1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUIT NO. 1962 OF 1979 SUIT NO. 1962 OF 1979 SUIT NO. 1962 OF 1979 ALONGWITH ALONGWITH ALONGWITH SUIT NO. 362 OF 1980 SUIT NO. 362 OF 1980 SUIT NO. 362 OF 1980 SUIT NO. 1962 OF 1979 M/s. Vijay Silk Mills, a firm ) registered under the provisions of ) the Indian Partnership Act 9 of 1932 ) carrying on business at 270/272 ) Kalbadevi Road, Bombay 400 002. )..Plaintiffs Versus 1. The United India Fire & General ) Insurance Company Limited, ) carrying on business at Universal ) Office Buildingm, 5th floor, ) Sir P.M. Road, Bombay 400 001. ) 2. National Insurance Company ) Limited, carrying on business ) at Division No.IV, Indu House, ) N.Morarji Marg, Ballard Estate, ) Bombay 400 038. ) 3. Central Bank of India, a Banking ) 2 Co., incorporated under the ) provisions of the Banking Companies ) (Acquisition & Transfer of ) Undertakings) Act 1970 having ) its Head Office at Bombay Main ) Office, M.G.Road, Bombay 400 023. )..Defendants. With SUIT NO. 362 OF 1980 Messrs. Gwalior Stores, a firm ) carrying on business at 270/72, ) Kalbadevi Road, Bombay 400 002. )..Plaintiffs Versus 1. The United India Fire & ) General Insurance Co. Ltd., ) carrying on business at Universal ) Office Building, 5th floor, ) Sir P. Mehta Road, Bombay 400 001. ) 2. Central Bank of India, having ) its Head Office at Bombay Main ) Office, Mahatma Gandhi Road, ) Bombay 400 023. )..Defendants Mr. M.S.Singhavi, Senior Advocate, i/b. M/s. Gagrat & Co. for the Plaintiffs (in both matters). 3 Mr. A.G. Kothari for the Defendants (in both matters). JUDGMENT RESERVED ON: 12.10.2006 JUDGMENT PRONOUNCED ON: 09.11.2006 ORAL JUDGMENT : ORAL JUDGMENT : ORAL JUDGMENT : 1. These Suits are filed for recovering Fire Insurance Claim from the Insurance Companies. I propose to dispose of both the suits by a common Judgment as the issues involved in both the suits are common, the parties are also common and the evidence recorded is also common. . M/s. Vijay Silk Mills (Plaintiffs in Suit No.1962 of 1979) and M/s. Gwalior Stores (Plaintiffs in Suit No.362 of 1980) are the sister concerns. Both the sister concerns are carrying on business of Cloth Merchants & Commission Agents in Bombay. Both the concerns are partnership firms and they are duly registered under the provisions of the Indian Partnership Act. . The United India Fire & General Insurance Company Ltd. is Defendant No.1 in both the suits. National Insurance Company is only the defendant No.2 in Suit No.1962 of 1979. Central Bank of India - defendant No.3 in the first suit and Defendant No.2 in the second 4 suit are the Bankers with whom the goods belonging to the sister concerns were hypothecated. These two sister concerns had taken the Fire Insurance Policies. M/s. Vijay Silk Mills (Suit No.1962/1979) (i) Under Policy of Insurance dated 16.12.1977 bearing No.203/01/1/21823, the goods belonging to M/s. Vijay Silk Mills were insurance against fire for a sum of Rs.3,00,000/-. The goods were their stock of Art Silk and/or Terelene Yarn and/or cloth stored and/or lying on the mezzanine floor and/or loft of the Plaintiffs shop bearing municipal No. 270/272,situate at the corner of Kalbadevi Road and Cavel Cross Lane, Kalbadevi, Bombay.This Policy was valid upto 17.10.1978. (ii) By another Policy of Insurance dated 13.6.1977 bearing No.203/01/1/18937,the goods were further insured for a sum of Rs.1,00,000/-. Under these Policies, the goods that were covered were the stock of Art Silk and/or Silk and/or Terelene Cloth and/or other hazardous and/or non-hazardous goods including furniture, fixtures and fittings, which were lying on the mezzanine floor of the Plaintiffs’ said shop premises bearing Municipal No.270/272. This Policy was valid upto 13.6.1978. Both these Police were of Defendant No.1 - The United India Fire & General Insurance Company Limited. (iii) Under the third Policy of Insurance dated 5 19.12.1977 bearing No. 590/3107216 was for a sum of Rs.3,00,000/- and was valid for 12 months. This Policy was insured with the 2nd defendant i.e. National Insurance Company and the goods covered were stock-in-trade of piece goods of all kinds and other non-hazardous goods which were stored and lying in the shop premises as indicated above. M/s. Gwalior Stores (Suit No. 362 of 1980) (i) Under the Policy of Insurance dated 31.12.1976 bearing No. 203/01/1/14753 for a sum of Rs.1,50,000/-, the goods were insured against fire and the goods were stock-in-trade of piece goods of all kinds, such as terene, terrycot, artificial