Export Credit Guarantee Corporation Of India Limited v. Garg Sons International ., Supreme Court Of India, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

Civil Appeals No. 1557 of 2004 with Nos. 1542-53, 1555-56 and 1558-59 of 2004, decided on January 17, 2013

Disposition

in part

Attorney(S)

Santosh Paul, Arvind Gupta, Ranjan Kumar, Ms Ashu Gupta, Satinder S. Gulati, Ms Kamaldeep Gulati and K.K Mohan, Advocates, for the appearing parties.

Judges

Dr B.S Chauhan
V. Gopala Gowda, JJ.

Acts

Section 5, Subsection 2 of the 1983 Income Tax Act
Section 19 of the Consumer Protection Act, 1986

See more information ...

Smart Summary

Factual and Procedural Background

The appellant, Export Credit Guarantee Corporation of India Ltd. (“the insurer”), issued an export credit insurance policy on 23 March 1995 to the respondent, M/s Garg Sons International (“the insured”), covering shipments to M/s Natural Selection Co. Ltd. (UK). The foreign buyer defaulted on payments from 28 December 1995 onward. The insured thereafter sought an enhancement of its credit limit and eventually lodged 17 separate claims under the policy.

The insurer rejected all 17 claims, asserting breach of Clause 8(b) of the policy, which required monthly declarations of overdue payments. The insured filed complaints before the State Consumer Disputes Redressal Commission, which on 4 June 2001 directed the insurer to honour the claims with 9 % interest and costs.

Both sides challenged aspects of that decision before the National Consumer Disputes Redressal Commission (NCDRC). By judgment dated 18 February 2003 the NCDRC partly allowed and partly dismissed the claims, but the parties alleged typographical errors in the tabulation of accepted and rejected claims. The present batch of 17 civil appeals before the Supreme Court arises from that NCDRC order.

Legal Issues Presented

Whether failure by the insured to submit monthly “Form 205” declarations of overdue payments within the period stipulated in Clause 8(b) extinguished the insurer’s liability under Clause 19(b) for the relevant shipments.
Whether the NCDRC’s judgment contained typographical errors warranting correction regarding the number of claims allowed and rejected.

Arguments of the Parties

Insurer’s Arguments

The insured did not notify overdue payments within 45 days (or 30 days plus 15 days, depending on the shipment terms) as mandated by Clause 8(b); under Clause 19(b) this relieves the insurer of liability.
The NCDRC erroneously recorded only four revisions as allowed and nine as rejected; in fact only two claims (in Civil Appeals Nos. 1547 and 1557 of 2004) met all contractual conditions.
Typographical mistakes in the NCDRC order caused an incorrect tally of accepted and rejected claims, necessitating modification.

Insured’s Arguments

Admits typographical errors in the NCDRC judgment but contends that several claims were wrongly rejected despite compliance with policy conditions.
Seeks allowance of claims in Civil Appeals Nos. 1559, 1544, 1545, 1543 and 1546 of 2004 while opposing the insurer’s appeals on the remaining claims.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Suraj Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co. Ltd. (2010) 10 SCC 567	Insurance contracts must be construed strictly; courts cannot add, delete, or substitute words.	Relied upon to stress that contractual clauses 8(b) and 19(b) must be enforced as written.
Oriental Insurance Co. Ltd. v. Sony Cheriyan (1999) 6 SCC 451	Strict construction of insurance terms and the non-application of contra proferentem to commercial contracts.	Used to reject equitable dilution of the notice requirement.
Polymat India (P) Ltd. v. National Insurance Co. Ltd. (2005) 9 SCC 174	Clauses of an insurance policy have to be read verbatim; no liberal rewriting is permissible.	Supports enforcement of the exclusion clause once notice requirements are breached.
Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (2010) 11 SCC 296	Commercial contracts must be interpreted according to the express terms mutually agreed.	Cited to underline the bilateral nature of Clause 8(b) obligations.
Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 5 SCC 306	Principle of respecting the negotiated terms of a commercial contract.	Reinforces non-interference with policy terms.
Vikram Greentech (I) Ltd. v. New India Assurance Co. Ltd. (2009) 5 SCC 599	Courts should not indulge in “extra-liberalism” by rewriting insurance contracts.	Applied to deny relaxation of Clause 8(b) notice period.
Sikka Papers Ltd. v. National Insurance Co. Ltd. (2009) 7 SCC 777	Similar affirmation of strict contractual interpretation in insurance matters.	Used cumulatively with other precedents to justify dismissal of non-compliant claims.

