At the outset, it may be stated that contracts of
insurance are contracts of uberrima fides and every material
fact is required to be disclosed. In United India
Insurance Co. Ltd. v. M.K.J. Corpn.(1996) 6 SCC 428
, a two-Judge Bench
has observed:-
“It is a fundamental principle of Insurance law
that utmost good faith must be observed by
the contracting parties. Good faith forbids
either party from concealing (non-disclosure)
what he privately knows, to draw the other
into a bargain, from his ignorance of that fact
and his believing the contrary. Just as the
insured has a duty to disclose, “similarly, it is
the duty of the insurers and their agents to
disclose all material facts within their
knowledge, since obligation of good faith
applies to them equally with the assured”.”
Regard being had to these principles, the authorities
cited by Mr. Gupta, learned senior counsel for the appellant
are to be seen.
In Amalgamated Electricity Co. v. Ajmer
Municipality (1969) 2 SCR 430 = AIR 1969 SC 227
, though in a different context, it has been
held that:-
“In construing the true nature of the contract
entered into between the parties, the contract has
to be read as a whole and if so read it is clear
that what the plaintiff undertook was to pump
water from the wells in question and not to
supply any electrical energy. Hence we are in
agreement with the learned Judges of the High
Court that the plaintiff's case in this regard
should fail.”
11. In Bay Berry Apartments (P) Ltd. and Another v.
Shobha and others (2006) 13 SCC 737
, the Court has observed that in
construing a document, the Court cannot assign any other
meaning; and a document as is well known must be
construed in its entirety.
12. In Polymer India (P) Ltd. and Another v. National
Insurance Co. Ltd. and Others (2005) 9 SCC 174
, this Court has held
thus:-
“19. In this connection, a reference may be made
to a series of decisions of this Court wherein it
has been held that it is the duty of the court to
interpret the document of contract as was
understood between the parties. In the case of
General Assurance Society Ltd. v. Chandumull
Jain (1996) 3 SCR 500 : AIR 1966 SC 1644
, it was observed as under:
“In interpreting documents relating to a
contract of insurance, the duty of the court
is to interpret the words in which the
contract is expressed by the parties, because
it is not for the court to make a new
contract, however reasonable, if the parties
have not made it themselves.”
20. Similarly, in the case of Oriental Insurance
Co. Ltd. v. Samayanallur Primary Agricultural
Coop. Bank (1999) 8 SCC 543
, it was observed as under:
“The insurance policy has to be construed
having reference only to the stipulations
contained in it and no artificial far-fetched
meaning could be given to the words
appearing in it.”
21. Therefore, the terms of the contract have to
be construed strictly without altering the nature
of the contract as it may affect the interest of
parties adversely.”
13. Learned senior counsel for the appellant has also
drawn inspiration from the decision in General Assurance
Society Ltd. v. Chandmull Jain (1966) 3 SCR 500 = AIR 1966 SC 1644
, rendered by the
Constitution Bench wherein it has been held that:-
“In other respects there is no difference between
a contract of insurance and any other contract
except that in a contract of insurance there is a
requirement of uberrima fides i.e. good faith on
the part of the assured and the contract is likely
to be construed contra proferentem that is against
the company in case of ambiguity or doubt. A
contract is formed when there is an unqualified
acceptance of the proposal. Acceptance may be
expressed in writing or it may even be implied if
the insurer accepts the premium and retains it.
In the case of the assured, a positive act on his
part by which he recognises or seeks to enforce
the policy amounts to an affirmation of it. This
position was clearly recognised by the assured
himself, because he wrote, close upon the expiry
of the time of the cover notes that either a policy
should be issued to him before that period had
expired or the cover note extended in time. In
interpreting documents relating to a contract of
insurance, the duty of the court is to interpret
the words in which the contract is expressed by
the parties, because it is not for the court to
make a new contract, however reasonable, if the
parties have not made it themselves. Looking at
the proposal, the letter of acceptance and the
cover notes, it is clear that a contract of
insurance under the standard policy for fire and
extended to cover flood, cyclone etc. had come
into being.”
14. Mr. Gupta, learned senior counsel for the appellant
has also drawn our attention to Baj (Run Off) Ltd. v.
Durham and others (2012) UKSC 14
, wherein the Supreme Court of
United Kingdom, while interpreting the contract of
insurance has opined:-
“To resolve these questions it is necessary to
avoid over-concentration on the meaning of single
words or phrases viewed in isolation, and to look
at the insurance contracts more broadly. As Lord
Mustill observed in Charter Reinsurance Co. Ltd.
v. Fagan [1977] AC 313, 384
, all such words “must be set in the
landscape of the instrument as a whole” at p.381,
any “instinctive response” to their meaning “must
be verified by studying the other terms of the
contract, placed in the context of the factual and
commercial background of the transaction”. The
present case has given rise to considerable
argument about what constitutes and is
admissible as part of the commercial background
to the insurances, which may shape their
meaning. But in my opinion, considerable
insight into the scope, purpose and proper
interpretation of each of these insurances is to be
gained from a study of its language, read in its
entirety. So, for the moment, I concentrate on
the assistance to be gained in that connection.”
