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Zilla Sahakari Kendriya Bank Maryadit Vs. National Insurance Company Ltd. - Court Judgment

LegalCrystal Citation
SubjectCompany
CourtMumbai High Court
Decided On
Case NumberSuit No. 351 of 1967
Judge
Reported in[1984]55CompCas317(Bom)
Acts Indian Contract Act - Sections 23, 172, 173, 176 and 178
AppellantZilla Sahakari Kendriya Bank Maryadit
RespondentNational Insurance Company Ltd.
Excerpt:
company - non disclosure of fact - sections 23, 172, 173, 176 and 178 of indian contract act, 1872 - cotton bales insured against fire - bales completely destroyed by fire - suit filed claiming amounts due under policies - no satisfactory material placed before court upon which value of bales can be counted - warning letter had not been disclosed - non-disclosure of warning letter entitled defendant to avoid policy - suit claiming amount of policy dismissed. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying.....bharucha, j.1. this is a suit to recover on policies of insurance consequent upon loss by fire.2. anjad is a small town about 80 miles from indore in madhya pradesh. the principal business of the town is in cotton. the second plaintiff is a co-operative marketing society in anjad. the second plaintiff made payments for raw cotton purchased by its member merchants at 'mandi' (auction). the merchants were expected within a period of 7 days to repay the second plaintiff wholly, or to make payment of 30% of the amount due and pledge goods with the second plaintiff as security for the balance. the goods as pledged often were bales of ginned and pressed cotton. the ginning and pressing having been done by the maganlal natural jain ginning and pressing premises. the pledges to the second.....
Judgment:

Bharucha, J.

1. This is a suit to recover on policies of insurance consequent upon loss by fire.

2. Anjad is a small town about 80 miles from Indore in Madhya Pradesh. The principal business of the town is in cotton. The second plaintiff is a co-operative marketing society in Anjad. The second plaintiff made payments for raw cotton purchased by its member merchants at 'mandi' (auction). The merchants were expected within a period of 7 days to repay the second plaintiff wholly, or to make payment of 30% of the amount due and pledge goods with the second plaintiff as security for the balance. The goods as pledged often were bales of ginned and pressed cotton. The ginning and pressing having been done by the Maganlal Natural Jain Ginning and Pressing premises. The pledges to the second plaintiff that the pledged bales were being held for the second plaintiff.

3. The second plaintiff, on the same day or very soon thereafter, pledged the same bales with the first plaintiff, a co-operative bank with a branch in Anjad and obtained advances thereon. The re-pledges were evidenced by agreements and by the handing over, to the first plaintiff, of the factory certificates. Even after the re-pledges the bales continued to lie in the factory premises.

4. The pledged bales were insured against fire.

5. The cotton season lasts from October to May and the ginning and pressing factory functions only during this period. During the season the pledged bales were stacked in the factory's open compound free of charge. Off-season they were shifted into the built-up areas of the factory and compensation was charged for their storage within.

6. The evidence is that the factory compound admeasures about 8 acres. In 1966 the compound was fenced with barbed wire, about 6 ft. in height. The built-up area within the compound occupied about one acre and consisted of the ginning and pressing factory, a room wherein groundnut was sifted, an office, a godown, quarters for the factory's munim, workers' quarters, a cattle shed and a petrol pump. There was a well in the compound and a pump fitted to he well provided water to the bungalow. The principal entrance to the compound was through an iron gate. There was also another gate near the petrol pump which was permanently locked. During the season the factory employed about 200 workers. Off-season the were about 25 workers who worked only during the day time, at night there were two watchmen.

7. The six merchant members of the second plaintiff with whom we are concerned in this suit are : Chandulal Chhotalal, Chainsing Mohansing, Hussein Tantooji, Mangilal Motilal, Amarsingh Sardarsing and Fulchand Akhechand. According to the plaintiff, on 8th March, 1965, Chandulal Chhotalal pledged 34 bales with the second plaintiff; on 5th October, 1965, Chainsing Mohansingh pledged 75 bales with the second plaintiff; on 3rd March, 1965, and 24th April, 1965, Hussein Tantooji pledged 31 and 60 bales, respectively, with the second plaintiff on 4th November, 1964, 11th December, 1964, and 31st August, 1965, Mangilal Motilal pledged 81, 50 and 200 bales with the second plaintiff; on 14th December, 1964, 9th April, 1965, and 4th May, 1965, Amarsing Sardarsing pledged 45, 34 and 21 bales with the second plaintiff and on 15th February, 1964, 21st March, 1964, 9th April, 1965, and 7th June, 1965, Fulchand Akhechand pledged 30, 29, 15 and 63 bales, respectively, with the second plaintiff. Chandulal Chhotalal redeemed two bales on 4th August, 1965, and 1st December, 1965. It is the plaintiff's case that, thus, on 19th June, 1966, 743 bales belonging to the 6 merchants pledged by them to the second plaintiff and, in turn, re- pledged to the first plaintiff, were lying in the factory compound.

8. On the night of 19th/20th June, 1966, there was a fire which destroyed 730 out of the 743 bales completely and damaged the other 13 bales. The bales were insured against fire by the original defendants (now nationalised) under policies and cover notes, to which I shall presently refer. The suit is to claim the amounts due under the policies and cover notes.

9. The claim is refuted by the defendants. The written statement disputes the pledge of the bales by the merchants to the second plaintiff and by the second plaintiff to the first plaintiff. It disputes the averment that on the night of the fire 743 bales belonging to the 6 merchants were lying in the factory compound and that the value thereof was Rs. 3,61,500. It questions the insurable interest of the first plaintiff in the bales upon the basis that it had violated the provisions of the Cotton Control Order, 1955. It contends that the fire was the result of collusion and conspiracy between the plaintiff and the merchants. It also contends that the policies and cover notes are void and/or voidable because the plaintiff were guilty of suppression of material facts at the time when the same were issued.

10. Upon these pleadings, the appropriate issues were raised by my brother, Lentin.

11. The plaintiffs examined two witnesses on commission and 9 witnesses before the court. The witnesses examined on commission were Gyaniram Sharma, who was the second plaintiffs' accountant at the relevant time, and Damodar Purohit, who was the first plaintiff's agent at Anjad from April, 1964, to 7th October, 1965. The witnesses examined before the court were Kailashchand Jain, a partner in the firm owning the ginning and pressing factory; Sudhakar Songirkar, who was employed as the second plaintiff's manager between October, 1965, and November, 1968, Ratnakar Manjrekar, who was the first plaintiff's agent at its Anjad branch between 7th October, 1965, and 19th April, 1967; Manoharsing Chauhan, an insurance agent of the original defendants at Anjad; Devishankar Bhargav who was at the relevant time an accounts clerk with the second plaintiff; Noormohamad Ansari, a partner in the merchant firm of Mangilal Motilal; Surajmal Lunkad, a partner in the merchant firm of Fulchand Akhechand; Suransingh Chauhan, a partner in the merchant firm of Chainsing Mohansingh; and Hussein Tantooji, a merchant. The defendants examined two witnesses, their surveyors; their evidence does not further the case of either side. With the exception of Kailashchand and Surajmal that they did not, for the most part, know what they were talking about. Easily the worst was Hussein Tantooji.

12. The relevant policies of insurance issued by the original defendants are dated 20th April, 1966, 26th April, 1966, 30th April, 1966, 30th May, 1966, and 18th June, 1966. They insured the 'Barwani Co-op. Central Bank Ltd. A/c. the Anjad Co-op. Marketing Society Ltd'. The description of the properties insured is identical in all the policies and read thus :

'On stock of cotton of in full pressed iron bound bales only, their own, in trust, in deposit or on commission for which they are responsible in the event of loss or damage by fire whilst stored and/or lying in open compound of M/s. M. N. Jain Ginning and Pressing Factory, situate at Barwani Road at Anjad (M.P.)'