Court's Reasoning and Analysis

The Court reproduced Clause 8(b), obliging the insured to file by the 15^th of every month a declaration (Form 205) of payments overdue for more than 30 days, and Clause 19(b), which nullifies liability if such declarations are not filed. Applying the settled principle that insurance contracts must be strictly construed, the Court held that non-compliance with these clauses extinguishes the insurer’s liability.

The Court examined a detailed chart listing invoice dates, shipment dates, due dates, the contractual period for payment, the actual date of Form 205 submission (17 July 1996 for almost all shipments), and the resulting delay. The chart demonstrated that for 15 claims Form 205 was filed from one to more than five months late, whereas only two claims (Civil Appeals Nos. 1547 and 1557 of 2004) satisfied the contractual timeline.

Given the strict contractual and precedential framework, the Court concluded that only the timely-notified claims could be enforced and that alleged typographical errors did not alter the underlying non-compliance.

Holding and Implications

Held: Only the two claims forming the subject-matter of Civil Appeals Nos. 1547 and 1557 of 2004 are allowed; the remaining 15 claims are disallowed. All 17 appeals are accordingly disposed of.

Implications: The decision enforces rigorous adherence to notice requirements in export credit insurance policies and affirms that courts will not dilute express contractual conditions. No new legal doctrine is created, but the judgment reinforces existing precedent on strict construction of insurance contracts and commercial agreements.

Show full summary ...

To access the original judgment, please Sign In or Subscribe.

Export Credit Guarantee Corporation Of India Limited v. Garg Sons International .

Dr B.S Chauhan, J.— All the abovementioned appeals have been preferred against the common impugned judgment and order dated 18-2-2003 passed by the National Consumer Disputes Redressal Commission, New Delhi, in Revision Petitions Nos. 662-74 and 933 of 2002 and FAs Nos. 238, 246 and 247 of 2001.

2. The facts and circumstances giving rise to these appeals are that: the appellant herein, Export Credit Guarantee Corporation of India Ltd. (hereinafter referred to as “the insurer”), is a government company, which is in the business of insuring exporters. The respondent, M/s Garg Sons International, on 23-3-1995 purchased a policy for the purpose of insuring a shipment to foreign buyers i.e M/s Natural Selection Co. Ltd. of UK, and the said buyer committed default in making payments towards such policy from 28-12-1995 onwards, with respect to the said consignment.

3. The insured, that is, M/s Garg Sons International, sought enhancement of credit limit to the tune of Rs 50 lakhs with respect to the said defaulting foreign importer. Subsequently, he presented 17 claims. The insurer rejected all the abovementioned claims on the ground that the insured did not ensure compliance with Clause 8(b) of the insurance agreement, which stipulated the period within which the insurer is to be informed about any default committed by a foreign importer.

4. Thus, the insured then filed several complaints before the State Consumer Disputes Redressal Commission, to which the insurer filed replies. The State Consumer Disputes Redressal Commission adjudicated upon the case and disposed of the said complaint, vide order dated 4-6-2001, directing the insurer to make various requisite payments due under different claims, with 9% interest and litigation expenses, etc.

5. Being aggrieved by the orders passed in all 17 claims, the insurer preferred appeals under Section 19 of the Consumer Protection Act, 1986, before the National Consumer Disputes Redressal Commission, wherein the impugned judgment and order was disputed, stating that it was evident from the said judgment that 11 claims had been rejected and that 5 claims made by the insured were accepted. Hence, both the parties preferred these appeals.

