] 15 S.C.R.
.
J

A .. _Shyam.. Sunder Na rang v, United India Insurance Co,.
1.997 (111) CPJ 599, ref~rred to. . >-
·' · 1~3:-The claim put forward 'by the Canara Bank that
the· entire amount-lo which the complainants were entitled
ought.to have been ordered to be ·paid to the Bank ·in
B view of the fact that the Insurance Policies· had been
assigned hi favour of the Bank arid in law; such an
assignment amounts to tr'ansfer of actionable claim in
favour.of the Bank, is well fou_n.ded. [Paras 22 and 37)
[682-C, D; 689-A] "-
' . ·'fmmm
c
1.4. As soon as a decree is passed or order is made
in favour of the complainants, the Bank .is entitled· to the
said amount. For such a relief, it is not necessary for the
Bank to become a plaintiff by filing a suit in a competent
Court of law ·and obtain a decree.in its·favour. It is true
0 '
)
that had it been the position, the provisions of Jammu & )
Kashmir Migrants (Stay of Proceedings) Act, 1997 would t

get attracted· and such suit would be stayed and no
decree could have been passed by a competent Court in
favour of the creditor. But in the light·of the statutory
E provisions in the Insurance Act, 1938 and in the Transfer
of Property Act, 1882, the Bank is entitled to the amount
directly from the Insurance Company. The National
Commission was not right in rejecting the claim of the
Bank. [Paras 39 and 41] [692-C;:D, E; 693-A, C]
F
_ Chief !Executive Officer and Vice Chairman, Gujarat
Maritime Board v. Haji Daud Haji Harun Abu and Ors. 1996
(11) sec 23, relied on.
1.5. The National Commission was right in observing
G that .no payment was made by the Insurance Company
even· as per the survey conducted by the Surveyor
appointed by the Insurance Company. Taking into
consideration the entire facts and circumstances, the >- ,..
complainants are entitled to claim compensation towards r
H building, plant, machinery and electricity fittings, raw
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 673
INDIA ASSURANCE CO. LTD. & ANR.

materials and stocks. [Para 34] [688-C] A

1.6. The appeals filed by the Insurance Company are
dismissed. The appeals filed by the complainants are
allowed to the extent indicated above with interest at the
rate of 9 % p.a. from the date of filing of complaints before 8
the National Commission, till the date of payment. So far
as appeal concerning Policy No. 11319000249 relating to
stocks is concerned, the complainants are entitled to get
the entire amount of Rs.37, 78,619/- since there is no
appeal in respect of the said policy. Canara Bank is not C
concerned with the said policy. Grindlays Bank has not
approached this Court and had supported the
complainants before the National Commission. The two
appeals of Canara Bank in regard to two policies,
113190000312 and 113190000313, are allowed and the
Insurance Company is directed to make payment to D
Canara Bank and not to the complainants in respect of
the amount to be paid to the complainants. [Para 42] [693-
D-G]

Case Law Reference: E
1997 (111) CPJ 599 Referred to. Para 32
1996 (11) sec 23 Relied on. Para 41
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
7515 of 2001. ;F

From the Judgment/Order dated 1.6.2001 of the National
Consumer Disputes Redressal Commission, New Delhi in
Original Petition No. 210 of 1994.
WITH G
C.A. Nos. 8495, 8496 of 2001, 3393, 4024, 8000 and 8002
of 2002. - ·

R.K. Kapoor, Shweta Kapoor, Mansi Dhiman, Anis Ahmed
Khan, Pradeep _Dewan, Pramod B Agarwala, Praveena H
674 SUPREME COURT REPORTS [2008] 15 S.C.R.

A Gautam, Rajiv Samaiyar, Anupam Dhingra, Pramod Dayal and .>-..
Nikunj Dayal for the appearing parties.

The Judgment of the Court was delivered by

C.K. THAKKER, J. 1. All these appeals have been filed
B against a common judgment and order dated June 01, 2001
passed by the National Consumer Disputes Redressal
. Commission ('National Commission' for short) in Original
Petition No. 194 of 1994 and companion matters. These
~
appeals are filed under Section 23 of the Consumer .Protection
c Act, 1986 (hereinafter referred to as 'the Act').