Relying on the authorities which have been stated by
Mr. Gupta, it is submitted by him that the policy between
the parties is required to be read as a whole and on a
reading of the policy in entirety, it is clear that the
declaration of all the shipments whether covered under the
policy or not, is not mandatory and only the shipments in
respect of which claims are lodged are required to be As has been held in Chandmull Jain (supra) by the
Constitution Bench that in a contract of insurance, there is
a requirement of good faith on the part of the insured and
in case of ambiguity, it has to be construed against the
company. As per other authorities, the insurance policy
has to be strictly construed and it has to be read as a whole
and nothing should be added or subtracted. That apart, as
has been held in Polymer India (P) Ltd. (supra), it is the
duty of the Court to interpret the document as is
understood between the parties and regard being had to the
reference to the stipulations contained in it.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2729 OF 2009
M/s. BHS Industries ... Appellant
Versus
Export Credit Guarantee Corp. & Anr. ... Respondents
Citation;(2015) 9 SCC414
The present appeal, by special leave, assails the
judgment and order dated 20.08.2007 passed by National
Consumer Disputes Redressal Commission, New Delhi (for
short “the Commission’) in First Appeal No.189 of 2007
whereby it has affirmed the Judgment and Order dated
15.2.2007 passed by the State Consumer Disputes
Redressal Commission, Union Territory of Chandigarh (for
short, “the State Commission”) in complaint case No.
82/2002 (Pb)/RBT No. 46 of 2006 wherein the State
Commission had rejected the claim of the
complainant-appellant on two counts, namely, the claim
was barred by limitation, and that under the postulates of
the policy, it was totally untenable.
2. The factual score that is essential to be depicted is
that the appellant, a small scale industry and a proprietary
concern dealing in handicraft goods, being desirous of
exporting its goods to a buyer, namely, M/s Treasures of
India, Atlanta, USA took insurance cover from the first
respondent on 15.6.1999 and accordingly the appellant was
issued a Shipment Comprehensive Risk Policy on the same
date. The maximum liability of the respondent-insurer
under the policy was Rs.30 lakhs. The insurer had initially
granted provisional credit limit of Rs.8 lakhs on 14.7.1999
in respect of M/s Treasures of India which was enhanced to
Rs.10 lakhs on 20.7.1999 and later on enhanced to Rs.20
lakhs. The appellant had sent one consignment of
Rs.6,50,000/- to M/s Treasures of India on 15.7.1999 and
a declaration to that effect was duly sent to the
respondents. Be it noted, the appellant has arrayed the
Export Credit Guarantee Corporation Limited, Nariman
Point, Mumbai through its Managing Director and the same
2Page 3
corporation at Suryakant Complex, Ludhiana through its
Branch Manager as respondents 1 and 2 respectively. As
averred, the appellant had obtained further orders from the
aforesaid buyer and the shipments were required to be sent
immediately. The appellant kept writing to the respondents
to send the approval for the additional limit in respect of the
said buyer. On 20.8.1999 the appellant made another
shipment of Rs.4,76,139/- to the said buyer and a
declaration to that effect was also sent to the respondents.
The appellant received further orders from the buyer but
the corporation had not accorded approval for the
additional credit. Under these circumstances the appellant
had sent two shipments amounting to Rs.2,77,732/- and
1,00,512/- on 20.8.1999. It is the case of the appellant
that the said two shipments were sent at its own risk as the
corporation had not accorded the additional limit as asked
for. When the matter stood thus, on 29.9.1999 the
appellant was informed by its bank that the buyer had
refused to accept the documents negotiated with the drawee
bank i.e Sun Trust Altanta, USA in respect of the shipments
sent vide invoices dated 15.7.1999 and 20.8.1999 and
3Page 4
accordingly the documents were returned. Since the buyer
had refused to accept the goods which had already been
exported from India, the appellant on 22.10.1999 intimated
the corporation regarding non-acceptance of documents by
the buyer. The appellant also informed the
respondent-corporation regarding the shipment which was
not covered through insurance by letter dated 10.12.1999.
3. As the factual matrix would further unfurl, on
22.12.1999 the corporation sent a communication stating
that the approved limit was Rs.20 lacs, and it required the
appellant to comply with the formalities on the prescribed
format. On 11.1.2000, the corporation asked the appellant
the reason for non-payment and to explore the possibilities
and further negotiate with the buyer and to take steps.
Thereafter, the appellant sent a letter for payment of the
aforesaid claim and as there was no response to the said
communication, it sent reminders to process the claim with
expediency. In response to said letters the respondents on
6.6.2000 repudiated the claim by stating that the
corporation’s liability was not attracted because of series of
unavoidable lapses.
4Page 5
4. Being aggrieved by the aforesaid communication, the
appellant approached the State Commission for redressal of
its grievance. Though two appeals were filed, the State
Commission treated them as one appeal. The respondents
before the State Commission took two preliminary
objections that the complaint was barred by limitation, and
it had not been filed by the authorised person. The State
Commission, appreciating the factual matrix in entirety
came to hold that the complaint had been filed by a
properly authorised person but it was barred by limitation.
However, the State Commission proceeded to deal with the
matter on merits and in that regard came to hold that:-
“27. The shipment made on 20.8.99 vide invoice
No.006 for Rs.4,76,139/-, whose copy is
annexure P-13 cannot be taken into
consideration because complainant had changed
the terms of payment which had been mentioned
as 60 days DA i.e. payment after 60 days of
delivery while it is mentioned to be 90 days DA in
annexure P-9 i.e. payment on acceptance of
documents within 90 days from the date of
shipment and not 60 days. It has been stated in
the insurance policy under the terms and
conditions, whose copy is annexure P-4 under
heading “General” in conditions 28 and 29 that
due performance and observance of each term
and condition contained herein or in the proposal
or declaration shall be a condition precedent to
any liability of the Corporation hereunder and if
the insured fails to comply with the condition,
then policy shall be deemed to have been waived.
Since, complainant failed to comply with
condition of 90 days DA with respect to 2nd
shipment dated 20.8.99 for Rs.4,76,139/- as
term of payment was changed to 60 days DA
instead of 90 days DA, so, OP was absolved from
making payment of this amount.
