SC Says Compensation Is Payable For Deficiency Of Service Under Obligation

The Supreme Court on Thursday held that compensation is payable for deficiency of service under obligation as per the provisions of the Consumer Protection Act, 1986.

The Court was hearing an appeal filed by the Canara bank which assailed the order of National Consumer Dispute Redressal Commission wherein the bank was ordered to pay compensation to the tune of Rs. 2 Crores to the respondent who had hypothecated his assets with the bank and as per the hypothetication deed the bank was obliged to insure the assets and the particulars of the same were to be given to the respondent.

The respondent pleaded that his premises caught fire and as a result he suffered huge loss. The insurance company only paid compensation for the assets covered under the policy.

The respondent under those circumstances became liable, as part of their debt repayment obligation, for the price of such uncovered hypothecated assets damaged by fire. The petition of complaint before the Commission, however, was founded on loss on account of portion of the assets left uncovered in the insurance policy. The Bank had initiated recovery process before the forum constituted for such recovery.

The questions which arose before the Court for consideration were:-

• Whether there was any deficiency of service on the part of the bank in not covering the whole set hypothecated assets under the insurance policy.
• if the bank themselves effected the insurance and left significant part of hypothecated assets out of it without any intimation to that effect to the borrower, could such omission be held to be a lapse on the part of the bank?

Acting upon the plea, the division bench of Justice Uday Umesh Lalit & Justice Aniruddha Bose, observed that the Commission was right in holding that the complainant had suffered loss because of inaction and negligence on the part of  the Bank. This constituted deficiency in service. Any loss arising out of such deficiency was compensable under the provisions of the Consumer Protection Act, 1986.

The Court also observed that, the position could have been different in the event the Bank had alerted borrower at the time of effecting the policy that the entire set of assets was not being covered by the policies being effected by them. No such case has been made out. On the other hand, the Bank remained silent to the two letters of the respondent seeking particulars of the policy.

The bank’s stand that the policies and statements were made available to the Directors of the respondent­ Company is also not backed by any material. No particulars there of has been furnished. We also do not find any reason as to why once the Bank had exercised their liberty or option for effecting insurance chose not to cover the entire set of hypothecated assets.

Thus, the Supreme Court dismissed the appeal and upheld the order of NCDRC granting compensation to the respondent for deficiency in service.

Read the full judgement here;

-India Legal Bureau