Exporter insured against political risks claimed full increased recovery after currency appreciation; Supreme Court held Clause 16 required all recovered sums to be apportioned 90:10 between insurer and exporter.
This page shows the compact analysis of this judgement. The full analysis — procedural history, issue-by-issue holdings with ratio and obiter, advocates, and paragraph-level evidence for every claim — is being added to the record in batches and will appear here when this judgement has been through it.
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[2008] 14 S.C.R. 556
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M/S. RAHEE INDUSTRIES LTD.
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. EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. . AND ANR. . ·. . . . .
(Civil Appeal No.6145 of 2008) ·
oc1qBER 17, 2008.
(S.H. KAPADIA ·AND B .. SUDERSH~N REDDY,• JJ]
Insurance:
· · C .Specjfic Shipments (Political Risks) Policy No: 144991 1987 - Export of goods - Balance consideration amount for .. the consignment insured to the extent of 90% under the Policy· - ~xporter not. receiving the balance consideration amount within time. due to political embargo - Export Credit Guaran- D tee Corporationpaying the insured money to the exporter - After lifting of embargo balance consideration amount trans.:. .· · ferred to Bank in India. in foreign currency -:- Appreciation of . the currency due to fluctuation in exchange rate, resulting in increased.recovery - Policy providing ratio of apportionment E. of recovery as f}O: 10 between the Corporation and exporter· respectively - Exporter cf aiming increased recovery - Held: In view of language of Clause 16 of the Policy; all the sums recovered has to be apportioned in the ratio of 90: 1 O between the Corporation and the exporter respectively - Exporter hot F entitled to the increased recovery. ·
Policy of insurance...,.. Interpretation of- Held: Words in a policy are to be understood in their ordinary meaning except where a word has a technical or legal meaning or where the context requires otherwise - Principles of Subrogation to be G invoked only in case of doubt and ambiguity in the construe- . tion of Policy
Doctrines/Principles:
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M/S. RAHEE INDTS. LTD. v. EXPORT C. G CORPN. 557 OF INDIA LTD. & ANR.
Principle of Subrogation - Applicability of
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Predecessor of the appellant entered into contract for export of certain goods with a foreign buyer. As pe.r contract, the exporter got 20% of the invoice value as advance. The balance price of 80%, was covered to the B extent of 90% by specific Shipments (Political Risks) Policy No.14499/1987. The balance amount was not received by the exporter within time because of political embargo. The exporters,, therefore, applied to the Export Credit Guarantee Corporation under the Policy, seeking payment for the risk covered to the extent of 90% of thec balance price. Corporation paid the same. Thereafter, the embargo was lifted and the balance amount was transferred to the Bank in India. The amount was received by the Bank in US Dollar. By the time it reached India, it got a·ppreciated and thus resulted in increased recovery . . D
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The exporter filed a suit contending that exporter was entitled to the full i.ncreased recovery and the Corporation was entitled'to only the sum which it had-paid to the exporter. Stand of the Corporation was that the increased E . recovery was to be apportioned in the ratio of 90:10 in terms of Clause 16 of the Policy. During pendency of the suit, the Bank disbursed the recovered sum in the ratio of 90:10 between the Corporation and the exporter respectively. Single Judge of High Court decreed the Suit. In appeal, Division Bench of High Court reversed the order F. of Single Judge holding that the Corporation was entitled to 9()% of the increased recovery. Hence the present appeal.
Dismissing the appeal, the Court
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HELD: 1.1 It is well-settled rule of construction that words in a contract (Policy herein) are to be understood in their ordinary meaning. However, this ordinary meaning will not prevail in two cases, namely, where a word has techniGal or legal meaning and secondly where the H
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558 SUPREME COURT REPORTS
[2008] 14 S.C.R.
A context requires otherwise. In a contract of insurance, parties may,; introduce express terms which are at variance from or :in conflict with the ordinary principles of subrogation. Hence, the policy l . of insurance by correct reference approach to its terms. If, however, is to . consider the B there is some doubt or ambiguity in· the construction of the policy only then it would be correct to invoke the prin. ciples of subrogation as a guide or a controlling authority. [Para 1 O] [508-A to D]
1.2 If a debt in a foreign currency is sued for, the judge ment must be in terms of Rupee and the rate of exchange (subject to express contractual provisions to the. contrary) will be the rate of exchange between Rupee and the foreign currency prevailing at the date when the debt becomes payable. [Para 11] [568-E-F] ·
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Forasol v. Oil and Natural Gas Commission, 1984 (Supp.) sec 263 - relied on.