2. To appreciate the controversy raised in the present
·appeals, few relevant facts may be stated.

3. Mis Krishna Flour and Oil Mills ('Mill' for short) is a
D.
partnership firm while Mis Krishna Food and Baking Industry
i.
Pvt. Ltd. ('Company' for short) is a company registered under
'-=--
"~.
the Companies Act, 1956 as applicable to the State of Jammu
& Kashmir. Both the units were located in Nawab Bazar,
Srinagar, in the State of Jammu & Kashmir. Both were sister
E concerns. Rajendra Kumar Sawhney was Chairman of the
Company as also main partner of the Mill. The Company was )
dealing in manufacturing bread, biscuits, cakes and other
bakery items. It is the case of the complainants that during the
period of disturbances caused by militancy in early nineties of
F the last century, Mr. Praneet Sawhney, only son of Rajendra
Kumar Sawhney was shot dead by the terrorists on March 27,
1990 in his office. Immediately thereafter, operations of both
the units were suspended and the complainants had to migrate
to Delhi. It was stated that there was 'watch and ward staff' as
also some other personnel who looked after the premises and
G
stocks and raw materials lying in the units. It was also stated ,___
in the complaints that the complainants were able to transfer
records from Srinagar to Delhi. >-
I

• ?
4. According to the complainants, they had obtained three
H separate insurance policies from Mis New India Assurance Co.
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 675
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]

Ltd. ('Insurance Company' for short), the details of which are A
as under;

S. Policy No. Sum Case Items covered
No. Assured No.

1. 112119000249 Rs.40 194/94 Stock of Wheat, Wheat B
Lakh Products and Packing
materiai and Goods of
like nature of Krishna
• Flour & Oil Mills

2. 113119000312 Rs.25 210/94 Stocks of Raw Material c
Lakh like Flour, Maida, Ghee,
chemicals etc. in
godowns belonging to
Krishna Food & Baking
Industries
D
3. 113119000313 Rs.53 209/94 Plant & Machinery
Lakhs ir.stalled in Krishna Food
& Baking Industries.
(a) Factory Building
Rs.21 lakhs E
(b) Electric fittings
Rs.4 lakhs
(c) Plant & Machinery
Rs.28 lakhs
F
5. It was the say of the complainants that in the morning of
November 12, 1991, certain terrorists attacked the Company
as well as the Mill and set them on fire. Substantial damage
had been caused to building, plant, machinery and electricity G
fittings; the raw materials lying in the units were destroyed
stocks which were in both the units were also either destroyed
or substantially damaged. In view of the insurance coverage, a
demand was made by the complainants to the Insurance
Company to get the survey done and to pay the amount of loss
H
676 SUPREME COURT REPORTS [2008] 15 S.C.R.

A sustained by the complainants. The Insurance Company,
however, did not do anything in the matter for quite long time.
The co'mplainants got the survey done through their surveyors .
and dema11ded the amount to which they were entitled to. The
Insurance Company, however, did not make payment which
H constrained the complainants to approach National
Commission by filing three complaints being Complaint Nos.
194, 209 and 210 of 1994.

6. The prayer made in the complaints and the demand in
C respect of policies and sums may be summarized thus;

S. Policy No. Sum Comp- Items covered
No. Assured laint No

1. 112119000249 Rs.40 194/94 Stock of Wheat, Wheat
Lakhs Products and Packing
D material and Goods of
like nature of the Mills.
('Wheat Policy')

2. 113119000312 Rs.25 210/94 Stocks of Raw Material
Lakhs like Flour, Maida, Ghee,
E
chemicals etc. in
godown belonging to
Baking Industry. ('Raw
Material Policy')

3. 113119000313 Rs.53 209/94 Plant & Machinery
F
Lakhs installed in Baking
. Industry. ('Plant Policy')
(a) Factory Building ··1
Rs.21 lakhs

G (b) Electric fittings
Rs.4 lakhs
(c) Plant & Machinery
Rs.28 lakhs

H 7. The Insurance Company repudiated the claim of the
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 677
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]

complainants. At a belated stage, survey had been carried out A
by the Insurance Company through its Surveyors wherein it w.as
observed that substantial damage had not been caused to
building, plant, r.nachinery and electricity fittings and the
complainants were not entitled to th~ amount demanded by
them under the said head. The Insurance Company also B
assessed the damage to the building, plant, machinery and
electricity fittings to. the extent of Rs.31,373/- and nothing more.
4(.
8. Wi.th regard to raw-materials and stocks, the amount
was substantially curtailed by the Insurance Company inter alia
on the grounds that the stocks were perishable in nature and
c
had become unfit for human consumption and the same had
been badly affected by bacterial growth. It had become
worthless at the time of mishap in 1991. It was also contended

,, that in absence of proper 'watch and ward staff, there was
pilferage of stocks and raw materials by intruders as well as
by staff members of the complainants' Company and Mill. It was,
D

therefore, submitted that the complainants were not entitled to
the amount claimed in the complaints.

