1

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

    CIVIL APPEAL NO.2987 OF 2019      (@SLP(C) No. 7781/2014)

EXPORT CREDIT GUARANTEE CORPN.OF  INDIA LTD. & ANR.                            …APPELLANTS  

VERSUS

M.S. CREATIONS & ANR.                                       …RESPONDENTS  

J U D G M E N T

    Dr Dhananjaya Y Chandrachud, J.

1 Leave granted.

2 A claim based on a policy of insurance issued by the Export Credit Guarantee

Corporation  of  India  Ltd.1 was  allowed  by  the  Haryana  State  Consumer  Disputes

Redressal Commission2. The appellant was directed to pay 90 per cent of the claim

amounting to Rs. 9.25 lakhs and Rs. 13.61 lakhs after deducting an amount of Rs. 6

1 “ECGC” 2 “State Commission”

2

lakhs already received by the respondent along with interest at 9 per cent per annum.

3 This  order  has  been  affirmed  in  appeal  by  the  National  Consumer  Disputes

Redressal Commission3 on 13 December 2013. The ECGC is in appeal.

4 On 27 July 2000, the respondent obtained a Shipments (Comprehensive Risk)

Policy4 which was valid upto 31 July 2002. On 31 July 2000, the ECGC forwarded the

policy  to  the  first  respondent  with  a  cover  note  highlighting  important  terms  and

conditions of the policy. Apart from the Shipments Policy which was issued to the first

respondent, the appellant also issues another policy, amongst others, called the ‘Whole

Turn  Over  Post  Shipment  Export  Credit  Guarantee’5 to  various  banks  which  make

advances  to  exporters.  The  policy  is  designed  to  protect  banks  against  the  risks

towards the exposure undertaken by them.  

5 On 6 October 2001, the first respondent obtained a purchase order for handloom

goods from a buyer situated in the Ivory Coast by the name of Society Ivoirienne De

Commerce ET DE Representation6 worth about Rs 64 lakhs.

6 In pursuance of the purchase order,  the first  respondent  entered into a sales

contract with SICOREP on 18 October 2001. In pursuance of the Shipments Policy, the

first  respondent  applied  for  the  approval  of  ECGC  for  covering  the  shipments  to

SICOREP under the above purchase order. ECGC granted a specific approval on 7

November 2001 to the extent of Rs 64.86 lakhs, subject to the term of payment being

3 “National Commission” 4 “Shipments Policy” 5 “WTPSG Policy” 6 “SICOREP”

3

DA7 90 days.  

7 The first respondent made its first shipment to SICOREP on 16 November 2001,

in pursuance of which it filed a declaration under Clause 8(a) of the policy to ECGC on

19 December 2001. On 21 November 2001, SICOREP issued a second contract to the

first respondent. On 7 January 2002, the first respondent made its second shipment to

SICOREP, which was also declared to ECGC on 18 January 2002.

8 Under  the  sales  contract,  SICOREP’s  bank,  as  originally  notified,  was Credit

Lyonnais Agency 9658, Agence International Boulevaard Des Italiens, 75 Paris Zeme

France. On 18 January 2002, SICOREP sought a change in the name of the bank to

Banqyue De ‘L’ Habitat De Cote D’Ivoire9, Seige Social 22, Avenue Joseph Anoma 01

BP  2325  Abidjan  01  Ivory  Coast.  In  view  of  the  request  by  SICOREP,  the  first

respondent by its letter dated 21 January 2002 sought the permission of ECGC for a

change in the name of the bank and in terms of the payment.

9 BHCI, the newly notified bank in the Ivory Coast, is alleged to have released the

documents without receiving any acceptance from the consignee. Since no payment

was forthcoming, the first respondent was unable to make payment to its own banker,

Punjab  National  Bank10.  Consequently,  PNB,  the  second  respondent  to  these

proceedings, made an application for provisional payment of its claim under its own

WTPSG  Policy  on  12  February  2002.  On  14  March  2002,  the  appellant  made  a

payment of Rs. 6 lakhs to PNB, as and by way of a provisional payment.  

