Mittal Technopack Private Ltd. and Anr. Vs. Ecgc Ltd. (Formerly Export Credit Guarantee Corp. of India L - Court Judgment

In The High Court at Calcutta Constitutional Writ Jurisdiction Original Side WP94of 2015 Mittal Technopack Private LTD.& Anr.

-Vs.ECGC LTD.(Formerly Export Credit Guarantee Corp.

of India Ltd.) Before : The Hon’ble Justice Arijit Banerjee For the Petitioners : Mr.Ratnanko Banerjee, Sr.Adv.Mr.V.Jhunjhunwala, Adv.For the Respondent : Mr.K Bhattacharya, Adv.Heard On 04.10.2016 : Judgment On : 27.01.2017 31.03.2015, 21.04.2015, 31.08.2016, Arijit Banerjee, J.:(1) In this writ application the petitioners challenge the rejection by the respondent of the petitioner’s claim under a Multi Buyer Exposure Policy for reimbursement of the cost of re-importation of goods exported by the petitioner company.

(2) The petitioner company is an export house dealing in export and import of various commodities.

The respondent is a Government of India enterprise which carries the business of providing insurance coverage to exporters in respect of risks associated with exports.

At the request of the petitioner company, the respondent issued a Multi Buyer Exposure Policy bearing No.0050008485 in favour of the petitioner with an aggregate loss limit of Rs.5 crores.

The Policy period was from 28 December, 2011 to 27 December, 2012.

On 27 July, 2012, the petitioner company exported a consignment of polypropylene sheets to Tanzania.

Upon the said consignment reaching the port of discharge, the consignee refused to tender payment and take delivery of the goods.

(3) By its application dated 20 November, 2012 the petitioner company sought approval of the respondent for reimporting the said goods and requested for coverage of the estimated cost of reimportation to the tune of Rs.13,41,715/-.

By its letter dated 29 November, 2012, the respondent granted approval for re-importation of the said consignment of goods subject to the condition that the respondent’s liability shall be limited to a maximum of 45 per cent of the gross invoice value of the goods.

(4) Subsequently, the petitioner company re-imported the goods and lodged its claim for re-imbursement of re-importation cost with the respondent by letter dated 22 April, 2013.

(5) By a letter/communication dated 15 May, 2013, the respondent rejected the petitioner’s claim.

The said communication is reproduced hereunder:“Please refer to your claim dated 25.04.2013 on the above subject.

In this connection, we make the following observation: (1)Section 64VB of Insurance Act, 1938 regarding payment of advance premium was not complied with.

(2)Report of Default was submitted with a delay of 67 days.

In view of the above, the Corporation’s liability is not attracted which please note.” (6) Appearing for the petitioneRs.Mr.Ratnanko Banerjee, Ld.

Sr.Counsel, submitted that neither of the two grounds stated in the letter of rejection can be sustained.

He referred to the insurance Policy in question and pointed out from the schedule thereto that the total premium of Rs.9,10,000/- was payable in four equal instalments of Rs.2,27,500/-.

He submitted that in view of the specific nature of the Policy which permitted the petitioner company to pay the total premium in instalments, Sec.

64VB of the Insurance Act, 1938 has no application.

He submitted that there was some delay in payment of the third instalment but the entire premium had been paid by the petitioner company and accepted without demur or protest by the respondent prior to the petitioner lodging its claim on 22.04.2013.

Hence, there is no merit in the fiRs.ground for rejection of the petitioner company’s claim by the respondent.

(7) As regards the second ground for rejection of the petitioner’s claim, Mr.Banerjee pointed out that as per the terms of the policy, the petitioner company had an obligation to notify the respondent of occurrence of an insured risk not later than 30 days after occurrence of such risk.

In the present case, there was no particular date of rejection of the goods by the Tanzanian buyer.

communication at all from the Tanzanian party.

There is no It was only after failure of all efforts towards the resolution of the issue as regards the consignee’s non-acceptance of delivery of the goods can the insured risk be said to have arisen on or about 15 November, 2012.

Immediately, the petitioner company informed the respondents about such risk and sought its approval for re-importation of the goods.

Hence, the second ground for rejection of the petitioner company’s claim is also without substance.

