Telangana High Court

Deccan Enterprises Pvt. Ltd., vs The Divisional Manager on 13 March, 2025

Author: Abhinand Kumar Shavili

Bench: Abhinand Kumar Shavili

       HON'BLE SRI JUSTICE ABHINAND KUMAR SHAVILI
                           AND
        HON'BLE SMT. JUSTICE TIRUMALA DEVI EADA

      CITY CIVIL COURT APPEAL NOs.154 AND 234 OF 2007

COMMON JUDGMENT:

(per Hon'ble Smt. Justice Tirumala Devi Eada)

These two appeals are filed by the appellants aggrieved by the

judgment and decree dated 26.12.2006 passed in O.S.No.334 of

2002 by the learned XIV Additional Chief Judge, City Civil Court,

Fast Track Court at Hyderabad (hereinafter referred to as 'the trial

Court').

2. For convenience and clarity, the parties herein are referred to

as they were arrayed before the trial Court.

3. The case of the plaintiff before the trial Court is that the

Deccan Enterprises Private Limited is a company carrying business

in manufacturing of rubber products, located at Balanagar. It is

their case that it has taken two insurance policies of "Standard Fire

and Special Perils" with the defendant vide policy

Nos.550100/11/2000/34/00080 and 550100/11/2000/13/2000.

Item No.6 of the policy covers loss due to "storm, Cyclone, Typhon,

Hurricane, Tornado, Flood and inundation". While so on

23.08.2000 due to sudden and unforeseen downpour of rain, the

storm water drains overflowed, as a result of which, the entire area

of Balanagar and other areas of twin cities were inundated with AKS,J & ETD,J

water. The plaintiff factory which is located at Balanagar also got

inundated to a height of about 5 to 6 feet causing extensive damage

to building, plant and machinery, lab equipment, raw materials and

that the said loss was covered under the insurance policies. That

the plaintiff has immediately informed the insurance company and

the insurance company has also sent surveyor by name

N.V.P.Sharma Associates Pvt.Ltd., and that the said surveyor has

inspected the factory and submitted his report. Initially, they raised

a claim amounting to Rs.102.50 Lakhs and thereafter, after detailed

examination of the damages with the contractors, the total

estimation of loss was reduced by the plaintiff to Rs.85,85,000/-.

After submitting the claim, the plaintiff has time and again

requested the defendant company to settle their claim but in vain,

getting vexed with the attitude of the defendant, the present suit is

filed.

4. Defendant has filed its written statement. The defendant

company has admitted that the plaintiff is insured with it under two

policies, but has denied the other averments in the plaint stating

that their policy is restricted subject to the terms and conditions

laid down under it and that the plaintiff has played fraud in arriving

at the claim and that he tried to claim exorbitant amounts and

initially he submitted his claim to Rs.25,00,000/- for repairs to AKS,J & ETD,J

plant and machinery and when a letter was addressed to them, in

reply, he has again reduced the claim to Rs.21,26,882/- and that

the surveyor, while submitting his report has mentioned that the

plaintiff tried to claim exorbitant amounts. His total claim was

Rs.102.50 lakhs initially which was later on reduced to

Rs.85,85,000/-. Therefore, all these discrepancies prove the

fraudulent attitude of the plaintiff and thus, as per the condition

No.8 of the policy, their company is not liable to pay any claim of

the plaintiff and that the alleged claim is not tenable under the

policy. That the purchases alleged to have been made by the

plaintiff company from M/s.Deccan Industrial Products Private

Limited (DIPPL) during the month of August, 2000 are without sales

tax and excise duty and that the Deputy Managing Director of

DIPPL i.e. Vikas Jalan and his wife Richa Jalan are the son and

daughter-in-law of the director of the plaintiff company, O.P.Jalan,

it is nothing but a sister concern of the plaintiff company and thus,

those invoices are raised fraudulently to make a false claim with the

insurance company. Another strong contention made by the

defendant in his written statement is that machinery repair bills

submitted by the M/s.Makvy Engineering Services are fraudulent

and that the proprietor of the company SriY.V.M.M.K.Murthy @

Murali is employed by the plaintiff company as Works Manager, and

by DIPPL as plant manager and that just because he is a known AKS,J & ETD,J

person they have raised false invoices for repairs and cooked up the

claim, therefore, the defendants prayed to dismiss the suit filed by

the plaintiff.