28. The further case of complainant is that
buyer did not retire the documents and had
refused to accept the goods and as such
documents were returned to Punjab & Sind
Bank. Nothing is known as to what happened to
the goods which were whipped through invoice
No.005 on 15.7.99 or invoice No.006 dated
20.8.99. It is stated in annexure P-35 that the
goods were lying in bonded warehouse. It is not
known what steps were taken by the complainant
to get those goods sold and to retrieve some
money. The bills were not got ‘noted and
protested’ through a notary. It is alleged that the
drawee’s bank had refused to get the documents
‘noted and protested’. If complainant had taken
some steps then perhaps goods had been
retrieved or could have been auctioned and some
money would have been got but complainant did
not bother for goods shipped considering that OP
was bound to make payment of those goods.
There is no evidence that complainant had
written any letter to the Debt Collecting Agency in
USA. Thus, the complainant did not take proper
steps to safeguard the goods and as such is not
entitled to claim the amount. Complainant
should have safeguarded the goods by opening
letter of credit but it failed to do so. There is no
letter from drawee’s bank Sun Trust International
Atlanta, USA that it had ‘noted and protested’ the
documents. No steps were taken to bring back
goods. Certainly act of the complainant is
against terms and conditions of the policy and as
such is not entitled to the claimed amount.”
5. The unsuccess before the State Commission
constrained the appellant to prefer a first appeal before the
Commission which did not agree with the finding of the
State Commission that the complaint was barred by time.
However, the Commission referred to the terms and
conditions of the policy, specifically condition no. 28, 29,
the exclusion clause no. 7 of the policy, referred to the
communication dated 26.1.2000 which was a reply given by
the respondent to the letters dated 15.1.2000 and
18.1.2000 of the appellant, the communication of
repudiation, emphasised on the unilateral change of terms
and conditions relating to the terms of payment, the
non-taking of steps by the appellant for retrieving the goods
and accordingly opined that there had been violation of the
terms of the policy and the appellant had not been diligent
to protect the shipment. Being of this view, it dismissed the
appeal.
6. We have heard Mr. Nidhesh Gupta, learned senior
counsel for the appellant and Mr. Bharat Sangal, learned
counsel for the respondents.
7. On a scrutiny of facts, it is clear as crystal that one
consignment of Rs.6,50,000/- was sent to M/s. Treasures
of India on 15.7.1999 and a declaration to that effect was
also communicated to the respondents. Similarly, on
20.8.1999, the appellant made another shipment of
Rs.4,76,139/- to the same buyer i.e. M/s. Treasures of
India and declaration was sent to the Corporation. It is
also undisputed that the appellant had sent two shipments
amounting to Rs.2,77,732/- and Rs.1,00,512/- on
20.8.1999. The stand of the appellant is that as the earlier
two transactions covered the credit limit of Rs.10 lakhs and
as the Corporation was causing undue delay in granting the
limit, the latter two consignments were sent at the risk of
the appellant. As the buyer refused to accept the goods, the
appellant communicated the same on 22.10.1999 to the
Corporation and on 10.12.1999 intimated regarding the
shipments which were not covered under the insurance. It
is the stance of the appellant that the Corporation
communicated on 22.12.1999 stating that the approved
limit was Rs.20 lakhs and asked the appellant to intimate
on the prescribed format, which was duly complied with by
8Page 9
the appellant, but despite such a situation, the Corporation
vide letter dated 6.6.2000 repudiated the claim of the
appellant. The relevant part of the communication by the
insurer is reproduced hereinbelow:-
“1. The terms of payment mentioned in order
form as DA-90 days via Sea, but you have
effected the shipment worth Rs. 4,76,139/- by air
on DA-60 days. As far as shipment worth Rs.
6,50,000/- effected on DA-90 days is concerned,
the Invoice shows the terms of payment as DA-90
days, whereas the Bill of Exchange was drawn on
DA-60 days basis. This is construed as a
violation of contract on the part of you.
2. You have omitted to declare shipments
amounting to 50% in number and 34% in value.
This is considered as serious and uncondonable
lapse, violating clauses nos. 1,2,8(a) 10, 19(1),
28, 7(a) and 29 of the Policy Bond.
3. Bill was not Noted and Protested at buyer’s
country.”
8. The crux of the matter whether the reasons ascribed
for repudiation by the insurer withstand scrutiny. Mr.
Nidhesh Gupta, learned senior counsel has commended us
to certain authorities, which, according to him, are relevant
when a Court is required to construe an insurance policy.
We shall refer to the authorities first and thereafter in the
backdrop of the ratio laid down therein shall scrutinize the
various clauses in the insurance policy and express our
views with regard to the issue whether they are applicable
to the case at hand and if so, whether such applicability
would demolish the claim of the appellant.
9. At the outset, it may be stated that contracts of
insurance are contracts of uberrima fides and every material
fact is required to be disclosed. In United India
Insurance Co. Ltd. v. M.K.J. Corpn.1
, a two-Judge Bench
has observed:-
“It is a fundamental principle of Insurance law
that utmost good faith must be observed by
the contracting parties. Good faith forbids
either party from concealing (non-disclosure)
what he privately knows, to draw the other
into a bargain, from his ignorance of that fact
and his believing the contrary. Just as the
insured has a duty to disclose, “similarly, it is
the duty of the insurers and their agents to
disclose all material facts within their
knowledge, since obligation of good faith
applies to them equally with the assured”.”
Regard being had to these principles, the authorities
cited by Mr. Gupta, learned senior counsel for the appellant
are to be seen.
1
(1996) 6 SCC 428
10. In Amalgamated Electricity Co. v. Ajmer
Municipality2
, though in a different context, it has been
held that:-
“In construing the true nature of the contract
entered into between the parties, the contract has
to be read as a whole and if so read it is clear
that what the plaintiff undertook was to pump
water from the wells in question and not to
supply any electrical energy. Hence we are in
agreement with the learned Judges of the High
Court that the plaintiff's case in this regard
should fail.”