(8) Mr.Banerjee referred to the petitioner company’s letter dated 22 June, 2013 demanding justice from the respondent as also to a similar letter dated 26 August, 2013.

(9) Ld.

Sr.Counsel referred to an e-mail dated 15 January, 2014 sent by the AGM-Grievance of the respondent company to the petitioner company informing that the latter’s case has been scrutinized by the Apex Customer Grievance Committee which rejected the claim for non-compliance of Sec.

64VB of the Insurance Act which is a noncondonable lapse.

Reference was also made to a letter dated 24 March, 2014 issued by the Assistant General Manager of the respondent informing the petitioner company that its representation vide letter dated 23 December, 2013 had been rejected by an Independent Review Committee consisting of external experts on the ground that there was no premium available to cover the exports in question since the instalment due to be paid on 28 June, 2012 was paid by the petitioner company on 3 October, 2012.

(10) On the basis of the aforesaid submission Mr.Banerjee prayed for quashing of the rejection of the petitioner’s claim by the respondent and for a direction on the respondent company to reimbuRs.to the petitioner company the cost of re-importation of the aforesaid goods in terms of the insurance policy issued by the respondent.

(11) Learned Counsel for the respondent urged two points in contesting the claim of the petitioner.

Firstly, he submitted that the premium that was due on 28 June, 2012 was paid belatedly on 3 October, 2012.

In the interim period i.e.between 28 June, 2012 and 3 October, 2012, there was no coverage because of non-payment of premium.

Hence, when the shipment took place on 27 July, 2012, the petitioner company did not have any coverage under the Insurance Policy.

(12) Learned Counsel then referred to the application of the petitioner company for the respondent’s approval for re-importation of the goods and pointed out that the due date for payment as mentioned by the petitioner company was 25 days from the date of shipment i.e.from 21 July, 2012.

Hence, the date when the petitioner company was to receive payment from the Tanzanian buyer was 22 August, 2012.

The risk arose on that date upon failure of the buyer to make payment to the petitioner company.

On 22 August, 2012 and until 3 October, 2012 the petitioner company did not have any coverage under the concerned Policy.

Hence, the petitioner company’s claim is not covered by the Policy.

(13) Secondly, Learned Counsel argued that the risk arose on 22 August, 2012 i.e.when the Tanzanian buyer defaulted in making payment to the petitioner company.

The petitioners had 30 days from that date to report the default to the respondent.

The petitioners have failed to do so.

The default was reported to the respondent only on 20 November, 2012 when the application for approval of reimportation was made i.e.much beyond 30 days from the date when the default was made.

This was a breach of a material term of the Insurance Policy and hence, the petitioner company is not entitled to any benefit under the Policy.

(14) In reply, learned Sr.Counsel for the petitioner referred to Clause 3 of the Policy in question which reads as follows:“3.

Notification and Consultation (a)If you have reason to believe that any one of your Insured Buyers is unable to or is likely to be unable to perform or comply with his obligations to you under any contract of sale which shall include non-payment of a bill of exchange on due date you must notify us immediately either in writing or (with our prior approval) electronically but in any case by not later than 30 days after you have become aware of one or more of the circumstances mentioned; (b) If as on the last day of a month any insured debt is remaining unpaid for 30 days or more after its due date of payment, you must notify us in our prescribed form full details of all such payments remaining overdue and unpaid by not later than the 15th day of the succeeding month; (c) In the event of the occurrence of any of the insured risks, you must notify us in writing immediately but in any case by not later than 30 days after such occurrence; (d) In all the cases explained in (b) and (c) above you must – (i) Continue to notify us every month in the format required by us until • Insolvency has occurred; or • A claim has been submitted to us; or • The insured debt has been paid or realized.

Whichever is earlier; (ii) Provide us in writing without delay with any information which we may request following our receipt of notification in pursuance of (a).(b) or (c) above; (iii) Take all practicable measures available to you to prevent or minimize any loss in respect of your exports to that Insured Buyer; (iv) Continue to take all prudent and reasonable steps, including such steps as we may require you to take which may include institution of legal proceedings, in connection with any loss which you may have incurred or may be likely to incur.

If requested by us to do so, you shall execute such documents and take such actions as we may require of you to enable us to intervene directly in any proceedings relating to an insured debt.