5. Based on the above pleadings, the trial Court has framed the

following issues:

"1. Whether the plaintiff is entitled for various claims made by him in the plaint?

2. Whether the plaintiff is entitled for interest as well as loss of profits due to non-settlement of claims?

3. Whether the plaintiff is entitled for future profits?

4. To what relief?"

6. At the time of trial, the plaintiff got examined PWs 1 to 3 and

got marked Exs.A1 to A92. On behalf of the defendants, DWs1 to 3

were examined and Exs.B1 to B8 were marked.

7. Based on the evidence on record, the trial Court has decreed

the suit for Rs.21,81,736/- and also for the amount of labour

charges deducted by the surveyor towards depreciation with interest

@ 12% per annum on the said amounts from 25.08.2000 till the

date of payment and with proportionate costs.

8. Aggrieved by the said judgment and decree, both the parties

i.e. the plaintiff company has preferred CCCA No.234 of 2007 AKS,J & ETD,J

seeking enhancement while the defendant company has filed CCCA

No.154 of 2007, seeking total exoneration.

9. Heard the submissions of learned counsel for the appellant

and learned counsel for the respondent.

10. Learned counsel for the Deccan Enterprises Private

Limited/plaintiff has submitted that their policies were subsisting

as on the date of the calamity and that the entire loss suffered by

them is covered under the policy and that the defendant is liable to

pay the entire suit claim while the trial Court has erred in assessing

the suit claim. He further submitted that the trial Court ought to

have granted them the entire suit claim of Rs.1,85,98,261/- and

that the surveyor himself has wrongly assessed the damage by not

including the entire loss suffered by them and that he deducted

huge amounts towards depreciation on all items and has arrived at

a very meager amount of loss that occurred due to the damage

caused by the floods and inundation. Further, the trial Court has

not looked into all the evidence that is adduced by the plaintiff and

the cross examination of surveyor is also not taken into

consideration and therefore, the counsel has prayed to allow their

appeal i.e. CCCA No.234 of 2007 by setting aside the judgment and

decree passed by the trial Court.

AKS,J & ETD,J

11. On the other hand, the counsel for the Insurance

Company/Defendant has submitted that their company is not at all

liable to pay the suit claim and that though their company has

issued policies to the plaintiff, the condition No.8 stipulated in the

policy says that any claim raised fraudulently need not be honoured

and that the plaintiff company has fraudulently raised the present

claim based on false invoices alleging that they had purchased the

raw material from DIPPL which is its sister concern and also that

the plaintiff company has raised false repair bills through a known

source i.e M/s.Makvy Engineering Services and has arrived at

exorbitant amount. When the intention of the plaintiff itself is

fraudulent in raising the claim, their company need not honour the

same in view of the said condition, hence, he prayed to dismiss the

claim against them by allowing their appeal i.e. CCCA No.154 of

2007.

12. Based on the above rival submissions, the following points

arise for determination:

1. Whether the plaintiff is entitled to recover the amount claimed in the suit from the defendant?

2. Whether the judgment and decree passed by the trial Court is sustainable under law and in facts?

3. To what relief?

AKS,J & ETD,J

13. POINT NOS.1 AND 2:

a) The admitted facts in this case are that the plaintiff is a

registered company which is into manufacturing rubber products

and that it has obtained two insurance policies from the defendant

company i.e. "Standard Fire and Special Perils" in the year 2000

vide policy Nos.550100/11/2000/34/00080 and

550100/11/2000/13/2000. It is also admitted that item No.6 of

the policy No.2 covers "storm, Cyclone, Typhon, Hurricane,

Tornado, Flood and Unundation" and that on 23.08.2000 there was

a flood in Hyderabad and Secunderabd due to incessant rains and

that the plaintiff company got inundated with water to a height of

about 5 to 6 feet and that there was some damage to the building,

plant and machinery, lab equipment, furniture etc., It is also

admitted that the plaintiff has informed about the damage to the

insurance company and the company has appointed a surveyor

M/s. N.V.P.Sharma Associated Pvt.Ltd., on 26.08.2000 and on

06.09.2000 the plaintiff made a claim of Rs.1,02,50,000/-

subsequently, on receiving a letter from the surveyor as well as the

company, the plaintiff has reassessed its loss and submitted a claim

for Rs.85,85,000/-.

