Banks excercising the option of insurance policy should be on entire set of hypothecated assets : SC

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On May 20, 2020 the Supreme Court in the matter of Canara Bank vs M/s Leathoroid Corporation and others had stated that if the bank has effected its insurance policy, it should be with respect to entire hypothecated assets of the Borrower.
An appeal was filed by Canara Bank(hereinafter called the Appellant) before Supreme Court challenging the order of National Commission dated February 6,2019 providing a relief of Rs. 31.76 lac along with interest at the rate of 9% p.a to M/s Leatheroid Corporation and others(hereinafter called the respondent). The respondent also filed a cross objection of Rs 2 crore as compensation which was originally claimed before National Commission.
The appellant extended credit facilities to the respondent since 1980 and restructured the debt on 4th January 2001 and executed the following documents :
• Deed of hypothecation with respect to plant, machinery,accessories, tools which are already purchased and yet to be purchased for the term loan
• Agreement of collateral for other credit facilities and also with respect to contemplated hypothecation of additional security of plant, machinery, tools, accessories and motor vehicles already purchased and yet to be purchased.
The appellant on the other hand has excercised the option of effecting the insurance policy with respect to hypothecated assets . However, the said policy covered only stock in process and building and did not cover plant, machinery , accessories etc. In other words, the insurance policy did not cover entire set of hypothecated assets but only few hypothecated assets. Further premium was also deducted from the account of the respondent on regular basis .
On 27 August 2001, fire broke out in the premises and caused damage to the stock and machineries of the respondent. So the respondent filed a claim before insurance company and at the time of claim the respondent came to know that the insurance policy did not cover the entire hypothecated assets.
So they filed a complaint before the National Commission which was rejected by the Commission stating that the respondent was not a consumer as per Sec 2 d(ii) of Consumer Protection Act 1986.
Subsequently, the respondent had filed an appeal before Supreme Court under Civil Appeal no.445 of 2004. The said appeal was allowed on the ground that Section 2(d)(ii) was amended on March 15,2003 and the claim of the respondent was made during the year 2001. Further, the amendment did not have retrospective effect and so the appeal was allowed and passed. An order for remand was made to the National Commission.
On remand, fresh hearing was conducted on same matter and National Commission passed an order on February 6, 2019 stating that there was negligence on the part of appellant so it should pay Rs 31.76 lakhs along with interest at the rate of 9 %p.a within 8 weeks from the date of passing the order.
So the appellant challenged this order and filed an appeal before Supreme Court which in turn had upheld the order passed by National Comission stating the following reasons:
• The appellant excercised the option of effecting the insurance policy and accordingly debited a premium from the account of the respondent.
• When respondent asked for the copies of insurance policies the appellant did not produce the copy of policy documents.
• If the bank has effected insurance policy then it is the duty of the bank to cover entire set of hypothecated assets .

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