Calcutta High Court
Tirupati Cold Storage Private Limited vs The Oriental Insurance Company Limited on 21 November, 2025
IN THE HIGH COURT AT CALCUTTA
ORIGINAL SIDE
COMMERCIAL DIVISION
Presents
The Hon'ble Justice Krishna Rao
C.S. (COM) No. 519 of 2024
(Old No. C.S. 132 of 2023)
With
G.A. (Com) No. 8 of 2024
Tirupati Cold Storage Private Limited
Versus
The Oriental Insurance Company Limited
Mr. Jishnu Saha, Sr. Adv.
Mr. Jaydeep Sen
Mr. Rohit Banerjee
Ms. Sananda Ganguli
Mr. Shubradip Roy
... For the plaintiff.
Mr. Abhimanyu Shandilya
Mr. Gourab Das
Ms. Biyas Banerjee
Ms. Simi Paul
... For the defendant.
2
Hearing Concluded On : 25.09.2025
Judgment on : 21.11.2025
Krishna Rao, J.:
1. The plaintiff has filed the present suit praying for a decree for a sum of
Rs. 12,63,41,316/- along with interest at the rate of 12% per annum
or in the alternative for enquiry to ascertain the loss and damage
suffered by the plaintiff, declaration that the Clauses 4, 5 and 6 of the
Deterioration of Stock (Potatoes) at Cold Storage Policy No.
311400/44/2023/45 as void, non-est and inoperative and a decree for
permanent injunction restraining the defendant from giving any effect
or further effect to Clause Nos. 4, 5 and Clause no.6. At the time of
argument, Learned Counsel for the plaintiff has not pressed the claim
of Rs. 98,05,440/- and Rs. 39,53,096/- out of the total claim of Rs.
12,63,41,316/-.
2. The plaintiff is running a business of providing services of cold storage
facilities to the potato cultivators of Bishnupur and Burdwan. The
plaintiff has obtained financial assistance from Punjab National Bank.
The plaintiff has insured its stock of potato under Deterioration of
Stocks (Potato) policy "hereinafter referred to as DOS policy" and the
refrigeration plant and machinery of the Cold Storage under Plant and
Machinery Breakdown Policy "hereinafter referred to as MBD policy".
3. Fixation of "rent" for potato storage, fixation of "Insured value" of
potatoes, choice of insurance companies for insuring stocks at cold
storage and fixation of insurance premium are wholly regulated and
determined by the State Government under the West Bengal Cold
Storage (Licensing and Regulation) Act, 1966 and Rules framed therein.
The Directorate of Agricultural Marketing Department, Government of
West Bengal has determined the "Insured value" at Rs. 1370/- per
quintal, which includes Rs. 170/- being cold storage rent per quintal of
potatoes by a notification dated 29th March, 2022.
4. The total loading capacity of the cold storage of the plaintiff is
1,95,537.50 quintals in its three refrigeration chambers. On 8th May,
2022, a surveyor appointed by the defendant had conducted a pre-
acceptance survey of every equipment and facility constituting the plant
and machinery of the cold storage of the plaintiff and certified that the
plant and machineries in the cold storage to be in good, working and
sound condition. Being satisfied with the report of the surveyor, the
defendant has issued Machinery Breakdown Policy No.
311400/44/2023/46 dated 18th May, 2022, covering the entire plant
and machinery of the cold storage of the plaintiff from 18th May, 2022
till 17th May, 2023 and Deterioration of Stock (Potatoes) at Cold Storage
Policy No. 311400/44/2023/45 dated 17th May, 2022, covering the
entire stock of potatoes loaded from March 2022, for the period from
17th May, 2022 till 15th May, 2023. The premium of the MBD insurance
policy was Rs.37,297/- and DOS policy was Rs. 13,94,008/-.
5. On 19th May, 2022, an incident occurred at the cold storage of the
plaintiff. The said incident was escapement of ammonia gas from the
refrigeration system in the chamber no.3 as a result of which the entire
stock of potatoes i.e. 115663 bags weighing 57831.5 quintals and
valued at Rs. 79,229,115/- suffered ammonia contamination. The
plaintiff has intimated the said incident to the defendant. Initially, the
defendant has appointed a preliminary surveyor but no report of the
preliminary surveyor was provided to the plaintiff and finally on 30th
May, 2022, a final surveyor, namely, M/s. Proclaim Insurance
Surveyors and Loss Assessors Private Limited was appointed by the
defendant. The surveyor has submitted a final survey report dated 22nd
August, 2022, confirming accidental damage to the main valve of the
refrigeration system due to sudden rise in ammonia vapour pressure,
and assessing net indemnifiable loss at Rs. 6,103/- as replacement cost
of the damaged valve.
6. In the final survey report under the DOS policy, the Surveyor
mentioned that the loss is not payable as per the operative clause of
DOS policy since there was no rise in temperature due to
contamination and the temperature in the refrigeration chamber did
not rise for more than 24 hours. The plaintiff had sent an email to the
defendant protesting against the observation of the surveyor by
explaining the meaning and purport of the operative clauses of the DOS
policy. On 20th December, 2022, the plaintiff has called upon the
defendant to settle the claim of the plaintiff but instead of settling the
claim of the plaintiff, the defendant repudiated the insurance claim
under the MBD policy by invoking Exclusion Clause nos. 4 and 5 of the
MBD policy and the claim under the DOS policy by invoking Exclusion
Clause nos. (II), (IV) and (VI) of the DOS policy.
7. In the meantime on 20th June, 2022, the Director of Agricultural
Marketing, Government of West Bengal passed an order by determining
the rate of compensation payable by the plaintiff to the "hirers"/
"farmers" whose potatoes/stocks have been damaged by ammonia in
the cold storage of the plaintiff on 19th May, 2022. The plaintiff has
challenged the said order in a writ proceeding. Pending adjudication of
the said writ petition, the Writ Court directed the plaintiff to pay an
amount of Rs. 3,00,00,000/- as an adhoc compensation to the farmers
whose potatoes have been damaged in the said incident. To pay the
said amount of compensation, the plaintiff has utilized the entire credit
limit in the business and also borrowed an amount of Rs.
1,50,00,000/- from the financial institution at the rate of 9% per
annum and at present the rate of interest is 12% per annum. The
plaintiff has further obtained a loan of Rs. 2,00,00,000/- from the
financial institution at the rate of 12% per annum in the month of
March, 2023 for meeting operational costs and payment of further
compensation to the farmers whose potatoes were damaged in the
incident to persuade the farmers to allow the plaintiff to remove the
contaminated potatoes from chamber no.3.
8. The loading season of 2023 commenced from 1st March, 2023 and the
blockade was removed by the farmers only on and from 7th March,
2023 due to which the plaintiff lost an opportunity to load potatoes in
its cold storage and optimizing its rent. The plaintiff could load only
60212 quintals in 2023 season. After removal of blockade by the
farmers on and from 7th March, 2023, the plaintiff could remove the
huge volume of contaminated stock of potato from chamber no.3 and
dispose of the same as and when the labour force was available. In the
said process of disposal of contaminated stock, the plaintiff has
incurred a total expense of Rs.38,72,721/- being the labour charges,
accessories, transportation and earth cutting equipment.