7 Documents against Acceptance (DA) is an arrangement in which someone has the right to collect imported goods only after they have signed an agreement at a bank to pay for the goods and have shown proof of having signed it. 8 “Credit Lyonnais” 9 “BHCI” 10 “PNB”

4

10 On 16 March 2002, ECGC sought further information from the first respondent in

regard to its overdue payment from SICOREP. Subsequently, on 28 May 2002, the first

respondent submitted two claims in the aggregate value of Rs. 22.87 lakhs to ECGC

against the overdue amounts from two shipments. Thereafter, on 25 June 2002, ECGC

called upon the first respondent to submit necessary documents together with its claim

forms.  

11 In order to produce the necessary documents, the first respondent invoked the

intervention of the Indian Embassy in the Ivory Coast in July 2002. However, on 2 July

2002, the first respondent expressed its inability to ECGC to produce the documents

which were sought by them. The Indian Embassy, which had attempted to intervene on

behalf of the first respondent, informed the latter on 19 August 2002 that according to

BHCI it did not have SICOREP as a client at all. The Indian Embassy also opined that

the possibility of the documents being forged could not be excluded. By its letter dated

3 October 2002, ECGC informed the first respondent that it was not accepting its claim

in view of its failure to produce the requisite documents.

12 It appears that PNB also addressed a communication to BHCI to inform it about

the shipments and the documents.  BHCI,  by a facsimile message on 22 November

2002, informed PNB that the original documents had been made over to a person by

the name M. Reda Ali. BHCI indicated that it had refused to accept the documents for

payment for the shipments since it did not conduct such transactions, being a bank in

the housing sector.

5

13 The first respondent, being aggrieved by the rejection of its claim, instituted a

consumer complaint before the State Commission. The complaint was allowed on 23

April 2008.

14 ECGC contested the matter before the National Commission in appeal which has

resulted  in  the  confirmation  of  the  order  of  the  State  Commission  allowing  the

complaint.

15 On behalf of the appellant, it has been submitted by Mr Bharat Sangal, learned

counsel that the Shipments Policy which was obtained by the first respondent was a

comprehensive policy covering shipment risks. However, there was a specific exclusion

in the policy of a situation involving an act or default on the part of the collecting bank.

In  the  present  case,  it  was  submitted  that  ECGC  agreed  to  the  change  in  the

nomination of the buyer’s bank from Credit Lyonnais to BHCI in good faith, with a view

to facilitate the export transaction. The sales contract envisaged that the payment terms

were to be, through the bank, 60 days DA from the date of the Bill of Lading. Learned

counsel  submitted  that  in  breach  of  these  conditions,  BHCI  informed  PNB  by  its

communication  dated  22  November  2002  that  the  original  documents  of  the  two

shipments had been handed over to the foreign party. At the same time, BHCI stated

that it could not accept the shipment for payment and that it had not conducted any

transaction with or made any payment to PNB. On this basis, it was sought to be urged

that there was a clear default on the part of the collecting bank which would result in the

applicability of the exclusionary provision.

16 The next submission which was urged on behalf of the appellant is that the State

6

Commission and National Commission were in error in coming to the conclusion that

because the appellant  had made a payment  to  PNB against  the WTPSG Policy,  it

amounted to an admission of liability to the first respondent. It was also urged that the

guarantee which was issued to the bank was to protect the risk of its exposure to a

client in respect of a foreign transaction. The Shipments Policy which was issued to the

first respondent was separate from the WTPSG Policy which was issued to the bank.

Hence, it was submitted that the mere fact that ECGC honoured the guarantee to PNB

would not lead to the conclusion that there was an admission of liability to the first

respondent.

