Supreme Court Sets Aside NCDRC Order Holding Bank Liable in Insurance Claim Dispute: State Bank of India vs. New India Assurance Company Limited (2020)

Introduction

Date of the Judgment: 7 February 2020

Citation: Civil Appeal No. 1234 of 2020 (Arising out of SLP(C) No 13380 of 2019)

Judges: Dr Dhananjaya Y Chandrachud, J and Indu Malhotra, J

Can a consumer court hold a bank liable for an insurance claim when the borrower, who was the original claimant, has not challenged the order of the lower consumer forum and has reached a settlement with the bank? The Supreme Court of India addressed this question in a recent case, overturning a decision by the National Consumer Disputes Redressal Commission (NCDRC). The core issue revolved around whether the NCDRC could impose liability on the bank when the borrower had accepted the State Consumer Disputes Redressal Commission’s (SCDRC) order and had settled their dues with the bank. The judgment was delivered by a two-judge bench comprising Justice Dr. Dhananjaya Y Chandrachud and Justice Indu Malhotra.

Case Background

On 14 November 2005, a loan agreement was established between State Bank of India (the Bank) and a borrower. As part of this agreement, the borrower was obligated to insure all assets charged to the Bank. Consequently, an insurance policy was secured by the Bank on behalf of the borrower through an arrangement with the insurer.

A fire incident occurred at the borrower’s premises on 15 February 2007. When the insurer did not accept the claim, the borrower filed a consumer complaint with the SCDRC. On 17 November 2014, the SCDRC directed the Bank to forward the claim to the insurer, who was then instructed to process it according to the law. The SCDRC also ordered the insurer to pay Rs. 50,000 as compensation and Rs. 7,000 as costs. Importantly, the Bank was not held liable for compensation.

Neither the borrower nor the Bank challenged the SCDRC’s order. However, the insurer appealed to the NCDRC. On 6 February 2019, the NCDRC reversed the SCDRC’s decision, holding the Bank liable for the borrower’s claim along with 9% annual interest. This NCDRC order led to the present appeal before the Supreme Court.

Timeline:

Course of Proceedings

The State Consumer Disputes Redressal Commission (SCDRC) initially directed the Bank to forward the borrower’s insurance claim to the insurer, who was to process it according to the law. The SCDRC did not hold the Bank liable for compensation. This order was not challenged by either the borrower or the Bank.

However, the insurer appealed this order to the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC overturned the SCDRC’s decision and held the Bank liable to pay the borrower’s claim along with 9% annual interest. This reversal by the NCDRC led to the Bank’s appeal to the Supreme Court.

Legal Framework

The judgment does not explicitly discuss any specific legal provisions or statutes. The case primarily revolves around the interpretation of the orders passed by the consumer forums and the contractual relationship between the parties.

Arguments

Arguments on behalf of the Appellants (State Bank of India):

• The Bank argued that the borrower had accepted the SCDRC’s order, which only directed the Bank to forward the insurance claim to the insurer.
• The Bank contended that the NCDRC’s decision to hold the Bank liable was contrary to law, as the borrower had not appealed the SCDRC’s order.
• The Bank further submitted that a settlement had been reached with the borrower under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002, and a ‘No Dues’ Certificate was issued on 12 June 2017.
• The Bank highlighted that the borrower had agreed on affidavit to withdraw all claims against the Bank.

Arguments on behalf of the Respondent (New India Assurance Company Limited):

• The insurer argued that the borrower’s claim was submitted belatedly, nearly six and a half years after the fire incident on 15 February 2007.
• The insurer contended that the NCDRC was justified in concluding that the claim was time-barred.

Arguments on behalf of the Respondent (Borrower):

• The borrower acknowledged that there was a one-time settlement with the Bank.
• The borrower disputed having filed an affidavit withdrawing all claims against the Bank.

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in a numbered list. However, the core issue addressed by the Court was:

✓ Whether the NCDRC was justified in holding the Bank liable for the insurance claim when the borrower had not challenged the SCDRC’s order and had reached a settlement with the Bank.

Treatment of the Issue by the Court

Authorities

The Supreme Court did not cite any specific cases or books in its judgment. The decision was based on the specific facts of the case and the procedural aspects of the matter.

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the procedural impropriety of the NCDRC’s order. The fact that the borrower had not challenged the SCDRC’s order and had entered into a settlement with the Bank weighed heavily in the Court’s reasoning. The Court emphasized that the NCDRC should not have imposed liability on the Bank when the borrower had accepted the SCDRC’s decision.

The Court noted, “The fundamental point is that the borrower not having challenged the order of the SCDRC, such a liability could not have been foisted on the Bank by the NCDRC.”

The Court further observed, “As between the Bank and the borrower, there has been a one time settlement.”

The Court also stated, “In this background, we see no reason or justification for the NCDRC, in an appeal by the insurer, to foist the liability on the Bank.”

Key Takeaways

✓ The Supreme Court emphasized that when a party accepts an order of a lower consumer forum and does not challenge it, a higher forum cannot impose liability on another party that was not held liable in the original order, especially when a settlement has been reached.

✓ The judgment highlights the importance of procedural fairness in consumer dispute resolution.

✓ The decision reinforces the principle that settlements reached between parties should be respected and upheld by consumer forums.

Directions

The Supreme Court directed that the appellants (State Bank of India) were at liberty to withdraw the amount deposited before the Court, along with any accrued interest, in pursuance of the interim order passed during the proceedings.

Specific Amendments Analysis

There is no specific amendment analysis in the judgment.

Development of Law

The ratio decidendi of this case is that a higher consumer forum cannot impose liability on a party that was not held liable by a lower forum, especially when the original claimant has accepted the lower forum’s order and has settled the dispute with the party. This judgment clarifies the procedural aspects of appeals in consumer disputes and reinforces the importance of respecting settlements. There is no change in the previous position of law.

Conclusion

The Supreme Court set aside the NCDRC’s order, which had held the State Bank of India liable for an insurance claim. The Court emphasized that the borrower had accepted the SCDRC’s order and had reached a settlement with the Bank. Therefore, the NCDRC’s decision to impose liability on the Bank was deemed inappropriate. The judgment underscores the importance of procedural fairness and the respect for settlements in consumer dispute resolution.