9. Mr. Jishnu Saha, Learned Senior Advocate representing the plaintiff
submits that General Exclusion No. 4 of the MBD policy gradually
developing flaws, defects, cracks or partial fractures and General
Exclusion No. 5 in sum and substance contemplates wear and tear. In
both cases burden of proving existence of circumstances triggering
exclusions in insurance policy is on the defendant. In support of his
case, he has relied upon the judgement in the case of National
Insurance Company Limited Vs. Ishar Das Madan Lal reported in
(2007) 4 SCC 105.
10. Mr. Saha submits that the plaintiff has suffered loss due to ammonia
contamination and quantum of the loss to the tune of Rs. 79,229,155/.
Value is not in dispute and the fact is admitted in the final survey
report under DOS policy. He submits that the DOS policy covers two
different spices of perils, namely, 'deterioration, putrefaction' and
'contamination' and while fluctuation of temperature i.e. rise of the
same beyond a specific time and level, as a triggering factor, has
bearing on causing the peril like 'DETERIORATION, PUTREFACTION'
due to inherent nature of vegetable and food items 'CONTAMINATION' is
altogether a different spices of peril, which cannot be caused due to
inherent nature of the item but necessarily requires "an external
contaminant agent" to be induced into the item, which is ammonia gas
in the instant case.
11. Mr. Saha submits that the repudiation of claim under DOS policy is a
product of wrongful and absurd construction of DOS policy and the
standard clauses of the said policy expressly covers "loss by
contamination" treating the same as an "accident". The operative clause
of DOS policy treats "contamination" as separate type of peril
independent of any rise in temperature, which is self-evident from the
operative clause read with definition of "accident" provided in the
policy.
12. Mr. Saha submits that each of the DOS policy Exclusion Nos. (ii), (iv)
and (vi) relates to loss due to rise of temperature resulting from the
circumstances stated in such clauses. In view of such, clear wordings
in the policy excluding "rise of temperature" from the chain of
causation in respect of "loss by contamination" following an "accident",
such Exclusion Clause Nos. (ii), (iv) and (vi) of the DOS policy are not
applicable in respect of loss by contamination. As such repudiation of
the insurance claim of the plaintiff on account of loss due to
contamination of stock of potatoes caused by escape of refrigerant is
contrary to and in violation of the DOS policy contract. He submits that
it is a settled position of law that "Exclusion Clauses" cannot be given
such wide meaning and effect that would defeat the main purpose of
the insurance contract and render such contract illusory, when such
insurance contract is a standard form contract where the insured does
not have any role to negotiate for or contribute to the framing of terms
and conditions thereof, and in such cases, the 'exclusion clause' has to
be read down to save the main purpose of the insurance contract. In
support of his submissions, he has relied upon the judgment in the
case of Texco Marketing (P) Ltd. Vs. Tata AIG General Insurance
Co. Ltd. reported in (2023) 1 SCC 428 and in the case of B.V.
Nagaraju Vs. Oriental Insurance Co. Ltd. reported in (1996) 4 SCC
647.
13. Mr. Saha submits that the DOS policy is a standard form of contract.
The said operative clause has to be read contra proferentum against the
defendant in favour of such construction of the said operative clause
which exclude rise in temperature not being a condition precedent for
covering loss by contamination, as rise in temperature does not have
any cause effect nexus with contamination and as such Exclusion
Clause Nos. (ii), (iv) and (vi) of the DOS policy has to be construed to be
limited only in cases of loss by 'deterioration, putrefaction'. In support
of his submissions, he has relied upon the judgment in the case of
Industrial Promotion and Investment Corporation of Orissa Ltd.
Vs. New India Assurance Co. Ltd. reported in (2016) 15 SCC 315
and in the case of Soham Shipping Pvt. Ltd. Vs. New India
Assurance Co. Ltd. reported in 2025 SCC OnLine SC 746.
14. Mr. Saha submits that the standard form of DOS policy provides for
standard deductibles @ 5% of the gross loss on account of "Rottage"
and @5% of the gross loss on account of "Shrinkage", totaling the
deductible of 10% of the loss irrespective of storage period. He submits
that such deductibles on account of "Rottage" and
"Shrinkage" is an unconscionable term of the insurance contract
unilaterally incorporated by the defendant which is unreasonable,
contrary to the statutory law which mandates cold storage operators to
obtain DOS policy and substantially defeats the main purpose of the
insurance contract i.e. indemnification of the cold storage operators
against liability towards potato cultivators in the event of loss of stock
at cold storage. He submits that the deduction made by the surveyor on
account of "Shrinkage" (5%) and "Rottage" (5%) and "Excess" (10%) is
liable to be struck down and the plaintiff is entitled to be indemnified
for the admitted gross loss quantifying to Rs. 7,92,29,155/- under the
subject DOS policy.
15. Mr. Saha submits that payment of compensation to the potatoes
cultivators, the plaintiff was entirely dependent on the insurance claim
under the DOS policy, since full compensation could not be paid, the
cultivators blocked the main gate of the cold storage and even
physically assaulted the P.W.2 and employees of the plaintiff. The
plaintiff had missed the opportunity to utilize their loading capacity and
could load only 60212 quintals compared to their loading capacity of
195500 quintals, though 2023 was a bumper crop season. He submits
that if the insurance claim had been repudiated and was timely paid,
there would not have been the dispute with the potatoes cultivators for
non-payment of compensation and the plaintiff could utilize its full
loading capacity and earn rent therefrom.
16. Mr. Abhimanyu Shandilya, Learned Advocate representing the
defendent submits that the suit filed by the plaintiff suffers from
misjoinder of party as the plaintiff has not made the surveyor as party
defendant. He submits that actual dispute is between the plaintiff and
the surveyor. He submits that the surveyor has recommended that the
plaintiff is not entitled to get any claim and as per the recommendation,
the defendant has repudiated the claim of the plaintiff.
17. Mr. Shandilya submits that the documents which the plaintiff has
exhibited cannot be taken into consideration and the said documents
are not proved by the plaintiff in accordance with law. He submits that
there are about 30 documents, which have been originated from
computer and are electronics documents but the plaintiff has not filed
affidavit to prove the said documents under Section 65(B) of the Indian
Evidence Act, 1972.
18. Mr. Shandilya submits that the claim made by the plaintiff is
premature. He submits that challenging the rate fixed by the Director of
Agricultural Marketing, Government of West Bengal, the plaintiff has
filed writ petition and the same is pending before the Hon'ble Court for
adjudication.
19. Mr. Shandilya submits that the suit filed by the plaintiff is speculative.
He submits that the plaintiff is not sure what claim the plaintiff is
entitled to. Time and again, the plaintiff changed its claim amount. The
amount claim by the plaintiff is not supporting with any documents. He
submits that in one hand the plaintiff prays for a decree for a sum of
Rs.12.00 Crores and on the other hand, the plaintiff prayed for
conducting enquiry to the loss and damage suffered by the plaintiff.
20. Mr. Shandilya submits that the plaintiff has admitted that the nut and
bolt of the flange was unthreaded. Unthreaded nut and bolt cannot
happen in an accident. Unthreading of a nut and bolt occurs due to
change in temperature and continuous vibrations over the period of
time. Unthreading of nut and bolt is a gradual process, therefore, it was
result of normal wear and tear and not a result of accident. He submits
that the surveyor being the expert has already given report that the
"incident" was not an "accident" but normal wear and tear for such
kind of incident causing damage to potatoes is not covered under the
risk coverage. He submits that the DOS policy covered contamination
only through rise in temperature and no other contamination.