b) The dispute is with regard to the question of liability. The

insurance company contends that though the policies are valid, the

condition No.8 stipulated in the policy prohibits the honouring of AKS,J & ETD,J

fraudulent claims. A perusal of Ex.A3, the policy reveals that the

condition No.8 reads as follows:

"If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof or of any fraudulent means or devices are used by the Insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all benefits under this policy shall be forfeited"

c) Thus, any claim is fraudulent or if any false declaration is

made or if any fraudulent means or devices are used by the Insured

to obtain any benefit under the policy, then the company is not

liable to honour such claims.

d) It is the case of the defendant that, the plaintiff has played

fraud in submitting the claim and so their company is not liable to

honour the claim. Its contention is mainly based on two counts.

Firstly, the purchases alleged to have been made by the plaintiff

company from M/s.Deccan Industrial Products Private Limited

(DIPPL) during the month of August, 2000 are without sales tax and

excise duty and that the Deputy Managing Director of the plaintiff

i.e. Vikas Jalan and his wife Richa Jalan are the son and daughter-

in-law of the director of the plaintiff company, O.P.Jalan, therefore,

it is nothing but a sister concern of the plaintiff company and thus,

the invoices are raised fraudulently to make a false claim with the AKS,J & ETD,J

insurance company. Secondly, it is another specific contention of

the defendant that the machinery repair bills submitted by the

M/s.Makvy Engineering Services are fraudulent and that the

proprietor of the company SriY.V.M.M.K.Murthy @ Murali is being

employed by the plaintiff company as Works Manager and by DIPPL

as plant manager and that no company with the said address as

given on the bills could be located in that area.

e) It is the burden of the plaintiff to prove that their claim is

genuine and is not hit by this fraudulent clause. Plaintiff got

examined PWs 1 to 3 and got marked 98 exhibits to prove their

claim. There are certain facts brought out in the evidence on record

which throw light on the above contentions. Once, the surveyor was

appointed he has examined all the details of the claim and it is

brought on record that most of the raw materials have been

purchased only during August, 2000 just before floods. Almost all

the stocks claimed to be washed away in the floods are shown to

have been purchased from DIPPL. It is particularly averred by the

defendant that the sale invoices for the month of August, 2000

pertaining to the plaintiff are without sales tax or excise duty and in

most cases the sale prices are lower than the purchase cost of

DIPPL and that DIPPL is not a regular supplier of raw material to

the plaintiff.

AKS,J & ETD,J

f) PW1/O.P.Jalan is the Director of plaintiff company. In his

cross examination it is elicited that his son Vikas Jalan and his

daughter-in-law Richa Jalan are the directors of DIPPL and that the

said company is located at Miyapur and it manufactures rubber

components for usage in railways and also rubber floor tiles, while

the plaintiff company manufactures rubber components used for

railways but not floor tiles. He also stated that DIPPL supplied raw

material to the plaintiff company earlier to this incident. But no

such proof is filed in this regard. It is also brought out in his

evidence that no inward register is produced by them. Ex.A48 is an

inward register but according to PW1, it is a kaccha register which

is maintained by the gateman for his own purpose and he does not

even know the reason for maintaining the same. It is further

elicited through him that the reason for filing the said register in the

Court is just because surveyor has referred the same as inward

the daily entries of the materials received at the gate.

g) When there was a specific contention by the defendant that

the plaintiff tried to show false invoices towards its purchase from

DIPPL, the burden was on the plaintiff to prove the fact that it is not

a fraudulent claim and that he had been purchasing the raw

material from DIPPL that means he could have shown the entries AKS,J & ETD,J

prior to August, 2000 also and further he could have produced the

inward register as well, which is not done.

