Case: M/S BASPA ORGANICS LIMITED Vs. UNITED INDIA INSURANCE COMPANY LTD

efficient conduct of military operations, it may, by order, provide for regulating or prohibiting the production, supply and distribution thereof and trade and commerce therein. 26. Clearly, orders under Section 3(1) may pertain to the following objectives: (i) maintaining or increasing supplies of any essential commodity; (ii) securing the equitable distribution and availability at fair prices of such commodity; or, (iii) securing any essential commodity for the defence of India or the efficient conduct of military operations. 27. Furthermore, Section 3(2) contemplates particular aspects with respect to which orders may be passed in exercise of the power under Section 3(1). In this regard, it is relevant to refer to clause (d) of Section 3(2): (2) Without prejudice to the generality of the powers conferred by sub-section (1), an order made thereunder may provide? x x x (d) for regulating by licences, permits or otherwise the storage, transport, distribution, disposal, acquisition, use or consumption of, any essential commodity. 28. Thus, it is clear that the Central Government has the power to pass orders under the Essential Commodities Act to provide for licensing regimes governing the storage of an essential commodity, in pursuance of the three objectives set out in Section 3(1). The 2000 Order, in our considered view, is one such order, providing for a licensing regime regulating the acquisition, sale, storage and prevention of use in automobiles of solvents, raffinates and slops, particularly for the purposes of the Essential Commodities Act. There is nothing in the said order to suggest that it intends to replace or modify any other existing licensing regime under any other law in force, including the Petroleum Act and the rules formulated thereunder. 29. In fact, we find that the notifications issued in pursuance of the 2000 Order set to rest any residual doubt in this regard. For instance, a perusal of G.R.S. 578(E), an order dated 30.06.2000 issued by the Central Government under Clause 3 of the 2000 Order, clearly reveals that the licence being referred to under the order is the Solvent, Raffinate and Slop Licence. The said notification reiterates that the said licence is to be issued by the State Government, District Magistrate, or the officer authorised by the Central or State Government, as also mentioned in Clause 3(1) of the 2000 Order. 30. There cannot be any dispute that the licence issued under the Essential Commodities Act and control orders are for a different purpose altogether compared to the Petroleum Act. Thus, it is clear that the licensing regime envisaged in clause 3 of the 2000 Order, and the exemption granted thereto, is in addition to the licensing requirements under the Petroleum Act. The direction of the Controller of Explosives vide letter dated 05.11.2001 to comply with the requirements under the 2000 Order is an additional requirement to be complied with in order to obtain a licence under the Petroleum Act. It cannot be said that an exemption from obtaining a licence under the 2000 Order would amount to an exemption to obtain a licence under the Petroleum Act. Hence, even assuming that the Appellant was exempt from obtaining a licence under the 2000 Order by virtue of the said exemption, the Appellant was still required to obtain a licence in accordance with the 1976 Rules. We hasten to add here that, as already mentioned supra, the quantity of Hexane stored by the Appellant was more than 20 kilolitres. Hence, the Appellant was required to obtain a licence under the 2000 Order as well. 31. From the above discussion, it is evident that the 1976 Rules prescribed that a licence had to be obtained for the purposes of storing Hexane of the quantity involved in the instant case, and the Appellant has failed to comply with this requirement. In the absence of such a licence, the Appellant could not have lawfully stored Hexane. Therefore, we are of the view that the non-disclosure of the non-possession of a licence was of a material nature, and constituted a violation of Condition 1 of the insurance policy. As a result, we are inclined to affirm the finding of the National Commission that the Respondent was justified in repudiating the claim of the Appellant on this ground. 32. The second issue, regarding the overvaluation of the subject factory, was not seriously argued by either party. Moreover, it is a question of fact, which this Court generally does not probe deeply. Thus, we shall refrain from examining the merits thereof. The same is also unnecessary in light of our above finding that the repudiation of the instant claim was justified on the ground pertaining to the Appellant lacking a licence for storing Hexane under the Petroleum Act and 1976 Rules. 