Contamination by leakage of ammonia is out of purview of the DOS
policy.
21. Mr. Shandilya submits that the suit filed by the plaintiff is an
afterthought and pre-planned. He submits that the plaintiff is trying to
cover its operational expenses/ loan and debt payment through the
insurance claim. The plaintiff obtained loan from Punjab National Bank
for Rs. 7.28 Crores on 11th March, 2022 i.e. just before two months and
8 days prior to the alleged incident. The compensation claim in the suit
is very close to the loan amount. He submits that DOS policy is
effective from 17th May, 2022 and MBD policy, which covers the
accident is effective from midnight of 18th May, 2022 and the alleged
incident occurred on 19th May, 2022, evening i.e. within 24 hours.
22. Mr. Shandilya submits that the plaintiff had renewed both DOS and
MBD policies from time to time between 31st March, 2019 to 30th
March, 2022 without any gap except for 9 days in the year, 2020,
during Covid period. The plaintiff was without any insurance coverage
for 47 days for MBD and 46 days for DOS as both policies were expired
on 30th March, 2022. He submits that the loan was sanctioned on 11th
March, 2022, policies expired on 30th March, 2022, policy coverage
renewed on 18th May, 2022 after 47 days and the incident occurred on
19th May, 2022 within 24 hours of renewal of policy.
23. Mr. Shandilya submits that as per the case of the plaintiff, the average
expenses for the Financial Year 2019-2020, 2020-2021 and 2021-2022
was around 2.36 crores and as per the evidence of the plaintiff's
witness, the expenses for the Financial Year 2022-2023 ending in
March, 2024 was Rs. 2.5 crores, in these situations what was the need
for a new loan of Rs. 7.28 crores.
24. Mr. Shandilya submits that the DOS policy is operative when an
accident has to be followed by rise in temperature to cause damage to
the goods by deteriorations, putrefaction or contamination. In the
present case both the accident and rise in temperature are missing,
thus the coverage clause is inoperative.
25. The issues in the present suit are:
(a) whether the defendant has rightly repudiated
the claim of the plaintiff by invoking Exclusion
Clauses 4 and 5 of the Machinery Breakdown
Policy and Exclusion Nos. (ii), (iv) and (vi) of the
Deterioration of Stocks Policy.
(b) Whether the plaintiff is entitled to get the claim
under the Machinery Breakdown Policy and
Deterioration of Stocks Policy.
26. On 8th May, 2022, the Surveyor appointed by the defendant had
conducted pre-acceptance survey of each and every equipment of the
plant and machinery of the cold storage of the plaintiff and submitted
report certifying that "All the machineries of the above cold storage were
inspected by undersigned and found that all are in good/
working/sound/intact condition and running smoothly with full efficiency
output. Undersigned is of the opinion that the all plant and machineries
as per list enclosed may be covered by the Machinery Insurance Policy".
The list contains all together 64 items. This case is with regard to valve.
As per Serial No. 61, "All Valves, Pipe lines, Fittings etc.". The remark
portion of the said report, it is recorded that "All the above machineries
are found as sound and good running condition with full efficiency
output".
27. On being satisfied with the pre-acceptance survey report, the defendant
issued the following insurance policies in favour of the plaintiff:
"8. (a) Machinery Breakdown Policy No.
311400/44/2023/46 dated May 18, 2022
(hereinafter referred to as the said MBD
insurance policy) dated 18.05.2022
covering the entire Plant and Machinery of
the said cold storage for the period from
May 18, 2022 till May 17, 2023.
(b) Deterioration of Stock (Potatoes) at Cold
Storage Policy No. 311400/44/2023/45
(hereinafter referred to as the said DOS
insurance policy) dated 17.05.2022
covering the entire stock of potatoes loaded
from March 2022, for the period from May
17, 2022 till May 15, 2023."
The premium for the MBD insurance policy was Rs. 37,297/- and
for the DOS policy was Rs. 13,94,008/-.
28. A damage to the refrigeration plant and machinery of the cold storage
happened on 19th May, 2022, leading to escape of ammonia gas in the
Chamber no.3 due to which, the entire stock of potatoes in the
chamber no.3 suffered ammonia contamination.
29. After the incident, the plaintiff has obtained a report from Professor
N.C. Mandal, Retired Professor of Plant Pathology at the Visva Bharati
University regarding the suitability of the contaminated stock of
potatoes for consumption. In the said report, it was opined that
consumption of such ammonia contaminated potatoes should be
avoided. It was further observed that the incident can be treated as an
accident rather than fault of the technician. It was suggested that
stringent measures be taken up for training of every technician.
30. By a letter dated 7th July, 2022, the defendant has informed the
plaintiff that "the damage to stock is caused by ammonia leakage
duration of which was about 35 minutes and there was no rise of
temperature within the cold storage chamber. The stock damage was
found caused due to impact of ammonia due to leakage caused from
failure of nut bolt and gasket. We regret to mention that the reported loss
was not caused due to deterioration caused by rise in temperature and
hence falls outside the scope of the policy".
31. General Exceptions of the Machinery Breakdown Policy, reads as
follows:
"GENERAL EXCEPTIONS
THE COMPANY SHALL NOT BE LIABLE UNDER
THIS POLICY IN RESPECT OF -
1. Loss, damage and/or liability caused by or
arising from or in consequence, directly or indirectly
of fire including extinguishment of a fire or
clearance of debris and dismantling necessitated
thereby, smoke, soot, aggressive substance,
lightning, explosion of any kind (other than bursting
or disruption of turbines, compressors, cylinders of
steam engines, hydraulic cylinders or fly wheels or
other apparatus subject to centrifugal force,
internal pressure) theft, collapse of buildings,
subsidence, landslide, rockslide, water which
escapes from water containing apparatus, flood,
inundation, storm, tempest, earthquake, volcanic
eruption or other Acts of God, impact of land borne
or waterborne or airborne craft or other aerial
devices and/or articles dropped therefrom.
Any loss or damage by fire within the
electrical appliances and installation insured by
this Policy arising from or occasioned by over
running, excessive pressure, short circuiting arcing,
self heating or leakage of electricity, from whatever
cause (lightning included), is covered, provided that
this extension shall apply only to the particular
electrical machine, apparatus fixture fitting or
portions of the electrical installation so affected and
not to other machines, apparatus, fixtures fittings
or portions of the electrical installation which may
be destroyed or damaged by fire so set up.
2. Loss damage and/or liability caused by or
arising from or in consequence, directly of
a) War, invasion, Act of foreign Enemy,
Hostilities or war like operations (Whether war be
declared or not). Civil war, rebellion, revolution
Insurrection, Mutiny, Riot, Strike, Lockout and
Malicious Damage, Civil Commotion, Military or
Usurped Power, Martial Law, Conspiracy
Confiscation, Commandeering by a group of
malicious persons or persons acting on behalf of or
in connection with any political Organization,
Requisition or Destruction or damage by order of
any Government de-jure or de facto or by any
Public, Municipal or Local Authority.
b) Nuclear reaction, nuclear radiation or
radioactive contamination.
3. Accident, Loss, damage/and/or liability
resulting from over load experiments or tests
enquiring the imposition of abnormal conditions.
