Page 1

NON-REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL  NO. 481 OF 2009

METAL POWDER COMPANY LTD. ... APPELLANT (S)

VERSUS

ORIENTAL INSURANCE CO. LTD. ... RESPONDENT (S)

J U D G M E N T

RANJAN GOGOI, J.

1. This is a plaintiff’s appeal against a decree of reversal  

made by the High Court of Madras by its judgment and order  

dated 28.04.2006.   

2. The facts, which are not in dispute, are as follows:-

The plaintiff is a company engaged in the manufacture  

and sale of metal powders and red phosphorous having its  

manufacturing  unit  and  administrative  office  at  

1

Page 2

Maravankulam,  Thirumangalam,  Madurai  District.   The  

plaintiff  had  purchased  15.06  metric  tonnes  of  yellow  

phosphorous  from  M/s.  Metallgeseliachaft  AG,  Frankfurt,  

West  Germany  under  Invoice  No.  410  64821  dated  

06.06.1983  for  a  value  of  US$  23,946  C&F.   The  said  

commodity was booked through M.V. “Palam Trader” to be  

delivered at Bombay Port and from the Bombay Port to the  

plaintiff’s factory at Maravankulam.  The goods were insured  

for  a  sum of  Rs.  2,65,000/-  under  Insurance  Policy  dated  

24.06.1983  with  the  Divisional  Office  of  the  defendant-

insurance  company  at  Madurai.   The  policy  specifically  

included and covered amongst other risks “loss due to non-

delivery of the goods at Maravankulam.”

3. While in transit the ship caught fire on 18.10.1983.  The  

first  intimation  of  the  mishap  was  communicated  to  the  

plaintiff  on  05.01.1984  by  Richard  Hoggs  International  

Limited, Greece who appear to be the agents of the owners  

of the vessel “Palm Trader”.  By the aforesaid intimation, the  

plaintiff was informed that the estimate of the cost of repairs  

to the ship are much higher than the ship’s insured value  

2

Page 3

and, therefore, the ship owners consider the vessel as a total  

loss and had given notice of abandonment of the ship to the  

underwriters.  The  aforesaid  facts  were  very  promptly  

communicated to the defendant insurance company by the  

plaintiff  on  06.01.1984  which  was  followed  by  a  claim to  

indemnify the plaintiff for the value of the goods insured i.e.  

Rs.  2,65,000/-.   Thereafter,  it  appears  that  the  defendant  

repudiated its liability on 15.07.1985 on the ground that the  

ship was abandoned by its owners due to bankruptcy and,  

therefore, the claim made by the plaintiff was covered by an  

exclusion  clause  i.e.  Clause  4.6  of  the  Institute  Cargo  

Clauses which formed a part of the terms and conditions of  

the Insurance Policy.  Clause 4.6 is to the following effect:

“4.6  Loss  damage or  expense  arising  from  insolvency  or  financial  default  of  the   owners  managers  charterers  or   operators of the vessel.”

4. Following the repudiation of its claim legal notice was  

issued on behalf of the plaintiff  and as the same was not  

responded  to  the  suit  in  question  was  filed  claiming  the  

3

Page 4

value  of  the  goods  insured  i.e.  Rs.  2,65,000/-  alongwith  

interest @ 18% per annum calculated from 21.03.1984 to  

30.09.1985 which was quantified at Rs.73,053/-.

5. The claim made by  the  plaintiff  was  resisted  by  the  

defendant Insurer by relying on the exclusion clause, noticed  

above.   According to the defendant the ship was abandoned  

by its owners on account of financial difficulties in meeting  

the  cost  of  repairs.   The  claim  was  also  resisted  by  the  

defendant on the ground that there was no damage to the  

cargo in transit and in fact the defendant had arranged with  

a third party for transporting the cargo to its destination at  

an  additional  cost  of  US$  900  to  be  paid  by  the  plaintiff  

which offer was, however, rejected by the plaintiff.   

6. The learned Trial Court decreed the plaintiff’s suit for an  

amount  of  Rs.  3,38,053/-  inclusive  of  interest  at  18% per  

annum upto 30.09.1985.  Aggrieved, the Insurance Company  

filed  a  regular  first  appeal  before  the  Madras  High  Court  

which  was  allowed  by  the  impugned  judgment  and  order  

dated 28.04.2006 on the ground that as per the terms and  

4

Page 5

conditions of the policy, the plaintiff was not entitled to its  

claim as “the liability of the Insurance Company is excluded   

when the ship owners are declared as insolvent.”  Aggrieved,  

the present appeal has been filed by the plaintiff.

7. We have heard Mr. V.  Prabhakar,  learned counsel for  

the plaintiff-appellant and Mr. M.K. Dua, learned counsel for  

the defendant-Insurance Company.