11. In Bay Berry Apartments (P) Ltd. and Another v.
Shobha and others3
, the Court has observed that in
construing a document, the Court cannot assign any other
meaning; and a document as is well known must be
construed in its entirety.
12. In Polymer India (P) Ltd. and Another v. National
Insurance Co. Ltd. and Others4
, this Court has held
thus:-
“19. In this connection, a reference may be made
to a series of decisions of this Court wherein it
has been held that it is the duty of the court to
interpret the document of contract as was
understood between the parties. In the case of
General Assurance Society Ltd. v. Chandumull
Jain5
, it was observed as under:
2
(1969) 2 SCR 430 = AIR 1969 SC 227
3
(2006) 13 SCC 737
4
(2005) 9 SCC 174
5
(1996) 3 SCR 500 : AIR 1966 SC 1644
“In interpreting documents relating to a
contract of insurance, the duty of the court
is to interpret the words in which the
contract is expressed by the parties, because
it is not for the court to make a new
contract, however reasonable, if the parties
have not made it themselves.”
20. Similarly, in the case of Oriental Insurance
Co. Ltd. v. Samayanallur Primary Agricultural
Coop. Bank6
, it was observed as under:
“The insurance policy has to be construed
having reference only to the stipulations
contained in it and no artificial far-fetched
meaning could be given to the words
appearing in it.”
21. Therefore, the terms of the contract have to
be construed strictly without altering the nature
of the contract as it may affect the interest of
parties adversely.”
13. Learned senior counsel for the appellant has also
drawn inspiration from the decision in General Assurance
Society Ltd. v. Chandmull Jain7
, rendered by the
Constitution Bench wherein it has been held that:-
“In other respects there is no difference between
a contract of insurance and any other contract
except that in a contract of insurance there is a
requirement of uberrima fides i.e. good faith on
the part of the assured and the contract is likely
to be construed contra proferentem that is against
the company in case of ambiguity or doubt. A
contract is formed when there is an unqualified
6
(1999) 8 SCC 543
7
(1966) 3 SCR 500 = AIR 1966 SC 1644
12Page 13
acceptance of the proposal. Acceptance may be
expressed in writing or it may even be implied if
the insurer accepts the premium and retains it.
In the case of the assured, a positive act on his
part by which he recognises or seeks to enforce
the policy amounts to an affirmation of it. This
position was clearly recognised by the assured
himself, because he wrote, close upon the expiry
of the time of the cover notes that either a policy
should be issued to him before that period had
expired or the cover note extended in time. In
interpreting documents relating to a contract of
insurance, the duty of the court is to interpret
the words in which the contract is expressed by
the parties, because it is not for the court to
make a new contract, however reasonable, if the
parties have not made it themselves. Looking at
the proposal, the letter of acceptance and the
cover notes, it is clear that a contract of
insurance under the standard policy for fire and
extended to cover flood, cyclone etc. had come
into being.”
14. Mr. Gupta, learned senior counsel for the appellant
has also drawn our attention to Baj (Run Off) Ltd. v.
Durham and others8
, wherein the Supreme Court of
United Kingdom, while interpreting the contract of
insurance has opined:-
“To resolve these questions it is necessary to
avoid over-concentration on the meaning of single
words or phrases viewed in isolation, and to look
at the insurance contracts more broadly. As Lord
Mustill observed in Charter Reinsurance Co. Ltd.
v. Fagan9
, all such words “must be set in the
landscape of the instrument as a whole” at p.381,
8
(2012) UKSC 14
9
[1977] AC 313, 384
13Page 14
any “instinctive response” to their meaning “must
be verified by studying the other terms of the
contract, placed in the context of the factual and
commercial background of the transaction”. The
present case has given rise to considerable
argument about what constitutes and is
admissible as part of the commercial background
to the insurances, which may shape their
meaning. But in my opinion, considerable
insight into the scope, purpose and proper
interpretation of each of these insurances is to be
gained from a study of its language, read in its
entirety. So, for the moment, I concentrate on
the assistance to be gained in that connection.”
15. Relying on the authorities which have been stated by
Mr. Gupta, it is submitted by him that the policy between
the parties is required to be read as a whole and on a
reading of the policy in entirety, it is clear that the
declaration of all the shipments whether covered under the
policy or not, is not mandatory and only the shipments in
respect of which claims are lodged are required to be
declared. As an alternative submission, it is urged by him
that the respondent-Corporation had vide letter dated
26.1.2000 deducted premium in respect of the two
undeclared shipments from the credit balance of the
appellant and, therefore, the respondent-Corporation had
itself ratified the action of the appellant of sending the
aforesaid two shipments and under these circumstances, it
14Page 15
was not justified on its part in rejecting the claim of the
appellant on the foundation that there had been
non-declaration of the said shipments. To buttress the
concept of ratification, he has commended us to the
authorities in High Court of Judicature for Rajasthan v.
P.P. Singh10
, Marathwada University v. Seshrao
Balwant Rao Chavan11 and Babu Varghese v. Bar
Council of Kerala12. We think it appropriate that this
submission of Mr. Gupta has to be dealt with while
construing the other clauses of the policy.
16. Mr. Gupta, while criticizing the repudiation of the
claim, has drawn our attention to clause 3 of the
communication which states that the bill was not noted and
protested at buyer’s country and in that regard argued that
the ascription of the said reason is beyond the terms and
conditions of the policy, for it has nowhere been prescribed
in the policy that insured has to get the bill noted and
protested at buyer’s country in order to claim the amount
under the policy. It is argued by him that the terms of the
policy are to be construed strictly and neither any addition
10 (2003) 4 SCC 239
11 (1989) 3 SCC 132
12 (1999) 3 SCC 422
15Page 16
nor any subtraction from it is permissible. To substantiate
the said stand, he has placed reliance on United India
Insurance Co. Ltd. v. Harchand Rai Chandan Lal13
.