4. Gradually developing flaws, defects, cracks or
partial fractures in any part not necessitating
immediate stoppage, although at some future time
repair or renewal of the parts affected may be
necessary.
5. Deterioration of or wearing away or wearing
out any part of any machine caused by or naturally
resulting from normal use or exposure.
6. Loss, damage and/or liability caused by or
arising out of the willful act to willful neglect or
gross negligence of the insured or his responsible
representatives.
7. Liability assumed by the insured by
agreement unless such liability would have
attached to the Insured notwithstanding such
agreement.
8. Loss, damage and/or liability due to faults or
defects existing at the time of commencement of
this Insurance and known to the insured or his
responsible representative but not disclosed to the
Company.
9. Loss of use of the Insured's plant or property
of any other consequential loss incurred by the
insured.
10. Loss, damage/and/or liability due to
explosions in Chemical Recovery Boilers, other than
pressure explosions for e.g. smell, chemical,
ignition, Explosions etc.
SPECIAL EXCLUSIONS
The Company shall not be liable for
1. The Excess, as stated in the Schedule, to be first
borne by the insured out of each and every
claim; where more than one item is damaged in
one and same occurrence, the insured shall not,
however, be called upon to bear more than the
highest Excess applicable to any one such item;
2. Loss of or damage to belts, ropes, chains, rubber
tyres, dies, moulds, blades, cutters, knives or
exchangeable tools, engraved or impression
cylinders or rolls, objects made of glass,
porcelain, ceramics, all operating media (e.g.
lubricating oil, fuel, catalyst, refrigerant,
dowtherm) felts, endless conveyor belts or wires,
sieves, fabrics, heat resisting and anti-corrosive
lining and parts of similar nature, packing
material, parts not made of metal (except
insulating material) and non-metallic lining or
coating of metal parts, unless loss or damage to
the equipments/machinery is indemnifiable in
terms of the policy.
3. Loss or damage for which the manufacturer or
supplier or repairer of the property is responsible
either by law or contract.
In any action, suit or other proceeding where
the Company alleges that by reason of the
provisions of the exceptions or exclusions above,
any loss, destruction, damage or liability is not
covered by this insurance, the burden of proving
that such loss, destruction, damage or liability is
covered shall be upon the insured.
PROVISIONS
1. SUM INSURED
It is the requirement if this Insurance that the
Sum Insured shall be equal to the cost of
replacement if the insured property by new
property of the some kind and same capacity
which shall mean its replacement cost including
freight and customs duties, if any, and erection
costs."
32. General Exceptions of the Deterioration of Stock Policy reads as follows:
"NOW THIS POLICY OF INSURANCE
WITNESSETH that in consideration of the Insured
having paid to the Company, the premium
mentioned in the said Schedule. The Company
hereby agree with the Insured, subject always to
the teams, provisions, warranties and conditions
contained herein or endorsed hereon, that if at any
time during the period of insurance stated in the
Schedule, or during any subsequent period for
which the Insured pays and the Company may
accept the premium for the renewal of this policy,
there shall occur an ACCIDENT as hereinafter
defined, to the Refrigeration Machinery described
in the Schedule I resulting in a rise in temperature
in the Refrigeration chambers thereby directly
causing damage to the goods described in Schedule
II by deterioration, putrefaction or contamination
following such accident, then the Company will
subject to the terms, exceptions, warranties and
conditions contained herein or endorsed or
otherwise expressed hereon, indemnify the Insured
for such damage in the manner described hereafter
but not exceeding in all, the Sum Insured stated in
Schedule II. The total liability of the Company
under this policy shall be limited to the Sum
Insured specified in Schedule II.
DEFINITIONS:
1. The Term accident shall mean and be
limited to
(a) Any sudden or unforeseen loss of or
damage to the Refrigeration Machinery
described in Schedule I of this policy due to
any accidental cause covered by Machinery
Insurance Policy specified in Schedule I and
not hereinafter excluded.
EXCLUSIONS
(i) failure of any part or parts requiring
periodical renewal (such as failure of belts,
gaskets, packing material, joints of any kind
and insulation).
(ii) Operation of fuses and safety devices.
(b) Escape of Refrigerant in the refrigerated
chamber as a direct result of damage to
machinery and plant described in Schedule I
for which damage a claim is admissible
under the Machinery Insurance Policy
specified in the Schedule.
EXCEPTIONS:
The Company shall not be liable for:
i) Excess amount mentioned in Schedule II of
Policy.
ii) Any damage to the stocks due to rise or fall
in temperature caused by stoppage of any
section or sections of the Refrigeration Plant
for less than 24 hours following an accident to
the Refrigeration Plant & Machinery specified
in Schedule I and covered by concurrent
Machinery Insurance policy.
iii) Any damage to the stocks due to rise or
fall in temperature caused by failure of electric
supply for whatever reasons.
iv) Any damage to stocks caused by a rise or
fall in temperature due to stoppage of any
section or sections of the Refrigeration Plant
for repairs, maintenance, overhauling or for
replacement of parts due to wear and tear of
the plan and equipments or failure of any
part's requiring periodical renewal and
operation of fuses and safety devices.
However, this exception will not apply for
repairs es replacement necessitated by
operation of an Insured policy.
v) Any damage to the stocks arising out of
overloading of the Refrigeration Plant and
Equipments beyond its maximum rated
capacity.
vi) Any damage if the temperature in the
Refrigeration Chambers does not exceed 40°F
(4.4°C).
vii) Any loss or damage to the stocks as a
result of inherent defects or diseases, natural
deterioration or natural putrefaction even
though they may be contained in the Cold
Storage Chambers.
viii) Any loss arising from improper storage,
insufficient circulation of air/non-uniformity of
temperature for whatsoever reasons.
ix) Any loss of or damage to the packing
materials.
x) Any damage to the stocks caused by
collapse of rack structure/storage platforms
due to uneven loading or any other reasons.
However, this exception shall not apply for the
collapse of rack structure/storage platform
leading to Machinery Breakdown and
resulting in deterioration of stocks,
xi) Any damage directly or indirectly
occasioned by or happening through or in
consequence of or aggravated by
(a) War, invasion, act of foreign enemy,
hostilities or war like operations (whether war be
declared or not), Civil war, Rebellion,
Insurrection, Mutiny, Riot, Strike, Lockout and
Malicious Damage, Terrorism, Civil Commotion,
Military or usurped power, martial law,
conspiracy. confiscation, commandeering a group
of malicious person or persons acting on behalf
of or in connection with any political
organization, requisition or destruction or
damage by order of any government de jure or
de facto or by any public, Municipal or Local
Authority.
(b) Nuclear reaction, Nuclear radiation or
Radioactive contamination.
(c) The willful act of willful negligence of the
Insured or his representative.
(d) Fire, Lightning, Extinguishment of a fire or
subsequent demolition, collapse of building,
Flood, Inundation, Earthquake, Subsidence,
Landslide, Rockslide, Storm, Tempest,
Hurricane, Typhoon, Cyclone or other natural
catastrophe.
xii) Loss or reduction of the Insured's
Refrigeration capacity or other consequential
loss or damage or liability of any
nature whatsoever."
33. The defendant repudiated the claim of the plaintiff of both the policies
on the following reasons:
(a) Reasons for repudiation of Machinery Breakdown
Policy (MBD):
Exclusion No.4: "Gradually developing flows,
defects, cracks, or partial fractures in any part not
necessitating immediate stoppage, although at
some future time repair or renewal of the parts
affected may be necessary."