9. The National Commission went into the merits of the E
matter and held that the complainants were entitled to certain
reliefs. With regard to stocks kept in the godown of the Mill, it
observed that it was covered by policy No. 1131190000249.
)-
The policy was for an amount of Rs. forty lakhs and premium
k of Rs.5,814/- was paid. The claim put forward by the F
complainants was for Rs.37, 78,618/-. According to the
complainants, the stocks which were lying in the units were as
under;

G

H
. .

678 · SUPREME COURT REPORTS [2008] 15 S.C.R.

A Commodity Quantity Rate Amount (Rs.)

Wheat 21'38.48 Otis. Rs.400/Qtl. 8,55,392
~ ~ .
Maida 4676 Bags (90 Kg.) Rs.450/bag 21,04,200

Krishna 271 Bags (80 Kg.) Rs.400/bag 1,08,400
Bhog Atta
Super 59S2 Bags (10 Kg) Rs.SS/bag 3,27,360
Fine Atta
Bran . 2090 Bag (10 Kg) Rs.100/bag 2,09,000
c Bardana (Total value as per. 1,74,267
(Packing Books)
Material)

Total 37,78,619
D
· 10. The National Commission held that surveyors of the
complainants had prepared a report and submitted to the
Insurance Company, but the claim was repudiated on the
ground that there were no stock worth its while as there was
E pBferage since the units remained closed for about twenty
months. It was also contended by the Insurance Company that
the stock was not fit for human consumption. The final survey
report at the instance of the Insurance Company recommended
to settle the claim of the complainants at Rs.5, 18,619/-. The
F figure was communicated by the Insurance Company to the
complainants.

11. The National Commission noted that respondent No.
2 Grindlays Bank supported the case of the complainants and
prayed that the amount claimed by the complainants be given
G to them as the complainants executed mortgage documents in
the favour of the Bank.

12. The National Commission considered the evidence of
Mr. Ghulam Rasool Wani, the only witness examined on behalf
H · of the complainants who was an illiterate staff member. On
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 679
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]
.......... behalf of the Insurance Company, two surveyors, Mr. Andrasabi A
· and Mr. AK. Gupta were examined. The Insurance Company
also examined Mr. V.K. Malik and Mr. M.R. Grover. The National
Commission considered the relevant documentary and oral
evidence and observed that the risk was covered by the terms
and conditions of the insurance policy. It also held that the units 8
could not work in view of militancy in the area and the units
were required to be closed down. It believed the case of the
' -1
complainants that there was terrorist attack on both the units
on November 12, 1991 and the militants set on fire the units. It
further recorded a finding that there was no evidence c
'
I.
whatsoever to conclude that there was pilferage either by the
intruders or by the staff members of any of the units. It, however,
held that stocks were worthless, and as such, the complainants
were not entitled to the amount claimed. According to the
National Commission, an amount of Rs.5, 18,619/- as
~ D
recommended by the surveyors of the Insurance Company was
;:,.1 a reasonable figure and ought to have been accepted by the
I

• Insurance Company. Accordingly, it held that the complainants
were entitled to the said amount.

13. With regard to the raw material, it was covered by E
policy No.1131190000312 and the coverage was for Rs. 25
lakhs. Premium of Rs.4,821/- was paid and the policy was
subsisting.
)"
14. The break up given for such claim was as under; F
~
'
Raw Materials Rs. 11,52,248-00

Packing Materials Rs. 05,40,079-00
" r

• Interest@ 18% Rs. 08,66,471-00
" G
(
----------------------
~ TOTAL Rs. 25,58,798-00
'..--<l
----------------------
15. Thus, according to the complainants, total loss in
H
680 SUPREME COURT REPORTS [2008] 15 S.C.R.