17. The aforesaid authorities being basically
pronouncements pertaining to the construction to be placed
on a policy, we shall proceed to deal with the terms and
conditions of the policy. We may hasten to add that Mr.
Bharat Sangal, learned counsel for the
respondent-Corporation has basically urged that there has
been gross violation of the terms and conditions of the
policy and the clauses in policy have to be read as they are
inasmuch as there is no ambiguity in any of the clauses.
As regards the interpretation, he has placed reliance on
Oriental Insurance Co. Ltd. v. Sony Cheriyan14, wherein
it has been held thus:-
“The insurance policy between the insurer and
the insured represents a contract between the
parties. Since the insurer undertakes to
compensate the loss suffered by the insured on
account of risks covered by the insurance policy,
the terms of the agreement have to be strictly
construed to determine the extent of liability of
the insurer. The insured cannot claim anything
more than what is covered by the insurance
policy. That being so, the insured has also to act
13 (2004) 8 SCC 644
14 (1999) 6 SCC 451
16Page 17
strictly in accordance with the statutory
limitations or terms of the policy expressly set
out therein.”
18. Apart from the aforesaid authority, he has also
commended us to two decisions of the Commission wherein
claim was rejected and he has been emboldened to do so as
one of the orders was assailed before this Court in Civil
Appeal No. 8052 of 2004, and this Court has dismissed the
appeal in limine.
19. Presently to the basic anatomy of the policy. At the
outset it is essential to state that we, in due course, refer to
the clauses of the policy in extenso as learned counsel for
both the parties have relied upon, but prior to that the
framework of the policy is apposite to be indicated. The
initial part of the policy refer to the risks insured and the
proviso appended thereto. Clause 2 of the Policy, as is
evident, requires the insured to disclose the facts at the
date of issue of the policy and also at all times during the
operation of the policy that affect the risks of the insured.
Clause 3 deals with covering of shipments and exceptions.
The said coverage is subject to terms and conditions of the
policy. Clause 5 deals with shipments which are not
17Page 18
covered and includes grant of credit of the insured to the
buyer for a period longer than 180 days from the date of
shipment. Clause 7, requires the insured to notify to the
Corporation of the occurrence of any event likely to cause a
loss maximum within 30 days. Clause 8(a) requires a
declaration to be given as regards the shipment. Clause
14B(b) states that the goods that have not been delivered
remains the property of the insured and any resale thereof
by the insured shall be with the prior approval of the
Corporation. Clause 19 that deals with the exclusion of
liability under sub-clause (a) stipulate that if the insured
has failed to declare, without any omission, all the
shipments required to be declared in terms of clause 8(a) of
the policy and to pay premium in terms of clause 10 of the
policy, the insurer would not be liable unless otherwise
agreed to by the Corporation in writing. Clause 28 provides
for observance of conditions which specifically states that
due performance and observance of each term and
condition contained in the policy or the declaration or the
proposal or declaration shall be a condition precedent to
fasten liability on the Corporation. Clause 29 deals with the
18Page 19
failure to comply with the conditions. It says that no failure
by the insured to comply with the terms and conditions of
the policy would bee deemed to have been waived, excused
or accepted by the Corporation unless there has been
express waiver by the Corporation in writing. Clause 30
deals with uncovered risks and states that if any account or
bill in respect of any shipment declared exceeds the limits
provided under the policy, no acknowledgement of the
declaration of the Corporation, no payment or tender of
premium by the insured shall be deemed to bind the
Corporation to undertake the liability. These are the basic
components of the policy.
20. Learned counsel for the respondents has contended
that the appellant has violated clauses 3, 7, 8, 19, 27, 28
and 29 of the policy. Relying on the authorities which we
have referred to hereinbefore, if clauses 2 and 10 are read
together, it becomes quite clear that the premium is payable
only in respect of the shipments to which the policy applies.
The appellant had sent two shipments at its own risk as the
credit limit already stood exhausted and no cover was
sought by the appellant in respect of the said shipments. In
19Page 20
this backdrop, submission of Mr. Gupta, learned senior
counsel for the appellant is that policy does not cover the
two shipments and hence, there was no obligation on the
part of the appellant to declare the same to the
respondent-Corporation. Referring to Clause 8(a), it is
contended by him that the words used therein i.e. all
shipments have to be understood in the backdrop of Clause
10 and Clause 10 uses the word “relevant declaration” and,
therefore, only relevant declarations are to be made.
Referring to the concept of premium, contends Mr. Gupta,
that the premium payable is on the gross invoice value and
all shipments to which the policy applies and the said
premium is payable to the Corporation while submitting the
relevant declaration of the shipment as per Clause 8(a) of
the policy and, therefore, the payment to be made under
Clause 10 is in relation to the gross invoice value of all
shipments to which the policy applies and the declaration to
be made under Clause 8(a) is also in relation thereto.
Emphasising on the language employed in Clause 14B(b), it
is urged by him that the policy envisages the liability of the
Corporation with regard to only such shipments which are
20Page 21
intended to be covered and the Corporation is not liable to
suffer the loss and the insured will not get the benefit of the
shipments which are not covered under the insurance
cover. Criticizing the reliance on Clause 30 by the learned
counsel for the respondents, it is highlighted by Mr. Gupta
that it deals with uncovered risks inasmuch as the words
used are “not in accordance with the policy” and in the case
at hand at best the two undeclared shipments can be
termed as not in accordance with the policy and the same
can be treated as uncovered risks. In any case, there is no
claim in respect of the same. As far as the reduction of
the debts from 90 days to 60 days, it has been canvassed
that it is within the outer limit and no exception can be
taken to the same.