Exclusion No. 5: "Deterioration of or wearing
away or wearing out any part of any machine
cause by or naturally resulting from normal use or
exposure."
(b) Reasons for repudiation of DOS policy:
Exclusion No. (ii) : "Any damage to the stocks due
to rise or fall in temperature caused by stoppage of
any section or sections of the Refrigeration Plant for
less than 24 hours following an accident to the
Refrigeration Plant & Machinery specified in
Schedule and covered by concurrent Machinery
Insurance Policy."
Exclusion No. (iv): "Any damage to stocks caused
by a rise or fall in temperature due to stoppage of
any section or sections of the Refrigeration Plant for
repairs, maintenance, overhauling or for
replacement of parts due to wear and tear of the
plant and equipment or failure of any part/s
requiring periodical renewal and operation of fuses
and safety devices. However, this exception will
not apply for repairs or replacement."
Exclusion No. (vi): "Any damage if the
temperature in the Refrigeration Chambers does
not exceed 40 degree F (4.40C)."
34. After inspection of the cold storage of the plaintiff wherein the said
incident occurred and after perusing the testing report of Dr. N.C.
Mondal, the Surveyor come to the conclusion that "the damage to
potatoes is not due to rise in temperature. The damage to potatoes is due
to leakage of ammonia gas. The operative clause of the policy states that
accident must result in rise in temperature in the refrigeration chamber
thereby directly causing damages to goods. The direct cause of damage
to potatoes is not rise in temperature rather leakage of ammonia gas.
This fact is also confirmed by the testing report of Dr. N.C. Mandal which
is provided by insured to us. Hence, operative clause did not operate in
this incident".
35. In the survey report, it is also mentioned that "temperature did not
exceed 40 Degree Fahrenheit. As per log records provided by insured it
was within 38 Degree Fahrenheit. We have obtained the Machine Log
book record from 1st April, 2022 to 30th May, 2022. This Log Book records
temperature of each chambers (I, II & III) for every two hours. The
leakage of ammonia has took place on 19th May, 2022 at 7.45 PM in 5th
Floor in Chamber No. III. We received log book from insured and verified
temperature at 8PM and 10 PM of each floor on 19th May, 2022".
36. The cause of loss is due to leakage of ammonia gas and due to the
failure of the gasket holding bolt of the expansion valve caused by gas
vapour pressure on the 5th floor in the 3rd chamber of the cold storage
of the plaintiff.
37. As per DOS policy the definition of the term "accident" reads as follows:
"DEFINITIONS:
1. The Term accident shall mean and be
limited to
(a) Any sudden or unforeseen loss of or
damage to the Refrigeration Machinery
described in Schedule I of this policy due to
any accidental cause covered by Machinery
Insurance Policy specified in Schedule I and
not hereinafter excluded.
EXCLUSIONS
(i) failure of any part or parts requiring
periodical renewal (such as failure of belts,
gaskets, packing material, joints of any kind
and insulation).
(ii) Operation of fuses and safety devices.
(b) Escape of Refrigerant in the refrigerated
chamber as a direct result of damage to
machinery and plant described in Schedule I for
which damage a claim is admissible under the
Machinery Insurance Policy specified
in the Schedule."
38. There is no dispute that the incident occurred due to the failure of
gasket holding bolt of the expansion valve caused by the gas vapour
pressure for which ammonia gas was leaked. In the report, the surveyor
has come to conclusion the temperature did not exceed 40 Degree
Fahrenheit, thus the claim of the plaintiff falls outside the scope of the
policy and the exclusion clause.
39. The surveyor has relied upon the testing report of Dr. N.C. Mandal. In
the testing report, under the general observation and conclusion, it is
stated that "this can be treated as an accident rather than the fault of
technician". As per the definition of the accident in the DOS Policy, it is
mentioned that "any sudden or unforeseen loss of or damage to the
refrigeration machinery described in the Schedule-I of this policy due to
any accidental cause covered by machinery insurance policy specified in
Schedule 1 and not hereinafter excluded".
40. Exclusion 4 of the MBD Policy provides that gradually developing flaws,
defects, cracks or partial fractures in any part not necessitating
immediate stoppage, although at some future time repair or renewal of
the parts affected may be necessary and Exclusion 5 provides that
Deterioration of or wearing away or wearing out any part of any
machine caused by or naturally resulting from normal use or exposure.
41. The surveyor has not denied that unthreaded nuts and bolts of the
flange is not an accident. The surveyor is only taking into consideration
that the temperature has not exceeded 40 degree Fahrenheit. In the
case of Vikram Greentech India Ltd. and Anr. vs. New India
Assurance Company Limited reported in (2009) 5 SCC 599, the
Hon'ble Supreme Court held that :
"16. An insurance contract, is a species of
commercial transactions and must be construed
like any other contract to its own terms and by
itself. In a contract of insurance, there is
requirement of uberrima fides i.e. good faith on the
part of the insured. Except that, in other respects,
there is no difference between a contract of
insurance and any other contract.
17. The four essentials of a contract of
insurance are: (i) the definition of the risk, (ii) the
duration of the risk, (iii) the premium, and (iv) the
amount of insurance. Since upon issuance of the
insurance policy, the insurer undertakes to
indemnify the loss suffered by the insured on
account of the risks covered by the insurance
policy, its terms have to be strictly construed to
determine the extent of liability of the insurer."
42. On 8th May, 2022 i.e. prior to issuance of Machinery Background Policy
dated 18th May, 2022 and Deterioration of Stock (Potatoes) at Cold
Storage Policy dated 17th May, 2022, the Surveyor of the defendant had
conducted a pre-acceptance survey of each and every equipments and
facilities of the plant and machineries of the cold storage of the plaintiff
and certified that the plant and machineries in the cold storage of the
plaintiff is in good, working and sound condition. The pre-acceptance
report was accepted by the defendant and the defendant issued the two
policies. The pre-acceptance survey was conducted on 8th May, 2022,
Machinery Background Policy was issued on 18th May, 2022 and
deterioration of Stock was issued on 17th May, 2022. The incident
occurred on 19th May, 2022 i.e. just after 2 days from the issuance of
the DOS Policy and within 24 hours after the renewal of MBD Policy. In
the pre acceptance survey report, at serial no. 61, it is also mentioned
that "all valves, pipes lines, fittings etc. are found as in sound and in
good condition with full efficiency output".
43. The language used in the operative clause of DOS Policy, it appears
that "contamination" as a peril has been separated from the perils of
"deterioration, putrefaction" by placing the disjunctive word "or" before
the word "contamination". In the operative clause, with respect to loss
by deterioration, putrefaction in the chain of causation, in between
accident and deterioration, putrefaction, rise in temperature has been
placed as a condition precedent but with respect to loss by
"contamination", "rise in temperature" has not been placed as a
condition precedent between accident and contamination. Thus,
distinction makes the requisite ingredients for coverage of loss by
"contamination" independent of a "rising in temperature".
44. Exclusion Nos. (ii), (iv) and (vi) relates to loss due to rise in temperature
resulting from the circumstances as mentioned in the said clause. The
clear wording in the policy excluding "rise of temperature" from the
chain of causation in respect of loss by "contamination" following an
accident, such Exclusion Nos. (ii), (iv) and (vi) of the DOS Policy are not
connected with loss by "contamination". In general the word
"contamination" having no necessary nexus with rise in temperature.