6. Shri Santosh Paul, learned counsel appearing on behalf of the insurer, has submitted that the insured failed to communicate information pertaining to the default made by the foreign importer, to the insurer, within the stipulated period, which was fixed as 45 days from the date on which the payment became due, and thus, failed to ensure compliance with the mandatory requirement under Clause 8(b), owing to which, the claims with respect to which the said information was not furnished within the time period stipulated in the agreement, have wrongly been allowed. Moreover, it is evident from the judgment that only 5 claims made by the insured were accepted, and that 11 claims were rejected, though in the said order, only 9 claims were found to be rejected and 4 were shown as accepted. As the numbers of only 4 revisions have been mentioned, stating that only these were worth acceptance, and those of 9 revisions have been mentioned, as those that were rejected, which was all stated to show that there were typographical errors in the judgment itself. In addition thereto, there were also certain appeals and thus, the order was required to be modified to the extent that only two claims which were made in respect of Civil Appeals Nos. 1547 and 1557 of 2004, wherein all statutory requirements were complied with deserve to be allowed, while the others, owing to default on the part of the insured, are liable to be rejected.

7. On the other hand, Shri Satinder Singh Gulati, learned counsel appearing on behalf of the insured, has submitted that admittedly, there is in fact a typographical error in the impugned judgment and order, and has stated that the claims of the insured, with respect to which there has been no default on the part of the insured i.e some claims have wrongly been rejected. Therefore, the appeals filed by him i.e Civil Appeals Nos. 1559, 1544, 1545, 1543 and 1546 of 2004 should be allowed and the other appeals should be rejected accordingly.

8. We have considered the rival submissions made by the learned counsel for the parties and perused the record.

9. The relevant clauses of the insurance policy dated 23-3-1995, read as under:

“8. Declarations:

(a) Declaration of shipments.—***

(b) Declaration of overdue payments.—The insured shall also deliver to the Corporation, on or before the 15th of every month, declaration in the term prescribed by the Corporation, of all payments which remained wholly or partly unpaid for more than 30 days from the due date of payment in respect of shipments made within the policy period and such declaration shall continue to be rendered to the Corporation even after the expiry of the policy period so long as any such payment remains overdue.

***

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;

(b) the insured has failed to submit declaration of overdue payments as required by Clause 8(b) of the policy; or

(c)***”

If both the conditions referred to hereinabove are read together, it becomes evident that the insured must make a declaration in the prescribed form (Form 205), on the 15th of every month as regards whether or not, there has been any default committed by the foreign importer, either in part, or in full, for a period exceeding 30 days from the date on which the payment fell due, with respect to shipments made within the policy period. Non-compliance with the said term(s) of contract will exonerate the insurer of all liability in this regard.

10. It is a settled legal proposition that:

“26. … [while] construing the terms of a contract of insurance, the words used therein must be given paramount importance, and it is not open for the court to add, delete or substitute any words. It is also well settled that since upon issuance of an insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the policy, its terms have to be strictly construed [in order] to determine the extent of the liability of the insurer.”

Therefore, the endeavour of the court should always be to interpret the words used in the contract in the manner that will best express the intention of the parties. (Vide Suraj Mal Ram Niwas Oil Mills (P) Ltd. v. United India Insurance Co. Ltd. (2010) 10 SCC 567)

11. The insured cannot claim anything more than what is covered by the insurance policy. “The terms of the contract have to be construed strictly, without altering the nature of the contract as the same may affect the interests of the parties adversely.” The clauses of an insurance policy have to be read as they are. Consequently, the terms of the insurance policy, that fix the responsibility of the insurance company must also be read strictly. The contract must be read as a whole and every attempt should be made to harmonise the terms thereof, keeping in mind that the rule of contra proferentem does not apply in case of commercial contract, for the reason that a clause in a commercial contract is bilateral and has mutually been agreed upon. (Vide Oriental Insurance Co. Ltd. v. Sony Cheriyan (1999) 6 SCC 451, Polymat India (P) Ltd. v. National Insurance Co. Ltd. (2005) 9 SCC 174, AIR 2005 SC 286, Sumitomo Heavy Industries Ltd. v. ONGC Ltd. (2010) 11 SCC 296, AIR 2010 SC 3400 and Rashtriya Ispat Nigam Ltd. v. Dewan Chand Ram Saran (2012) 5 SCC 306, AIR 2012 SC 2829.)