13. Clauses 1 and 13 of the conditions and stipulations referred to in the policies read thus :

'(1) If there be any material misdescription of any of the property hereby insured, or of any building or place in which such property is contained, or any misrepresentation as to any fact material to be known for estimating the risk, or any omission to state such fact the Society shall not be liable upon this policy so far as it relates to property affected by any such misdescription, misrepresentation or omission.

(13) If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the insured or any one acting on his behalf to obtain any benefit under this policy, or if the loss or damage be occasioned by the willful act, or if the claim be made and rejected and an action or suit is not commenced within three months after such rejection, or (in case of an arbitration taking place in pursuance of the 18th condition of this policy) within three moths after the arbitrator or arbitrators or umpire shall have made their award, all benefits under this policy shall be forfeited'.

The cover notes are both dated 18th June, 1966. They insured the 'Barwani Co-op. Central Bank Ltd. A/c. the Anjad Co-op. Marketing Society Ltd.' 'on stock of cotton F.P. bales whilst stored and/or lying in open compound and/or godown of M/s. Maganlal Nathulal Jain Ginning and Pressing Factory situated at Anjad.' Neither the policies not the cover notes mention the number of bales insured. There is no evidence as to which policy notes relates to which particular bales.

14. The first question that arises is : Are the plaintiffs jointly insured A plain reading of the policies and cover notes shown that only the first plaintiff is insured. The use of the words 'A/c. Messrs. Anjad Co-op. Marketing Society Ltd.' is only to indicate that the first plaintiff held what was insured in that account.

15. It was contended by Mr. N. A. Shah, learned counsel for the defendants, that even assuming that all that the plaintiff said was correct, the first plaintiff had acquired no insurable interest in the bales because a pledgor (the second plaintiff) could not create a valid pledge. He referred in this connection to ss. 172, 173, 176 and 178 of the Contract Act. In my view, a pledgor who is not the owner of goods can create a valid pledge thereof if he is authorised, either expressly or by conduct, by the owner to do so. Whether such authority exists is, in each case, a question of fact.

16. Mr. N. A. Shah contended that, in any case, the pledge by the second to the first plaintiff contravened the provisions of clause 7 of the Cotton Control Order, 1955. Under the terms of that clause no person shall purchase, sell, store or carry on business in cotton or shall hold cotton in hypothecation or against a pledge except under and in accordance with the conditions of a licence granted by the appropriate licensing authority. 'Cotton' within the meaning of that order is defined by sub-cl. (c) of cl. (2) and means ginned cotton and ginned and pressed cotton. Mr. N. A. Shah pointed out that Manjrekar had deposed that the first plaintiff did not have a licence under the Cotton Control Order. He, therefore, submitted that the pledge by the second to the first plaintiff was unlawful. Reference was made by him to s. 23 of the Contract Act whereunder every agreement of which the object or consideration is unlawful is void. In his submission, the pledge to the 1st plaintiff was being forbidden by law, void, and the first plaintiff had, therefore, acquired no insurable interest thereunder. Mr. Khambatta, learned counsel for the plaintiffs, gave no answer to this submission, the Khambatta, learned counsel for the plaintiffs, gave no answer to this submission. In my view, the submission is right and the plaintiffs cannot be said to have acquired an insurable interest in the bales. Looked at another way, the claim under the policies and cover notes is unenforceable, for, it would be against public policy to enforce a pledge contrary to the provisions of the Cotton Control Order. (Vide Halsbury's Laws of England, 4th edn., Vol. 25, para. 512).

17. I now proceed to examine whether the pledges by the six merchants to the second plaintiff and by the second to the first plaintiff are proved.

18. It was Mr. Khambatta's submission that the pledges created in favour of the second plaintiff by Chainsingh Mohansingh had been proved by Surajsingh by Hussein Tantooji had been proved by him; by Mangilal Motilal has been proved by Surajmal. He fairly stated that the pledges by Chandulal Chhotalal and Amarsingh Sardarsingh had not been proved. It was pointed out by Mr. N. A. Shah and quite rightly that Surajmal and Hussein Tantooji had not proved the pledge rightly that Surajmal and Hussein Tantooji had not proved the pledge agreements made by them. Surajmal in cross-examination admitted that he had no recollection of the correctness of that was stated in his pledge agreements. He had stated in examination-in-chief that they were correct only on the basis of having read them and assumed them to be correct. Hussain Tantooji deposed in cross-examination that he was not a literate person and could not read what had been stated in his pledge agreements because it was in running hand. Only the pledge agreements between the second plaintiff and Chainsingh Mohansingh and Mangilal Motilal are, therefore, proved.

In so far as the agreements of pledge between the second plaintiff and the fist plaintiff are concerned, Gyaniram Sharma testified to the handwriting and signatures on all of them except one; in regard to the pledge of 50 bales belonging to Mangilal Motilal, Nathuram Purohit deposed that he had verified the correctness of every column in these agreements.

19. In sum, therefore, it is proved that 75 bales were pledge by Chainsingh Mohansingh with the second plaintiff and were in turn pledge by the second plaintiff with the first plaintiff; and that 200 bales and 81 bales were pledge by the Mangilal Motilal with the second plaintiff and were, in turn, pledged by the second plaintiff with the first plaintiff.

20. In the pledge agreement of Chainsingh Mohansingh relation to 75 bales and the pledge agreement of Mangilal Motilal relating to 200 bales, authority has expressly been given to the second plaintiff to create a pledge of these bales in favour of the first plaintiff. In regard to the other pledges, Mr. Khambatta invited me to infer that tacit authority was given by the merchants to the second plaintiff in view of the fact that, as was clear upon the evidence, the first plaintiff's sign-boards had been displayed upon the pledged bales and the merchants had free access to factory. In my view, this is a reasonable inference to draw. Tacit consent may also be inferred from the established fact that it was a known course of conduct that the second plaintiff would immediately pledge all goods pledged by merchants with it to the first plaintiff and obtain advances thereon.

21. It was contended by Mr. N. A. Shah that the policies and cover notes had been obtained by suppressing material facts and the defendants were entitled to avoid them. He referred in this connection to Halsbury's Law of England, 4th End., Vol. 25, paras. 365 to 368 and 377. It is a principle of universal application to all types of insurance contracts that a contract of insurance is a contract based on the utmost good faith and if the almost good faith is not observed by either party the contract may be avoided by the party. The principle involves that either party has a right to avoid the contract altogether if he established against the other party either that there has been a failure by the other party to disclose a material fact or that there has been on the part of the other party a misrepresentation, however innocently and honestly made, of a material fact. It is the duty of the proposer during the preliminary negotiations to make full disclosure upon whether the mind of a prudent insurer would be affected, either in deciding whether to take the risk at all or disclosed. Any fact is material which leads to the inference, in the circumstances of the particular case, that the subject-matter of insurance is not an ordinary risk, but is material which leads to the inference, in the circumstance of particular case, that the subject-matter of insurance is not an ordinary risk, but is exceptionally liable to be affected by the peril insured against. The effect of non-disclosure or misrepresentation is that the insurers have the right to repudiate, that is to say, to avoid the contract. This right does not depend on any implied term in the contract itself but is an inherent right derived as a matter of law from the nature of the contract.

22. In Mac Gillivray & Parkington on Insurance Law (6th Edition, paragraph 759) it is stated that an applicant for insurance is required to disclose not only those facts of which he has actual knowledge himself, but also any rumours, opinions, or information as to facts which are themselves material which he may have heard. This principle was established in a line of old cases on main insurance which show that, even, if the applicant may himself regard the rumour as false or the opinion as ill-founded, it is none the less his duty to disclose it for what it is worth, so that the insurers may exercise their own judgment on it. In para 740, it is said that if there had been attempts to set fire to the building insured (or in which insured goods are stored) whether successful or not, or if there had been threats of incendiarism, these should as a rule be disclose, unless the threats were not such that a reasonable man would take them seriously.

