Bank Cannot Be Held Liable For Lapse In Coverage Unless Explicitly Agreed: NCDRC
The National Consumer Disputes Redressal Commission, presided by Mr. Subhash Chandra and Dr. Sadhna Shanker, held that the borrower is responsible for insuring their goods, and the bank is not liable for any gaps in coverage unless it had specifically agreed to handle that responsibility.
Brief Facts of the Case
The complainant, running a business of quilts and foams, took a loan from Canara Bank, which also arranged insurance for the stock and godown. The bank deducted the insurance premium from the complainant's account without informing them which insurance company was used. Subsequently, when a fire destroyed the goods in the godown, the complainant alleged that the bank failed to renew the insurance on time and instead insured the already-burned stock and godown later, without any inspection. The complainant filed a complaint with the State Commission of Uttar Pradesh, seeking compensation for the loss of stock, damages for mental agony, and litigation costs, citing deficiency in service by the bank. The State Commission allowed the complaint and directed the bank to pay the insured amount of Rs. 25 lakh along with Rs.20,000 compensation towards mental, physical and economic damages and Rs. 5,000 as litigation costs. Consequently, the Bank appealed before the National Commission.
Contentions of the Bank
The bank responded to the complaint, admitting that it held the insurance documents. It stated that it was responsible for insuring the stock based on the complainant company's instructions. However, it claimed that it was the complainant's duty to inform the bank about policy renewal and provide the renewed policy receipt. The bank argued that the complainant company is not entitled to any relief and that the complaint should be dismissed.
Observations by the National Commission
The National Commission observed that the key issue was whether the bank was liable for failing to insure the complainant company's goods. The commission noted that while the complainant argued they were unaware of the insurance details, it was evident from the contract that insuring the goods was the complainant's responsibility, not the bank's. The bank was not obligated to take out insurance, as clearly stated in the Cash Credit Agreement. Even though the bank had arranged the insurance in the past, this did not absolve the complainant from their duty to ensure proper insurance coverage. Additionally, there was no solid proof of the complainant's claimed losses from the fire, except for letters sent to the police and the bank. No proper assessment of the damage was provided. Citing the ruling in Oriental Bank of Commerce vs. HS Traders & Ors., it was reiterated that the borrower bears the primary responsibility for ensuring their goods are insured, and the bank cannot be held liable for any lapse in coverage unless it had explicitly assumed that duty. The commission concluded that the bank was not deficient in service under the Consumer Protection Act, 2019. Consequently, the State Commission's order was set aside, and the bank's appeal was allowed.
Case Title: Canara Bank Vs. M/S. Shree Shakti Foam
Case Number: F.A. No. 391/2023