A respect of raw materials and allied perils was to the extent of
Rs. ·25,58,798i-. -On the said claim, the Insurance Company
appointed three·investigalors, i.e. Mr. Hamdani, Andrasabi and
Adarsh·Associates. The slirveyors,Tn theirreport, narrated the
facts and circumstanees of the case· and leff the artfount- of
a vatuatio'ri :of ra:w materials to the oppbsite party: Jn a subsequ'ent
report, however, they gave a figure of Rs.4,33, 122/- for
settlement of the claim and asked th-e com·plainants wheth'er
they were ready to accept the amount. Upon the query by the -)- '
complainants, however, the Insurance Company, instead of
c giving response to the query, repudiated the claim vide letter
dated April 19, 1995 on the ground that there was pilferage and
hence, the Insurance Company was not liable. Moreover, though
there was destruction of raw material due to fire in the units,
since the raw materials were unfit for human consumption. the
complainants' claim was not well-founded. It was, therefore, held
0
that the complainants were not entitled to the claim.

16. The National Commission considered the question
and observed that there was no pilferage and taking into
account the weather condition in Srinagar, it could not be held
E that the·raw mate.rials had become worthless or unfit for human
consumption. Considering the reports, it was held by the
National Commission that as per the Surveyors Report at the
instance of the Insurance Company, the claimants were entitled
to Rs.4,53, 122/-.
F
17. in respect of building, plant, machinery anq electricity
fittings, the claim was covered by policy No.1131190000313.
It was for Rs. 53 lakhs. The break-up was as follows;

i) Factory Building Rs. 21,00,000 •
G
ii) Electric fittings including Transformer etc. Rs. 4,00,000

iii) Machinery of all kinds used for Rs. 28,00,000
Manufacture of Biscuits, Bread etc.

H Rs. 53,00.000
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 681
INDIA ASSURANCE CO. LTD. & ANR. (C.K. THAKKER, J.]

,........, 18. The Insurance company, on the other hand, stated that A
the complainants were entitled only to Rs.31,373/- and nothing
more.

19. The National Commission considered the question
and observed that the complaint relating to the said policy was B
required to be allowed in part. The Insurance Company was
directed to make payment of Rs.31,373/- towards damage to
building with interest at the rate- of 12 per cent and the
-1 complaints were accordingly disposed of.

20. Being aggrieved by the order passed by the National c
Commission, three appeals have been filed by the
complainants. The grievance of the complairiants is that though
the complainants were entitled to the amount which had been
claimed by them, based on evidence and Surveyors' Reports,
the National Commission committed an error of fact and of law D
in not granting the prayer and in not allowing the complaints in
_;f
their entirety. It was, therefore, submitted that the appeals
deserve to be allowed by directing the Insurance Company to
pay full amount with interest at the rate of 18 per cent from
November 12, 1991 and costs. The prayer was also maqe to E
pay appropriate amount towards harassment caused to the
complainants.

21. Two appeals are filed by the Insurance Company. In
't the appeals, it was contended by the Insurance Company that
F
' the National Commission was in error in granting relief in favour
of the complainants. The complainants were not entitled to any
relief since in absence of the Managing Director and other
responsible persons, there was pilferage by intruders and staff
members themselves for which the Insurance C_ompany cannot
be held liable nor it can be directed to make payment. Similarly, G
raw materials and stocks had become unfit for human
__.. consumption and the complainants were not entitled to the
amount claimed by the complainants from the Insurance
Company. The amount which was offered by the Insurance
Company was adequate and sufficient. The amount on account H
t--

682 SUPREME COURT REPORTS [2008] 15 S.C.R.
~

A of poor quality of goods and materials had been rightly >-..
deducted. The order passed by the National Commission,'
therefore, deserves interference by allowing the appeals of the
Insurance Company.

22. Grindlays Bank has not challenged the order passed
B
by the National Commission. Canara Bank, however, has filed
two,appeals by obtaining special leave from this Court against
orders passed in Original Petition Nos. 209 of 1994 and 210 r
of 1994. It has supported the case of the complainants. )--
According to the Canara Bank, the claim put forward by the
c complainants was well-founded and ought to have been
I:-
allowed in tote by directing the Insurance Company to pay full
amount towards loss and damage claimed by the complainants.
It, however, submitted that the entire amount to which the
complainants were entitled ought to have been ordered to be
D paid to the Bank in view of the fact that the Insurance Policies
\

had been assigned in favour of the Bank. In law, such an r;_ '
assignment amounts to transfer of actionable claim in favour
of the Bank. The Insurance Company is, therefore, bound to pay
the amount to Canara Bank. Reliance in this connection was
~
E placed on behalf of the Bank on Section 38 of the Insurance ~
Act, 1938; Sections 130 and 135 of the Transfer of Property '

Act, 1882 and a decision of this Court in Chief Executive
Officer & Vice Chairman, Gujarat Maritime Board v. Haji
Daud Haji Harun Abu & Ors., (1996) 11 SCC 23. It was,
~
F therefore, submitted that appeals filed by the complainants
should be allowed but the entire amount in relation to two "
policies be ordered to be paid to Canara Bank.