17 On  the  other  hand,  the  learned  counsel  appearing  on  behalf  of  the  first

respondent submits that the claim fell within the terms of the Shipments Policy. Learned

counsel submitted that this was a case where there was a failure on the part of the

buyer to pay for the goods within the stipulated period. The first  respondent having

sustained the loss, was entitled to seek an indemnification from the insurer under the

terms  of  the  Shipments  Policy.  Moreover,  it  was  urged  that  the  change  in  the

nomination  of  the  bank  from Credit  Lyonnais  to  BHCI  had  been  effected  with  the

consent  and  approval  of  ECGC.  Consequently,  the  failure,  if  any  on  the  part  of

SICOREP, to retire the documents and to perform its obligation to pay for the goods

would not exclude the liability of ECGC under the terms of the insurance policy.  

18 The policy document dated 27 July 2000 executed by ECGC in favour of the first

respondent defines the risks which were insured. Among them, Clauses (ii), (iii) and (iv)

provide as follows:

“(ii)  failure  of  the  buyer  to  pay  to  the  insured,  within  four months after the due date of payment the gross invoice value

7

of the goods delivered to and accepted by the buyer; or (iii) the failure of the buyer to pay to the Exporter within four months after the date of payment the gross invoice value of goods delivered to and accepted by the buyer, or (iv) failure or refusal on the part of the buyer to accept goods which  have  already  been  exported  from India,  where  any such failure or refusal is not excused by and does not arise from or in connection with any breach of condition or warranty on the part of the Exporter or from any other cause within his control;  and provided also  that  the  Corporation  is  satisfied that no good purpose would be served by the institution of legal  proceedings  against  the  buyer  in  respect  of  his  said failure or refusal,”

The  relevant  exclusion,  proviso  (b)  to  Clause  (xii)  of  the  policy,  upon  which  the

controversy in the present case has turned, provides as follows:

“PROVIDED ALWAYS that the Corporation shall not be liable for loss:

(a) …

(b)  which  arises  from  the  insolvency  of  any  agent  of  the Exporter or the insolvency of a co1lecting bank or from any act or default on the part of such agent or collecting bank;”

19 The sales contract between the first respondent and SICOREP envisaged that

the payment terms, through the bank, would be 60 days’ DA from the date of the Bill of

Lading. The first respondent by its communication dated 1 November 2001 to ECGC,

declared that it would conduct business on 60 days’ DA basis from the date of the Bill of

Lading and only with the acceptance of Credit Lyonnais. It was to this document that the

specific approval of the ECGC was obtained on 7 November 2001 with reference to the

export contract with SICOREP.

20 When SICOREP indicated to the first respondent that it was suggesting a change

in the nomination of the foreign bank to BHCI, the first respondent in turn applied for

8

and obtained the approval of  ECGC on 7 February 2002, subject to the terms and

conditions set out in the earlier approval.

21 After  the first  respondent  submitted  a  claim to  ECGC,  a  communication  was

addressed on 25 June 2002 requiring the first respondent to arrange for: (i) the originals

of  the  unpaid  bills  of  exchange;  (ii)  Advices  of  non-payment  by  the  foreign

correspondent bank; (iii) Advice of the acceptance of documents by the foreign bank,

among other documents.

22 ECGC indicated that unless those documents were produced, it would be unable

to proceed further in the matter. As the correspondence on the record indicates, the first

respondent was unable to produce the relevant documents or to indicate that there was

an acceptance of the documents, in terms as required under the approval of the sales

contract by ECGC.

23 It was in this background that ECGC rejected the claim of the first respondent on

3 October 2002. The facsimile message dated 22 November 2002 of BHCI to PNB

indicates that the original documents of the two shipments had been handed over to M

Reda Ali. The communication, however, indicates that the bank could not accept the

shipment for payment and that it had not either made any transaction with or effected

any payment to PNB.

24 ECGC took up the matter with PNB which in turn corresponded with BHCI. The

correspondence was evidently  fruitless  since there  was nothing to  indicate  that  the

documents  had been duly  accepted in  terms of  the conditions governing the sales

9

contract.