1.3 On reading Specific Shipments (Political Risks) Policy in its entirety, it is found that there is a dichotomy E in it. The subject-Policy in this appeal is ' a contract. By nature it is an indemnity. The contract is in two major parts. The first part which commences from Clause 1 0 to Clause · • 13 contemplates an indemnity aga_inst a percentage of a · loss whereas the second part of the contract commenc. F ing from Clause 14 to Clause 16 conta_ins provisions enabling recoupment of that loss. [Para 13] [569-A-B]
1.4 Clause 16 of the Policy refers to sums recovered from the buyer. That recovery can only be on the date when the foreign currency entered India. The foreign currency G entered India only after the loss stood ascertained in terms
of Clause 9 which refers to the "amount of loss". Therefore, the dollars paid belatedly would fall within the words "any sums recovered" from the buyer after ascertainment of the amount of loss under Clause 9. Clause 16, howH ever, refers to the words "any sums recovered in respect
MIS. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. OF INDIA LTD. & ANR.
559
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of loss to which the Policy applies". Rule of conversion A or exchange rate as contemplated under Clause 11, is not made applicable in case of "Recoveries" under Clause 16. Clause 16 refers to "any sums recovered" which covered dollars paid belatedly. Under the Policy, there is a difference between currency of account, currency of payB ment and currency of recovery. Clause 16 refers only to "any sums recovered". That is how the dichotomy, comes in. Further, the expressions "any sums recovered" and "in respect of loss to which the Policy applies" if read together meant that the sums recovered must be in respect of loss which arises from the subject-matter of thec contract. If loss arises dehors such contract any sums recovered in that regard would not fall in Clause 16. In view of the ordinary use of language used in Clause 16, the US Dollars paid belatedly would certainly fall within the D expression "any sums recovered in respect of loss to which the Policy applies". [Para 16] [569-G-H; 570 A-D-F-G-H; 571-A]
1.5 Clause 16 provides for a formula of apportionment in the ratio of 90:10 between the Corporation and E the Exporter. If one reads the Policy in its entirety and even if one is to go by contextual interpretation of the Policy one finds a reason for this ratio of division between the Corporation and the Exporter. The extent of sharing the amount recovered from the buyer has a direct nexus with F the ratio of loss agreed to be borne between the Corporation and the Exporter. This is one more reason for saying that "any amount recovered from the buyer in respect of loss to which the Policy applies". Hence, the words "any sums-recovered" in Clause 16 would mean all sums reG covered from the buyer to be divided in the proportion of 90:10 between the Corporation and the Exporter. [Para 17] [571 8-D]
L. Lucas Ltd. and Anr. v. Export Credits Guarantee Department, 197 4 (2) All ER 889 - referred to.
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560 SUPREME COURT REPORTS [2008] 14·S.C.R.
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CASE LAW REFERENCE :<. 1984 (Supp.) sec 263 Relied on. Para 11 (1974) 2 All ER 889 Referred to. Para 18
CIVILAPPELLATE-JURISDICTION: CivilAppeal No. 6145 B of 2008
From the Interim Order dated 17.8.2007 of the High Court of Calcutta in A.P.D. No. 302 of 2003 in Suit No~ 340 of 1992 ·
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Uday ·u. Lalit, C. Mukund, Pankaj Jain, Amit Kasera, C Avneesh Garg and Bijoy Kumar Jain for the.Appellant.
Ghulam E. Vahanvati, SG., Bharat Sangal, Prasenjit Das, lpsita Borthakur and Sanaya Dadachanji for the Respondents ...
The Judgment of the Court was delivered by
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S. H. KAPADIA, J. 1. Leave granted.
F 3. The short question which arises for determination in this , civil appeal and which revolves around interpretation of clause 16 of the Specific-Shipments (Political Risks) Policy dated 27 .1.87 is: where the las~. for which the Exporter (insured) has been indemnified by the insurer, is quantified and a fixed sum is set out in,the insurer's policy, being .the total liability of the G insurance company to the insured, would the insurer be entitled to receive anything more than what has' been paid by it to the insured or would it (insurer) b~ also entitled to share the increased recovery that the insured may, at the future date, make H from t~e original contract, to which the insurer is not a party?