Your strict compliance with the terms of Condition 3 shall a condition precedent to our liability.” (15) Mr.Banerjee submitted that the above clause envisages subjective assessment on the part of the petitioner company as regards inability of the buyer to perform or comply with his obligations to the petitioner under any contract of sale.

The petitioner company was in constant dialogue with the Tanzanian buyer and explored all avenues to try and persuade the buyer to perform its obligations under the contract of sale.

Only in November, 2012, the petitioner company’s belief crystallised that the Tanzanian buyer shall not perform its obligations under the contract of sale.

Accordingly, the petitioner company applied for the respondent’s approval for re-importation of the goods on 20 November, 2012.

Hence, there is no breach of the clause requiring the petitioner company to notify the default/risk to the respondent within 30 days.

(16) As regards the other point urged by the respondent’s Learned Counsel that there was no coverage between 28 June, 2012 and 3 October, 2012, Mr.Banerjee submitted that this submission is wholly erroneous.

The Policy being a non-return based Policy, the respondent cannot reject the claim for alleged non-coverage against particular shipment since the Policy by its inherent nature did not and could not provide for co-relation of individual shipment with accrued premium.

It was clearly understood between the parties that the Policy is a prefixed total annual premium based Policy for the entire period of insurance, payable in four equal instalments without any co-relation between individual shipments with accrued premium by payment of instalments.

(17) I have given anxious consideration to the rival contentions of the parties.

(18) An insurance policy is nothing but a contract whereunder the insurer agrees to cover a particular type of loss that the insured may suffer against payment of insurance premium by the insured to the insurer.

The rights and obligations of the insurer and the insured are governed by the terms of the insurance policy.

Like any other commercial document, an insurance policy is to be interpreted from a commercial and pragmatic perspective as an ordinary man of prudence would do.

It is a well-known principle of law that a document has to be interpreted against the maker of the document and in favour of another party to the document if a conflict arises, so far as possible, without distorting the true spirit and intent of the document.

An insurance policy is prepared by the insurance company and while interpreting the term or condition of such policy, an interpretation that favours the insured is generally to be accepted.

(19) In the present factual context, it is nobody’s case that the loss that the petitioner company suffered is not covered by the insurance policy in question.

However, the respondent company has rejected the petitioner company’s claim for indemnification on two grounds.

(20) The fiRs.ground is non-compliance with Sec.

64VB of the Insurance Act, 1938.

The said Section in so far as it relevant for the present purpose, is reproduced hereinunder:“S.

64VB:- No risk to be assumed unless premium is received in advance._ (1) No insurer shall assume any risk in India in respect of any insurance business on which premium is not ordinarily payable outside India unless and until the premium payable is received by him or is guaranteed to be paid by such person in such manner and within such time as may be prescribed or unless and until deposit of such amount as may be prescribed, is made in advance in the prescribed manner.

(2) For the purpose of this Section, in the case of risks for wich premium can be ascertained in advance, the risk may be assumed not earlier than the date on which the premium has been paid in cash or by cheque to the insurer.

Explanation._ Where the premium is tendered by postal money order or cheque sent by post, the risk may be assumed on the date on which the money order is booked or the cheque is posted, as the case may be.” (21) The respondent’s argument is that the third instalment which was due on 28 June, 2012 was paid only on 3 October, 2012.

In between the said two dates there was no coverage and it was during this period that the risk occurred.

It was contended that it was a noncondonable lapse, and hence, the petitioner company is not entitled to the benefit of the policy.

I am unable to appreciate this contention of the respondent company.

Sec.

64VB casts an obligation on the insurance company and not the policy holder.

If the insurance company issues a policy in contravention of the provisions of the said section, the same cannot defeat or adversely affect the rights of a policy holder if he has otherwise complied with the terms and conditions of the policy and is otherwise entitled to the risk coverage.

In any event, in my opinion, this is an academic issue.

Sec.

64VB does not have any manner of application to the facts of the present case.

The petitioner company was permitted by the respondent company to pay the total premium in four instalments.

Admittedly, the entire premium has been paid by the petitioner company.

Although there was delay in payment of the third instalment, the respondent accepted the premium without any protest, demur or reservation.

