Order Name: Canara Bank Vs. M/S. Shree Shakti Foam
Case No.: F.A. No. 391/2023
The National Consumer Disputes Redressal Commission, led by Mr. Subhash Chandra and Dr. Sadhna Shanker, recently ruled on the responsibilities of borrowers and banks concerning insurance coverage. The commission clarified that borrowers must ensure their goods are insured. Banks are not responsible for any insurance gaps unless they have explicitly agreed to manage that responsibility.
In this case, a business owner dealing in quilts and foams borrowed money from Canara Bank, which also arranged insurance for the owner’s stock and storage. The bank deducted the insurance premium directly from the owner’s account without disclosing the insurance company involved. Unfortunately, a fire later destroyed the goods, and the owner claimed that the bank failed to renew the insurance on time. Instead, the bank insured the already-destroyed stock and storage without inspection. The business owner filed a complaint with the State Commission of Uttar Pradesh, seeking compensation for stock loss, mental distress, and legal costs, accusing the bank of poor service. The State Commission sided with the owner, ordering the bank to pay Rs. 25 lakh for the insured amount, Rs. 20,000 for damages, and Rs. 5,000 for litigation expenses. The bank then appealed to the National Commission.
The bank admitted to holding the insurance documents and stated that it arranged the insurance based on the business owner’s instructions. However, the bank argued that it was the owner’s duty to inform them about policy renewal and to provide the renewed policy receipt. The bank contended that the owner should not receive any relief and requested dismissal of the complaint.
The National Commission focused on whether the bank was liable for not insuring the owner’s goods. It found that while the owner claimed to be unaware of the insurance details, the contract made it clear that insuring the goods was the owner’s responsibility. The bank was not required to insure the goods, as stated in the Cash Credit Agreement. Even though the bank had arranged insurance previously, this did not relieve the owner of their duty to secure proper insurance coverage. Moreover, there was no substantial proof of the owner’s claimed losses from the fire, only letters to the police and the bank. No proper damage assessment was provided. The commission cited a previous ruling, Oriental Bank of Commerce vs. HS Traders & Ors, to emphasize that borrowers are primarily responsible for insuring their goods, and banks cannot be held accountable for lapses unless they have explicitly taken on that duty. The commission concluded that the bank did not provide deficient service under the Consumer Protection Act, 2019, thus overturning the State Commission’s decision and allowing the bank’s appeal.
The takeaway from this case is that borrowers must understand that it is their responsibility to ensure their goods are insured. Banks are not liable for insurance lapses unless they have specifically agreed to take on that responsibility.