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M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. 561 OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
FACTS
SUPREME COURT REPORTS
[2008] 14 S.C.R.
562
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A The Exporter contended that the Corporation should pay the full increased recovery to it whereas Corporation contended that the same should be apportioned in the ratio of 90: 10 in terms of Clause 16 of the said policy. The learned Single Judge decreed the suit in favour of the Exporter against which the Corporation B went in appeal by filing APO No.302 of 2003. By the impugned judgment dated 17.8.07, the Division Bench held that the Corporation was entitled to 90% of the increased recovery against which this civil appeal is filed by the Exporter.
ISSUE
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· Relevant clauses of the Policy
"Form No.91A
Sp'ecific Shipments
, Export Credit & _ Guarantee Corpn.Ltd"·
(Political Risks) Policy
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NOW, THEREFORE, in consideration .of the premium of Rs.81,891/- (Rupees eighty one thousand eight hundred ninety one only) paid by the Exporter to the Corporation (receipt, of which is hereby acknowledge), the corporation herby insures the Exporter in accordance with the terms
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M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. 563 OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
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and subject to the conditions hereto against a percentage A of the amount of any loss as hereinafter defined which may be sustained by the Exporter in respect of shipment of goods from India made under the above contract due to the following causes (hereinafter called the 'Risks insured').
B
· 7. Percentage of loss payable: The percentage of the amount of any loss which the Corporation hereby agrees to pay shall be 90.
8. Amount of loss : The amount of loss shall be
(B) in all other cases
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(a) in regards goods delivered to and accepted by the buyer, be the gross invoice value of those goods less " "
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(i) the amount which on the date at which the loss is ascertained the buyer would have been entitled to take D I into account by way of payment, credit, set off or counter claim or which the exporter is entitled to appropriate in whole or in part payment of the price of the goods; and
(ii) any expenses saved by the non-payment of agent's commission or otheiwise; . .and
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(b) as regards goods not delivered to the buyer, the gross invoice value thereof, less
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(i) any expenses saved by the non-fulfilment of the contract for the sale of those goods.
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(ii) any sums which, at the date at which the loss is , ascertained, the Exporter has recovered from any sources including realization of any security, resale of any goods or materials and any· sums of credits in his possession which the Exporter is entitled to appropriaie as or towards G payment of the purchase price, or any part thereof provided that the sums so recovered or realized by any security or resale of any goods or materials shall be the sum less all expenses of recovery, realization or resale, the godown charges and brokerages and commissions if any.
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SUPREME COURT REPORTS
[2008] 14 S.C.R.
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A 9: Time for Ascertainment of Joss: Subject to the submission by the Exporter of a claim supported by · evidence which in the opinion of the Corporation, is sufficient and by a verification of the cause of loss, the Corporation will pay to the Exporter at Bombay the amount B of loss hereby insured immediately _after the loss has been ascertained and such loss shall be ascertained.
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' ' ~ the transfer (a) where the loss is due to the prevention of payment$ frbm the buyer's country to India · of or delay in in circumstances outside the coritrol bf both th.e Exporter and for the buyer, four months aftr the due date of payment by the buyer providd an irrevqcable deposit is made by - the buyer within 30 days from· the ;due date:
PROVIDED. THAT, if devaluation of the currency in which the.buyer tias to paytakes place before the claim is paid, the amount claimed in Indian currency shall be based on the devalued rate.
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MIS. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. 565 OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
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RECOVERIES
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(a) take all steps which may be necessary or expedient or which the Corporation may at any time require to effect recoveries whether from the buyer or any other source from Whom such recoveries may be made.
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(b) upon request assign and transfer to the Corporation . his rights under the contract in respect of which such payment has been made including his right to receive any monies payable under such contract or his right to D damages from any breach thereof;
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(c) upon- request deliver up to the Corporation any goods in respect of which such payrpent has been made and any documents relating thereto and assign and transfer to the Corporation his right and interest in any ~uch goods and documents;
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(d) upon request assign, deliver up or otherwise trapsfer to the Corporation any negotiable instruments, guarantees or other securities relating to such goods or contracts.