23. In Vijayakumar Motilal Hirakanwalla v. New Zealand Insurance Co. Ltd. : AIR1954Bom347 it was held that it was a rule of manifest justice that the assured was duty bound to disclose material facts of which the assured was in law deemed to have knowledge. The court formulated five propositions which governed the case. For the purpose of the present decision it is enough to cite two of these propositions :

(1) The assured must disclose to the insure, before the contract is concluded, every material circumstance which is known to the assured and the assured is deemed to know any circumstance which, in the ordinary make such disclosure, the insurer may avoid the contract.

(2) The term 'circumstance' in this connection includes any communication made to, or information received by, the assured.

24. In Bufe v. Turner [1856] Taun 338: 128 Eng Rep 1065, it was held that the concealment of the fact by the assured that the shop next but one to the warehouse to be insured against fire had taken fire, which was apparently extinguished, entitled the insurers to avoid the policy.

25. The material fact which the plaintiffs concealed from the original defendants, in the submission of Mr. N. A. Shah, is a letter of warning received by the first plaintiff's head office at Barwani. A copy of the latter of warning was sent by the head office to the Station Officer of the Police Station At Anjad. A copy of the letter to the Station Officer, with a copy of the letter of warning enclosed, was sent to the manager of the second plaintiff and this has been brought on record. The copy of the letter of warning is instituted 'Intimation'; a plan of third incident to extort money from the insurance company by setting fire to the cotton bales is ready'. The first paragraph of the letter of warning refers to two alleged pervious incidents, regarding which there is no evidence. The second paragraph says that in the ginning and pressing factory of Seth Mangilal Motilal, Chainsingh Mohansingh, Amarsingh Sardarsing and Fulchand Akhechand. The third paragraph says that the bales were of the value of Rs. 135 per bale; the bales were pledged with the second plaintiff at the rate of Rs. 350 per bale and the second plaintiff had pledged them with the first plaintiff. The fourth paragraph says that if the bales, which had been pledged at the rate of Rs. 350 per bale and which had been insured at the rate of Rs. 450 per bale, were sold by auction, they would not fetch more than Rs. 100 per bale. The fifth paragraph say that a plan had been drawn up by the merchants to reduce the bales to ashes by setting them on fire to receive the full claim from the insurance company; the bales had been kept on open ground and heaps of fodder, grass, fuel, etc., were kept nearby and the bales had been heaped up near the place where blacksmith work was done. The letter of warning concludes by saying that intimation was being in order that the conspiracy of the traders to decide the insurance company should not succeed.

26. The letter of the first plaintiff's head office to the Station Officer, Anjad, is dated January 17, 1966. A copy of this letter and its enclosure was sent, as aforesaid, to the second plaintiff manager. Another copy of this letter and its enclosure was sent to the first plaintiff agent at Anjad, Manjrekar. Manjrekar deposed that the he had received the copy along with its enclosure on January 22, 1966. He deposed that the insurance covering the 743 bales was effected after the letter of warning was received. The original defendants had not been informed about the receipt of the letter of warning. They were not informed of it at any time.

27. In Mr. N. A. Shah's submission, the letter of warning was a material fact which ought to have been disclosed to the original defendants and the non-disclosure thereof entitled the defendants to avoid the policies and cover notes.

28. Mr. Khambatta, on the other hand, submitted that the original defendants had not been informed of the letter of warning because it was thought to be of no substance. The submission is based upon Manjrekar's testimony that he had asked Kailashchand who could have written the letter. Kailashchand was of the view that the letter must have been written by one Laxminarayan, who was on inimical terms with Kailashchand. The second plaintiff's chairman suggested that this was quite possible. In the circumstances, they decided that the bales were safe, Manjrekar deposed in cross-examination that Laxminarayan, a municipal councillor of Anjad, had met him and told him that the merchants and factory owners were thieves. After that Manjrekar had found our from the merchants, the people at the factory and the second plaintiff's employees that Laxminarayan was not reliable but was mischievous. He had not made any efforts to find out from the 1st plaintiff's head office who had signed the letter of warning by Laxminarayan; he denied that, therefore, the letter of warning was ignored.

29. The insurance policies and cover notes were proposed and granted after receipt by the 1st plaintiff of the letter of warning. The letter of warning stated that bales belonging to four of the six merchants herein concerned had been pledged by them to the second plaintiff and in turn by the second plaintiff to the first plaintiff and that the bales were old. It referred to the spot at which the bales were then stacked, near the foundry. It was not, then, a communication which could be lightly ignored. In any event, the view of the 1st plaintiff about the value to be attached to the letter of warning was not so material as the view warning was not so material as the view that might have been taken by the insurance. If the letter of warning had been communicated to the original defendants they might well have refused to accept the risk, or they might have accepted it upon payment of an additional premium, or upon terms and conditions as to the security of the bales. In my view, the letter of warning was certainly a material fact. In fact the plaintiff was duty bound to communicate it to the original defendants when it asked for the insurance cover. The non-communication entitled the defendants to avoid the policies and cover notes as they seek to do.

30. In that the 1st plaintiff did not communicate to the original defendants the terms of the letter of warning at the proposal stage the first plaintiff may also be said have committed a fraud upon the original defendants.

31. Mr. N. A. Shah next contended that the first plaintiff failed to communicate to the original defendants the material fact that the bales sought to be insured were old, not valuable, unsaleable and belonged to merchants who were in financial difficulties.

32. That the bales were old is clear from the dates upon which they were pledged; a large majority of them were pledged between the end of 1964, and the middle of 1965.

34. That the bales had depreciated in value were not easily saleable and belonged to merchants in financial difficulties is clear from documents on record, to which I now proceed to refer, and from the evidence.

35. Notices were given by the second plaintiff to the merchants in October, 1965. They called upon the merchants to redeem their pledges bales. The evidence is that is that no merchant redeemed his pledge subsequent to the notices.

36. Cheques given by some of the merchants in regard to these pledges to the second plaintiff were dishonoured.

37. On record is a statement (EX. 8) signed by Manjrekar which shows the value of the pledged bales fixed by the first plaintiff. Hussein Tantooji's bales, valued at Rs. 48,500 when pledged, were now valued at Rs. 35,150. Amarsingh Sardarsingh's bales, valued at Rs. 36,450 when pledged, were now valued at Rs. 13,750. Mangilal Motilal's bales, valued at Rs. 1,59,400 when pledged, were now valued at Rs. 32,300. Chandulal Chhotalal's bales, valued at Rs. 16,000 when pledged, were now valued at Rs. 12,300. Chainsingh Mohansingh's bales, valued at Rs. 37,500 when pledged, were now valued at Rs. 7,500. Fulchand Akhechand's bales, valued at Rs. 63,650 when pledged, were now valued at Rs. 29,200. There is evidence regarding this statement to which I shall presently refer.

38. A copy of the plaint filed in February, 1966, by the second plaintiff against Fulchand Akhechand is on record (Ex. 3). In para. 3 thereof it is stated that the market value of the bales had tumbled to a great extent, the value of the bales pledged by Fulchand Akhechand with the second plaintiff was reduced, and the value of the security had decreased. In respect of this plaint there is evidence to which I shall refer.

39. At Ex. 9 is a copy, certified to be a true copy by the them chairman of the second plaintiff, Mangilal Vyas, of an agreement said to have been entered into between the second plaintiff and Surajmal on behalf of the firm of Fulchand Akhechand. The agreement shows that the amount of the advance against the pledge of 137 bales was Rs. 53,250, the value thereof as approved by the second plaintiff and Surajmal on behalf of the firm of Fulchand Akhechand. The agreement shows that the amount good quality bales in place of the bales already pledged. It refers to the payment of the amount due by instalment and two post-dated cheques given in respect thereof. The agreement was first called for when Gyaniram Sharma was being examined on commission. It was then stated by the plaintiff's counsel that the agreement was not available in the second plaintiff's chairman and filed by the second plaintiff Co-operative Societies, Indore. Counsel for the defendants then tendered a copy thereof certified by the second plaintiff with a plaint against Fulchand Akhechand before the Deputy Registrar of Co-operative Societies, Indore. Counsel for the defendants called upon the plaintiff's counsel to produce the original of the agreement before me. It was again stated that it was not available in the second plaintiff's files and seemed to have been misplaced. In relation to this document also there is oral evidence to which I shall refer.