h) It is further elicited through his evidence that whatever

material that was in powder form or granule form was washed away

partly due to inundation. But at one point of time he has conceded

saying that the powder and granules available in factory are not

soluble in water and that he did not take any expert to the factory

and obtain a report as to whether the powder and granules got

mixed with mud in the factory premises. The reason expressed by

him is that the surveyor was appointed by the defendant and that

the surveyor did not ask for any expert's opinion and that is why he

could not obtain the same. It is alleged by him that 1300 kg of

Silica, 140 kgs of TMT, 900 kgs of Aluminum Silicate, 950 kgs of

Calicium Carbonate and 940 kgs of whiting got washed away in the

flood and that the opening balance as on 01.08.2000 is shown in

Ex.A27 but a perusal of Ex.A27 reveals that the opening balance of

the stock available as on 01.08.2000 is very meager. It is further

stated by him that certain entries made in Exs.A18, 27, 32, 73 and

79 got washed away in the floods. The said entries pertain to the

purchases stated to have been made from DIPPL.

AKS,J & ETD,J

i) PW2 is a Commercial Manager in the plaintiff company, it is

elicited through his evidence that he visited Visakhapatnam on his

company's work and that he met the investigator Mr.Sisir of "Sisir

and Ravi Associates" and that he handedover an unsigned copy of

Addendum Report dated 10.09.2001 (Ex.A84) prepared by him. The

evidence of PW2 does not aid the plaintiff in proving his claim.

j) DW1 is the surveyor appointed by the insurance company

and his evidence reveals that he visited the plaintiff company and

that he has asked the plaintiff to take the photographs of damaged

parts, clear the debris and proceed with the repairs of the plant and

machinery. It is further elicited through him that initially the

damages were assessed by the plaintiff company through the letter

under Ex.A10 to an amount of Rs.1,02,50,000/- and that

subsequently on repeated communication, the plaintiff has reduced

its claim to Rs.85,85,000/-.

k) The defence taken by the plaintiff to the contention of

increased purchases during August is that the railways have

restored the production by placing orders in the last week of June

or 1st week of July and the same is informed to the defendant under

Ex.A37. It is their contention that their main customer is the

railways and when it has slowed down its consumption, the plaintiff

has reduced their work and on the increased requirement by the AKS,J & ETD,J

railways, they have increased their purchases. But it is to be

observed that when the railways have restored the production and

have placed an indent during last week of June or 1st week of July,

the plaintiff must have increased its purchases during the month of

July also but it is nowhere placed on record and moreover from the

documents placed by the plaintiff company, it is elicited that only

during the month of August i.e. 15 days prior to the inundation the

indent of the company was increased multifold.

l) A perusal of the surveyor's report under Ex.B6 reveals the

quantity of raw material available at the plaintiff's premises after the

flood. The said document is prepared by the surveyor-DW1. In his

cross examination, it is elicited that a part of the material

purchased from DIPPL also may be there in the said inventory

under Ex.B6. His inventory under Ex.B6 shows the material that is

in good condition and the material which is washed away. The

contention of the appellant's counsel is that the surveyor has not

investigated into the issue independently and that he has relied

upon the Auditor's report. The counsel wanted to emphasize upon

the cross examination of DW1 by highlighting the statement made

by DW1 that he has not investigated independently. But the cross

examination cannot be looked into as bits and pieces, it has to be

taken as a whole. He has clearly stated that he did not verify the AKS,J & ETD,J

source of purchase so far as the items allowed by him in Annexure-

II of Ex.B6. It is further elicited through him that the Research

Designs and Standard Organization of Railways instructed the

plaintiff to stop the work with immediate effect by addressing

Ex.A28 dated 04.02.2000 and that the production in the plaintiff

factory was suspended from February, 2000 to July, 2000 as per

the letter of RDSO. Even if this statement is taken into

consideration, the plaintiff has other customers apart from railways,

though railways is stated to be the major customer. Another point

is, the plaintiff has not purchased any items during the month of

July though the production was started. As per the statement of

PW1, the production started again in July but the purchases

reflected in the documents do not show any purchases during the

month of July, the glut of purchase is only during the first 15 days

of August i.e. prior to floods.