21. Another aspect which has been highlighted by him is
that the Commission has returned a finding that the
appellant has not taken any steps to retrieve the goods and
has not communicated anything to the Debt Collecting
Agency. It is argued that there is no obligation under the
policy conditions to do so and, in fact, the appellant had
taken all requisite steps as suggested by the Corporation
21Page 22
vide letter dated 11.1.2000. In any case, as per Clause 23
of the policy, there is a postulate that the
respondent-Corporation has to make payment to the
appellant of the amount due under the policy and only after
payment of such amount, the Corporation could ask the
insured to take steps as stipulated in the clause and,
therefore, the finding recorded by the Commission is
absolutely misconceived. As far as writing to the Debt
Collecting Agency is concerned, learned senior counsel has
seriously criticized the finding recorded by the Commission
on the ground that there are documents to show that it had
communicated as per the address given by the Corporation
and there was a communication by the insured to the
insurer that the address was incorrect and the registered
letter sent by him had returned. The request sent at the
correct address remained unresponded.
22. First, we shall deal with Clause 5 that deals with the
shipments not covered. The said clause reads as follows:-
“5. Shipments not covered. Except with the
approval in writing of the Corporation (which the
Corporation shall not be obliged to give), this
Policy shall not apply to any shipment which:
22Page 23
(a) is made under a contract or agreement of sale
which does not specify the nature, the quantity
and price of the goods sold or agreed to be sold,
the due date of payment and the currency in
which the payment is to be made;
(b) is invoiced to any buyer in a currency not
permitted by the exchange control laws, rules
and/or regulations for the time being in force in
India;
(c) Involves granting of credit by the Insured to
the buyer for a period longer than 180 days from
the date of shipment unless specifically agreed to
the contrary by the Corporation in writing.
23. Clause 5(c) of the policy, as we find, requires the grant
of credit by the insured to the buyer not for a longer period
than 180 days unless specifically agreed to the contrary by
the Corporation in writing. As per the letter dated 2.9.1999,
the appellant has shown the terms of payment due within
90 days of the shipment. The appellant had given a credit
of 60 days which is well within the outer limit of 90 days. If
the Clause 5(c) is properly understood, in the obtaining
factual matrix we are unable to agree with the findings
recorded by the State Commission and the Commission that
there has been violation of the terms of the policy as
regards the reduction of the period for payment. What is
stipulated is that the Corporation should not be liable if the
23Page 24
insured gives credit for more than 180 days. That is the
outer limit and as the insured has fixed the debt within the
said period, that cannot be held against him.
24. The second violation of condition relates to omission of
declaration of shipments amounting to 50% in number and
30% in value. The Corporation has considered the said
lapse as serious and uncondonable being violative of
Clauses 1, 2, 7(a), 8(a), 10, 19(a), 28, and 29 of the policy.
To appreciate the controversy in an appropriate manner, we
reproduce the said clauses hereunder:-
“1. Proposal and Declaration: The Proposal and
the Declaration therein shall be the basis of this
Policy and shall form part thereof and if any of
the statements contained in the Proposal or the
Declaration be untrue or incorrect in any respect,
this Policy shall be void but the Corporation may
retain any premium that has been paid.
2. Disclosure of facts: Without prejudice to any
rule of law it is declared that this Policy is given
on condition that the Insured has at the date of
issue of this Policy disclosed and will at all times
during the operation of this Policy promptly
disclose all facts in any way affecting the risks
injured.
xxx xxx xxx
7. Obligations of the Insured: The Insured
shall:
24Page 25
(a) use all reasonable and usual care, skill and
forethought and take all practicable measures,
including any measures which may be required
by the Corporation, (including if so required the
institution of legal proceedings) to prevent or
minimize loss.
8. Declarations:
(a) Declarations of shipments: On or before the
15th day of each calendar month, the Insured
shall deliver to the Corporation a declaration, in
the form prescribed by the Corporation, of all
shipments made by him during the previous
month. If no shipment has been made during a
month, a ‘NIL’ declaration shall nevertheless be
submitted.
xxx xxx xxx
10. Incidence of premium and payment of
additional premium: The Insured shall be liable
to pay premium, at the rates set out in
Schedule-II hereto, or, as the case may be, at
such other rates for the time being in force, on
the gross invoice value of all shipments to which
this Policy applies forthwith on the making of
such shipments and shall pay to the Corporation
additional premium, if any, that may become due
and payable after adjustment of the Minimum
Premium referred to hereinabove, while
submitting the relevant declaration of shipments
as per clause 8(a) of this Policy.
xxx xxx xxx
19. Exclusion of Liability: Notwithstanding
anything to the contrary contained in this Policy,
unless otherwise agreed to by the Corporation in
writing, the Corporation shall cease to have any
liability in respect of the gross invoice value of
any shipment or part thereof, if;
25Page 26
(a) the Insured has failed to declare, without
any omission, all the shipments required to be
declared in terms of clause 8(a) of the Policy and
to pay premium in terms of clause 10 of the
Policy.
xxx xxx xxx
28. Observance of conditions: The due
performance and observance of each term and
condition contained herein or in the proposal or
declaration shall be a condition precedent to any
liability of the Corporation hereunder and to the
enforcement thereof by the insured.
29. Failure to comply with conditions: No failure
by the Insured to comply with the terms and
conditions of the Policy shall be deemed to have
been waived, excused or accepted by the
Corporation unless the same is expressly so
waived, excused or accepted by the Corporation
in writing and such waiver, excuse or acceptable
shall be subject to such terms and conditions as
the Corporation may stipulate, including a
reduction in the percentage specified under
clause 30 of this policy being the percentage of
loss payable by the Corporation.”
