Jewellery Handed Over in Trust, Later Stolen by Customers – Not Insurable Theft: J&K & Ladakh High Court

You Hand It Over, You Lose the Cover…Voluntary Handing Over of Jewellery to Known Customers Means Policy Doesn’t Cover the Loss, In a significant ruling that could impact jewellers and high-value retailers across India, the High Court of Jammu & Kashmir and Ladakh has ruled that when a jeweller voluntarily hands over ornaments to known customers for inspection, and those customers dishonestly replace them with fakes, the resulting loss does not amount to insurable theft, but rather criminal breach of trust – and is excluded under the insurance policy.

The bench of Justice Sanjeev Kumar and Justice Sanjay Parihar allowed the appeal of Bajaj Allianz General Insurance Company, reversing a ₹65 lakh award by the J&K Consumer Commission to M/s Hollywood Ornaments, a Srinagar-based jeweller. The Court held the insurer was right to deny the claim under Clause 11(c) of the policy – the so-called “entrustment exclusion” clause.

"Not All That Glitters is Covered" – Jewellery Swapped by Customers, Not Stolen

The case arose from a complaint by Hollywood Ornaments, who claimed that on 6 September 2018, two foreign customers, known to them and who had earlier placed orders for custom gold chains, came to inspect the items, and during the inspection, switched them with artificial replicas before leaving the shop.

The jeweller argued it was a case of theft and thus covered under their Jewellers Comprehensive Protection Policy.

But the Court didn’t buy it.

“Though the two gold chains were moved by the customers from the respondent initially on the basis of trust... they later dishonestly and acting in breach of trust misappropriated them by exchanging with artificial ones.” [Para 17]

"They Took It in Trust, Not by Trickery" – Court Says This Was Entrustment, Not Theft

While the policy did cover theft, the insurer relied on Clause 11(c), which excludes loss where property is entrusted to a customer.

The Court agreed: “The customers were not strangers but known to the respondent. They had placed the order earlier… The handing over of the chains… was voluntary and with his consent.” [Para 21]

What matters, the Court noted, is the initial transfer of possession – and here, it was clearly made on the basis of trust and relationship, not deception or force.

“There was trust of a vendor and customer between them. It was in pursuance of that trust, the respondent… handed over the two gold chains to the customers for inspection and retaining after payment of the amount.” [Para 21]

"This Is Breach of Trust, Not an Insurable Event" – Court Applies Criminal Law Concepts

By invoking Sections 378 (theft) and 405 (criminal breach of trust) of the IPC, the Court drew a legal distinction: while the loss involved dishonest intention, it was not theft, since the customers had lawful possession at the time they replaced the gold chains.

“They were voluntarily handed over the two gold chains by the respondent… while the customers were having dominion over the ornaments, they cleverly and dishonestly replaced them.” [Para 22]

"You Can’t Claim for What You Gave Away" – Exclusion Clause 11(c) Applies

The policy’s Clause 11(c) clearly excludes loss caused by “any customer… in respect of the property hereby insured entrusted to them.”

The Court emphasised that legal entrustment occurs even without formal documentation if the handing over is voluntary and trust-based.

“Once the property was entrusted to the customers… and they acted dishonestly while in possession, the exclusion applies.” [Paras 15–17]

"Precedent Doesn’t Protect You Here" – Supreme Court’s Ishar Das Case Not Applicable

The jeweller had relied on the Supreme Court’s decision in National Insurance Co. Ltd. v. Ishar Das Madan Lal (2007), where theft by an unknown person was held to be insurable.

The High Court rejected the comparison: “In Ishar Das, the offender was a complete stranger… In the present case, the customers were known, and the jewellery was handed over voluntarily.” [Para 22]

Thus, the legal logic of that precedent did not apply to this “trusted theft” scenario.

"Theft by Trust Is Not Covered" – Insurance Repudiation Upheld

In closing, the Court ruled decisively in favour of the insurer: “The instant case clearly falls within the scope of Clause 11(c) and absolves the appellant-Insurance Company of its liability.” [Para 23]

The order of the State Consumer Commission dated 24 November 2023 was set aside, and any amount deposited by the insurer was directed to be refunded.

Know Your Policy – Entrustment to Customers Can Void Your Coverage

This ruling underscores the importance for jewellers and other high-value merchants to read exclusion clauses carefully, and to understand the legal implications of voluntarily handing over property, even temporarily, to known customers.

As the Court effectively said: “Once you entrust it, you may not insure it.”

Date of Decision: 24/12/2025