FLORA INFOTECH PRIVATE LTD. Vs National Insurance Co. Ltd.

1. AGGRIEVED and dissatisfied by the decision of the National Insurance Company Ltd. in repudiating insurance claim under policy No. Burg. Policy No. 350601/7503498/01 and Fire Policy No. 350601/3102534/01, Flora Infotech Private Limited, complainant, has filed this Original Petition No. 6 of 2003 before this Commission.

2. AS submitted in the O.P. by the complainants, the facts are as under : Flora Infotech Private Ltd. had entered into a franchise agreement with Zap Infotech (P.) Ltd. having their head office at Mumbai, on 18th April, 2000 and became their Satelite Franchisee to run a computer education centre at E-73, Basement, South Extension Part-I, New Delhi. Under this agreement, Flora Infotech Private Ltd. had invested in the total infrastructure at the centre like computers, Air-conditioners, furniture and maintenance as may be required from time to time. Zap Infotech was to manage and run the computer centre with their faculty and security and enroll the students, collect fees from them and would pay salaries etc. Flora Infotech Private Ltd. was to get a fixed return of 20% from the total amounts collected during each month.

The learned Counsel for the complainant claimed that an insurance policy for Rs. 14,00,000/- was obtained from the opposite party to cover the risks of fire and burglary and a cheque No. 327098 drawn on Dena Bank dated 1.6.2001 for Rs. 3,822/- towards premium was issued in favour of the National Insurance Co. Ltd. In their complaint, they also stated that on 30th and 31st May, 2001, there were press reports that the Directors of Zap Infotech were absconding from the country. The association of all Zap Centre owners decided to file a complaint on 1st of June, 2001. The said complaint was made on 1st June, 2001, but was submitted to the Station House Officer, P.S. Kotla Mubarkpur, New Delhi on 2nd June, 2001 at 6.00 p.m. However, this complaint was converted into a FIR 188/2001 at 9.45 p.m. on 8.6.2001 under Sections 420/120B of IPC.

The learned Counsel further argued that on 8.6.2001 the complainants were informed by an ex-faculty in the morning over telephone that the entire centre has been broken into and all computers, furniture and fixtures, Air conditioners, tables and chairs etc. have been stolen from the centre. On reaching the spot, they found that there was nothing left at the centre and all goods were stolen and the shutter and the locks of the centre were also found broken. Immediately, they went to the police station at Kotla Mubarakpur, New Delhi and reported the matter to the police. After due investigation and personal visits of the ACP, DCP, SHO of the area a FIR was lodged under Sections 457/380, IPC having No. 187/2001 at 5.40 p.m. on 8.6.2001.

3. FURTHER, on 9.6.2001, they had informed the Insurance Company regarding the said mishap and requested them to appoint a Surveyor for the same.

As the police could not trace the culprits nor they could find the assets lost by the company in the buglary, the police station issued a Final Non-traceable Report.

4. THE Insurance Company appointed Mr. Sandeep Bharti of Sandeep Bharti & Associates, as Surveyors to process their case, who visited the site of theft. THEy assisted him at all times to the best of their ability.

All total bills pertaining to computers and peripherals along with bills of Air Conditioners were given to the Surveyor and the Insurance Company on 21st June, 2001.

The complainant had claimed an amount of Rs. 14 lakhs against the asset worth Rs. 15.38 lakhs which were burgled. The complainant had also alleged that the Surveyor, Mr. Sandeep Bharti blackmailed them and gave a negative report. The Insurance Company appointed an Investigator on 12th August, 2002, namely, Mr. Mukesh Gulshan of J.D. Gulshan & Co. The Insurance Company repudiated the claim with the following observations:

5. THAT the Company Flora Infotech Private Limited had obtained the policy by Concealment of materials facts, misrepre-sentation of the facts with mala fide intentions, pre-poning of the incident, breach committed in taking the policy with wrong intentions and wrong facts, having entered into the contract not under good faith with ulterior motives, non-disclosures and wrong disclosures while and after taking the policy.