25. As has been held in Chandmull Jain (supra) by the
Constitution Bench that in a contract of insurance, there is
a requirement of good faith on the part of the insured and
in case of ambiguity, it has to be construed against the
company. As per other authorities, the insurance policy
has to be strictly construed and it has to be read as a whole
and nothing should be added or subtracted. That apart, as
has been held in Polymer India (P) Ltd. (supra), it is the
duty of the Court to interpret the document as is
understood between the parties and regard being had to the
reference to the stipulations contained in it.
26. Keeping in view the aforesaid parameters of law, we
are required to appreciate the stipulations in the policy
pertaining to rejection on the said score. Clause 8(a) which
deals with declarations, assumes significance. The said
clause requires that before the 15th day of each calendar
month, the insured shall deliver to the Corporation a
declaration in the prescribed format of all shipments made
by him during the previous month and if no shipment has
been made during a month, a ‘NIL’ declaration shall
nevertheless be submitted. Clause 9 deals with minimum
premium and Clause 10 with incidence of premium and
payment of additional premium. Clause 19(a), as has been
indicated earlier, deals with exclusion of liability. Clause
19, the exclusionary clause, categorically states that unless
otherwise agreed to by the Corporation in writing, the
Corporation shall cease to have any liability in respect of
gross invoice value of any shipment or part thereof if the
insured has failed to declare, without any omission, all the
shipments required to be declared in terms of Clause 8(a) of
the Policy and to pay premium in terms of Clause 10 of the
Policy. Submission of Mr. Sangal is that these clauses are
binding on the insured and he cannot play with the
requirements at his own will. Mr. Gupta, learned senior
counsel, as we have noted earlier, has contended that these
clauses are to be read in juxtaposition with Clauses 2, 10
and 30, for the Policy has to be read in entirety and so read,
the clauses do not require that all shipments are to be
declared. To appreciate the submission, we think it
appropriate to reproduce Clauses 2, 10, and 30:-
“2. Disclosure of facts: Without prejudice to any rule
of law it is declared that this Policy is given on
condition that the Insured has at the date of issue of
this Policy disclosed and will at all times during the
operation of this Policy promptly disclose all facts in
any way affecting the risks injured.
xxx xxx xxx
10. Incidence of premium and payment of additional
premium: The Insured shall be liable to pay premium,
at the rates set out in Schedule-II hereto, or, as the
case may be, at such other rates for the time being in
force, on the gross invoice value of all shipments to
which this Policy applies forthwith on the making of
such shipments and shall pay to the Corporation
additional premium, if any, that may become due and
payable after adjustment of the Minimum Premium
referred to hereinabove, while submitting the relevant
declaration of shipments as per clause 8(a) of this
Policy.
xxx xxx xxx
30. Uncovered Risks: If any account or bill (or any
extension or renewal thereof) in respect of any
shipment declared hereunder exceeds the limits
hereinbefore provided or is otherwise not in
accordance with the Policy, no acknowledgement of the
declaration by the Corporation and no payment or
tender of premium by the Insured shall be deemed to
bind the Corporation to undertake liability in respect
of such account or bill (or to approve of the renewal or
extension).”
27. Mr. Gupta, learned senior counsel for the appellant
has laid immense emphasis on the words that the insured
shall “disclose all the facts” in any manner affecting the
risks insured. Similarly, he has also highlighted the words
“on the gross invoice value of all shipments to which this
policy applies” occurring is clause 10. Clause 30, as Mr.
Gupta would submit, deals with uncovered risks which are
not in accordance with the policy. It is his submission that
payment of premium in respect of uncovered risks shall not
bind the Corporation to undertake the liability. The
proponement propounded by Mr. Gupta, on a first blush,
seems quite attractive, but on a keener scrutiny it has to
pale into insignificance. Terms of the policy are to be
strictly construed. There can be no cavil about the
proposition of law that in case of ambiguity, the
construction has to be made in favour of the insured.
Clauses 8(a) and 19(a) deal with declarations and the
exclusion of liability respectively. They are absolutely
specific. Clause 2 deals with disclosure of facts. Clause 10
deals with incidence of premium and payment of additional
premium and Clause 30 with uncovered risks. Clause 8(a)
and 19(a), which we have reproduced hereinabove are
absolutely clear as crystal and as per the stipulations
therein the insured has been cast an obligation under the
policy. He is obliged under the policy to deliver to the
Corporation a declaration on or before 15th day of each
calendar month in a prescribed format details of all
shipments made during the previous month and even he is
required to give a ‘nil’ declaration if no shipment has been
made. Clause 19(a) refers to the declaration in terms of
Clause 8(a). It also uses the word “without any omission”.
It adds a further postulate relating to payment of the
premium in terms of Clause 10. The prescription of twin
requirements in Clause 19(a) are cumulative. They cannot
be read in segregation. The insured has to declare the
shipments in terms of Clause 8(a) without omission and
also pay the premium in terms of Clause 10. Premium of
payment alone does not make the Corporation liable to
indemnify the loss or fasten the liability on it. It is also
required on the part of the insured for the purpose of
sustaining the claim to show that there has been
compliance as regards the declaration. To construe Clause
8(a) that the insured has a choice to declare which
shipment he would cover and which ones he would leave,
would run counter to the mandate of the policy. It has to
be borne in mind that these are specific clauses relating to
the obligations of the insured. The attempt on the part of
the appellant to inject concept of payment of premium and
the risk covered to this realm would not be acceptable. The
general clauses basically convey which risks are covered
and which risks are not covered, how the premium is to be
computed and paid. What eventually matters is where the
liability of the insurer is exclusively excluded, the said
clauses of the policy are absolutely clear, unequivocal and
unambiguous. The insured after availing a policy in
commercial transactions is to understand the policy in
entirety. The construction of the policy in entirety and in a
harmonious manner leaves no room for doubt that there is
no equivocality or ambiguity warranting an interpretation in
favour of the insured-appellant. Whatever the reasons the
appellant may give, he having not declared as prescribed in
Clause 8(a), which is again reiterated by way of reference in
Clause 19(a), the exclusionary clause, it will be an
anathema to the concept of interpretation of contract of
insurance of such a nature, if liability is fastened on the
insurer. The finding of the Commission that the appellant
had not take steps to retrieve the goods is absolutely
immaterial for the present purpose. The said finding
though is flawed, the ultimate conclusion, which is based
upon our independent analysis, is correct.