8. Learned  counsel  for  the  appellant  has  strenuously  

urged that there is no material on record to hold that the  

owners  of  the  ship  have  been  adjudged  as  insolvent  or  

bankrupt  so  as  to  attract  exclusion  clause  4.6  of  the  

Insurance Policy under which the liability of the insurer  is  

excluded  in  case  of  loss  or  damage  arising  from  the  

insolvency  or  financial  default  of  the  owners  etc.  of  the  

vessel.   Referring to the communication dated 05.01.1984  

learned  counsel  has  submitted  that  the  reason  for  

abandonment of the ship by the owners is that the estimate  

of the cost of repairs are much higher than the insured value  

of the ship.  It is pointed out that the letter dated 14.10.1985  

5

Page 6

(Exbt.D-37) relied upon by the defendant to show financial  

default and bankruptcy of the owners of the vessel does not  

contain  any  basis  to  support  the  contention  advanced.  

Learned  counsel  has  further  pointed  out  that  the  risks  

covered by the Policy included ‘non-delivery of the goods at   

Maravankulam’ and the cargo not having been so delivered,  

the defendant is clearly liable.  It is also contended that the  

alleged arrangement made by the insurer to have the goods  

transported by a third party on payment of additional cost of  

US$  900  by  the  plaintiff  was  outside  the  scope  of  the  

agreement  between  the  parties  and  hence  was  rightly  

rejected by the plaintiff.

9. On the other hand, learned counsel for the insurer has  

contended  that  under  the  Policy,  the  risk  covered  was  in  

respect  of  the  loss  and  damage  to  the  subject  matter  

insured.   It is pointed out that in the present case the cargo  

which was insured was in perfect condition and no loss or  

damage was caused to it.  Learned counsel has also relied  

on  Clause  5.1  of  the  Institute  Cargo  Clauses  (A),  which  

formed  a  part  of  the  insurance  agreement  between  the  

6

Page 7

parties, to contend that the loss or damage claimed by the  

plaintiff is not covered by the policy.

10. Under the Policy the risks covered are :

“All  risks”  Marine,  theft,  pilferage,  non- delivery,  civil  commotion,  strikes,  riots,   breakage, damage, dentage, etc.”  

11.  ‘Non-delivery’  being  a  specific  risk  covered  by  the  

Insurance Policy, the failure to deliver the cargo, as agreed,  

would clearly amount to loss of the subject matter insured.  

The situations in which the insurer could avoid its liability are  

contemplated by the exclusion clauses.   Clause 4.6 which  

was sought to be invoked by the defendant insurer excludes  

the liability of the insurer for loss or damage arising from the  

insolvency or financial default of the owners etc.  Insolvency  

or  bankruptcy  would  always  be  a  matter  of  authoritative  

determination under the relevant municipal laws of a country  

and  certainly  not  a  matter  of  individual  perceptions  and  

opinions.   No  material  to  establish  the  insolvency  or  

bankruptcy of the owners is available on record.  In fact, in  

the  earliest  communication  i.e.  dated  05.01.1984,  the  

7

Page 8

plaintiff  was  informed  that  the  repair  cost  of  the  vessel  

having exceeded the insured value, the owners had decided  

to abandon the ship.   The said act on the part  of owners  

cannot have the effect of their being adjudged as insolvents,  

which  Clause  4.6  contemplates.  The  subsequent  

communication of the insurer dated 14.10.1985 (Exbt. D-3),  

relied upon by the defendant, is a mere assertion made by it  

that the owners have become bankrupt.  The same is neither  

conclusive nor determinative of the question and appears to  

have been made by the insurer only to attract Clause 4.6.  In  

the absence of any material whatsoever to show that Clause  

4.6 can be attracted to the present case, the finding to the  

said effect, recorded by the High Court, cannot be sustained.  

12. Insofar as Clause 5.1 is concerned the same ex facie is  

not attracted inasmuch as no question of unseaworthiness of  

the vessel, much less, prior knowledge of the plaintiff of such  

unseaworthiness can and does not arise in the present case  

so  as  to  exclude  the  loss  and  damage  suffered  by  the  

plaintiff  from  the  purview  of  the  Insurance  Cover  as  

contemplated by Clause 5.1.   

8

Page 9

13. In view of the above, we set aside the judgment and  

order dated 28.04.2006 passed by the High Court of Madras  

and  restore  the  judgment  and  decree  dated  28.04.1989  

passed by the learned Trial Court.  Consequently, the appeal  

is  allowed.   If  the  amount  has  not  been  paid  till  date,  

naturally, the same will carry interest at the rate awarded by  

the learned Trial Court, namely, 18% per annum till date of  

payment.  

...…………………………CJI. [P. SATHASIVAM]

.........………………………J. [RANJAN GOGOI]

…..........……………………J. [N.V. RAMANA]

NEW DELHI, APRIL 7, 2014.

9