It's borrower's responsibility to insure goods

The mere right of a bank to insure a mortgaged property does not imply that the bank is duty bound to do so, as held by the National Commission recently.

Jagdamba Eant Udyog had taken two loans from the State Bank of Bikaner and Jaipur against hypothecation and mortgage of its property, one being a term loan of Rs 5.20 lakh, and the other a fixed loan of Rs 4.65 lakh.

The firm's property was completely destroyed due to heavy snowfall on February 8, 2005. Jagdamba intimated the loss to the bank the next day. The bank responded by promptly slapping a notice on Jagdamba under the SARFAESI Act. Jagdamba challenged the notice thorough a writ, but the Rajasthan High Court dismissed the petition. Jagdamba then filed a complaint before the Rajasthan State Commission against the bank and National Insurance for damage to its property to the tune of Rs 15 lakh and business losses amounting to Rs 12 lakh.

The bank contested the complaint stating that it was time-barred. The bank contended that it was not under any obligation to get Jagdamba's properties insured. It faulted Jagdamba for not having insured the properties. The insurer opposed the complaint on the ground that it had been needlessly dragged into litigation even though no insurance coverage was offered.

The State Commission held the bank responsible for not having obtained the insurance, and ordered it to pay Rs 4.80 lakh as compensation, Rs 15,000 towards mental agony and Rs 5,000 as litigation expenses, along with interest at nine per cent per annum. The complaint against National Insurance was dismissed.

The bank appealed against this order. On the issue of limitation, Jagdamba claimed that the complaint was in time as it had approached the High Court. The National Commission disagreed, observing that the writ had nothing to do with insurance coverage. Loss had occurred on February 8, 2005 while the complaint was filed on October 9, 2007. The Commission also disagreed that limitation would run from the date when the bank initiated action under the SARFAESI Act and observed that this did not have any bearing on the question of property insurance.

The National Commission observed that the agreement for the loan cast a duty on Jagdamba to get the property insured in the joint names of the firm and the bank. The agreement conferred a right to the bank, but not an obligation, to insure the mortgaged property. Hence, the failure of the bank to insure the mortgaged property could not be termed a deficiency in service.

It is the borrower who has to bear the brunt of a loss. So, he must be prudent enough to insure his property, instead of relying on the bank to do so.

The author is a consumer activist