silk, woollen and/or cotton in cases and in bales and loose and other goods including furniture, fixtures, fittings, electrical installations etc. at the shop premises being Municipal No. 270/272. (ii) Under another Policy of Insurance dated 8.3.1977 bearing No. 203/01/1/16608 for a sum of rs.4,00,000/- insured the goods against fire and the goods being the same as described above, lying and fitted at the same shop. Both these Policies were valid for one year i.e. first Policy upto 31st December, 1977 and the second being upto 7.3.1978. (iii) Under a third Policy of Insurance bearing No. 6 203/01/1/17791 dated 18.4.1977 for Rs.1,00,000/- insured with the 1st Defendant the furniture, show-case, electrical installations, fans and.or air-conditions lying in the said shop premises. 2. On 17.12.1977 after 7 p.m., fire broke out in the loft of the Plaintiffs’ aforesaid shop premises. Fire Brigade from the Dockyard and Memonwada Stations arrived at the scene and after great difficulty and effort, fire was brought under control, finally at 11 p.m. The Plaintiffs allege that fire was of great intensity. It is alleged in Suit No.1962 of 1979 that the property belonging to M/s. Vijay Silk Mills was destroyed in fire and those properties were Suitings worth Rs.40,000/- and Shirtings Rs.5,13,172.50. It is alleged by M/s. Gwalior Stores (Suit No.362 of 1980) that the loss caused by fire was to the extent of Rs.5,79,963.77 as under :- (a) Stocks of finished cloth,such as suitings and shirtings etc. kept in the loft of the value of ..Rs.2,84,639.51 (b) Furniture, fixtures,fittings show-cases, electrical installations, etc. value of ..Rs. 53,794.00 (c) Stocks of material lying on the ground floor of the said shop premises were spoiled and damaged by strong incessant and long flow of water mixed with burnt residue or remains of the fire which were washed down from the loft on to the ground floor, of the value of ..Rs.2,41,530.00 ---------------- Total Rs.5,79,963.77 7 ---------------- 3. It is further alleged by the Plaintiffs in both the suits that on 18.12.1977, the Plaintiffs communicated the fact of the aforesaid fire to Mr. Modi, the Regional Manager of the United India Fire & General Insurance Co. Ltd. Similarly, the fact of the damage having been caused in fire was communicated to National Insurance Company by a letter dated 20th December, 1977. Thereafter, the representatives of the two Insurance Companies had visited the site of fire and discussions were held with the Plaintiffs’ partner. The surveyors of the Insurance Companies had requested the Plaintiffs to submit the claim forms as per the proforma. Accordingly, the Plaintiffs had submitted the statement of claim and other particulars as required by letter dated 23rd December, 1977. On 26th December, 1977, the 1st defendant sent to the Plaintiffs fresh claim forms which the Plaintiffs submitted to them giving details of the claim. by letter dated 4.2.1978, both the Plaintiffs set out in detail the facts regarding the said fire and furnished other details to both the defendants and requested both the Defendants to pay the compensation as per the terms of the respective Policies. However, both the defendants failed and neglected to pay to the Plaintiffs the loss claimed by them. Therefore, the Plaintiffs sent notice dated 9.7.1979 to both the defendants requiring them to pay the compensation as specified by them in the respective 8 claims submitted to both the Insurance Companies. Both the Insurance Companies, however, replied to the notice stating therein that they were advised to repudiate the Plaintiffs’ claim. Therefore, the Plaintiffs filed the aforesaid suits for recovery of compensation in respect of the damage caused to the goods in fire. 4. Both the Insurance Companies being Defendants Nos. 1 and 2 in Suit No.1962 of 1979 have resisted the suit by their joint written statement dated 21.7.1981. The Suit No.362 of 1980 was duly resisted by Defendant No.1 United India Fire & General Insurance Co. Ltd. by their written statement dated 17.7.1981. The contentions raised by both the Insurance Companies in their respective written statement are common. Both the Insurance Companies have resisted the Plaintiffs’ claim on the ground that the suits are not maintainable as being time-barred in view of Condition No.19 of the Conditions governing the Insurance Policies. They contend that as per Condition No.19 of the Insurance Policy, the suit for damages was required to be filed within 12 months from the happening of the loss or damage and both the suits are filed after a period of 12 months from the happening i.e. the fire which took place on 17th December, 1977. 