40. Kailashchand deposed that the count of cotton decreased with the passage of time and it became inferior. Between new cotton and cotton a year old, the former would fetch the higher price.

41. Songirkar deposed that the cheques given by the merchants, as just mentioned, were dishonoured. The reason that the merchants gave for not having their pledges released was that they did not have the money then and they would get the pledges released when they had the money. Songirkar, therefore, knew that the financial situation of these six merchants was not good. Songirkar affirmed that the price of the pledged bales had gone down. It therefore, became necessary to insert a clause in the agreement, Ex. 9, that the existing bales would be substituted with bales of newer cotton. The price had gone down by Rs. 250 to Rs. 300 per candy but, to pressurise the merchant, the second plaintiff devalued the bales pledged to Rs. 19,200 against Rs. 52,250 which was their original value. This devaluation was not true. He could not state whether the statements para. 3 of the plaint, Ex. 3, were correct or not.

42. Manjrekar deposed that he had found the six merchants to be found the six merchants to be creditworthy. They had immovable properties, but, at the relevant time, were short of liquid cash. The cotton in the 743 bales would have lessened in value over a year or a year and a half of during which it had gone down by Rs. 50 per candy. He had signed the statement, Ex. 8. It was prepared in January, 1966, with the intention of demanding a heavy margin. The value of the bales had not gone down. Their approximate value was the same as at the time when they were pledged. The statement, Ex. 8, was not correct, With full knowledge he had prepares the wrong statement not correct. With full knowledgehe had prepared the wrong statement to pressurise the second plaintiff for the purposes of obtaining the heavy margin. It was prepared jointly by the chairman and vice-chairman of the second plaintiff and himself. It was prepared to pressurise the merchants to redeem the 743 bales. The heavy had not been paid either by the second plaintiff to the firs plaintiff or by the second plaintiff to the first plaintiff or by the six merchants to the second plaintiff.

43. Noormohamed deposed that Mangilal Motilal's 343 bales were not sold despite several efforts because of the difference of the price he wanted and the price buyers were willing to offer. Samples of the bales were sent 5 of 6 times, but the only offer that was received was that the of Mathuralal Kapurchand of Indore in the sum of Rs. 1,050 per candy. He had wanted Rs. 1,075 per candy.

44. Surajmal agreed that the value of cotton lessened with the passage of time. It was at the rate of Rs. 50 per candy per year. The rates mentioned in the agreements of pledge were very low rates, and were current in June, 1966. In June, 1966, the rate of for cotton per candy was Rs. 1,100; In respect of the cotton pledged under Fulchand Akhechand's agreements, the rate in June, 1966, was Rs. 1,000 per candy, It was not correct that he had entered into the agreement, Ex. 9, with the second plaintiff. He could not have entered into it because he was in Indore on the date of the agreement. He was in a position to produce a paper book filed in the Supreme Court, on appeal from the High Court of Madhya Pradesh, Indore Bench, which showed that a judgment, substantially, in his favour, was delivered in Indore on that date. He had made efforts to sell the pledged bales. He had received offers of Rs. 900 per candy but considered them inadequate. He considered Rs. 1,100 per candy to be an adequate price, He had no liquid cash to redeem the bales without selling them but he had plentiful other assets.

45. Surajsingh of Chainsingh Mohansingh deposed that it was correct that his firm had not been in a position to sell the bales pledged by it.

46. Hussein Tantooji deposed that, apart from the 91 baled pledged by him with the second plaintiff, he had done no other business in cotton. He did tailoring business in the off-season. In season he business in cotton from cultivators in the fields and villages and sold it at the 'mandi' through the second plaintiff. In 1964-65 his annual income was Rs. 2,000 to Rs. 4,000. He stayed in a hut in Rajpur. Apart from the hut, he had no other assets. He had never paid income-tax.

47. Upon this record it is, I think, established that the pledged bales were old, that they had depreciated considerably in value, that they could not be readily sold, and that the 6 merchants had not been in a position to redeem them for lack of liquid cash.

48. The question that then arises is : can this be said to be a material fact which the first plaintiff should have disclosed to the original defendants at the proposals. The basic test, as has been said earlier, hinges upon whether the mind of the insurer would have been affected, either in deciding to take the risk or in fixing the premium, by this knowledge. In my view, this knowledge would not have affected the original defendant's mind in deciding whether to accept the risk. That the bales were old, had depreciated in value and could not be sold could only have affected the amount that would have to be paid out upon their loss by fire. The additional factor that they belonged to merchants who had not the liquid cash to redeem them could not reasonably have led to the conclusion that there was danger that the bales would be put to the flame.

49. Mr. N. A. Shah submitted that it was established that some of the 743 bales had been opened and re-pressed and that this was a material fact which the first plaintiffs should have, but did not disclose to the original defendants. Kailashchand deposed that some bales our of the 743 bales had been damaged by rain water and these were opened and re-pressed. A total of 145 to 150 bales were opened and re-pressed. This had been done upon the instructions of the merchants but only after the first plaintiff's permission was obtained. Upon opening the bale the damaged cotton was removed and the bale was-repressed. The weight of the bale was reduced by about 5 kgs. The opening and re-pressing had been done in March, April, 1966. Noormohamed admitted that what he had said in a statement made to the defendants, surveyor, Kapadia, was correct but he did not member if 81 bales were re-pressed on May 31/June 1, 1966, as was recorded in that statement. Manjrekar deposed that he had not informed the original defendants that the bales had been damaged. The duty to disclose comes to an end when the contract is concluded and, therefore, facts which come to the proposer's knowledge subsequently need not be disclosed. (See Halsbury, 4th Edn., Vol. 25, para. 372). The failure to communicate the information that the bales had been opened and repressed subsequent to the coming into existence of the contracts of insurance cannot vitiate the contracts. In any case, this is not a material fact that ought to have disclosed.

50. Mr. N. A. Shah then relied upon Manjrekar's testimony that the factory was responsible for loss or damage caused to the bales that were stored or damaged within its compound and upon certificates issued by the factory which say much the same thing. Mr. Shah submitted that this was a material fact which ought to have been disclosed to the original defendants at the time the proposals for insurance were made. I do not see how the insurers' mind could have been adversely affected by such disclosure. This was not a material fact for non-disclosure of which the policies and cover notes can be avoided.

51. Mr. N. A. Shah submitted that, though the bales bore on them serial numbers, as Kailashchand and other had deposed, the serial number of the bales sought to be insured were not given to the original defendants. This non-disclosure can certainly not be said to be of a material fact.

52. Mr. N. A Shah submitted that the fact that the first plaintiff did not possess a licence under the Cotton Control Order should have been communicated to the original defendants at the time of the proposal. This again, in my view, is not a material fact, non-disclosure of which would avoid the insurance.

53. Mr. Shah submitted that the record showed that the balance of probabilities was that the fire was deliberately lit by the plaintiff's employees, the factory employees and the merchants in collusion with each other, to destroy the pledged bales with a view to defraud the original defendants and wrongfully obtain the amounts of the policies and cover nots. The circumstances that he relied upon are :

(a) That the pledged bales were old, had depreciated in value, were not readily saleable, and the financial position of their owners was not very sound. The evidence in regard to this, already set out, establishes the circumstance.

(b) That there had been failure to take appropriate action by the second plaintiff against the six merchants and by the first plaintiff against the second plaintiff, despite the fact that the pledges had continued for a long period. The testimony in that behalf is now set out.

