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Wednesday, July 15, 2015

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 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:- " 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 here under 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. 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.” 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.”




               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




                               J U D G M E N T


Dipak Misra, J.


      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
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 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.
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 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.
10.   In Amalgamated Electricity Co. v. Ajmer Municipality[2], 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[3],
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[4], 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 [pic]the case of General Assurance Society Ltd.  v.  Chandumull  Jain[5],
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[6], 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[7],
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[8],  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[9],  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.”

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 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. Singh[10],  Marathwada  University
v. Seshrao Balwant Rao Chavan[11]  and  Babu  Varghese  v.  Bar  Council  of
Kerala[12]. 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 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 Lal[13].
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 Cheriyan[14], 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  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 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 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 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  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  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:

(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 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:

(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;
(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[15].  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 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

-----------------------
[1]     (1996) 6 SCC 428
[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
[6]    (1999) 8 SCC 543
[7]      (1966) 3 SCR 500 = AIR 1966 SC 1644
[8]     (2012) UKSC 14
[9]     [1977] AC 313, 384
[10]    (2003) 4 SCC 239
[11]    (1989) 3 SCC 132
[12]    (1999) 3 SCC 422
[13]    (2004) 8 SCC 644
[14]    (1999) 6 SCC 451
[15]    (2004) 3 SCC 553
[16]   (1991) 1 SCC 212

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