28. Before parting with the case we must take note of
another aspect which has been highlighted by Mr. Gupta
relying upon the decision in ABL International Ltd. and
another v. Export Credit Guarantee Corporation of
India Ltd. and other(2004) 3 SCC 553
. In the said case the Export Credit
Guarantee Corporation of India Ltd., an instrumentality of
State, had repudiated the claim of the claimant against
which a writ petition was filed before the learned Single
Judge of the Calcutta High Court praying for quashment of
the repudiation. The learned Single Judge after hearing
parties came to the conclusion that the dispute between the
parties arose out of a contract of insurance and the first
respondent being a State for the purpose of Article 12, was
bound by the terms of the contract and accordingly allowed
the writ petition. In intra-court appeal the Division Bench
opined that the claim of the writ petitioner involved
disputed questions of fact and hence, could not be
adjudicated in a writ proceeding under Article 226 of the
Constitution. However, it proceeded to state that the
learned Single Judge had erroneously applied the law and
further came to hold that the insured had violated certain
terms of the contract. This Court referred to number of
decisions as regards the maintainability of the writ petition
and expressed the view that merely because one of the
parties to the litigation raises a dispute in regards to the
facts of the case, the court entertaining such petition under
Article 226 of the Constitution is not always bound to
relegate the parties to a suit. After so holding the Court
opined once the State or instrumentality is a party to the
contract, it has an obligation in law to act fairly, justly and
reasonably which is the requirement of Article 14 of the
Constitution of India, and therefore, being the
instrumentality of the State, the Corporation had acted in
contravention of the requirements of Article 14, and hence,
the writ court could issue appropriate writ to nullify the
arbitrary action. The court referred to relevant Clauses of
contract of insurance in the background of admitted facts.
The contract of insurance between the insured and insurer
was primarily based on the contract between exporter and
the Kazak Corporation. The relevant Clause in regard to
payment of the tea exported was incorporated in Clause 6.
The said Clause came to be amended on the very same day
when the contract was signed by the exporter and the
Kazak Corporation by way of an addendum. The Court
opined the addendum in the obtaining facts therein had
become an integral part of the original Clause 6 of the
Contract. The Court further proceeded to deal with the
Clauses in the agreement and held that alternative modes of
payment of consideration were permissible as per Clause 6.
In that context the Court further opined:-
“The terms of the insurance contract which were
agreed between the parties were after the terms
of the contract between the exporter and the
importer were executed which included the
addendum, therefore, without hesitation we must
proceed on the basis that the first respondent
issued the insurance policy knowing very well
that there was more than one mode of payment of
consideration and it had insured failure of all the
modes of payment of consideration. From the
correspondence as well as from the terms of the
policy, it is noticed that existence of only two
conditions has been made as a condition
precedent for making the first respondent
Corporation liable to pay for the insured risk,
that is: (i) there should be a default on the part of
the Kazak Corporation to pay for the goods
received; and (ii) there should be a failure on the
part of the Kazakhstan Government to fulfil their
guarantee.”
After so stating the court ruled that there was no
violation of the stipulations of the contract by the insured.
While dealing with the grant of relief the court referred to
the decision in Kumari Shrilekha Vidyarthi v. State of
U.P.16 and held thus:-
“53. From the above, it is clear that when an
instrumentality of the State acts contrary to
public good and public interest, unfairly, unjustly
and unreasonably, in its contractual,
constitutional or statutory obligations, it really
acts contrary to the constitutional guarantee
16 (1991) 1 SCC 212
found in Article 14 of the Constitution. Thus if we
apply the above principle of applicability of Article
14 to the facts of this case, then we notice that
the first respondent being an instrumentality of
the State and a monopoly body had to be
approached by the appellants by compulsion to
cover its export risk. The policy of insurance
covering the risk of the appellants was issued by
the first respondent after seeking all required
information and after receiving huge sums of
money as premium exceeding Rs. 16 lakhs. On
facts we have found that the terms of the policy
do not give room to any ambiguity as to the risk
covered by the first respondent. We are also of
the considered opinion that the liability of the
first respondent under the policy arose when the
default of the exporter occurred and thereafter
when the Kazakhstan Government failed to fulfil
its guarantee. There is no allegation that the
contracts in question were obtained either by
fraud or by misrepresentation. In such factual
situation, we are of the opinion, the facts of this
case do not and should not inhibit the High
Court or this Court from granting the relief
sought for by the petitioner.”
29. Mr. Gupta learned senior counsel has laid immense
emphasis on the aforequoted paragraph. We have analysed
the decision to appreciate the context and the factual score
as depicted in the decision which clearly show that the
court had arrived at indubitable conclusion that there had
been no violation of the terms of the contract of insurance.
Therefore, the said decision in our considered opinion is not
applicable to the facts of the present case as in the instant
case, as has been held earlier, there have been violations of
the terms and conditions of the contract of insurance. We
are compelled to observe that the said decision possibly has
been cited as an authority as the respondent-corporation
was also the respondent therein.
30. Consequently, the appeal, being devoid of merit,
stands dismissed. However, we refrain from awarding any
costs.
.............................J.
[Dipak Misra]
............................. J.
[V. Gopala Gowda]
New Delhi
July 7, 2015
37
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