The operative clause the of DOS Policy which is the standard form of
contract and as well as the Exclusion nos. (ii), (iv) and (vi) of DOS Policy
cannot be stretched to exclude loss by contamination due to "escape of
refrigerant in the refrigerated chamber as a direct result of damage to
machinery" as the same will defeat one of the main purpose of DOS
Policy contract i.e. indemnification against loss due to contamination
by escape refrigerant. In the case of Texco Marketing (P) Ltd. vs. Tata
AIG General Insurance Company Ltd. reported in (2023) 1 SCC 428,
the Hon'ble Supreme Court held that :
"12. An exclusion clause in a contract of
insurance has to be interpreted differently. Not only
the onus but also the burden lies with the insurer
when reliance is made on such a clause. This is for
the reason that insurance contracts are special
contracts premised on the notion of good faith. It is
not a leverage or a safeguard for the insurer, but is
meant to be pressed into service on a contingency,
being a contract of speculation. An insurance
contract by its very nature mandates disclosure of
all material facts by both the parties.
13. An exclusion clause has to be understood
on the touchstone of the doctrine of reading down
in the light of the underlining object and intendment
of the contract. It can never be understood to mean
to be in conflict with the main purpose for which the
contract is entered. A party, who relies upon it,
shall not be the one who committed an act of fraud,
coercion or misrepresentation, particularly when
the contract along with the exclusion clause is
introduced by it. Such a clause has to be
understood on the prism of the main contract. The
main contract once signed would eclipse the
offending exclusion clause when it would otherwise
be impossible to execute it. A clause or a term is a
limb, which has got no existence outside, as such,
it exists and vanishes along with the contract,
having no independent life of its own. It has got no
ability to destroy its own creator i.e. the main
contract. When it is destructive to the main
contract, right at its inception, it has to be severed,
being a conscious exclusion, though brought either
inadvertently or consciously by the party who
introduced it. The doctrine of waiver, acquiescence,
approbate and reprobate, and estoppel would
certainly come into operation as considered by this
Court in Union of India v. N. Murugesan.
14. On the aforesaid principle of law,
particularly with respect to the issues qua onus,
burden and reading down, this Court in Shivram
Chandra Jagarnath Cold Storage v. New India
Assurance Co. Ltd., has held as follows :
"19. Another instance where exception
clauses may be interpreted to the benefit of
the insured is when the exception clauses are
too wide and not consistent with the main
purpose or object of the insurance policy.
In B.V. Nagaraju v. Oriental Insurance Co.
Ltd., a two-Judge Bench of this Court read
down an exception clause to serve the main
purpose of the policy. However, this Court
clarified that the breach of the exception
clause was not so fundamental in nature that
would have led to the repudiation of the
insurance policy. In that case, the terms of the
insurance policy allowed an insured vehicle to
carry six workmen, excluding the driver. When
the vehicle met with an accident, it was
carrying nine persons apart from the driver.
The insured had moved a claim for repair of
the vehicle, which was rejected by the insurer.
20. Allowing the claim, this Court held
thus : (B.V. Nagaraju case, SCC pp. 650-51,
para &)
'7. It is plain from the terms of the
Insurance Policy that the insured vehicle was
entitled to carry 6 workmen, excluding the
driver. If those 6 workmen when travelling in
the vehicle, are assumed not to have
increased any risk from the point of view of
the Insurance Company on occurring of an
accident, how could those added persons be
said to have contributed to the causing of it is
the poser, keeping apart the load it was
carrying. Here, it is nobody's case that the
driver of the insured vehicle was responsible
for the accident. In fact, it was not disputed
that the oncoming vehicle had collided head-
on against the insured vehicle, which resulted
in the damage. Merely by lifting a person or
two, or even three, by the driver or the cleaner
of the vehicle, without the knowledge of the
owner, cannot be said to be such a
fundamental breach that the owner should, in
all events, be denied indemnification. The
misuse of the vehicle was somewhat irregular
though, but not so fundamental in nature so
as to put an end to the contract, unless some
factors existed which, by themselves, had
gone to contribute to the causing of the
accident. In the instant case, however, we find
no such contributory factor. In Skandia case,
this Court paved the way towards reading
down the contractual clause by observing as
follows :
"14. ... When the option is between opting
for a view which will relieve the distress and
misery of the victims of accidents or their
dependants on the one hand and the equally
plausible view which will reduce the
profitability of the insurer in regard to the
occupational hazard undertaken by him by
way of business activity, there is hardly any
choice. The Court cannot but opt for the former
view. Even if one were to make a strictly
doctrinaire approach, the very same
conclusion would emerge in obeisance to the
doctrine of "reading down" the exclusion
clause in the light of the "main purpose" of the
provision so that the "exclusion clause" does
not cross swords with the "main purpose"
highlighted earlier. The effort must be to
harmonise the two instead of allowing the
exclusion clause to snipe successfully at the
main purpose. This theory which needs no
support is supported by Carter's "Breach of
Contract" vide para 251. To quote:
'Notwithstanding the general ability of
contracting parties to agree to exclusion
clauses which operate to define obligations
there exists a rule, usually referred to as the
"main purpose rule", which may limit the
application of wide exclusion clauses defining
a promisor's contractual obligations. For
example, in Glynn v. Margetson & Co., AC at
p. 357, Lord Halsbury, L.C. stated :
"... It seems to me that in construing this
document, which is a contract of carriage
between the parties, one must in the first
instance look at the whole instrument and not
at one part of it only. Looking at the whole
instrument, and seeing what one must regard,
... as its main purpose, one must reject words,
indeed whole provisions, if they are
inconsistent with what one assumes to be the
main purpose of the contract."
Although this rule played a role in the
development of the doctrine of fundamental
breach, the continued validity of the rule was
acknowledged when the doctrine was rejected
by the House of Lords in Suisse Atlantique
Societe d' Armement Maritime S.A. v. N.V.
Rotterdamsche Kolen Centrale. Accordingly,
wide exclusion clauses will be read down to
the extent to which they are inconsistent with
the main purpose, or object of the contract.'"'"
23. In such a situation, the doctrine of "blue
pencil" which strikes off the offending clause being
void ab initio, has to be pressed into service. The
said clause being repugnant to the main contract,
and thus destroying it without even a need for
adjudication, certainly has to be eschewed by the
court. The very existence of such a clause having
found to be totally illegal and detrimental to the
execution of the main contract along with its
objective, requires an effacement in the form of
declaration of its non-existence, warranting a
decision by the court accordingly.
24. The aforesaid principle evolved by the
English and American courts has been duly taken
note of by this Court in Beed District Central Coop.
Bank Ltd. v. State of Maharashtra:
"10. The "doctrine of blue pencil" was
evolved by the English and American courts.
In Halsbury's Laws of England, (4th Edn., Vol.
9), p. 297, para 430, it is stated:
'430. Severance of illegal and void
provisions.--A contract will rarely be totally
illegal or void and certain parts of it may be
entirely lawful in themselves. The question
therefore arises whether the illegal or void
parts may be separated or "severed" from the
contract and the rest of the contract enforced
without them. Nearly all the cases arise in the
context of restraint of trade, but the following
principles are applicable to contracts in
general.'