12. In Vikram Greentech (I) Ltd. v. New India Assurance Co. Ltd. (2009) 5 SCC 599 it was held:

“16. An insurance contract, is a species of commercial transactions and must be construed like any other contract to its own terms and by itself. …

***

18. The endeavour of the court must always be to interpret the words in which the contract is expressed by the parties. The court while construing the terms of policy is not expected to venture into extra liberalism that may result in rewriting the contract or substituting the terms which were not intended by the parties.”

(See also Sikka Papers Ltd. v. National Insurance Co. Ltd. (2009) 7 SCC 777, AIR 2009 SC 2834)

13. Thus, it is not permissible for the court to substitute the terms of the contract itself, under the garb of construing terms incorporated in the agreement of insurance. No exceptions can be made on the ground of equity. The liberal attitude adopted by the court, by way of which it interferes in the terms of an insurance agreement, is not permitted. The same must certainly not be extended to the extent of substituting words that were never intended to form a part of the agreement.

14. The instant case is required to be considered in the light of the aforesaid settled legal propositions.

15. The requisite record reveals the factual matrix as under:

CA No. Invoice No. Invoice date Date of shipment Due date of payment Period for payment Date for submission of Form 205, Clause 8(b) compliance Delay in filing Clause 8(b) compliance (i.e Form 205) Amount 1555/04 160/95 3-11-1995 13-11-1995 28-12-1995 45 days 17-7-1996 More than 5 months Rs 8777 1548/04 163/95 8-11-1995 20-11-1995 5-1-1996 45 days 17-7-1996 More than 5 months Rs 1,16,424 1552/04 165/95 13-11-1995 19-11-1995 4-1-1996 45 days 17-7-1996 More than 5 months Rs 96,474 1549/04 166/95 13-11-1995 19-11-1995 4-1-1996 45 days 17-7-1996 More than 5 months Rs 67,194 1551/04 177/96 2-1-1996 3-2-1996 18-3-1996 45 days 17-7-1996 More than 2 months Rs 52,629 1558/04 182/96 16-1-1996 3-2-1996 18-3-1996 45 days 17-7-1996 More than 2 months Rs 2,49,377 1553/04 184/96 29-1-1996 15-2-1996 31-3-1996 45 days 17-7-1996 More than 2 months Rs 4,14,354 1559/04 186/96 7-2-1996 6-3-1996 6-5-1996 60 days 17-7-1996 More than 1 month Rs 2,39,656 1550/04 191/96 22-2-1996 24-2-1996 24-4-1996 60 days 17-7-1996 More than 1 month Rs 2,42,055 1544/04 192/96 22-2-1996 6-3-1996 6-5-1996 60 days 17-7-1996 More than 1 month Rs 3,43,777 1545/04 193/96 26-2-1996 28-2-1996 30-4-1996 60 days 17-7-1996 More than 1 month Rs 2,67,229 1543/04 195/96 13-3-1996 25-3-1996 25-5-1996 60 days 17-7-1996 2 days Rs 3,06,159 1556/04 196/96 22-3-1996 25-3-1996 25-5-1996 60 days 17-7-1996 2 days Rs 2,64,400 1547/04 200/96 19-4-1996 6-5-1996 6-7-1996 60 days 17-7-1996 Rs 3,14,961 1546/04 162/95 8-11-1995 20-11-1995 5-1-1996 45 days 17-7-1996 More than 5 months Rs 5,28,257 1557/04 201/96 19-4-1996 6-5-1996 6-7-1996 60 days 17-7-1996 Rs 13,62,688 1542/04 164/95 11-11-1995 19-11-1995 4-1-1995 45 days 17-7-1996 More than 5 months Rs 5,79,766

The aforesaid chart clearly establishes that the insured failed to comply with the requirement of Clause 8(b) of the agreement informing the insurer about the non-payment of outstanding dues by the foreign importer within the stipulated time except in two cases.

16. Thus, we are of the view that only two claims which are subject-matters in Civil Appeals Nos. 1547 and 1557 of 2004 deserve to be allowed. The others are disallowed.

17. With these observations, all 17 appeals stand disposed of.

Export Credit Guarantee Corporation Of India Limited v. Garg Sons International .

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Insurer’s Arguments

Insured’s Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Export Credit Guarantee Corporation Of India Limited v. Garg Sons International .

Comments