23. We have heard the learned counsel for the parties.
Learned counsel for the complainants contended that the
G
National Commission committed an error of fact and of law in
not allowing the complaints and tre claims put forward by the
complainants in their entirety. It was submitted that the National
.
>-..
Commission recorded a finding that the claims were covered
by policies which were operative. Claims were lodged by the
H
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 683
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]
,..4. complainants on the basis of damage sustained by them. In A
t·
support of such claims, survey was made and Surveyors'
Reports were duly forwarded to the Insurance Company. The
defence of the Insurance Company that there was pilferage by
the intruders as well as by staff members of the complainants
was not believed. Regarding adverse affect on raw materials B
and stocks, the National Commission observed that keeping
in view the climatic conditions of Srinagar, it could not be said
that the entire stock and raw material was unfit for human
consumption. It, therefore, allowed part of the claim of the
complainants. Accordii'lg to them, however, the National c
Commission was not right in deducting the claim of the
complainants. Apart from favourable climatic conditions in
Jammu & Kashmir, the National Commission ought to have
appreciated the fact that the complainants could not carry on
their business activities of preparing biscuits, breads, cakes
D
and other items not because of inaction on their part, but
;., because of terrorist activities and militancy in the area. It was,
therefore, not a case of voluntary omission to carry on trade,
but it was compulsion that they could not produce goods. It was
contended that terrorism was one of the terms covered by the
Insurance Policy and since the business could not be carried E
on because of terrorism, the complainants had to suspend
operations of both the units. The complainants cannot be held
even partly responsible for such suspension of operation of
... units and stoppage of business. The National Commission
"" ought to have appreciated these facts and ought to have F
allowed the claim of the complainants.

24. It was also submitted that in spite of continuous
requests by the complainants to the Insurance Company to get
the survey done, no action was taken by the Insurance Company G
for a pretty long time. Moreover, even after the survey was got
...
done by the Insurance Company thro.ugh its own Surveyors and
........ as per their reports, certain amounts were required to be paid,
the said amount was also not paid by the Insurance Company.
Regarding certain items, there was no response whatsoever H
1
684 SUPREME COURT REPORTS [2008] 15 S.C.R.

A by the Insurance Company. The National Commission also took
irito account those facts, but allowed the claim of the
...-.>-....
'

complainants only in p~Ht. Th·e order of the National
Commission to tha.t ext~nt, therefore, requires to be modified
.by granting
. full claim
. of the complainants.
B
25. It was submitted that in the facts and circumstances
and entitlement of the complainants for full claim, appeals filed
by the Insurance Company are liable to be dismissed.
'r
26. Regarding to appeals filed by Canara Bank, it was
c submitted that the appeals are not maintainable. The National
Commission was, therefore, wholly right in not directing the
Insurance Company to pay the claim amount to the Bank. It was
also submitted that such claim lodged by the Canara bank was
even otherwise not tenable. It was urged that under Section 3
D of the Jammu & Kashmir Migrants (Stay of Proceedings) Act,
1997, no such claim could have been lodged by the Bank
'K
against the complainants by approaching a Civil Court by filing
a suit and no order could have been made or a decree could
have been passed by a competent Court in view of the
E provisions of the said Act. Since no such claim is maintainable
in the light of statutory provisions, the Bank cannot by this
indirect method, obtain a decree and get it executed which it
could not have otherwise got in view of the suspension of such
claims. It was, therefore, submitted that both the appeals filed
F by the Canara Bank are also liable to be dismissed.
-1 .,,, ..
27. The learned counsel for the respondent Insurance (
Company contended that the National Commission was not ''
(
•
right in partly allowing the claims of the complainants. It was
stated that the Insurance Company got the survey done through
G its·surveyors and the amount to which the complainants were
{
found entitled was offered to them. But the complainants wanted '
.....
more amount and approached the National Commission. It was
,>--.,
also submitted that from the Survey Reports, it was clearly
proved that stocks and raw materials had become unfit for
H
\
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 685
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]