11. In P. Ramanatha Aiyar's Advanced
Law Lexicon, 3rd Edn. 2005, Vol. 1, pp. 553-
54, it is stated:
'Blue pencil doctrine (test).--A judicial
standard for deciding whether to invalidate
the whole contract or only the offending
words. Under this standard, only the
offending words are invalidated if it would be
possible to delete them simply by running a
blue pencil through them, as opposed to
changing, adding, or rearranging words.
(Black, 7th Edn., 1999)
This doctrine holds that if courts can
render an unreasonable restraint reasonable
by scratching out the offensive portions of the
covenant, they should do so and then enforce
the remainder. Traditionally, the doctrine is
applicable only if the covenant in question is
applicable, so that the unreasonable portions
may be separated. E.P.I. of Cleveland
Inc. v. Basler, NE 2d at p. 556.
Blue pencil rule/test.--Legal theory that
permits a Judge to limit unreasonable aspects
of a covenant not to compete.
Severance of contract; "severance can be
effected when the part severed can be
removed by running a blue pencil through it
without affording the remaining
part". Attwood v. Lamont . (Banking)
A rule in contracts a court may strike
parts of a covenant not to compete in order to
make the covenant reasonable. (Merriam
Webster)
Phrase referring to severance (q.v.) of
contract. "Severance can be effected when the
part severed can be removed by running a
blue pencil through it" without affording the
remaining part. Attwood v. Lamont [ (Banking)'
12. The matter has recently been
considered by a learned Judge of this Court
while exercising his jurisdiction under sub-
section (6) of Section 11 of the Arbitration and
Conciliation Act, 1996 in Shin Satellite Public
Co. Ltd. v. Jain Studios Ltd."
It is settled position of law that the Exclusion Clauses cannot be
given such wide meaning and effect that would defeat the main purpose
of the insurance contract and render such contract illusory, when such
insurance contract is a standard form of contract where the insured
does not have any role to negotiate for or contribute to the framing of
terms and conditions thereof. In such cases, the "Exclusion Clause"
has to be read down to save the main purpose of the insurance
contract.
45. In the case of General Assurance Society Limited vs. Chandmull
Jain & Anr. reported in 1966 SCC OnLine SC 208, the Hon'ble
Supreme Court held that there is no difference between a contract and
insurance and any other except that in a contract of insurance there is
a requirement of good faith on the part of the assured and the contract
is likely to be construed against the company in case of any ambiguity
or doubt. It was further held by the Hon'ble Supreme Court that the
duty of the court is to interpret the words in which the contract is
expressed by the parties and it is not for the court to make a new
contract, however, reasonable.
46. Section 24 of the West Bengal Cold Storage (Licensing and Regulation)
Act, 1966 reads as follows:
"24. Compensation payable for loss or
deterioration of agricultural produce stored
in a cold storage. -
(1) In the event of any loss of or deterioration in
any agricultural produce stored in a cold
storage caused on account of any negligence
of the licensee or any defect in the
refrigeration machinery, the hirer may, within
thirty days from the date of detection of such
loss or deterioration by him, apply in writing to
the Licensing Officcer for assessing the
compensation payable by the licensee on
account of such loss or deterioration
Explanation. - In this sub-section burden
of proof that the loss or deteriaration was
cause beyond the control of the licensee shall
lie on the licensee
(2)The Licensing Officer on receipt of an
application under sub-section (1) shall cause
en enquiry to be made in accordance with
such procedure as may be prescribed and
shall also assess the amount of compensation
payable by the licensee to the hirer.
(3)The Licensing Officer may also on his own
motion cause the enquiry to be made in the
matter of any loss or deterioration in any
agricultural produce stored in a cold storage
and pass such orders as to the amount of
compensation payable by the licensee to the
hirer as he thinks proper and just.
(4)In case of any dispute between the licensee
and the hirer as to the amount of
compensation to be paid, the Licensing Officer
shall settle the dispute as expeditiously as
possible and shall also make an order
determining the amount of compensation
payable by the licensee who shall make
payment of the compensation to the hirer
within two months from the date of the order,
whether any claim against insurance, if any,
is settled or not.
(5) In determining the amount of compensation
payable by the licensee, the Licensing Officer
shall take into account the market price of the
agricultural produce at the time of detection of
loss or deterioration:
Provided that in case of agricultural produce
stored for seed purposes, such amount of
compensation shall be twenty per cent, higher
than that of other agricultural purposes.
(6) If the compensation or any portion of it
remains upaid after the date specified in the
order passed under sub-section (4), the same
shall be recoverable as an arrear of land
revenue.
(7) The licensee shall also be required to furnish
fortnightly reports regarding settlement of
compensation cases."
47. Rule 4(q) of the West Bengal Cold Storage (Licensing and Regulation)
Rules, 1967 reads as follows:
"4. Terms and conditions of the licence. -
(q) The licensee shall faithfully abide by the
provisions of the Act and the Rules and shall also
comply with such directions or orders as may be
issued to him for the purposes of the Act by the
Licensing Officer from time to time."
48. Fixation of rent for potato storage, fixation of insured value of potato
stored at cold storage, fixation of insurance premium and choice of
insurance companies are regulated and determined by the State
Government under the West Bengal Cold Storage (Licensing and
Regulation) Act 1966 and the Rules framed thereunder. In the present
case the Government of West Bengal has taken the following decision:
"In exercise of the power conferred upon the
Licensing Officer under section 19 of the West
Bengal Cold Storage (Licensing & Regulation) Act,
1966 and Rule 4q of the West Bengal Cold Storage
(Licensing & Regulation) Rules, 1967 and
consequence upon the decision taken in the
meeting held on 23.03.2022 and 29.03.2022
regarding fixation of price of potato for insurance
coverage, all the licensees of the potato cold storage
of West Bengal are hereby instructed to cover
D.O.S. and F.O.S. policies at the price of
Rs.1370/qtl of potato during the year 2022. In this
respect rate of calculation of premium on D.O.S and
F.O.S policy would be @Rs.0.708 and Rs.0.2065
per Rs.100 (including GST) respectively. Maximum
Pro-rata charge allowable for realization from the
hirers would be Rs.12.50/per quintal of potato.
Sd/- A. Bharati
Director of Agricultural Marketing
West Bengal"
49. The DOS policy is required to be obtained by the cold storage operators
in West Bengal in terms of directions issued by the Government under
Section 19 of the West Bengal Cold Storage (Licensing and Regulation)
Act, 1966 under which, the insured value as well as the rate of
insurance premium and rate of cold storage rent are determined by the
Government but the terms and conditions of the DOS policy are
standard terms determined by the insurance company. The main
purpose of the DOS policy is to indemnify the cold storage operators
against the liability to compensate the potato cultivators in the event of
losses at the cold storages.
50. Rule 13 and Schedule II of the West Bengal Cold Storage (Licensing and
Regulation) Rules, 1967 reads as follows:
"13. Liability of licensee for shortage or
excess in agricultural produce stored. --- For
the purpose of sub-section (1) of section 13
allowable limits of loss of weight or bulk due to
dryage or shrinkage shall be such as specified in
Schedule II and in case of gain in weight, if any, it
will go to the hirer in entirety under sub-section (2)
of section 13."