54. Songirkar deposed that although the six merchants, did not redeem their bales after the notices were served on them, the second plaintiff did not auction the pledged bales because bales because the merchants represented that there was a brought which had resulted in their moneys being blocked and asked that they should be given more time. A resolution had been passed by the second plaintiff in November, 1965, that the 743 bales should be auctioned. The merchants had been indebted to the second plaintiff in respect of transaction other then those involving the 743 bales. Even in respect of those notices had been served by the second plaintiff. At the relevant time a suit had been filed only against Fulchand Akhechand.

55. Manjrekar deposed that, according to the Reserve Bank Regulations and the first plaintiff's bye-laws, pledges had to be redeemed within 6 months. The only action taken up to 19th June, 1966, against the second plaintiff to have the 743 bales redeemed was that he asked for a heavy margin of 50%. The second plaintiff had been charged interests at the rate of 9 1/2 p.c. It was recovered half-yearly or, at any rate, yearly either in cash or by debiting the current account of the second plaintiff. If there was no amount in the current account, the interest amount was shown as outstanding. The heavy margin had not been paid either by the second plaintiff to the first plaintiff or by the six merchants to the second plaintiff. The first plaintiff never found it necessary to auction the pledged goods. This was because it would have had bad effect on the second plaintiff with whom the first plaintiffs' relation were very close, and this would have also had an adverse effect on the co-operative movement. Even after the letter of warning he did not think of calling upon the second plaintiff to redeem the bales because this would have had an adverse the bales because this would have had an adverse effect on the co-operative movement. Since the claim on the insurers was pending, the amount due by the second plaintiff to the fists plaintiff and secured by the pledge of the 743 bales was treated as outstanding.

56. Upon this evidence, I cannot accept Mr. Khambatta's submission that the second plaintiff had taken all necessary steps against the merchants and that the first plaintiff had taken all necessary steps against the second plaintiff. It seems tome patent that there had been what plaintiff against the second plaintiff and by the second plaintiff against its six merchants members to recover the amount advanced.

(a) That the letter of warning in respect of fire was not disclosed to the original defendants at the time of the proposal.

(b) That, as Manjrekar testified, even after the fire the surveyors and the original defendants were not informed of the letter of warning.

(c) That, after the receipt of the warning, the only step that was taken to safeguard the bale was to shift them to the rear of the compound. I proceed the bales was to shift them to the rear of the compound. I proceed to analyse the evidence in this behalf.

57. Kailashchand deposed that in December, 1965, or January, 1966, he had received information that the information that the bales in the factory compound would be set on fire. He had discussed this information with the plaintiffs. The plaintiffs had told him to look after their bales. He had told the plaintiffs that this was the duty of the factory and it would be observed. Only the 743 bales, which were of the pervious year, were shifted to the rear of the compound. About 200 other bales belonging to the 1st plaintiff, which were newer, were not so shifted. The plaintiffs' representative had requested him to shift the 743 bales inside the factory. The shifting of the 743 bales to the rear was effected in February or March, 1966. The bales had been shifted to the rear of the compound because the front presented some danger. He had been told by the police that there was danger in storing the bales near the cattle shed. Only the 743 bales had been stored there. The advantages of shifting the 743 bales to the rear of the compound was this : that the bales were originally stored near the cattle shed and the iron foundry; it was the information of the police that this site was liable to catch fire because of the grass kept near the cattle shed.

58. Songirkar deposed that in December, 1965, or January, 1966, he had received from the first plaintiff a letter concerning the security of their bales stored in the factory; accompanying the letter was a copy of the letter addressed by the first plaintiff to the Anjad police. He had spoken to the chairman of the second plaintiff of this and had visited the factory with him. Kailashchand had alternative arrangement where they could store the bales and there were security arrangements at the factory. There was also and there were to be stored in the factory. Therefore, the chairman said that the baled should be kept where they were. After Songirkar received information that the bales were to be set on fire, the met Kailashchand and the six merchants. All of them told him that there was nothing to the information received, that it was mischievous and was perhaps politically motivated. The second plaintiff's chairman, response and did nothing further. The second plaintiff's chairman, vice chairman and Manjrekar had also told him that there was nothing to the information. He had asked Kailashchand to shift the 743 bales into the built-up areas after the work of shifting had compensate in the last week of May, 1966. He had reminded Kailashchand regarding this but the 743 bales were not shifted inside. It was not correct that the bales were shifted to the rear while all the others lay in the front. The answer was that the police had spot for a fire because it was near the cattle shed and foundry and only about 10 ft. from the road. There were other bales at that time near the cattle shed and foundry. He had asked Kailashchand way these other bales had not been shifted and Kailashchand replied that the police had told him that the probability was that only the second plaintiff's bales would catch fire. It did not strike him that once the season ended the safest place for the bales would be within the built-up areas. He had told Kailashchand that immediately the season ended the 743 bales should be shifted into the built-up areas. He had told Kailashchand, when he saw that the season had ended but the bales still remained outside, that they should forthwith be shifted into the built-up areas. It did stride him that, between the first and the second plaintiff, a watchman could been employed specifically to safeguard the bales. He had suggested this to the second plaintiff's chairman around January, 1966, but the said that since the factory employed watchmen it was not necessary.

59. Manjrekar deposed that the 743 bales were shifted from the front of the compound because the petrol pump was being erected and they were within the hazardous limit; also because he had received a letter from his head office and a copy of a letter of warning with it. The bales were shifted to a vacant spot at the rear of the compound. He personally had been satisfied with the security arrangement at the factory. There was no godown space available in Anjad to which the bales could have been shifted, because all the godowns all the godowns were packed with foodgrains under the Government Drought Scheme. The fact that the petrol pump was coming up was not the only reason why the bales were shifted to the rear; the other reason was the police pressure because of a complaint, by which by meant that the police wanted steps to be taken to protect the bales because of the letter of warning. He had not informed the police that steps had been taken to safeguard the bales by shifting them to the rear. The Anjad police had not contacted him nor had he contacted the Anjad police after receipt of the letter of warning. Even through the letter of warning said that the bales were to be placed on an open spot and set afire he did not have them shifted to a built-up area because the built up areas were in use, being season-time. He did not think of calling upon the second plaintiff to immediately redeem the bales because this would have had as adverse effect on the co-operative movement. After reading the letter of warning he had thought that the open space, at the of the compound was a safe place for the bales. The bales had not been shifted to the rear immediately on receipt of the letter of warning and not until February or March, 1966, because time was taken up for discussion, for approval by the firs the first received a copy of letter of warning on January 22, 1966. The discussion with the second plaintiff's chairman, Kailashchand, and the merchants took place after about two days. Manjrekar reported to his chairman in the week or second week of February, 1966. He approved of the site in the second or third week of February, 1966. He did not know when the shifting started but when he had gone to the factory in March he found the bales, except that they had told Kailashchand to take steps to do so. He had not thought of breaking up the storage of the bales in different parts of the compound as a measure of safety. Kailashchand had asked the firs plaintiff to provide a watchman for the baled if it was not satisfied with the existing security, since it was, no additional watchman was provided. The chairman and the manger of the second plaintiff had stated that there was no godown space available in Anjad to which the bales could be shifted. Laxminarayan, a Municipal Councillor of Anjad, had met him in his office in October or November, 1965, and had told him that the merchants and the factory owners were thieveries. Even after the letter of warning was received he did not tell any one of what Laxminarayan had told him, not even his own chairman, since he did not want to be a party to the quarrels between Laxminarayan and Kailashchand. He had made no enquires about their quarrels. He made so efforts to find out from his head office who had signed the letter of warning though he entertained the suspicion that it was written by Laxminarayan. He denied that, because of this suspicion, the written had been ignored : He had not to led the police that Laxminarayan had told him or that Laxminarayan might be able to able to provide them with some information.

60. Surajmal deposed that when Kailashchand told him of the information about a possible fir, he had asked Kailashchand to shift his bales into the built-up areas after the season was over; but all the space with in the built-up areas was occupied by bales belonging to the factory itself and to the first plaintiff.

