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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

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

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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

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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

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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.   

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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,

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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.”

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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.   

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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

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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

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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

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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

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“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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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:

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(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

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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:

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(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;

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(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

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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

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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

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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

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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

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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

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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 other15.  In the said case the Export Credit

Guarantee Corporation of India Ltd., an instrumentality of

State,  had  repudiated  the  claim  of  the  claimant  against 15  (2004) 3 SCC 553

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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

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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

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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

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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

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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

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