SCHEDULE II
[Vide rule 13]
Maximum loss allowable in weight or bulk
due to dryage or shrinkage
No. Name of the Maximum Period of
commodity loss in storage
percentage
1. Potato .. .. 3 5 months
(a) 4 6 months
4-5 7 months
5 8 or 9
months
51. The extent of liability of cold storage operators are provided in Rule 13
and Schedule II of the West Bengal Cold Storage (Licensing and
Regulation) Rules, 1967. Schedule II provides deductibility on account
of shrinkage to the extent of only 3% maximum upon storage period of
five (5) months and does not provide any deductible on account of
rottage. The standard and blanket deductible of 5% in the DOS policy
on account of each shrinkage and rottage defeat the main purpose of
the DOS policy. The surveyor has also deducted 10% of the gross loss
on account of excess deductible. The excess deductible shall be as
provided in the policy Schedule. The policy Schedule to the DOS policy
does not provide for any deductible on account of excess.
52. As the respondent repudiated the claim of the plaintiff and thus the
plaintiff could not make payment of compensation to the potato
cultivators. The Director of Agricultural Marketing, Government of West
Bengal determined the rate of compensation payable by the plaintiff to
the cultivators/ hirers on account of damaged stock of potatoes at the
cold storage of the plaintiff. The plaintiff has challenged the order of
determination before this Court by filing Writ Application and in the
said proceeding, the Court has directed the plaintiff to pay adhoc
payment of Rs. 3 Crores to the potato cultivators through the Director
of Agricultural Marketing, Government of West Bengal and in
compliance of the order, the plaintiff has paid the said amount. The
writ application is still pending for adjudication. The plaintiff has paid
part payment of the amount as directed by the Court in a writ
proceeding by utilizing the entire credit limit from its business loan
account maintained with the Punjab National Bank and the bank has
charged interest at the rate of 9% per annum. The plaintiff has further
borrowed an amount of Rs. 1,50,00,000/- from a non-banking financial
institution, namely, M/s. Innocent Merchandise Private Limited against
interest at the rate of 12% per annum to pay the amount as directed by
the Court.
53. The insurance claim of the plaintiff was not settled for a long time due
to which the plaintiff could not dispose of the contaminated stock of
57,831.50 quintals of potatoes i.e. 1,15,663 bags each contains 50 kgs
of potato from chamber no.3 of the cold storage due to paucity of fund.
As the plaintiff could not able to pay compensation, the cultivators
whose stocks were damaged, resisted the plaintiff from removing the
contaminated stock for which the plaintiff had to keep the
contaminated potatoes in chamber no.3. Only after removal of blockade
by the potato cultivators on and from 7th March, 2023, the plaintiff
could remove the contaminated stock of potatoes from chamber no.3
and dispose of the same. The plaintiff has incurred total expense of Rs.
38,72,721 on account of labour, accessories, transportation and earth
cutting equipment. The loading season of 2023 commenced from 1st
March, 2023 but the blockade was removed by the cultivators on 7th
March, 2023, the plaintiff lost opportunity to load potatoes in the cold
storage due to which the plaintiff suffered severe financial losses. The
plaintiff could load only 60212 quintals in the year 2023 season.
54. Inspite of receipt of writ of summons, the defendant has not appeared
in the suit nor has filed any written statement. Initially the defendant
has not come forward to cross-examine the plaintiff's witnesses,
subsequently, as per leave granted by this Court cross-examined the
plaintiff's witnesses on commission. In the case of National Insurance
Co. Ltd. Vs. Ishar Das Madan Lal reported in (2007) 4 SCC 105, the
Hon'ble Supreme Court held that wherever such exclusionary clause is
contained in a policy, it would be for the insurer to show that the case
falls within the purview thereof. In a case of ambiguity, it is trite, the
contract of insurance shall be construed in favour of the insured. For
defeating the claim of the plaintiff, it was, thus, obligatory on the part
of the defendant to establish that the conditions prescribed therein
were satisfied. In the case of National Insurance Company Limited
Vs. Vedic Resorts and Hotels Private Limited reported in (2023) 12
SCC 823, the Hon'ble Supreme Court held that it is trite to say that
wherever such an exclusionary clause is contained in a policy, it would
be for the insurer to show that the case falls within the purview of such
clause. In case of ambiguity, the contract of insurance has to be
construed in favour of the insured.
55. The defendant has not filed written statement by disclosing any
defence. During argument, the defendant has submitted that the suit
filed by the plaintiff is an afterthought and a pre-planned. On 8th May,
2022, the defendant appointed a surveyor to conduct pre-acceptance
survey of the equipment and machinery. On receipt of report of the
surveyor, insurance policies were issued in favour of the plaintiff on
18th May, 2022 and 17th May, 2022. On 22nd May, 2022, the surveyor
appointed by the defendant has not find any foul play on the part of the
plaintiff or any case is initiated against the plaintiff. The defendant has
also argued that the plaintiff trying to cover its operational
expenses/loan/debt payment through the insurance claim. The
plaintiff has made the claim as per the loss occurred in the said
incident. The surveyor of the defendant has also confirmed that 115663
bags of potatoes were damaged due to leakage of ammonia out of which
the plaintiff was able to dispose of only 2162 bag and other bags were
kept in the cold storage and not yet disposed of. The surveyor of the
defendant has also not denied that the incident is an accident.
56. The plaintiff during argument has not pressed the claim of Rs.
98,05,400/- being the expenses incurred in repairing chamber no.3 of
the cold storage and Rs. 39,53,096/- being the cost of additional
interest.
57. Considering the above, this Court finds that the defendant has wrongly
repudiated the claim of the plaintiff and thus the plaintiff is entitled to
get the claim under both policies. Issues are decided in favour of the
plaintiff and against the defendant.
58. As per enquiries made by the surveyor regarding nature of damage to
the plant and machineries and issued final surveyor report under the
MBD Policy dated 22nd August, 2022, confirming accidental damage to
the main valve of the refrigeration system due to sudden rise in
ammonia vapour pressure and assessed net indemnifiable loss of
Rs.6,103/- as replacement cost of damage value. On 30th September,
2022, the defendant sent discharge voucher of Rs.6,044/- under the
MBD policy for execution and return to the defendant. The plaintiff has
executed and returned to the defendant but subsequently the
defendant repudiated the total claim of the plaintiff including MBD
Policy, thus the defendant is liable to pay Rs. 6,044/- to the plaintiff
under MBD Policy being the damage of machinery of the plant.
59. As regard to the insurance claim under Deterioration of Stock
(Potatoes) at Cold Storage, compensation due to loss of business
opportunity, expenses incurred for disposal of contaminated potatoes
and interest. This Court appointed Mr. Debnath Ghosh, Senior
Advocate as Special Referee to ascertain the above claim of the plaintiff
by conducting enquiry after giving an opportunity of hearing to both the
parties and to submit report within three (3) months from the date of
receipt of this Judgment.
60. The remuneration of the Special Referee is fixed at Rs.3,00,000/-
(Rupees Three Lacks Only). Initially, the plaintiff shall pay the
remuneration to the Special Referee and the plaintiff is entitled to
recover the same from the defendant.
61. List the matter on 26th February, 2026 for filling report by the Special
Referee.
62. G.A. (Com) No. 8 of 2024 is accordingly disposed of.
(Krishna Rao, J.)