61. Mr. Khambatta submitted that the plaintiffs had taken adequate steps to protest the pledged bales after the letter of warning, that they had satisfied them selves that the security arrangements at the factory were adequate and no arson was possible. I cannot agree. The action taken by Manjrekar does not seen to me to be these only action that the manager of a bank would take, if warned, that goods pledges to the bank were likely to be set on fire. I find it surprising that goods pledged to the bank were likely to be set on fire. I find it surprising that no attempt was made by Manjrekar to find out form the head office of the first plaintiff who had signed the letter of warning and learns their findings; to tell the police that Laxminarayan had told him; to auction the bales upon the failure of the second plaintiff to redeem them; to employ watchmen for the bales alone; to insist upon the bales being shifted into the built-up areas immediately the season was over; to make things difficult for an intending arsonist by stacking the threatened bales, not at one spot but at tending arsonist by stacking the threatened bales, not at one spot but at different spots, one spot, perhaps, for the bales, not at one spot but at vide for some fire-fighting equipment near the bales, whether in the form of a hose from the well, an extinguisher or even buckets filled with sand. To put it midly, Songirkar and his chairman were equally lax.

62. (f) The bales were stored at the rear of the compound away from everything else. Kailashchand deposed that nothing but the 743 bales was affected by the fire. The other bales stored in the compound were at a distance of about 100 to 125 ft. from the 743 bales. There was no construction around the 743 bales for a radius of 50 ft. The 743 bales were at a distance of more than 150 ft. on the rear and side boundaries of the compound. The 743 bales, and the other bales in the compound, were stored on a layer of wooden planks. There was no tarpaulin on the 753 bales. There was no dried grass on the boiler room at the of the fire, Manjrekar deposed that the 743 bales were stacked at the rear of the compound behind the factory and next to the press house. They were about 40' from the press house about 30'from the factory building 50' from the rear boundary and some 50' from the factory building, 50, from the rear boundary and some 50' for the side boundaries. They were stored on wooden planks. There was no grass on the ground. 305 bales belonging to the second plaintiff had been taken into the boiler house by the first week of June, 1966. About 200 bales were lying in the open compound at its from on the date of the fire. The 743 bales were not shifted into the built-up areas at the close of the season though other bales were.

63. The evidence almost suggests that the 743 bales were taken to the isolated rear of the compound and stacked there, away from other bales away form the buildings, even away from the boundaries of the compound, to await their fate.

64. (g) The 743 bales were not shifted into the built up areas in the factory compound after the close of the season, through other bales were. Some of this evidence has already been mentioned. Kailashchand deposit that in 1966, the season ended in May, but he could not recall what part of May. When the season closed there were closed about 1,500 to 2,000 bales in the compound and 100 to 150 in the godown. He did not remember when the shifting of the bales into the built up areas was stated in 1966. By June 19, 1966, 500 to 600 bales had been shifted inside. There was no special reason why these 500 to 600 bales had been taken inside and the 743 bales had not.

65. (h) Appropriate steps were not taken to control the fire.

66. The evidence in respect of the fire and what happened during its course must be set out. Kailashchand deposed that on the night of June 19/20, 1966, a fire broke out in the factory compound at about 3.30 a.m. It was first noticed by the watchman, Ramlal, who died about a year and half back. He (Kailashchand) was in the bungalow opposite the factory when the fire broke out. His younger brother brought him the news of the fire. He sent people to get hold of the workers. He tried to telephone but the telephone was dead. He sent for the second plaintiff's manager, Manoharsingh. He also sent for Songirkar. He then sent his car to Barwani to fetch the first plaintiff's manager. About 25 to 30 workers came and pure water from buckets on the fire. The water was from a big tank near the factory engine room. They did not succeed in containing the fire. Kailashchand informed the Anjad Municipality about the fire. The fire engine from Anjad come at about 6 a.m. An engine from Rajpur came at noon and one from Anjad came at noon and one form Indore at about 2 p.m. Rajpur is 10 miles from Anjad. The Anjad fire engine was summoned by Kailashchand's men. He had given information as a result to which the Rajpur engines came. He gave information to Indore at about 10 a.m. upon which the Indore engine came. The fire was extinguished at about 4.30 p.m. on June 20, 1966, 730 our to the 730 out the 743 bales were destroyed totally; the other 13 bales were partially damaged. On the night of he fire there were two watchmen at the factory, Ramlal and Babulal. Kailashchand had been aroused by his brother at about 3.30 or 3.45 a.m. He called the labourers working in the factory from their quarters in the compound and outside the compound. People from the town had come to the factory compound. He directed the workers to attend to the fire. He had asked Ramlal the cause of the fire and was told that it was accidental. Ramlal was attending to the security of the rear of the compound and had notice the fire first. He had ascertained that the fire had started at 3.30 a.m. because, when the watchman had workmen him up, he had told him that the fire had started 10 minutes earlier. The labourers came within 15 to 30 minute of being called. When he went to the fire, immediately on being aroused, the fire had spread to almost all the 743 bales. 13 bales were separated from out of the 743 bales and these were damaged but not destroyed. It was not possible to move the bales because of the fire. The fire station at Anjad was about two furlongs from the factory. A man was sent to the fire station immediately the fire broke out. The engine came only at 6 a.m. because the fire-man had to be called from their homes and it was only after they came to the station that water could be filled. The telephone call to Rajpur was made at about 6 or 6.30 a.m. but the engine came at noon. Kailashchand did not remember if he had ascertained why it came so late. He could not say when the telephone call to the Indore fire station was made because it was Songirkar who made it.

67. Songirkar deposed that on the night of June 19, 1966, he was in the guest house adjoining the 2nd plaintiff's office. A man had come form the factory to inform him of the fire. He had gone to the factory at about 4 a.m. When he went he saw the merchants' bales pledged with he 2nd plaintiff on fire. A lot of people had gathered there and were pouting water on the bales and the adjacent walls. There was not fire engine. On seeing the fire he we to the house of the second plaintiffs, chairman and informed him of the fire. The chairman asked him to contract the Anjad Municipality chairman. When he pointed out that the telephone was not working, the chairman asked him to go and arose the telephone operator. He went and told the municipal chairman of the fire and requested him to sent the water tanker. The municipal chairman told him that he would come along with his worker. Songirkar had never seen fire engine in Anjad. He then went to the house of the telephone operator and told him of the fire and asked that the telephone exchange be started. He then returned. to the fire where the second plaintiff's chairman, vice-chairman and many other had collected. He did not see the water tender there when he returned. He then we to he returned. He then went to this office and telephoned the fire-station at Indore. He also telephoned the head office of the first plaintiff at Barwani because Manjrekar was in Barwani. At about 6.15 a.m. he returned to the factory. The municipal water tanker was there and about 100 people were working on the fire. Water was being hosed on the fire and the walls. He went back to his office and sent some telegrams, then the fire returned to the factory. The fire was still reading although efforts were being made to control it. A water taker and a fire engine, from Rajpur and Indore, respectively, came to the site at about 2 or 2.30 p.m. The fire was extinguished at about 4.30 p.m. 7.30 bales were completely destroyed; 13 had been shifted and were partially damaged. When Songirkar had gone to the site the fire immediately after receiving information about it, at 4.00 p.m. all the 743 bales were on fire. By 4.30 p.m. when the fire was extinguished, all the bales other than the few which were moved away had been burnt out. He had asked Kailashchand and other the case of the fire and they replied they did not know. The Indore engine had come only after two telephone calls had been made. It was correct that it was said that the engine would come only if its charges were paid. They had agreed to pay the charges. He had not asked the Indore firemen why they had not come before 2.30 p.m. There has been no discussion with Manjrekar as to who would pay the charges.