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The exporter ·shall pay all sums so recovered to the Corporation forthwith upon their being received by him or any person on his behalf, the Exporter hereby acknowledging and declaring that until such payment is made to the Corporation he receives and holds such sums H
[2008] 14 S.C.R.
SUPREME COURT REPORTS.
566
A in trust for the Corporation."
B
''THE EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD. BOMBAY
To
Schedule attached to the Specific ship.ments/Political Risks) · C Policy No.14499/87 issued to M/s. Ramchander Heeralall, 138, , Biplabi Rash Behari Basu Road, Calcutta - 700 001
PARTICULARS OF SHIPMENT COVERED
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| 1.Name and address ofthe Buyer |
Egyptian national Railways, OverShoubraSubway, Shoubra, Cairo, Egypt |
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| 2.Oescriptionofthe contract | Supplyofclip bolts to Egypt |
| 3.Dateofcontract | 8.10.1985 |
| 4. Gross invoice value | Rs. 76,90,000/- |
| 5.Arriout covered | Rs. 71,20,940/- |
| 6.Shipment period | Upto July, 1987 Extended ypto 31.10.1987 |
| 7.Termsofpayment | 20%advancepayment 80% Deferred paymentin 6 half yearly instalments |
| 8.Security | Guaranteefrom National BankofEgypt |
| 9.Maximum liability | Rs. 64,08,846/- |
| 10.Premium | Rs. 81,891/- |
Dated this 27th day of January, 1987
Sd/-
For Chairman cum Managing Director"
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M/S. RAHEE INDTS. LTD. V. EXPORT C. G. CORPN. 567 OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
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SUPREME COURT REPORTS
[2008] 14 S.C.R.
568
A Rules of Interpretation as applicable to Policy of ~~ Insurance .
tion. Hence, the. correct approach is to consider the policy of insurance by reference to its terms. If, however, there is some doubt or ambiguity in the construction of the policy only then it would be correct to invoke the pr,inciples of subrogation·as·a D guide or a controlling authority. Therefore, at the outset, what · we propose to do is to consider whether the Policy, in this case on its own express terms, provides fotthe allocation of the moneys between the Exporter and the Corporation. ·
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INTERPRETATION OF CLAUSE 16
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M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. 569 OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
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ery can only be on the date when the foreign currency entered India. The foreign currency entered India only after the loss stood ascertained in terms of Clause 9 which refers to the "amount of H
SUPREME COURT REPORTS
[2008] 14 S.C.R.
570
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A loss". Therefore, in our view, the dollars paid belatedly would fall within the words "any sums recovered" from the buyer after ascertainment of the amount of loss under Clause 9. Clause 16, however, refers to the words "any sums recovered in respect of loss to which the Policy applies". According to the ExB porter, the words "in respect of loss" restrict the first three words of Clause 16, namely, "any sums recovered". According to the Exporter, if so read, the words "any sums recovered" would cover an amount of only Rs.64,08,846/- and not Rs.1,57,82,876/-. We do not find any merit in this argument advanced on behalf of the c Exporter. As stated above, the policy is in two distinct parts. The first part deals with indemnification against a percentage of loss. In that part we have Clause 11 which refers to "rate of exchange". It states that all payments shall be made in Rupee terms at the head office of the Corporation and for the purpose of payment of premium and losses the gross inyoice value of 0 shipments invoiced in foreign currency shall be converted into Rupee at the bank's buying rate of exchange. However, such rule of conversion or exchange rate is not made applicable in case of "Recoveries" under Clause 16. Clause 16 refers to "any sums recovered" which covered dollars paid belatedly. It is imE portant to note that under the Policy there is a difference between currency of account and currency of payment. The currency of account is !n US Dollar wher-eas te currency of payment of loss and premium is in Indian currency applying the conversion formula in Clause 11 of the Policy: Such conversion F rate is not there in Clause 16 which refers to "Recoveries". Therefore, there is a difference between currency of account, currency of payment and currency of recovery. Clause 16 refers only to "arw sums recovered"r. That is how the dichotomy, as stated above, comes in. Further, the expressions "any sums G recovered" and "in respect of loss to which the Policy applies" if read together meant that the sums recovered must be in respect of loss which arises from the subject-matter of the contra~t. If loss arises dehors such contract any sums recovered in that regard would notfall in Clause 16. In our view, in view of the H ordinary use of language used in Clause 16 the US dollars paid
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M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. 571 OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
belatedly would certainly fall within the expression "any sums A recoverec' in respect of loss to which the Policy applies".
