Jeweller Voluntarily Handing Over Gold To Customer Is 'Entrustment'; Theft Not Covered Under Insurance Policy: J&K&L High Court

The High Court of Jammu & Kashmir and Ladakh has held that where possession of insured property is voluntarily transferred on the basis of trust, such transfer amounts to entrustment, and any dishonest loss arising therefrom attracts exclusion clauses notwithstanding that the act may legally amount to theft.Applying this doctrine, a Division Bench comprising Justice Sanjeev Kumar and Justice Sanjay Parihar set aside the order of the J&K State Consumer Disputes Redressal Commission and upheld the repudiation of an insurance claim arising from the dishonest replacement of gold jewellery by customers, ruling that the insurer was not liable under the Jewellers Comprehensive Protection Policy.Background:The dispute arose from an insurance claim lodged by a Srinagar-based jeweller, M/s Hollywood Ornaments, who had obtained a Jewellers Comprehensive Protection Policy from Bajaj Allianz General Insurance Company. The policy covered stock-in-trade lying at the shop premises, subject to specified terms, conditions, and exclusions.In 2018, two foreign nationals entered the jeweller's shop and, according to the complainant, dishonestly replaced two gold chains with artificial ones. The jeweller claimed that the incident resulted in a loss of ₹51.66 lakhs, inclusive of labour and profit. An FIR was lodged with the police, and the loss was duly reported to the insurance company, which deputed a surveyor to assess the claim.However, sometime later the insurer repudiated the claim, stating that the loss was not covered under the policy as there was no forcible entry, the incident amounted to cheating, and burglary, not theft simpliciter was covered. Aggrieved, the jeweller approached the State Consumer Disputes Redressal Commission alleging deficiency in service.The Commission allowed the complaint, holding that there was no entrustment of the jewellery to the customers and that the repudiation of the claim amounted to deficiency in service. The insurer challenged this finding before the High Court.Court's Observations:The principal issue framed by the Court was whether the loss of jewellery, voluntarily handed over to customers who later removed it by replacing it with artificial chains, constituted theft covered under the policy or a loss arising out of entrustment excluded under Clause 11(c) of the General Exclusions.The Bench examined the scope of cover under the Jewellers Comprehensive Protection Policy, which insured stock-in-trade on premises against all risks of direct physical loss or damage arising from any cause whatsoever, subject to exclusions. The Court noted that theft of stock-in-trade was generally covered, but emphasised that Clause 11(c) expressly excluded losses occasioned by theft or dishonesty committed by any customer in respect of property entrusted to them by the insured.Turning to the facts, the Court observed that the customers were not strangers. They had earlier placed an order for making the gold chains and had visited the shop to collect them. The chains were handed over to them for inspection and satisfaction, without receipt of sale consideration, on the basis of trust reposed in them by the jeweller.“The change of possession of the gold chains from respondent to the customers was voluntary and with the consent of respondent… It is different matter that the customers who were entrusted with the gold chains misappropriated them to their own use by dishonestly replacing them with artificial ones.”, the court remarked. The Court held that this voluntary handing over of the jewellery constituted entrustment and that the subsequent dishonest act amounted to misappropriation while in entrusted possession.Interpretation of 'Theft' and 'Entrustment'. While acknowledging that the act fell within the definition of “theft” under Section 378 of the Indian Penal Code and under the policy definition, the Court stressed that the decisive question was whether the theft was committed by a customer entrusted with the property. On this aspect, the Bench concluded that the case clearly fell within Clause 11(c) of the General Exclusions.The Court extensively referred to the Supreme Court's decision in National Insurance Company Limited v. M/s Ishar Das Madan Lal, explaining the concept of entrustment and clarifying that entrustment implies the transfer of possession founded on confidence and trust. However, the High Court distinguished the facts of the present case from that precedent, noting that in Ishar Das Madan Lal, the theft was committed by a stranger, whereas in the present case, the customers were known to the jeweller and had been voluntarily entrusted with the jewellery.“It is thus a pure and simple case of theft of the insured property by the customer who had been entrusted therewith and, therefore, falls in Exclusionary Clause 11(c).”, the court maintained. Holding that the loss was squarely excluded under the policy, the Division Bench ruled that the insurance company was justified in repudiating...

Jeweller Voluntarily Handing Over Gold To Customer Is 'Entrustment'; Theft Not Covered Under Insurance Policy: J&K&L High Court

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