Insurance company can move consumer forums

A five-judge constitution bench headed by Chief Justice KG Balakrishnan recently clarified that an insurance company and a consignor can jointly sue a transporter or carrier for compensation for deficiency of service. This constitutional bench was set up in 2000 to examine the nuances of the Consumer Protection Act and the Carriers Act in Economic Transport Organization v Charan Spinning Mills.

The question before the court was whether an insurance company could be a consumer in a dispute between a manufacturer and its transporter. While earlier judgments had offered conflicting views on the definition of “consumer”, the Consumer Protection Act allowed only individuals who buy goods or services for their own purpose to move a consumer forum. The law was amended in 2002 to clarify that those who buy goods or services for commercial purposes cannot move a consumer forum. By that criterion insurance companies, which are in the thick of commercial operations, should not be able to move a consumer forum. There are circumstances in which they have stood in the shoes of the consumer, however, the law was unclear about when this was. This judgment clarifies that insurance companies can move a consumer forum.

In this case, Charan Spinning Mills, a manufacturer of cotton yarn, bought a policy from National Insurance Company for transit risks. Its consignment was entrusted to the transporter, Economic Transport Organization. The goods were damaged in an accident and National Insurance Company settled the claim of the mill. On receiving the payment Charan Spinning Mills executed a letter of subrogation-cum-special power of attorney in favour of the insurance company. Thereafter the mill and the insurance company – the consignor and the insurer – together filed a complaint under the Consumer Protection Act, 1986, against the transporter before the District Consumer Disputes Redressal Commission, Dindigul, claiming Rs447,436 (US$10,000) in compensation. This was opposed by the transporter who argued that the insurer could not claim the rights of a consumer, but all the consumer forums up to the National Commission upheld the insurance company’s right to sue.

The update of court judgments is compiled by Bhasin & Co, Advocates, a corporate law firm based in New Delhi. The authors can be contacted at lbhasin@bhasinco.in or lbhasin@gmail.com. Readers should not act on the basis of this information without seeking professional legal advice.