5. They contend that the Suit No.1962 of 1979 was filed on 4.10.1979 and the second suit was filed on 10.3.1980. They further contend that all the benefits 9 of the Insurance Policies stood forfeited in view of Condition No.14 of the Insurance Policies as the claim that was put forth by the Plaintiffs were fraudulent being grossly exaggerated. They further contend that the entire stock of shirting material was not in the premises at the time of fire and the Plaintiffs relied only on copies of Bank statements of stocks which have been fraudulent. They further contend that the Plaintiffs had made false representation that the fire was intense and that it lasted for 3 hours from 8 p.m. to 11 p.m. when in fact the fire was mild and was put out by the fire brigade within 20 minutes of its arrival at the site. The entire episode of the fire lasted only for about 45 minutes. They further contend that the Plaintiffs could not produce their stock statement as on Kartik Sud 1, S.Y.2034 i.e. 12.11.1977. The Plaintiffs however, brought two statements of an inventory of suitings and shirtings purported to have been taken on 9.1.1977. They are having no description of material or brands thereof and they were also unsigned. They further contend that the Plaintiffs had informed the surveyors that all their invoices for the purchases made after Diwali 1977 were lying in the loft and they were burnt in the fire which took place on 17.12.1977. However, on 8.1.1978, the Plaintiffs’ partner produced a file of invoices of purchases allegedly made after Diwali 1977 and the representation to the surveyors that those invoices were found on the ground floor. They cotend that these purchase invoices has not been seen at 10 the time of the joint inventory of the things lying on the ground floor which was burnt on 6.1.1978 for which the plaintiffs had no explanation. They contend that under these circumstances the plaintiffs had put forth a fraudulent claim. 6. The defendants further contended that the suit claim is misconceived, for want of compliance of condition No.11 and they also failed to furnish the records, documents and information for verification for the alleged loss. They contend that the plaintiffs failed to produce stock registers, bank’s inspection report, invoices pertaining to the alleged purchases that were made between 1.12.1977 and 17.2.1977. They further contend that what the plaintiff submitted was only a summarised statement of purchases without any evidence in support thereof. They further contend that the Plaintiffs dishonestly withheld or suppressed the production of the aforesaid records and, therefore, the Plaintiffs are not entitled to any claim under the policies. 7. The defendants also contend that they are absolved of all liability under the policies on account of breach of warranty committed by the Plaintiffs. They contend that under the Warranty "H" of Form "A" which was a part of the policies no hazardous goods including cotton waste could be stored in the insured premises. However, at the time of the joint inventory of the 11 stocks in the loft taken on 27th December, 1977, pieces of loose cotton yarn waste smelling of alcohol or similar inflammable material were noticed in between the folds of cloth underneath the "takas" of shirting cloth. As such, in the presence of the Plaintiffs’ partner, Dr. H.S.Mahal, a Consulting Forensic Scientist and the Superintendent of Bombay Fire Salvage Corps, had taken 21 samples of burnt-out material for chemical analysis and the report of the analysis indicates that presence of alcohol in 20 out of those samples. 8. On these contentions, they claim dismissal of the suit. 9. In view of these pleadings, issues were framed in the respective suits all of which common issues are indicated below against which I have recorded my findings for the reasons given below:- ISSUES FINDINGS 1. Whether Suit is not maintainable In the in view of Condition No.19 of negative. the suit policy of insurance? 2. Do defendants Nos. 1 & 2 prove In the fraudulent act being committed negative. by the plaintiffs as detailed in paragraph 3 of the written statement ? 3. If so, whether policy stood In the forfeited in view of Condition negative. 12 No.13 of the policy ? 4. Do defendants prove that In the plaintiffs had stored hazardous negative. goods in the insured premises as stated in para 5 of the written statement ? 