m) It is elicited through DW2 who is the Chartered Accountant

that the invoices are available with the plaintiff company but there

are certain discrepancies and that excise duty, service tax and sales

tax were not collected from the plaintiff as seen from the invoices

and he further stated that the plaintiffs have not purchased any

material from DIPPL earlier to 1st August or subsequent to 16th

August, 2000 upto the date of his inspection. It is further elicited AKS,J & ETD,J

from him that the material purchased under delivery challan No.48

from DIPPL is included in the stores ledger on 16.08.2000. All the

sales transactions that were said to have taken place between 1st to

16th of August, 2000 find a place in stores ledger. He has also

stated that the plaintiff has not purchased any material from DIPPL

from August of 2000 to 31.03.2001. Annexure-8 to his report under

Ex.B7 is the delivery challan No.93 dated 07.12.2000 which shows

the supply of raw material worth Rs.28,139/- by DIPPL to the

plaintiff. He stated that he did not rely upon the said Annexure-8

as he has good grounds to suspect the genuineness of this

transaction and that such a transaction can be brought into

existence at any time because the management is the same for both

the companies. But through Annexure-8 of Ex.B7 it is established

that there was supply of raw material from DIPPL subsequent to the

floods also. It is further elicited from DW2 that the invoices do not

disclose payments of sales tax and excise duty on the said

transactions and therefore, he could not verify the sales tax returns

or the excise duty returns. This again casts a shadow on the

genuineness of the invoices put-forth by the plaintiff. However,

Ex.A27 reveals that there was some stock available in the premises

as on 01.08.2000. Then even if the alleged false invoices are

ignored, there was some stock in the company at the time of

inundation.

AKS,J & ETD,J

n) With regard to the bills of repairs, PW1 has admitted that at

the relevant time YVMMK Murthy is working in DIPPL as plant

manager. It is also brought out in the evidence of DW1 that he met

said Murthy in the premises of plaintiff company and he was

working as works manager in the plaintiff company at the time of

his visit and it was informed by Murthy that he does not know

anything about the repairs and that he has just joined the company

on 15.02.2001. The plaintiff has never chosen to examine

Mr.Murthy as a witness.

o) PW3 is a Retired Engineer of IDPL. His evidence reveals that

he was approached by Mr.YVMMK Murthy, the proprietor of Makvy

Engineering Services to assist him and supervise the execution of a

service contract undertaken by him with M/s.Deccan Enterprises

Private Limited and that the equipment was severely damaged due

to flood and inundation of water, mud, sand and scrap and other

foreign materials on 23.08.2000 and that he has more than 20

years of experience and that he accepted the said assignment and

Mr.Murthy agreed to pay him a lumpsum amount of Rs.50,000/-.

It is elicited during his cross examination that he was an employee

of the plaintiff company from 1974 to 1977 before joining IDPL. He

also signed on Ex.A66. He admitted that the proprietor of Makvy

Engineering Services worked in DIPPL earlier and that there is no AKS,J & ETD,J

proof that Makvy Engineering Services employed him as consultant.

Ex.A66 is the declaration given by him at the request of plaintiff.

This again proves the contention of the defendant that the DIPPL

and plaintiff were sister concerns and also that the proprietor of

Makvy Engineering Services is known to plaintiff.

p) DW3 is the Assistant Divisional Manager of National

insurance Company. Apart from protecting the interest of the

company there are few facts that are elicited from his evidence, he

has stated during his cross examination that the repair bills of the

machinery pertaining to J.K.S.Electrical Works under Ex.B3 and

Kode Electricals & Controls under Ex.B4 were picked up for detailed

examination and that neither of the repairers were found to have

the capability or competence to undertake the jobs stated to have

been done by them and further he stated that the address of Makvy

Engineering Services as mentioned in Ex.B5 could not be located

and that the alleged proprietor of Makvy Engineering Services by

name Mr.Murthy was officiating as works manager in the plaintiffs

company and was also employed by DIPPL as plant manager. It is

further elicited that Murthy denied of any knowledge of the repairs

on the plea that he has just joined the plaintiff's company but he

was the person who submitted the bills for the repairs carried out

by Makvy Engineering Services. Therefore, the entire bills raised for AKS,J & ETD,J

repairs by the plaintiff cannot be believed to be totally true. But

inundation of the plaintiff factory upto a height of 5 feet is an

admitted fact. DW1/surveyor also suggested repairs to plant and

machinery after inspecting the premises.

q) Thus, an overall perusal of the entire evidence on record

reveals that there was inundation in the plaintiff company due to

the incessant rains and floods in the twin cities on the intervening

night of 23/24 August, and that there was certain damage in the

plaintiff company but the discrepancy is with regard to the extent of

damage that has taken place. The plaintiff averred that he has

incurred Rs.85,85,000/- but could not place clinching evidence to

prove the loss to the said extent. The insurance company has

appointed a surveyor as it is usually done in such cases, the

surveyor on thorough investigation has submitted his report under

Ex.B6 so also the investigator appointed by the company has

submitted his report under Ex.B7. As per the surveyors report, the

company has sustained loss to an extent of Rs.21,81,736/-.