68. Manjrekar deposed that he had gone to the first plaintiffs' head office at Barwani on the night of 19th/20th June, 1966, On 20th June, 1966, be had been aroused by an employee of the head office and given a note which stated that there was a fire at Anjad and that he should return. The employee told him that the factory's car was waiting for him. He went and aroused the first plaintiffs' chairman. He was instructed to go to Anjad immediately. He reached Anjad at about 7.30 a.m. At the factory he saw the 743 bales on fire. The Anjad water tanker and some people were attempting to put out the fire, but without success. They were pouring water from buckets. The water was being brought from the well and the tank in the factory. He was told by Songirkar that they had already informed the fire stations at Barwani, Rajpur and Indore. Since he did not get a proper reply from Songirkar when he asked whether the insurers were informed, he returned to his office and drafted a telegram to them, sent it and returned to the factory. At about 10 a.m. he telephoned the insurers' office at Indore and informed it about the fire, about his telegram, and that the Indore engine had not come. He asked that the Indore fire station should be required to send an engine immediately as the fire had assumed large proportions. He then telephoned the Indore fire station. He asked why the engine had not come. He was told that the charges would be Rs. 75 per hour. He replied that the charges would be paid and the engine should come forthwith. The Indore engine came at about 2 p.m. The Rajpur engine had also come, but by then the Indore engine had already commenced work, so the Rajpur engine returned without doing anything. At about 4-30 p.m. the fire was extinguished. The fire destroyed 730 bales and damaged 13. Nothing else was damaged or destroyed. He had telephoned the original defendants at about 10 a.m. from the factory. He knew that Songirkar had telephoned the Indore fire station. Songirkar had not told him that the engine's charges would be Rs. 75 per hour. Songirkar had told him that he had telephoned in the early morning but had not specified any time. He had not asked the Indore fire station at about 10.15 a.m. why they had not yet sent an engine to site, but he had complained about it. This when he was told of the charges of Rs. 75 per hour. He said that the charges would be paid and was told that the engine would be sent. The second plaintiff had paid the charges. The Indore engine had then started fire-fighting operations. The Rajpur engine had not entered the factory compound but had gone back. He did not know whether the Rajpur engine was told to go back.

69. Surajsingh deposed that the Indore engine had come at about 2 p.m. and that till then people had been trying to put out the fire by throwing water from the pump in buckets.

70. The watchman, Ramlal, now deceased, had made a statement in writing to the surveyor, Kapadia, which has been brought on record. It states that he had been employed by the factory as a watchman about 18 days before the fire. He was required to patrol the entire compound. At about 3 a.m. on June 20, 1966, he saw smoke. He rushed to it and saw one bale burning and the fire spreading to the other bales. He shouted that a fire had started until 5 or 10 people gathered. By that time 5 or 10 bales had caught fire. There was no water and there was no way to extinguish the fire. Some bales were salvaged. He remained there till 6 a.m. Till that time the tanker had not arrived nor had any other arrangement been made to bring water. The factory pump had been started and water was collected in buckets. But the fire was by then so strong that water could not be sprinkled because nobody could go near the fire.

71. Two factors brought out by this evidence are noteworthy : First, that the Anjad water tanker came to the fire nearly 2 hours after it was said to have been called; but the explanation given that men had to be collected from their homes to man the tanker and that they had then to fill it with water is, perhaps, a valid explanation for a small town like Anjad. Secondly, the Indore engine came at about 2 p.m. though summoned early in the morning. Manjrekar's evidence suggests either that Songirkar, when he telephoned early in the morning, did not agree to the payment of Rs. 75 per hour for the Indore engine or that the fire station did not mention this. Either way, as Mr. Khambatta suggested, a fire engine that has to travel some 80 miles to the scene of the fire is of little practical use. It is clear that, once the fire was lit, nothing in Anjad could have saved the bales. What is remarkable is that, though this should have been as clear to Manjrekar, he did little or nothing to try to avert the contingency after receipt of the letter of warning.

72. Mr. Khambatta submitted that there had been no arson because it was clear from the evidence that Shankarlal Kantewala, the minimum of the factory, had been prosecuted for arson in respect of the fire but had been acquitted, and also because the security at the factory was such that no outsider could have entered the compound to set the fire. That Shankarlal was not found guilty of arson cannot mean that there was no arson. And, if security really was tight, the fire is the more likely to have been a case of arson. The likelihood of an accidental fire at 3 a.m. is negligible : the season was over, the factory was not functioning, and there was no one working in the compound.

73. Upon these factors -

that the pledged bales were old, had depreciated in value and had been difficult to sell;

that the merchants who owned the pledged bales had not the cash to redeem them;

that these merchants were members of the second plaintiff society;

that appropriate action against the merchants and their bales was not taken by the second plaintiff;

that the relations between the first and the second plaintiffs were close and Manjrekar felt that action against the second plaintiff and its bales would have an adverse effect on it and the co-operative movement;

that, in fact, no action was taken by the first against the second plaintiff though long overdue;

that the amount due by the second plaintiff to the first plaintiff, which had been secured by the 743 bales, was treated by the first plaintiff as outstanding since the claim on the insurers was pending;

that the letter of warning was not disclosed to the insurers at the proposal stage;

that, even after the fire, the insurers and their surveyors were kept in the dark about the letter of warning;

that, though the letter of warning was precise as to the object, little was done and much left undone to obviate the bales being destroyed by fire;

that the bales were placed in the compound isolated from all else;

that the bales were not shifted into the built-up areas of the factory after the season was over, though 500 to 600 other bales were;

that the probability of a fire starting around 3 a.m. in circumstances such as are set out above is remote;

the balance probabilities indicates that the fire was deliberately set and that, whoever else was or was not a party to the fraud, the first plaintiff, through Manjrekar, was.

74. In Mac Gillivray and Parkington on Insurance Law (paragraph 2139) it is stated that the assured cannot recover for a loss where his own deliberate act is the proximate cause of it. This rule is the result of the application of one or both of two separate principles of law. First, on ordinary principles of insurance law an assured cannot by his own deliberate act bring about the event upon which the insurance money is payable, because it is presume that the insurance was never intended to cover that kind of loss, but only a loss occasioned by a fortuitous period. Secondly, on a principle of public policy applicable to all sorts of legal claims, the assured is not entitled to recover a benefit or indemnity in respect of his own criminal or civil wrong, because the courts desire to impose that restraint upon the commission of crimes and illegal acts. This principle is perhaps itself a special application of the general doctrine that no man may take advantage of his own wrong.

75. Upon these considerations the first plaintiff cannot recover upon the policies and cover notes.

76. In any event, the conduct of the first plaintiff's agent, Manjrekar, was so reckless and so careless of consequence that it must be held to be tantamount to a willful Act. In these circumstances also, the 1st plaintiff is not entitled to recover upon the policies and cover notes.

77. It was submitted that 743 bales had been destroyed by the fire and reliance was placed in this regard upon the pledge and stock-registers of the plaintiffs.

78. In respect of the second plaintiff's stock registers, Songirkar, who claimed in examination-in-chief that they were correct, admitted in cross-examination that he could not answer whether the stock registers related to the stock pledged by merchant members with the second plaintiff or to the stock pledged by the second plaintiff with the first plaintiff. He admitted that, without assistance, he could not state whether what was contained in the registers was correct or not. The second plaintiff's accounts clerk, Bhargav, claimed in examination-in-chief to have written the registers upon the basis of the original agreements of pledge. In cross-examination he said that he had never seen the original agreements of pledge between the six merchants and the second plaintiff before that moment. He had no knowledge of the suit transactions but only copied out the rough account maintained by Gyaniram. No entry was made in the pledge and stock-registers to show that the pledged bales had been destroyed. Up to date the pledge and stock-registers showed the pledge of 743 bales as existing. Mr. Shah pointed out that Bhargav's reading of the second plaintiff's registers indicated that in June 19, 1966, 756 bales pledged by the six merchants with the second plaintiff were in the factory compound.