33. Before we part with this matter, we may note that some objection was raised by the Appellant against the appointment of the third surveyor by the Respondent. Suffice it to state that the appointment of the third surveyor was for the limited purpose of examining whether the Appellant was in possession of the requisite licences for the storage of Hexane. Moreover, neither did the findings of the third surveyor disturb the findings of the second surveyor, nor were they material to the conclusion against the Appellant arrived at by the National Commission. The second surveyor had given a categorical finding that about 90 kilolitres of Hexane were stored in the factory premises, and this finding has not been challenged by the Appellant. At the same time, while the findings of the third surveyor supplement the reasoning of the National Commission vis-à-vis the absence of a licence under the Petroleum Act and 1976 Rules, they are not crucial to this conclusion, inasmuch as the Appellant itself never contended that it was in possession of the requisite licences for the storage of Hexane. As a result, we find that irrespective of whether or not the appointment of the third surveyor was proper, the findings of the said surveyor do not materially affect the outcome of the instant case.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]6. At the outset, we must observe that we are at a loss to understand why the insurance policy was taken by the Appellant for only one month and extended thereafter, again, for only one more month. It is also quite perplexing as to why the Respondent agreed to issue a policy for such a short period of time, and no plausible reasons are forthcoming from the records to explain the peculiar nature of this transaction12. Before looking into whether the Appellant was required to obtain a licence under the provisions reproduced above, it is relevant to note that the Appellant has not challenged the second surveyors report, or its finding that the factory premises contained over 90 kilolitres of Hexane, out of which 79.152 kilolitres were damaged. On the contrary, the Appellant seeks to rely on the report heavily13.1 Therefore, it is evident that for the storage of petroleum Class A less than 30 litres in quantity, no licence is required under the Petroleum Act or rules thereunder. As per Article 3, a licence issued by the District Authority is required for importing and storing petroleum Class A in a quantity not exceeding 300 litres. Thus, the Respondent may be justified in arguing that for storage of petroleum Class A ranging from 30 litres to 300 litres in quantity, a licence under Article 3 may be required. However, in the instant case, it is clear that the Appellant had stored much more than 300 litres of Hexane, and therefore, a licence under Article 3 would not be sufficient15. From the definitions reproduced above, it becomes evident that irrespective of the quantity of petroleum, when petroleum is stored in a tank, it is referred to as petroleum in bulk under the 1976 Rules. As mentioned earlier, Article 7, on which the Respondent seeks to place reliance, deals with the grant of a licence for storage of petroleum otherwise than in bulk, i.e. otherwise than in a tank. In other words, for petroleum Class A exceeding 300 litres, a licence under Article 7 is required when it is not being stored in receptacles exceeding 1000 litres in capacity18. In the instant case, the second surveyor had clearly stated that the Hexane had leaked from the tanks in which it was stored. However, it is not clear from the material on record whether or not the term tank was assigned the same meaning as under the 1976 Rules. If the tanks referred to by the second surveyor were receptacles that could not store more than 1000 litres of petroleum, then they would not constitute tanks under the 1976 Rules, and the petroleum stored in such tanks would fall under the category of petroleum stored otherwise than in bulk. In such a case, a licence would be required under Article 720. The above communication clearly indicates that even the Controller of Explosives was of the opinion that the premises where the Appellant was storing Hexane amounted to an installation. As we have discussed supra, for a premises to be considered as an installation, it must contain a place prepared to hold tanks as defined under the 1976 Rules. This strongly suggests that the tanks referred to by the second surveyor were indeed tanks as envisaged under the 1976 Rules. In our considered view, this shows that the Appellant may well have been required to obtain a licence under Article 6 itself21. It is not the case of the Appellant that it provided the documents stipulated by the Controller of Explosives. No further communication between the Appellant and the said authority has been placed on record either. There is nothing on record to show that a licence under Article 6 was granted to the Appellant22. In light of the above discussion, we are of the view that the Appellant was required to obtain a licence under the 1976 Rules for the storage of Hexane, be it under Article 6 or 7, and has failed to show that it possessed any such licence24. Evidently, there is an exemption carved out in the proviso dispensing with the need for a licence in the cases laid down thereunder. Significantly, Hexane is mentioned in the