Therefore, since it is an admitted fact that the plaintiff company has

sustained some loss due to the inundation, once the surveyors

report establishes the loss to an extent of Rs.21,81,736/-, then it

can be safely held that the plaintiff has sustained loss to an extent

of Rs.21,81,736/-. Now the next question is whether the defendant

insurance company is liable to pay the said amount in view of the AKS,J & ETD,J

condition No.8 stipulated in the policy under Ex.A3. It is an

admitted fact that the plaintiff suffered some loss due to the floods,

therefore the claim itself cannot be held to be fraudulent. For

convenience and clarity, condition No.8 of Ex.A3/policy is reiterated

extracted hereunder:

"If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof or of any fraudulent means or devices are used by the Insured or any one acting on his behalf to obtain any benefit under the policy or if the loss or damage be occasioned by the willful act, or with the connivance of the Insured, all benefits under this policy shall be forfeited"

r) If the said condition is examined under the facts and

circumstances of the case, there are discrepancies to the extent of

damage which are brought out and elaborately discussed in the

evidence supra, but an attempt to exaggerate the claim cannot be

held to make the entire claim itself to be fraudulent in nature. It is

for the insurance company to assess the actual damage and arrive

at the loss sustained so that it can honour the claim. A surveyor

was appointed and the loss was assessed by him. The defendant

also does not say that the plaintiff has not suffered any loss due to

inundation. It is a clear admission by the defendant company that

the plaintiff has sustained loss due to inundation and it is only to

the extent of loss that the discrepancy lies. Therefore, it is held that

the plaintiff company has suffered loss due to inundation to an

extent of Rs.21,81,736/- which has to be paid by the insurance AKS,J & ETD,J

company as the loss sustained is covered under the policy

mentioned at Ex.A3. The appellants counsel in C.C.C.A.No.154 of

2007 has contended that the suit should not be kept open and that

the trial Court was wrong in asking both the parties to file a

calculation memo with regard to the depreciation charges deducted

by the surveyor and that finality should have been expressed by the

trial Court. It is borne out by record that there was a calculation

memo filed by the plaintiff correcting the errors in surveyor's report

after which it has filed a memo to the effect that Rs.21,81,736/- is

the loss incurred. Surveyor is appointed by the insurance company

for assessing the loss, the said loss is admitted by the plaintiff.

Once the surveyor report is placed on record, there is no other

amount to add, over and above the assessment made by the

surveyor. If this is allowed, it would again lead to discrepancies and

multiplicity of proceedings.

s) The record depict that initially the surveyor has submitted a

report under Ex.B6 wherein he assessed the loss as Rs.22,58,039/-

after deducting certain purchases and depreciation amounts. Then,

through a memo, the plaintiff filed a re-computation of surveyor's

assessment after rectifying the arithmetical errors to an extent of

Rs.21,81,736/- as per surveyor's report. Therefore, it is held that

once the surveyors report is filed and the plaintiff has re-computed

the same and rectified it, the plaintiff is entitled to recover the same AKS,J & ETD,J

from the defendant company. Point Nos.1 and 2 are answered

accordingly.

14. POINT NO.3:

In view of the reasoned finding arrived at under point Nos.1

and 2, it is held that the judgment and decree dated 26.12.2006 of

the trial Court need to be modified to the extent of granting

depreciation charges that are deducted by the surveyor, is set aside.

15. POINT NO.4:

In the result, C.C.C.A.No.234 of 2007 filed by the plaintiff

company is dismissed and the C.C.C.A.No.154 of 2007 filed by the

defendant - Insurance Company is partly allowed by setting aside

the judgment and decree dated 26.12.2006 of the trial Court to the

extent of granting depreciation charges that are deducted by the

surveyor towards labour charges. No costs.