The National Commission noted that merely because the bank had obtained the previous policy did not absolve the customer of its primary responsibility to obtain coverage
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Shree Shakti Foam had applied to Canara Bank for a cash credit facility against the hypothecation of stocks. The bank ascertained the stock summary and physically tallied it with the goods in the godown before sanctioning the facility. The bank also arranged for insuring the godown and stock. An amount of Rs 13,771 was recovered from the customer’s account towards the premium for the policy.
On the night of October 20, 2017, a fire occurred, due to which goods were burnt. The police as well as the bank were intimated. It was then realised that there was no valid insurance coverage as the previous policy had expired.
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Alleging deficiency in service, the customer filed a complaint before the Uttar Pradesh State Commission. The complaint alleged that the bank had not even told the customer the insurer’s name through whom the policy was taken. Upon inquiry, it was learnt that the previous policy with a coverage of Rs 25 lakh was obtained from National Insurance Company, and its validity period was from July 12, 2016, to July 11, 2017. The customer faulted the bank for this lapse because the policy had not been renewed.
The customer argued that it was the duty of the bank to get the policy renewed in time to maintain continuity of coverage, but since this was not done, there was no insurance to cover the loss. Therefore, the bank should be held liable to bear the loss amounting to Rs 39,19,527.52. Additionally, interest, compensation, and costs were also claimed in the complaint.
The bank contested the case, denying the allegations made against it. It stated that it was the duty of the customer to get the stock insured or request the bank to get the policy renewed. Since this was not done, the bank claimed that there was no lapse on its part.
The State Commission allowed the complaint and ordered the bank to pay Rs 25 lakh along with 8 per cent interest, compensation of Rs 20,000, and Rs 5,000 towards litigation costs.
Both parties challenged the order in appeal. While the customer sought enhancement of compensation, the bank contended that the order holding it liable was erroneous.
The bank heavily relied on a clause in the Cash Credit Agreement which stated that it would be the sole responsibility of the customer to get the stocks insured, and only in case of default, the bank may act as a mere facilitator and obtain insurance coverage on behalf of the defaulting customer. The bank argued that it had neither sold any insurance policy nor provided any insurance-related services, and its relationship with the customer was merely that of a financier and borrower. It reiterated that it had been wrongly held liable.
The National Commission observed that the crux of the dispute was whether the bank would be liable for deficiency in service on account of not insuring the hypothecated goods. The Commission noted that the letter the customer wrote to the bank was also marked to the insurer, which belied the customer’s argument that it was unaware of the policy details. Further, merely because the bank had obtained the previous policy did not absolve the customer of its primary responsibility to obtain insurance coverage.
Accordingly, by its order of September 2, 2024, delivered by Dr Sadhna Shankar for the Bench headed by Subhash Chandra, the National Commission concluded that there was no deficiency in service on the part of the bank and set aside the order holding it liable.
The writer is a consumer activist
Disclaimer: These are personal views of the writer. They do not necessarily reflect the opinion of www.business-standard.com or the Business Standard newspaper
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