25 Now,  it  is  in  this  background  that  ECGC  had  sought  to  raise  the  exclusion

contained  in  the  insurance policy.  In  terms of  the  proviso  (b)  extracted  above,  the

insurer was not to be held liable for any loss from any act or default on the part of the

collecting  bank.  Evidently,  the  collecting  bank,  as  its  communication  dated  22

November  2002 indicates,  handed over  the original  documents,  but  then sought  to

justify its action by contending that the bank was in the housing sector and could not

accept  the shipment  for  payment.  If  this  was the position,  there was no reason or

justification on the part of the collecting bank to hand over the original documents to a

person  representing  SICOREP without  acceptance.  There  was,  therefore,  clearly  a

default on the part of the collecting bank.

26 The State Commission and the National Commission held against ECGC  inter

alia on  the  ground that  by  honoring  its  commitment  to  PNB under  WTPSG Policy,

ECGC had in turn admitted its liability to the first respondent. There is a fallacy in this

hypothesis. The guarantee which ECGC furnished to PNB, similar to those it furnishes

to  other  bankers, was  to  secure  their  exposure  against  the  risks  involved  in  the

advances which the bank had made in respect of export contracts to its constituent.

This guarantee which ECGC issued to PNB would not conclude the issue as to whether

the  claim  made  by  the  first  respondent  under  a  distinct  insurance  policy  was

sustainable.  Consequently,  the  basis  on  which  the  State  Commission  and  National

Commission held against the appellant is erroneous.  

27 During  the  course  of  the  hearing  of  these  proceedings,  the  Court  has  been

apprised of the fact that the order which was passed by the State Commission was duly

executed  and  in  compliance,  the  amount  due  and payable  has  been paid  over  by

10

ECGC to the first respondent. There is no allegation that the first respondent was in any

way connected with or colluded with SICOREP. From the record, it appears that the first

respondent  was  itself  a  victim  of  SICOREP having  retired  the  documents  without

making payment for the export consignments. No submission has been urged on behalf

of ECGC to indicate the complicity of the first respondent. In the circumstances, we are

of the view that the loss must, in the present case, lie where it falls. In the exercise of

our jurisdiction under Article 142 of the Constitution, we direct that no recoveries should

be made from the first respondent.

28 However, since the appellant has been concerned with the position of law as set

down in the judgments of the State Commission and National Commission, we have

clarified the position in terms of the present judgment.

29 Subject to the directions under Article 142 issued above, we allow the appeal and

set aside the impugned judgment and order of the National Commission. There shall be

no order as to costs.

………...……………………................................J.                   [DR DHANANJAYA Y CHANDRACHUD]

..…………………………….…..............................J.                   [HEMANT GUPTA]

NEW DELHI  MARCH 13, 2019

11

ITEM NO.8               COURT NO.11               SECTION XVII

              S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS

Petition(s) for Special Leave to Appeal (C)  No(s).  7781/2014

(Arising out of impugned final judgment and order dated  13-12-2013 in FA No. 282/2008 passed by the National Consumers Disputes  Redressal Commission, New Delhi)

EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD.  & ANR.   Petitioner(s)

                               VERSUS

M.S. CREATIONS & ANR.                   Respondent(s)                                                                     Date : 13-03-2019 This petition was called on for hearing today.

CORAM :  HON'BLE DR. JUSTICE D.Y. CHANDRACHUD          HON'BLE MR. JUSTICE HEMANT GUPTA

For Petitioner(s)   Mr. Bharat Sangal, AOR Ms. Laiman R. Bano, Adv. Ms. Babita Kushwaha, Adv.                    

For Respondent(s)   Mr. Anil Kumar Tandale, AOR

                   Mr. M. T George, AOR Mr. Subhash Chandra, Adv. Ms. Kavitha K.T., Adv.

                   Mr. A. N. Arora, AOR

Mr. Himanshu Gupta, Adv.                     

         UPON hearing the counsel the Court made the following                              O R D E R

Leave granted.

The  Appeal  is  allowed  in  terms  of  the  signed  reportable

judgment.

Pending application(s), if any, shall stand disposed of.

(MANISH SETHI)                                  (SAROJ KUMARI GAUR) COURT MASTER (SH)                                  BRANCH OFFICER

(Signed reportable judgment is placed on the file)