human consumption. The rNational Commission was, therefore, A
right in reducing the claim to that extent. According to the
counsel, however, the National Commission was not right in
observing and recording a finding that there was no pilferage.
It was stated that it was not in dispute that after Praneet
Sawhney was shot dead by the terrorists, the operation in both B
the units stood suspended and Managing Director of the
Company (Rajendra Kumar Sawhney) left Srinagar and went
to Delhi and only employees were there. It was, therefore,
--1
obvious that in absence of any responsible officer belonging
to Sawhney family, there was pilferage as stated by the c
Insurance Company and the National Commission could not
have recorded a finding to the contrary. To that extent, therefore,
their appeals deserve to be allowed.

28. The learned counsel for the Canara Bank, on the one
hand, supported the claim of the complainants and submitted D
that once the operation of the units became impossible due to
. terrorist activities which was covered by a clause in Insurance
Policy and the complainants could not carry on business, the
National Commission was not justified in rejecting any part of
the claim of the complainants. On the basis of survey reports E
substantial loss to the building, plant, machinery and electricity
fittings had been proved and the complainants were entitled to
the entire amount. Similarly, with regard to raw materials and
stocks, nothing could ·have been deducted by the National
., ~
Commission as it was impossible for the complainants to carry F
on production. The only reason why the units could not operate
was militancy activities in the area. If it were so, the National
Commission was not justified in taking into account the fact as
to suspension of business for reduction of claim and
consideration of the aspect that certain items were unfit for G
human consumption and the amount was liable to be reduced.

29. It was, however, submitted that indisputably substantial
advance was made to the complainants by the Bank and it was
having charge over the property of the Company and of the Mill.
It had also a right of lien. It was, therefore incumbent on the H
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 687
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]

case wherein the complainants did not undertake the activities A
which were required to be undertaken by them, but they could
not operate the units and carry on business. No fault, therefore,
can be found against the complainants for suspending the
operation of both the units. The complainants obviously cannot
suffer because of non-production in the Mill as well as in the 8
Company. The National Commission was, therefore, not right
in reducing any amount on the ground that certain stocks and
raw materials were unfit for human consumption. It was not
'"'"1 intentional or deliberate act on the part of the complainants in
stopping production and allowing the stocks and raw materials C,
to get spoiled or damaged and by making them unfit for human
consumption. It was because of the militant activities and
terrorism that the Company and the Mill could not do business
and produce goods. Reduction of amount by the National
Commission on that count was, therefore, unjustified and in our
D
opinion, that part of the order requires interference by this Court.

"" 32. As regards pilferage by intruders and staff members,
except ipse dixit on the part of the Insurance Company, no
material whatsoever has been placed on record in support of
such allegation. The National Commission, in our opinion, was E
justified in not accepting such bare assertion without any
evidence or concrete material in support of such plea. In fact,
a finding has been recorded by the National Commission that
the godowns were 'full' when they were set on fire. 'Watch and
.... ward staff were protecting the Mill and the Company. There was F
~
also a 'Police post' nearby both the units. Further, the report
submitted by Mr. Andrasabi as to pilferage was not reliable. In
Shyam Sunder Narang v. United India Insurance Co., (1997)
111 CPJ 599, an adverse comment had been made by the
National Commission against the report submitted by Mr. G
Andrasabi. Hence, in our opinion, the National Commission
was right in not believing 'pilferage theory' advanced by the
Insurance Company.

33. The matter, however, did not end there. Even before
H
688 SUPREME COURT REPORTS [2008] 15 S.C.R.

A us, nothing has been shown from which such an inference could
be drawn by a reasonable and prudent man as to pilferage by
intruders or staff members. The National Commission, in our
judgment, was wholly right in negativing the contention of the
Insurance Company that substantial part of stocks and raw
B materials had been taken away by intruders or staff members.
No reduction, therefore, could be allowed on that count.

34. The National Commission was also right in observing
that no payment was made by the Insurance Company even as
per the survey conducted by the Surveyor appointed by the
C Insurance Company. Taking into consideration the entire facts
and circumstances, in our opinion, the complainants are entitled
to claim compensation towards building, plant, machinery and
electricity fittings, raw materials and stocks.