6. THEREFORE, Mr. Anil Sharma, Director of the company filed complaint before this Commission praying for the following reliefs :

(i) Uphold that the insurance policy is valid and binding and, therefore, the Insurance Company is liable to indemnify the loss under the burglary policy No. 350601/7503498/01 and fire policy No. 350601/3102534/01 dated 4.6.2001 drawn in favour of Flora Infotech Private Limited. (ii) That the National Insurance Company Ltd., Nehru Place, New Delhi to pay the complainant insurance claim of Rs. 14 lacs under the said policies. (iii) The National Insurance Co. Ltd. should also pay monthly com-pounded interest @ 2% per month on the delayed period of the insurance amount of Rs. 14 lacs, from July 2001 till December, 2002 to our company, which amounts to Rs. 6 lacs. Further the interest to be carried forward beyond 31st December, 2002, till the final decision of this Hon''ble Commission. (iv) The Insurance Company should pay damages of Rs. 4 lacs to the complainant, for a period of 18 months, being 20% value of each years loss due to non-receipt of the claim amount of Rs. 14 lacs for the period July 2001 to December, 2002. This amount of damages may continue till final decision of this Hon''ble Commission. (v) The Insurance Company should pay to the complainant an amount of Rs. 14 lacs towards mental agony caused, being 100% equivalent amount of the insurance claim and other legal costs. (vi) That any other or further order may be passed in the interest of justice and in the present facts and circumstaces of the case.

The learned Counsel for the complainant submitted that the opposite party (Insurance Company) was approached by the complainant on 25th May, 2001 for insurance cover and after physical verification, the proposal form was filled up and cheque for premium was handed over on 1st June, 2001 along with all relevant information. Based on newspaper report which appeared on 30th May, 2001 regarding owners of Zap, the complainant filed a complaint for cheating with the crime branch in the jurisdictional police station. There was no report of unrest or any problem with students at the centre. The insurance policy was belatedly issued on 4th June, 2001 instead of on 1st June, 2001. The complainant was out of station for 3-4 days and returned on 7th June, 2001 and got information regading theft in the centre and immediately went to the centre and filed a complaint with the police station vide FIR dated 8th June, 2001. The Insurance Company was also informed on the same day.

The Surveyor, Mr. Sandeep Bharti filed the report in Apirl, 2002 after a delay of 11 months assessing a loss of Rs. 6,49,467/-. The Insurance Company did not honour the report of the Surveyor and appointed J.D. Gulshan as an Investigator on 19th July, 2002, who submitted report after three months. The learned Counsel for the complainant has narrated various inconsistencies in the Surveyors''s report, investigator''s report and also the submissions of the students and hence she submitted that in the given facts and circumstances repudiation of the claims by the Insurance Company cannot be sustained. The delay in the report of the Surveyor and unnecessary appointment of the investigator after delay of 4 months and report of Surveyor after three months and finally the repudiation of claim after an inordinate delay of 16 months is itself a clear deficiency in service.

7. LEARNED Counsel for the opposite party vehemently argued that insurance policy has been fraudulently taken by the complainant hiding various facts. On the date of the proposal no computer was in existence in the premises. He pointed out that the complainant had filed a case against the respondent company in the High Court. The complainant claimed that they were running the business for the last one year and they gave the cheque for the insurance policy on 1st June, 2001 and the policy was to run from 4th June, 2001 to 3rd June, 2002. There is no proof to show that the theft took place on 6th June, 2002. All this appears to be fabricated. He argued that students had filed FIR "When we reached the Institute in the morning i.e., today 30.5.2001 we were shocked to see that the computers were not repaired and there was no body from the management to answer our queries. When we decided to lodge formal complaint against Zap Infotech Ltd. the institute was closed around 2.00 p.m. and attempts were made by the management to remove computers from the centre". The complaint letter is signed by as many as 21 students.

The learned Counsel for the opposite party argued that the company had appointed a Surveyor in all its earnestness. The Surveyor has stated that M/s. Zap Infotech stopped payment of salary to their faculty and other members of the staff. There was great unrest amongst the faculty as well as the students. The insured themselves have confirmed in their letter dated 16.8.2001 stating that M/s. ZAP ran into financial problems somewhere in early 2001. Further, the Surveyor had stated that there were discrepancies in the statement of the insured. The insured stated that there was nothing abnormal in the centre but a group of 21 students had filed FIR dated 30th May, 2001 at Kotla Mubarakpur Police Station and their inquiries revealed that the staff and students were agitated. The insured vide their letter dated 1st June, 2001 (prior to taking insurance policy) had approached the police station and lodged a complaint for cheating and criminal conspiracy against the various Directors of Zap Infotech Pvt. Ltd. They have also stated that the students were likely to damage their computer centre.