(22) In this connection it may be noted that in New India Assurance Co.Ltd.-vs.-Rula, (2000) 3 SCC195 The Hon’ble Supreme Court held that ordinarily a liability under the contract of insurance would arise only on payment of premium, if such payment was made a condition precedent for taking effect of the insurance policy but such a condition which is intended for the benefit of the insurer can be waived by it.

In the present case, the respondent received the belated payment of the third instalment of premium without any protest, demur or reservation.

Hence, the respondent must be held to have waived his protection under Section 64VB of the Insurance Act.

(23) Further, the respondent did not cancel the insurance policy upon the petitioner company’s failure to pay the third instalment of premium within the prescribed date.

The respondent would have been within its rights to cancel the policy between 28 June, 2012 and 3 October, 2012.

It did not do so.

Had it done so, the petitioner company would have had no legitimate grievance about the rejection of its claim under the policy.

However, the respondent kept the policy alive and accepted the third instalment on 3 October, 2012 belatedly without any reservation.

Under those circumstances, the respondent cannot take shelter under Section 64VB.

(24) In the letter dated 29 November, 2012 issued by the respondent in response to the petitioner company’s application for approval of reimportation, there was no whisper of the present stand taken by the respondent.

As on the date when the petitioner company lodged its claim with the respondent company, admittedly, the entire premium stood paid.

Hence, it would be unfair and inequitable to uphold the fiRs.ground for rejection of the petitioner company’s claim.

Having approved the re-importation of the concerned shipment, the respondent company cannot be permitted to contend that since there was a delay in the payment of the third instalment, the petitioner company is not covered by the policy.

In my view, payment of any one instalment cannot be related to a particular date when the risk arose during the subsistence of the policy.

I am in agreement with the submission of Mr.Banerjee that individual shipments could not be corelated with the accrued premium under the policy.

I am of the view that permitting the respondent company to reject the petitioner company’s claim on the fiRs.ground of non-compliance with Sec.

64VB would be unconscionable and would also result in unjust enrichment of the respondent company.

It is true that the law of insurance is a technical branch of law but the same cannot be carried to a point of hyper-technicality which would result in manifestly unjust results.

In view of the aforesaid, the fiRs.ground for rejection of the petitioner company’s claim cannot be sustained.

(25) The second ground taken by the respondent company for rejecting the petitioner company’s claim was that there was a delay of 67 days in reporting the default.

I have extracted Clause 3 of the Policy in question hereinabove.

It is true that the default was to be informed to the insurance company within 30 days of the occurrence of default.

The question is whether such term of the policy has been violated by the petitioner-company?.

answer is in the negative.

In my considered view, the The said clause envisages a subjective assessment on the part of the insured as regards occurrence of default.

In the present case the Tanzanian purchaser refused to make payment and take delivery of the goods exported by the petitioner company.

The petitioner company contended that it entered into a prolonged dialogue with the foreign purchaser to persuade the purchaser to take delivery upon making payment and to honour its obligations under the export contract.

It was only when it was clear to the petitioner company that such efforts would not succeed, it took a decision to reimport the goods and accordingly informed the respondent company and sought for their approval for such re-importation.

I have no reason to disbelieve such contention of the petitioner company.

According to me, any commercial party would do the same.

To minimize its loss, any prudent businessman would try to negotiate with the foreign purchaser in an attempt to persuade the purchaser to honour his obligations under the export contract.

I cannot lose sight of the fact that the Apex Customer Grievance Committee as also the Independent Review Committee rejected the petitioner company’s claim only on the ground of non-compliance with Sec.

64VB of the Insurance Act, 1938 and not on the ground of delay in informing the occurrence of default.

As I have expressed above, a commercial document is required to be construed from a commercial point of view so as to give effect to the document to the extent possible.

In my opinion, there was no breach of clause 3 of the Insurance Policy in the facts of the case.

(26) In view of the aforesaid, the communications dated 15 May 2013, 15 January, 2014 and 24 March, 2014 are set aside.

The respondent company is directed to disbuRs.to the petitioner company its claim under the insurance policy in question to the extent the petitioner is entitled to under the policy.

Such payment is to be made within a period of 8 weeks from date.

(27) WP No.94 of 2015 is accordingly disposed of.

(28) Urgent certified photocopy of this order and judgment, if applied for, be given to the parties upon compliance of necessary formalities.

(Arijit Banerjee, J.)