Fire Accident Can't Be Termed 'Act Of God' If It Did Not Happen Due To External Natural Forces : Supreme Court

The Supreme Court observed that a fire accident cannot be said to be an 'act of God' if it did not happen due to the operation of any forces of nature.

"When nothing of any external natural force had been in operation in violent or sudden manner, the event of the fire in question could be referable to anything but to an act of God in legal parlance.", the court said in a judgment delivered on Thursday (6 January 2022)

In 2003, a fire incident took place in a godown of the distillery of the Mcdowell & Co. As many as 35,642 cases of Indian Made Foreign Liquor of different brands got destroyed in this fire. After receiving the initial reports that the fire possibly took place due to short circuit of electricity, the Revenue department proposed to recover the amount of excise duty lost, due to such destruction of liquor, from the company. Allowing the writ petition filed by the Company, the Allahabad High Court quashed the demand notice issued by the Department. 

The High Court had accepted the contention raised by the Company that if the fire had taken place despite the company having taken all care, it was nothing but an act of God of which, no human agency had any control. 

In appeal filed by the State before the Supreme Court, the following issues were considered:

(a) Whether demand of excise duty on the liquor lost in fire is authorised by law and has rightly been raised as per the applicable provisions of the Act of 1910, the Excise Manual and the Rules of 1969?

(b) As to whether the fire incident in question had been an event beyond human control and no negligence could be imputed on the respondent company?

(c) What would be the effect of the fact that the respondent company had taken insurance coverage only of the value of liquor (and not that of excise duty thereupon) and then, had received the insurance claim towards the value of liquor?

On the question of 'act of god', the Court first referred to P. Ramanatha Aiyar's Advanced Law Lexicon wherein it is stated thus:

"All natural agencies, as opposed to human activities, constitute acts of God, and not merely those which attain an extraordinary degree of violence or are of very unusual occurrence. The distinction is one of kind and not one of degree. The violence or rarity of the event is relevant only in considering whether it could or could not have been prevented by reasonable care : if it could not, then it is an act of God which will relieve from liability, howsoever trivial or common its cause may have been. If this be correct, then the unpredictable nature of the occurrence will go only to show that the act of God in question was one which the defendant was under no duty to foresee or provide against. It is only in such a case that the act of God will provide a defence." R.F.V. HEUSTON. Salmond on the Law of Torts 330 (17th ed. 1977).

"A natural act such as a storm, floods or an earthquake which cannot be foreseen and usually absolves a person from liability if damage occurs as a result.

Any event so out of the ordinary that it could not have been prevented by any amount of human care and forethought, e.g. lightning, freak tidal waves or floods etc., which relieves a contractor, such as a freight carrier, of any liability for losses suffered as a result of it." "…..The expression 'act of God' signifies the operation of natural force free from human intervention, such as lightning. It may be thought to include such unexpected occurrences of nature as severe gale, snowstorms, hurricanes, cyclones and tidal-bures and the like. But every unexpected wind and storm does not operate as an excuse from liability, if there is a reasonable possibility of anticipating their happening. An act of God provides no excuse, unless it is so unexpected that no reasonable human foresight could be presumed to anticipate the occurrence, having regard to the conditions of time and place known to be prevailing at….."

The bench comprising Justices AM Khanwilkar, Dinesh Maheshwari and Krishna Murari referred to the observations made in earlier judgments viz Divisional Controller, KSRTC v. Mahadeva Shetty and Ors.: (2003) 7 SCC 197, Vohra Sadikbhai Rajakbhai & Ors. v. State of Gujarat and Ors: (2016) 12 SCC 1 and Patel Roadways Limited v. Birla Yamaha Limited: (2000) 4 SCC 91, and observed:

The present one had not been a case where anything related with the forces of nature like storm, floods, lightning or earthquake had been in operation or caused the fire. When nothing of any external natural force had been in operation in violent or sudden manner, the event of the fire in question could be referable to anything but to an act of God in legal parlance. The observations of High Court in this regard do not appear sound and are required to be disapproved.

The court also noticed that the goods in question were not ordinary goods but had been containing alcohol which, by its very nature, is highly inflammable. Therefore, a particular nature of care which might be sufficient as regards ordinary goods may not be adequate or sufficient for the goods in question, it said. Hence, the Court held that the mishap cannot be termed as "inevitable accident".

The court said:

63. As noticed, the fault of "negligence" need not always be of active negligence or of gross negligence, but it may also be of an inadvertent negligence or of a passive negligence. It does not require much of discussion to say that the goods in question, being highly inflammable, required extra and excessive care for their safe custody; and any laxity or slackness in that regard was impermissible. To put it differently, what was required for ensuring safe custody of the goods in question was that of heightened safeguard measures with foresight. When the respondent had not been able to protect the goods in question from fire within the warehouse and when all other factors, as noticed above, are taken into account, the negligence as contemplated in Rule 709 of the Excise Manual is directly attributable to the respondent company. In other words, even if the present case is taken to be that of inadvertence or of unintentional omission on the part of the respondent company, it would fall within the definition of "negligence" for the purpose of Rule 709 of the Excise Manual.

Allowing the appeal, the court held as follows:

(i). The demand raised by the appellants against the respondent company, of excise duty on the liquor lost in fire, is authorised by law and has rightly been raised as per the applicable provisions of the Act of 1910, the Excise Manual and the Rules of 1969.

(ii). The fire incident in question cannot be said to be that of an event beyond human control and the High Court has been in error in holding that no negligence could be imputed on the respondent company.

(iii). The fact that the respondent company had taken insurance coverage only of the value of liquor (and not that of excise duty thereupon) and then, had received the insurance claim towards the value of liquor also operates against the respondent company and fortifies the conclusion about negligence of the respondent company.

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