Schedule referred to in the above clause, making it clear that the substance is governed by the same28. Thus, it is clear that the Central Government has the power to pass orders under the Essential Commodities Act to provide for licensing regimes governing the storage of an essential commodity, in pursuance of the three objectives set out in Section 3(1). The 2000 Order, in our considered view, is one such order, providing for a licensing regime regulating the acquisition, sale, storage and prevention of use in automobiles of solvents, raffinates and slops, particularly for the purposes of the Essential Commodities Act. There is nothing in the said order to suggest that it intends to replace or modify any other existing licensing regime under any other law in force, including the Petroleum Act and the rules formulated thereunder29. In fact, we find that the notifications issued in pursuance of the 2000 Order set to rest any residual doubt in this regard. For instance, a perusal of G.R.S. 578(E), an order dated 30.06.2000 issued by the Central Government under Clause 3 of the 2000 Order, clearly reveals that the licence being referred to under the order is the Solvent, Raffinate and Slop Licence. The said notification reiterates that the said licence is to be issued by the State Government, District Magistrate, or the officer authorised by the Central or State Government, as also mentioned in Clause 3(1) of the 2000 Order30. There cannot be any dispute that the licence issued under the Essential Commodities Act and control orders are for a different purpose altogether compared to the Petroleum Act. Thus, it is clear that the licensing regime envisaged in clause 3 of the 2000 Order, and the exemption granted thereto, is in addition to the licensing requirements under the Petroleum Act. The direction of the Controller of Explosives vide letter dated 05.11.2001 to comply with the requirements under the 2000 Order is an additional requirement to be complied with in order to obtain a licence under the Petroleum Act. It cannot be said that an exemption from obtaining a licence under the 2000 Order would amount to an exemption to obtain a licence under the Petroleum Act. Hence, even assuming that the Appellant was exempt from obtaining a licence under the 2000 Order by virtue of the said exemption, the Appellant was still required to obtain a licence in accordance with the 1976 Rules. We hasten to add here that, as already mentioned supra, the quantity of Hexane stored by the Appellant was more than 20 kilolitres. Hence, the Appellant was required to obtain a licence under the 2000 Order as well31. From the above discussion, it is evident that the 1976 Rules prescribed that a licence had to be obtained for the purposes of storing Hexane of the quantity involved in the instant case, and the Appellant has failed to comply with this requirement. In the absence of such a licence, the Appellant could not have lawfully stored Hexane. Therefore, we are of the view that the non-disclosure of the non-possession of a licence was of a material nature, and constituted a violation of Condition 1 of the insurance policy. As a result, we are inclined to affirm the finding of the National Commission that the Respondent was justified in repudiating the claim of the Appellant on this ground32. The second issue, regarding the overvaluation of the subject factory, was not seriously argued by either party. Moreover, it is a question of fact, which this Court generally does not probe deeply. Thus, we shall refrain from examining the merits thereof. The same is also unnecessary in light of our above finding that the repudiation of the instant claim was justified on the ground pertaining to the Appellant lacking a licence for storing Hexane under the Petroleum Act and 1976 Rules33. Before we part with this matter, we may note that some objection was raised by the Appellant against the appointment of the third surveyor by the Respondent. Suffice it to state that the appointment of the third surveyor was for the limited purpose of examining whether the Appellant was in possession of the requisite licences for the storage of Hexane. Moreover, neither did the findings of the third surveyor disturb the findings of the second surveyor, nor were they material to the conclusion against the Appellant arrived at by the National Commission. The second surveyor had given a categorical finding that about 90 kilolitres of Hexane were stored in the factory premises, and this finding has not been challenged by the Appellant. At the same time, while the findings of the third surveyor supplement the reasoning of the National Commission vis-à-vis the absence of a licence under the Petroleum Act and 1976 Rules, they are not crucial to this conclusion, inasmuch as the Appellant itself never contended that it was in possession of the requisite licences for the storage of Hexane. As a result, we find that irrespective of whether or not the appointment of the third surveyor was proper, the findings of the said surveyor do not materially affect the outcome of the instant case.