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Judgments of English Courts
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18 .. In L. Lucas Ltd. and another v. Export Credits Guarantee Department - .(197 4) 2 All ER 889, an exporter entered into a contract of guarantee under which the guarantor indemnitied the exporter upto 90% of the loss arising out of failed payments for export shipments. The contract also provided that any F sums recovered by the exporter/guarantor "in respect of a loss to which the guarantee applies" would be divided between the parties in the ratio 90: 10. A loss occurred. The guarantor indemnified the exporter. The exporter later on succeeded in recouping the payment but in the mean time almost two years G elapsed and during those two years changes in the exchange rates resulted in the payment in terms of pound sterling became significantly larger on conversion. The guarantor contended that it was entitled to 90% of the increased recovery while the exporter contended that the guarantor was only entitled .to what it H
[2008] 14 S.C.R.
SUPREME COURT REPORTS
572'
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A had paid out as indemnified. The Court of Appeal recognized the contract as one of indemnity and treated it like a policy of insurance. Before the Court of Appeal, the exporter contended th~t if there is recovery in a subrogated claim higher than the amount of the !oss, the excess goes to the insured and, thereB fore, the guarantor is not entitled to recover out of the proceeds more than it had paid out. The Court of Appeal ruled that the correct approach was to consider the contract by reference to its terms and, only if some real doubt or ambiguity in its construction was evident only then it would be proper to invoke the c general principles of Subrogation as a guide or controlling authority. Going by the contract and the words used in Clause 17 the Court of Appeal .held that the guarantor was entitled to 90% · of the' increased recovery as Clause 17 of that contract so provided. This decision of the Court of Appeal was reversed by Hotjse of Lords in the same case. It may be noted that the Court. D of Appeal's anafysis of the interplay between Subrogation P'riri,. ciples arid contractual provisions was, however, not disturbed by the House of Lords in its judgment in the same case. In that m·auer the ground for overruling the decision of the Court of Appeal by House of Lords was quite different. The Court was E concerned with the contract of guarantee. One of the arguments advanced was regarding the nature of the contract. According to House of Lords, in the ~ontract of guarantee in that' case there was no provision made entitling the guarantor to 90% of the '. increased · recovery which was· described as fortuitous · profit. It · F was held in that case by Ho_use of Lords that the subject-policy ~ was a contract of guarantee which never intended that the guarantor would be entitled to 90% of fortuitous profit. According to House of Lords; if the contract intended to give this benefit to the guarantor it would have explicitly said so. According to the G said judgment, if the contract would have provided for 90% of the fortuitous profits to be given to the guarantor then the nature of the contract of guarantee in that case would have ceased to be one of indemnity against a percentage of loss and in that event it would become a profit sharing contract. This observaH . tion has been made by Viscount Dilhorne at page 898 of the
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M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. 573 OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
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report. However, as stated above, the analysis, made by the A Court of Appeal in the said case, of the interplay between subrogation principles and contractual provisions with which we are concerned, has not been disturbed by the judgment of House of Lords in the said case of L. LucasLtd. (supra). In our present case we are not concerned with the contract of guarantee. In 8 the present case we are concerned with the Policy of insurance dated 27 .1.87. By its very nature it was a contract of indemnity .. In the present case, the nature of the contract is not in issue. It was in issue in the case of L. Lucas Ltd. (supra). In the circumstances, we do not wish to express .any opinion on the correct- c ness of the judgment of the House of-Lords in L. Lucas Ltd. (supra).
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Appeal dismissed.
1 issue framed by the court
Whether the insurer was entitled to 90% of the increased recovery under Clause 16 of the Specific Shipments (Political Risks) Policy.
Colour shows how this judgement treated each authority
Forasol v. Oil and Natural Gas CommissionRelied on¶11
1984 (Supp.) SCC 263 · Who else cites this
L. Lucas Ltd. and Anr. v. Export Credits Guarantee DepartmentReferred¶18
(1974) 2 All ER 889
M/s. Rahee Industries Ltd.
Export Credit Guarantee Corporation of India Ltd.
HSBC Bank
S.H. Kapadia
B. Sudershan Reddy
As recorded by the court registry
Judgements on the same questions, provisions and authorities, from every court