5. Whether, thereby Condition No.11 In the is breached and the defendants negative are absolved from liability ? 6. Do plaintiffs (in Suit No.1962/79) Suit is prove to have suffered loss of partly Rs.5,07,506.84 with interest ? decreed. 6. Do plaintiff (in Suit No.362/80) Suit is prove to have suffered loss of partly Rs.3,94,917.51 with interest ? decreed. 7. Whether plaintiff-firm is not In the registered ? negative. 8. If so, what is its effect on the Does not suit ? arise. 9. To what reliefs plaintiffs are As per entitled ? order. 10. What decree or order ? Suits are partly decreed. ISSUE NO. 1 : 10. It is the contention of the defendants that in view of Condition No.19, the suit is not maintainable as the suit is not filed within 12 months from the date on which the fire occurred. Condition No. 19 reads as under :- " In no case whatsoever shall the Company (i.e. 13 the insurers) be liable for any loss or damage after the expiration of 12 months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration." It is undisputed that the fire broke out on 17.12.1977 and the suits are filed in 1979 and 1980 i.e. after the expiration of 12 months from the date of fire. 11. The learned Counsel for the defendants relied on a decision of the Apex Court in the case of National Insurance Co. Ltd. vs. Sujir Ganesh Nayak & Co. & Anr. reported in (1997) 4 SCC 366 for submitting that under the provisions of Section 28 of the Contract Act, such a condition does not become invalid. He, therefore, submits that the suit is not maintainable in view of condition No.19. 12. As against this, the learned Counsel for the plaintiffs submitted that the provisions of section 28 of the old Contract Act have been amended with effect from 8.1.1997 and by virtue of the amended provisions, the condition No.19 under the Policy has become void and, therefore, cannot be enforced. The Apex Court in the aforementioned case had considered the Condition No.19 of the Fire Insurance Policy in the light of the provisions of Section 28 of the old Contract Act. The view taken by the Apex Court was that the Condition 14 No.19 had the effect of extinguishing the right of the assured to make a claim when the suit was not filed within 12 months from the day when the loss or damage had occurred. In other words, the Apex Court held that there could be agreements which do not seek to curtail the time for enforcement of the right but which provide for the forfeiture or waiver of the right itself if no action is commenced within the period stipulated by the agreement and that such agreement would not fall within the mischief of Section 28 of the Contract Act. 13. However, the amended provisions of Section 28 of the Contract Act provides that agreements in restraint of legal proceedings void even where the agreements provide for extinguishing the right of any party to make a claim under the agreement. The relevant provisions of the amended Section 28 of the Contract Act are as under :- "28. Agreements in restraint of legal proceedings, void - [very agreement - (a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or (b) which extinguishes the rights of any party 15 thereto, or discharges any party thereto, from any liability, under or in respect of any party from enforcing his rights, is void to that extent] Exception 1 - Saving of contract to refer to arbitration dispute that may arise - This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. Exception 2 - Saving of contract to refer questions that have already arisen - Nor shall this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or effect any provision of any law in force for the time being as to references to arbitration." By virtue of clause (b) of Section 28, every agreement which extinguishes the right of any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any 16 party from enforcing his rights is void. Therefore, by virtue of the amended provisions, the Condition No.19 of the agreement will be void and, therefore, will not be enforceable. Therefore, the suit though filed after the expiry of the period of 12 months from the date of fire which occurred on 17.12.1977 would not become not maintainable in view of Condition No.19 of the Suit Policy for making a claim of compensation against the Insurance Company. This issue, therefore, shall have to be answered in the negative. ISSUE NOS. 7 & 8 : 14. The Plaintiffs have produced the Certificate of Registration of the partnership firms of M/s. Vijay Silk Mills as also of M/s. Gwalior Stores (Exhibit "A" collectively). This evidence has not been challenged. Therefore, issue No.7 shall have to be answered in the negative and issue No.8 does not arise. ISSUE NOS. 2 & 3 : 15. In para 3 of the Written Statement, it is contended by the Defendants that all the benefits under the Insurance Policies stood forfeited in view of Condition No.13 of the Policy. Condition No.13 reads as under :- " If the claim be in any respect fraudulent, or 17 if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the insured or anyone acting on his behalf to obtain any benefit under this policy, ...... all benefits under the policy shall stand forfeited." Thus, in short, the contention is that the Plaintiffs made a fraudulent claim and also made a false declaration to obtain benefit under the policy. It was submitted on behalf of the defendants that the Plaintiffs’ witness stated in his evidence that the fire which took place on 17.12.1977 continued for about three hours. The witness - Rajkumar Garg claimed to have been present when the fire broke out in the mezzanine floor of the shop. He stated that he was outside the shop and saw smoke coming out and there was explosion of A.C. glass panes. He also saw flames started coming out. Therefore, he immediately reported to the Fire Brigade station over phone. He further stated that within half an hour fire brigade staff came and the operation to extinguish the fire went on for two-three hours. The entire goods of Vijay Silk Mills and part of the goods of Gwalior Stores were destroyed. It is contended on behalf of the Plaintiffs that this statement was made to make a exaggerated claim. The Plaintiffs however, admitted in cross-examination that he arrived at the place of fire about 45 minutes after the fire broke out. This admission clearly indicates that the witness was 18 not present when the fire broke out. It is an admitted position that soon the police also arrived and drew a panchnama of the place of fire. The witness admits in cross-examination that the recording of panchnama by the police began only after the fire was extinguished. The panchnama is a part of Exhibit P-7. The correctness of this panchnama is not in dispute. The panchnama shows that it was started at 9.30 p.m. and concluded at 10.15 p.m. Exhibit "P-7" is annexed to the Fire Report prepared by the Chief Officer of the Mumbai Fire Brigade. This report shows that the time of fire was 8.20 p.m. and the fire was due to the electric short-circuit. The admission of the Plaintiffs’ witness that drawing of panchnama began only after the fire was extinguished and the mention in the panchnama that the drawing of panchnama started at 9.30 p.m. It is clear that by 9.30 p.m. fire was completely extinguished. From the fire report, it is clear that the fire broke out at 8.20 p.m. Therefore, it could, at the most, be said that the fire went on between 8.20 p.m. and 9.30 p.m. i.e. for about an hour and not for three hours as claimed by the Plaintiffs’ witness as alleged by the Plaintiffs in the plaints. It is vehemently submitted on behalf of the Plaintiffs that there was clear attempt on the part of the Plaintiffs when they stated that fire continued for about three hours. It was an intention to show that the damage caused by the fire was to a very large extent. 19 16. In addition to this, it is admitted by the Plaintiffs’ witness that on his part it took about 5 - 6 days for assessing the damage caused by the fire and it is only thereafter that a declaration was made which is at Exhibit "P-6". Exhibit "P-6" is a claim statement wherein it is mentioned that the total value of the goods damaged in fire was Rs.5,80,000/- (Rs.5,25,000/- of the stock and Rs.55,000/- of furniture). The total value of the salvage was Rs.1,25,000/- (approx. 50% of Rs.2,41,530/- the value of the stock saved from the fire but damaged in the fire). The total claim on account of loss caused in fire was Rs.4,60,000/-. The witness however admitted that this statement of claim was incorrect. He further stated that it was only a preliminary claim and subsequently a final claim was made which is at Exhibit 62. He admits that the difference between the preliminary statement and the final statement was hardly Rs.3,000/- and that too on account of electric motors. The plaintiffs’ witness further admitted that this claim statement was made only on the basis of memory as the record was damaged in fire. With regard to the record having been damaged in fire, the witness had admitted that entire record was not damaged. The