79. Manjrekar deposed that the 743 bales had been pledged prior to his taking charge of the first plaintiff's Anjad office and, therefore, he had no personal knowledge of the pledge thereof with the 1st plaintiff. He could, however, aver that the entries in the pledge and stock registers of the first plaintiff were correct because they had been verified by him against the stock during his tenure in the office. The last verification had been made 8 or 19 days before the fire and no discrepancy in respect of the 743 bales had then been discovered. From the date he took charge in October, 1965, till June 19, 1966, 743 bales belonging to the six merchants were lying in the compound. Every week from October, 1965, till June 19, 1966, tallied with the stock and pledge registers. During no time during this period did he find more or less than 743 bales belonging to the 6 merchants pledged by the second to the first plaintiff. After July, 1966, the stock existing in the compound did not tally with the first plaintiff's registers. No steps were taken to rectify the registers till the amount outstanding against 743 bales was paid. The stock-register was intended to reflect the actual stock pledged with the first plaintiff. After July, 1966, the 743 bales did not exist and what the stock-register showed was false. Mr. Shah pointed out that Manjrekar's reading of the first plaintiff's registers indicated that on June 19, 1966, 711 (not 743 as the plaint stated nor 711 as Bhargav read the second plaintiff's registers) bales belonging to the 6 merchants, pledged by the second plaintiff with the first plaintiff were lying in the factory compound. And there is evidence, given by Bhargav, that the stock and pledge registers of the second plaintiff were tallied with those of the first plaintiff on June 30 of every year and that such tally had been made on June 30, 1965, and June 30, 1966.

80. Even if all the pledges by the six merchants to the second plaintiff and, in turn, by the second plaintiff to the first plaintiff had been proved, there is, therefore, no evidence that on the night of the fire 743 bales so pledged were lying in the factory compound, or for that matter, of the number of the bales so pledged that were lying in the factory compound on the night of the fire and were destroyed thereby.

81. The evidence regarding the depreciation in value of the pledged bales has already been referred to. The evidence shows that the bales pledged were not of the same quality. The pledges were made on different dates. The merchants who are examined deposed as to different rates. There is no satisfactory material before the court upon which it may assess the value of the bales destroyed by the fire.

82. Mr. Shah cited the judgment of the Calcutta High Court in the case of Planters Airways Co. Ltd. v. New India Assurance Ltd. 68 CWN 368. The plaintiff in that suit was a transport agent for forwarding goods by air and was a lessee of two godown. In connection with its business the plaintiff was responsible for the safety of the goods entrusted to it for transport and stores in the godowns, it insured them from year to year with the defendant under the policies. It was contended by counsel for the defendant that the insurable interest of the plaintiff was limited to the extent of its responsibility in the case of loss or damage and, since the plaintiff was a bale, its insurable interest of the plaintiff was limited to the extent of its responsibility in the case of loss or damage and, since the plaintiff was a bailee. On its own admission, the plaintiff had not committed any act of negligence and had taken all the care that any reasonable man would take with regard to his own goods. Counsel, therefore, submitted that the plaintiff was not liable for the loss or damage that had occurred to the goods and had no insurable interest in the goods destroyed. This contention was accepted by the court. It held that it was well known that in the case of insurance of goods by bailees, factors, harbingersand the like, their interest was ordinarily limited to the amount of their liability for loss of the goods to the owners by their own negligence. A bailee could claim an insurable interest if founded upon his lien or upon commission or other advantages which he might expect but no such case had been made out by the plaintiff.

83. Mr. Shah submitted that, in the instant case, there was no evidence that the 1st plaintiff had made any payment because of the destruction of the bales nor was it the 1st plaintiff's case that the bales had been destroyed due to its negligence. He submitted, therefore, that the 1st plaintiff had not insurable interest in the bales. I am not inclined to accept the submission to the extent that Mr. Shah has carried it. As I have held, the 1st plaintiff as pledgee (of the bales of which the pledge has been proved) had an insurable interest therein. But, as pledgee, its interest was limited to the amount of its liability for loss of the bales by reason of its negligence. It is not its case that there was any negligence on its part in the destruction of the bales. On the contrary, it was Mr. Khambatta's submission that the first plaintiff had taken all necessary steps to safeguard the bales. There is no evidence that any claim was made upon the first plaintiff for the value of the lost bales on account of negligence or that any payment was made that behalf.

84. This also must be noted : the destruction of the pledged article through no fault of the pledgee does not destroy the right of the pledgee to proceed against the pleaded to recover the advance made to him and the liability of the pledgor to repay the advance subsists.

85. It must, therefore, be held that no loss has been occasioned to the first plaintiff which the defendants can be called upon to indemnify under the policies and cover notes.

86. I answer the issues thus :

Issues Nos. 1 to 5 : Not pressed.

Issue No. 6 : In the affirmative in so far as 75 bales of Chainsingh Mohansingh and 281 bales of Mangilal Motilal are concerned.

Issue No. 7 : In the affirmative in respect of the aforesaid 356 bales.

Issue No. 8 : In the negative, the insurance cover was limited to the first plaintiff.

Issue No. 9 : In the negative.

Issue No. 10 : In the affirmative to the extent that the witness, Songirkar, deposed that the bales were stacked merchant-wise and in such a manner that no bullock cart could collide with them.

Issue No. 11 : In the negative.

Issue No. 12 : In the negative.

Issue No. 13 : In the affirmative.

Issue No. 14 : The plaintiffs are not entitled to any benefit under the policies; the benefit under the policies is forfeited.

Issue No. 15 : The first plaintiff had an insurable interest in the aforesaid 356 bales and had insured them with the original defendants.

Issue No. 16 : In the affirmative in that the first plaintiff did not communicate the terms of the letter of warning.

Issue No. 17 : In the affirmative.

Issue No. 18 : In the affirmative to the extent that there was a conspiracy to set fire to the bales to which the first plaintiff was a party.

Issue No. 19 : In the affirmative.

Issue No. 20 : In the affirmative.

Issue No. 21 : In the negative.

87. The suit is, therefore, dismissed with costs.

88. Mr. N. A. Shah, on behalf of the defendants, submitted that they were entitled to the costs of the suit thus :

Under sub-rule 2(1) of Rule 606 - Rs. 10,720 plus half that amount for fees payable to the second advocate; plus fees for examination of witnesses on commission under sub-rule (12). The commission worked over 18 days and the defendants, it was said, paid the advocate who appeared on their behalf by way of fees Rs. 20,755. Mr. Shah submitted that the defendants were also entitled to instruction fees for the commission in the equivalent amount. He also submitted that they were entitled to costs for work done prior to January 1, 1977.

89. Mr. C.J. Shah, on behalf of the plaintiffs, submitted that the first six issues had been given up by the defendants after arguments had been advanced in that behalf and that, therefore, there should be a deduction of Rs. 5,000 in the costs that I award.

90. In my opinion, the defendants are entitled to the amount of Rs. 16,080. In addition, in respect of the commission, they are entitled to the same fee for one advocate, i.e. Rs. 10,720, plus a fee per day for appearing therein which, in my discretion, I quantify at Rs. 500 per day over 18 days. In addition, for the work done, before January 1, 1977, I award the sum of Rs. 3,000. In the aggregate, therefore, the plaintiffs shall pay to the defendants the sum of Rs. 38,800 towards the costs of the suit.

91. The fees of the Commissioner have also to be fixed.

92. The parties have deposited Rs. 300 each towards the same. The fees of the Commissioner are fixed at Rs. 300 per day for 18 days. Having regard to the order in the suit, the plaintiffs shall pay the un-deposited amount of Rs. 4,800 and are hereby ordered to deposit the same in court on or before November 2, 1981. Upon the receipt of the said amount the Prothonotary and Senior Master shall forthwith remit the sum of Rs. 5,400 to the Commissioner. In the event of the amount of Rs. 4,800 not being deposited by the plaintiffs on or before November 2, 1981, the Prothonotary shall place the matter on my board for further directions.


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