8. THE Surveyor pointed out the following to prove that there was concealment of facts :

(a) THE insured did not inform the insurers while arranging insurance that their computer centre was not running since last 4-5 days and serious trouble was brewing thereat. (b) THE insured also did not inform the insurers that they strongly anticipated damages/theft from the computer centre by the students since they were in tense mood. (c) THE insured also did not inform the insurers that the salary of the Faculty was not paid by the Franchisor and the Faculty and staff were also in angry mood. (d) THE insured also did not inform the insurers regarding their deterioration in relationship with M/s. Zap against whom they had already lodged an FIR for cheating and criminal conspiracy, who were managing (mis-managing) the computer centre and that a mishap was inevitable to happen at the centre and hence they were in dire need of fire and burglary covers.

Subsequently, the Insurance Company had appointed an Investigator. The Investigator has quoted extensively from the daily dairy of the Police Station, Kotla Mubarakpur, according to which the computers were removed from the Centre on 30th May, 2001 and there was fight and quarrel at the premises and the Institute was closed for one week. An FIR has been registered on the basis of their complaint.

The learned Counsel for the respondent also read out the statements of the students to say that in the last week of May the Centre started removing computers from terminals and kept them aside. Other computers that were operational were constantly down due to lack of maintenance and virus troubles. The classes were not conducted properly. On 30th May, 2001, in the afternoon the students observed that the Management was trying to remove the server and computers through the rear lane, which was promptly reported to the police etc.

9. BEFORE the repudiation of the claim, lot of correspondence was exhanged between the insured and the insurer. He quoted one such letter addressed by the Insurance Company on 21st May, 2002, extracts of which is given below:

"The students have lodged an FIR No. 171 dated 30.5.2001 against M/s. ZAP Infotech that M/s. ZAP Infotech have cheated them by charging the computer fee but couldn''t impart the promised course in time. This FIR was booked under Section 420 of IPC. (i) The South Extn. Centre was closed for one week for maintenance purpose. (ii) The computers were not working and required repairs. (iii) There was nobody from management side at the centre to answer the queries of the students. (iv) As per the students the management attempted to remove the computers from the centre.

10. WE have heard the arguments of the learned Counsel for the complainant and the Insurance Company in detail. A cursory glance at the insurance proposal indicates that this was filled up in great urgency. The proposer has neither indicated his name and designation nor place and date while signing the proposal. The concept of insurance depends upon utmost uberrima fides and trust between the insured and the insurer but the complainant has violated these norms as the complainant had not disclosed several vital facts to the insured company while taking the policy as is evident from the following:

(a) That all is not well between the complainant and (Franchisee) and Zap Infotech (Franchisor). Even before the complainant had approached Insurance Company, the complainant had filed a suit in the High Court of Delhi in May, 2001, the extract of prayer before the High Court of Delhi is reproduced below: "appoint a Local Commissioner to visit the suit premises, take photographs, initial account books and make list and make inventory of the computers and other furniture items lying and installed at E-72 and E-73, Basements, South Extension Part-I, New Delhi." This prayer indicates the apprehension of the complainant about the safety of the computers as they might be stolen.

(b) Extract of the Newspaper report which appeared on May 30, 2001 in the Hindustan Times is reproduced below: "Overnight the Mumbai based proprietors of the Institute downed shutters leaving the students, all of whom had paid close to Rs. 18,000/- each for a short training module in e-commerce, completely in the lurch. Now these institutes are closing without a trace. Even the staff at these centres have not been paid salaries for the last three to four months, the District Police Chief said."

(c) The First Information Report submitted by the students is reprdouced below: "When we reached the Institute in the morning i.e., today 30.5.2001 we were shocked to see that the computers were not repaired and there was no body from the management to answer our queries. When we decided to lodge formal complaint against Zap Infotech Ltd. the institute was closed around 2.00 p.m. and attempts were made by the management to remove computers from the centre."