D 35. Accordingly, the complainants are held to be entitled
to thefollowing;

Policy No. Amount entitled to be awarded in
favour of the appellant-insured
E 113119000249 Rs. 37,78,619/-

113119000312 Rs. 23,79,195/-

113119000313 Rs. 25,81,600/-
F
35. In view of the fact that the appeals filed by the
complainants are allowed, the appeals filed by the Insurance
Company must necessarily fail. Accordingly, the appeals filed
by the Insurance Company are dismissed.
G
36. In respect of Policy No. 113119000249, no appeal has
been filed by the Grindlays Sank. It was obs-erved by the •
National Commission in the impugned judgment that the matter >--.... i
appears to have been settled between the parties. In any case,
H there is no appeal by a financial institution so far as the said
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 689
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]

policy is concerned. A
~..
37. But as far as the appeals by Canara Bank are
concerned, in our opinion, the claim put forward by the Bank is
well founded.

Section 38 of the Insurance Act reads thus; B

Section 38 - Assignment and transfer of insurance
policies

(1) A transfer or assignment of a policy of life insurance, c
whether with or without consideration may be made only
by an endorsement upon the policy itself or by a separate
instrument, signed in either case by the transferor or by the
'
;

assignor his duly authorised agent and attested by at least
one witness, specifically setting forth the fact of transfer or
D
assignment.
..."'T (2) The transfer or assignment shall be complete and
effectual upon the execution of such endorsement or
instrument duly attested but except where the transfer or
assignment is in favour of the insurer shall not be operative E
as against an in~urer and shall not confer upon the
transferee or assignee, or his legal representative, and
right to sue for the amount of such policy or the moneys
secured thereby until a notice in writing of the transfer or
~.- assignment and either the said endorsement or instrument F
111111!' itself or a copy thereof certified to be correct by both
transferor and transferee or their duly authorised agents
have been delivered to the insurer:

Provided that where the insurer maintains one or more
places of business in India, such notice shall be delivered 0
only at the place in [India] mentioned in the policy for the
purpose or at his principal place of business in India.
,..-4
(3) The date on which the notice referred to in sub-section
(2) is delivered to the insurer shall regulate the priority of H
690 SUPREME COURT REPORTS [2008] 15 S.C.R.

A all claims under a transfer or assignment as between
persons interested in the policy; and where there is more
than one instrument of transfer or assignment the priority
of the claims under such instruments shall be governed by
the order in which the notices referred to in sub-section (2)
B are delivered.

(4) Upon the receipt of the notice referred to in sub-section
(2), the insurer shall record the fact of such transfer or
assignment together with the date thereof and the name
of the transferee or the assignee and shall, on the request
c of the person by whom the notice was given, or of the
transferee or assignee, on payment of a fee not exceeding
one rupee, grant a written acknowledgement of the receipt
of such notice; and any such acknowledgement shall be
conclusive evidence against the insurer that he has duly
D received the notice to which such acknowledgement
relates.

(5) Subject to the terms and conditions of the transfer or
assignment, the insurer shall, from the date of receipt of
E the notice referred to in sub-section (2)], recognise the
transferee or assignee named in the notice as the only
person entitled to benefit under the policy, and such person
shall be subject to all liabilities and equities to which the
transferor or assignor was subject at the date of the
F transfer or assignment and may institute any proceedings
in relation to the policy without obtaining the consent of the
transferor or assignor or making him a party to such
proceedings.

(6) Any rights and remedies of an assignee or transferee
G of a policy of life insurance under an assignment or transfer
effected prior to the commencement of this Act shall not
be affected by the provisions of this section.
>-..._'
(7) Notwithstanding any law or custom having the force of
H law to the contrary, an assignment in favour of a person
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 691
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]

made with the condition that it shall be inoperative or that A
,,.4._ the interest shall pass to some other person on the
happening of a specified event during the lifetime of the
person whose life is insured, and an assignment in favour
of the survivor or survivors of a number of persons, shall
be valid. B
38. Likewise, both the sections, i.e. Sections 130 and 135
of the Transfer of Property Act, 1882 are explicitly clear and
they read as under;