(d) On 1st June, 2001 before the commencement of the policy, the complainant had filed a complaint with the SHO, P.S. Kotla Mubarakpur, New Delhi, the extract of which is reproduced below: "Subject : complaint for cheating and criminal conspiracy against the persons for cheating our company to the tune lacs of rupees and for cheating the public at large to the tune of more than Rupees 400 crores... Our company is a Satelite Franchisee of Zap Infotech Ltd. Satelite Franchiee means that the capital investment in Computer Systems, other assets installed and provided at the premises are given to Zap Infotech to run their education institution/coaching/training classes. In other words, the education classes are administered, changed and controlled by Zap Infotech. All expenditure for the Centre are to be born by Zap Infotech and total fees from the students is collected by them. My centre is also not running since last 4/5 days. I read in the Newspaper today morning that there are some under world links and I believe that they are all running away from the country. The aforesaid persons have entered into a criminal conspiracy and have cheated our company to the tune of lacs of rupees and various franchises and students throughout the country for more than Rupees 400 crores and are likely to run away from the country. Kindly take legal action against them and stop them absconding from the country with the money of franchises and students".

(f) Extracts of the statements of Surjeet Kumar and Gaurav Goel, students of the Institute are reproduced below: Statement of Mr. Surjeet Kumar: "In the last week of May the Centre started removing computers from terminals and keep them aside. Other computers that were operational were constantly down due to lack of maintenance and virus troubles. The classes were not conducted properly." Statement of Mr. Gaurav Goel: "On 30th May when I went to the Institute, we saw the peon and the staff members were removing the server and some of the computers through the back lane entrance. WE posted two students to guard at the front and two on the rear entrance to check further movement and then went to the police station to lodge the FIR. After, this I don''t know what happened."

(g) The Insurance Company had appointed a Surveyor who had come to the conclusion after conducting survey and investigation that the complainant had concealed the facts before taking the insurance policy. Without prejudice as well as subject to other conditions of the policy, he has assessed loss to the tune of Rs. 6,49,467/-. The complainant was dissatisfied with the report of the Surveyor. They had also made certain allegations about the conduct of the Surveyor. The Insurance Company rightly felt that this require to be investigated further. Accordingly, they appointed Mr. Mukesh Gulshan of J.D. Gulshan & Co. to investigate into the matter. They made a detailed study of the police records including the daily diary and recorded the statement of some of the students and came to the following conclusions: "Based on the foregoing, subject to underwriters acceptance, and without prejudice, we are of the considered opinion that the insured, with an intention to obtain the insurance claim, had concealed/misrepresented the facts about the actual situation prevalent at the time of the taking of above coverage. As per the students, the computers etc. had already been removed either by the staff/management or the students themselves from the affected premises prior to the taking of the above insurance coverage. Moreover, the insured knew that they would not be able to recover anything from ''ZAP'' and hence, had allegedly filed an FIR with the police on 8th June, 2001 for the theft/burglary of their computers/Air conditioners etc."

From the facts stated above, it cannot be said that the decision taken by the Insurance Company to repudiate the claim was unjustifiable. It is based upon the fact that there was some suppression on the part of the insured. The assured themselves were not knowing what was the position with regard to computers on 1st/4th June, 2001. This is clear from the petition filed before the High Court and in its prayer where they wanted appointment of a Local Commissioner for verification and inventory of the computers and other furniture items. There is nothing on record that the computers were damaged after issuance of the policy.

Learned Counsel for the complainant further submitted that the agent of the Insurance Company has visited the premises and, therefore, the Insurance Company is bound by the terms of the insurance policy.

11. IF there is concealment of material facts, the contract would be void. It is equally true that the insurance agent has some responsibilities, but it appears that the Insurance Companies are not having any control on such agents, nor they are taking appropriate steps that in such cases before accepting the premium the officers of the Insurance Company visit the site and verify whether the goods which are sought to be covered by the Insurance Company are in existence or not. No doubt, the Insurance Company is bound by the terms of the insurance policy, but at the same time, the contract of insurance is uberrima fides (based on good faith)

In this view of the matter, there is no substance in this complaint, and is, therefore, dismissed. The petitoner is directed to pay costs of Rs. 10,000/- to the Insurance Company. Complaint dismissed.