Section 130 - Transfer of actionable claim a
(1) The transfer of an actionable claim whether with or
without consideration shall be effected only by the
execution of an instrument in writing signed by the
transferor or his duly authorized agent, shall be complete
D
and effectual upon the execution of such instrument, and
thereupon all the rights and remedies of the transferor,
_."l'
whether by way of damages or otherwise, shall vest in the
transferee, whether such notice of the transfer as is
hereinafter provided be given or not:
E
Provided that every dealing with the debt or other
actionable claim by the debtor or other person from or
against whom the transfer would, but for such instrument
of transfer as aforesaid, have been entitled to recover or
~ enforce such debt or other actionable claim, shall (save F
~
where the debtor or other person is a party to the transfer
or has received express notice thereof as hereinafter
provided) be valid as against such transfer.
,,
(2) The transferee of an actionable claim may, upon the
G
execution of such instrument of transfer as aforesaid, sue
or institute proceedings for the same in his own name
without obtaining the transferor's consent to such suit or
~ proceedings and without making him a part thereto.

Exception.-Nothing in this section applies to the transfer H
692 SUPREME COURT REPORTS [2008] 15 S.C.R.

A of a marine or fire policy of insurance or affects the
provisions of section 38 of the Insurance Act, 1938.

Section 135 - Assignment of rights under policy of
insurance against fire

B Every assignee by endorsement or other writing, of a
policy of insurance against fire, in whom the property in the
subject insured shall be absolutely vested at the date of
the assignment, shall have transferred and vested in him
all rights of suit as if the contract contained in the policy
c had been made with himself.

39. In our opinion, therefore, the submission of the learned
counsel for the Bank that as soon as a decree is passed or
order is made in favour of the complainants, the Bank is entitled
to the said amount is well founded. For such a relief, it is not
0
necessary for the· Bank to become a plaintiff by filing a suit in
a competent Court of law and obtain a decree in its favour. It
is true that had it been the position, the provisions of 1997 Act
would get attracted and such suit would be stayed and no
decree could have been passed by a competent Court in
E favour of the creditor. But in the light of the statutory provisions
in the Insurance Act and in the Transfer of Property Act, the
Bank is entitled to the amount directly from the Insurance
Company.

F 40. In our opinion, the learned counsel for the Bank is also
right in relying upon the decision in Gujarat Maritime Board. In
that case, a similar question came up for consideration before
this Court. There one B was financed by A for purchase of
vessel. The vessel so purchased was mortgaged in favour of '
G A. As per the Finance Agreement between the parties, B was
required to take out a comprehensive risk insurance policy and
assign it in favour of Director of Ports representing Government
of Gujarat. The insurance also contained an endorsement in
terms of the agreement. The vessel on its voyage sunk in the
H sea. B filed a complaint before the National Commission
I
KRISHNA FOOD & BAKING INDUSTRY P. LTD. v. NEW 693
INDIA ASSURANCE CO. LTD. & ANR. [C.K. THAKKER, J.]

claiming the insurance amount from the Insurance Company. A
A brought to the notice of the Commission that it had an interest
in the vessel as a mortgagee. The Commission, however,
directed the Insurance Company to pay entire amount to B. A
approached this Court. This Court held that the directions of
the National Commission that the entire insurance amount be B
paid to B was unsustainable in law. Accordingly, the appeal filed
by the Maritime Board was allowed and the order passed by
the National Commission was set aside.
--,
41. In our opinion, the point is directly concluded by the
above decision of this Court in Gujarat Maritime Board and the
c
National Commission was not right in rejecting the claim of the
Bank. The appeals of the Bank are, therefore, required to be
allowed.

42. For the foregoing reasons, the appeals filed by the D
Insurance Company are ordered to be dismissed. The appeals

-" filed by the complainants are required to be allowed to the
extent indicated above with interest at the rate of 9 per cent
per annum from the date of filing of complaints before the
National Commission, till the date of payment. So far as Appeal E
concerning Policy No. 11319000249 relating to stocks is
concerned, the complainants are entitled to get the entire
amount of Rs.37,78,619/- since there is no appeal in respect
of the said policy. Canara Bank is not concerned with the said
~ policy. Grindlays Bank has not approached this Court and had F
" supported the complainants before the National Commission.
t The two appeals of Canara Bank are in regard to two policies,
113190000312 and 113190000313, raw materials policy and
----{
plant policy. Both the appeals of Canara Bank are allowed and
the Insurance Company is directed to make payment to Canara
G
Bank and not to the complainants in respect of the amount to
be paid to the complainants.

A 43. All appeals are disposed of accordingly with no order
as to costs.
N.J.
H
Appeals disposed of.