1 SJ.291.09.doc ndm IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION SUMMONS FOR JUDGMENT NO. 291 OF 2009 IN SUMMARY SUIT NO. 2819 OF 2005 The New India Assurance Company Ltd., Registered Office at New India Assurance Building, 87, Mahatma Gandhi Marg, Fort, Mumbai – 400 001, India. ... PLAINTIFFS VERSUS M/s. Prospects Shipping Pvt. Ltd., Mumbai 203, Adamji Building, 413, Narsi Natha Street, Masjid Bunder (W), Mumbai – 400 009, India. ... DEFENDANTS -------- Mr. Sharan Jagtiyani a/w Mr. Dhiraj Mhatre i/b M/s. Desai and Diwanji for the Plaintiffs. Mr. A.M.Vernekar for the Defendants. -------- CORAM : A.S.OKA, J. DATE ON WHICH JUDGMENT IS RESERVED : 4 th February, 2011. DATE ON WHICH JUDGMENT IS PRONOUNCED : 18 th April, 2011. 2 SJ.291.09.doc JUDGMENT: 1 The Plaintiffs – New India Assurance Company Limited have filed the present suit purporting to be a suit under the Rule 2 of Order XXXVII of the Code of Civil Procedure, 1908 for recovery of a sum of Rs.38,12,500/- together with further interest. 2 A Marine Hull Policy (hereinafter referred as “the said Policy”) was issued by the Plaintiffs to the Defendants under which a vessel was insured for a period of one year starting from 8 th January, 2002 to 7 th January, 2003 for the amount of Rs. 8,00,00,000/-. The said Policy was made subject to Institute Time Clause Hulls which was attached to it. Clause 12.1 thereof reads thus: “12.1 No claim arising from a peril insured against shall be payable under this insurance unless the aggregate of all such claims arising out of each separate accident or occurrence (including claims under Clauses 8, 11 and 13) exceeds……………………… in which case 3 SJ.291.09.doc this sum shall be deducted. Nevertheless the expense of sighting the bottom after stranding, if reasonably incurred specially for that purpose, shall be paid even if no damage be bound. This Clause 12.1 shall not apply to a claim for total or constructive total loss of the Vessel or, in the event of such a claim, to any associated claim under Clause 13 arising from the same accident or occurrence.” 3 It is pointed out in the plaint that the deduction contemplated in terms of clause 12.1 also constituted a part of the insurance Policy and was prefixed by the parties at a sum of Rs. 15,25,000/-. 4 On 28th August, 2002, the Plaintiffs received a letter from the Defendants notifying that the said vessel had run aground on 27 th August, 2002 at the port of Bissau. The Defendants sought assistance of the Plaintiffs in locating a tug assistance company for the purposes of re-floating the said vessel. On 29 th August, 2002, the Plaintiffs by a mail addressed to the agent of the owners of the 4 SJ.291.09.doc ship recorded the particulars of the incident of the grounding. The Plaintiffs issued a fax to one Mr.Steve Ralling of “Global Support Services – Salvage Association” and requested the Salvage Association to arrange for surveyors to assess the damage to the vessel on behalf of the Plaintiffs and requested the association to give assistance and advice to the Defendants in regard to the operations needed to re-float the vessel. 5 On the request made by the Defendants, by communication dated 3 rd September, 2002, issued by the fax, the Plaintiffs consented to the appointment of M/s.Wijsmuller Salvage B.V., a tug assistance company (hereinafter referred to as “the said tug assistance company”). On 2 nd September, 2002, the Plaintiffs and Defendants jointly appointed M/s. Ince and Company, a Solicitor firm based at London to act on their behalf in connection with the claim for salvage services under the Lloyds 2000 Standard Form Salvage Agreement. The Defendants signed the said Lloyds 5 SJ.291.09.doc Agreement with the said tug assistance company. On 6 th September, 2002, a team of the tug assistance company with the assistance of tug vessel re-floated the said vessel. As per the Lloyds Standard Form Salvage Agreement executed by and between the Defendants and the said Tug Assistance Company, the amount to be paid to the said Company for Salvage operations was required to be determined by arbitration by Lloyds Council of Arbitration. As provided in the said agreement, as a precondition for arbitration, the Plaintiffs had to submit a letter of guarantee to the Council of Arbitration as and by way of security for the amount, which may be awarded to the said tug assistance company. As the Plaintiffs were required to submit the letter of guarantee to the extent of US$ 325,000/-, the Defendants executed a counter guarantee. 6 It appears that pending the commencement of arbitration hearing, the Plaintiffs consented to the solicitors for 6 SJ.291.09.doc making an open offer for settlement before the arbitration. On 15 th October, 2002, the Plaintiffs addressed a fax to the Defendants in relation to the proposed settlement. In the said fax, it was mentioned that if the settlement was accepted, the liability of the Plaintiffs as the insurers would be US$ 1,41,902.63. The Plaintiffs also stated that the said Policy was subject to a deduction of Rs. 15,25,000/- and the Plaintiffs call upon the Defendants to deposit the said amount at the earliest in the eventuality of the settlement. 7 According to the case of the Plaintiffs, on 24 th November, 2003 they received final interim award dated 13 th November, 2003. As per the said award, the principal liability of the shipper was US$ 159,460.42 with interest of US$ 6,360.07. As per the said award, the liability of the shipper towards the arbitrators’ fees was GBP 1024.36 and the amount due and payable to Lloyds Salvage Arbitration Agency Department was GBP 425.71. The award provided that if the sum awarded was not received within 56 days 7 SJ.291.09.doc from the publication of the award, the Council shall realize the amount by enforcing the letter of guarantee issued by the Plaintiffs. It is the case of the Plaintiffs that US$ 166,000.49 was deposited by them with the Lloyds as per the interim final award. 8 According to the case of the Plaintiffs, on 3 rd December, 2003, they issued a fax message addressed to the Defendants requesting them to deposit an amount of Rs.15,25,000/-. Reliance is also placed on a fax message dated 8 th December, 2003. The case made out in the plaint is that the Plaintiffs fulfilled their obligations under the said Policy. It is contented that the said deductible amount of Rs.15,25,000/- could not be deducted from the amount deposited under the interim final award in view of the failure of the Defendants to comply with the award. Therefore, the Plaintiffs have filed the present summary suit for recovery of a sum of Rs. 38,12,500/- with further interest on the amount of Rs.15,25,000/- at the rate of 21% per annum. The amount of Rs.38,12,500/- comprises 8 SJ.291.09.doc of Rs.15,25,000/- being the deductible amount with interest thereon at the rate of 21% per annum from 15 th October, 2003 till the filing of the suit. According to the case of the Plaintiffs, the amount is due and payable to them under a written contract insurance Policy as well as under the terms of the counter guarantee executed by the Defendants on 16 th September, 2002. 9 Summons for judgment was taken out by the Plaintiffs. A reply was filed by the Defendants. It was contended that there was a gross delay in taking out the summons for judgment. It was contended that the said Policy, which was issued by the Plaintiffs in favour of the Defendants stands assigned by the Defendants in favour of the State Bank of India with effect from 8 th January, 2002. It was contended that notice of assignment has been duly served to the Plaintiffs. It was submitted that the suit could have instituted only against the State Bank of India and the suit was liable to be dismissed on non-joinder of the said Bank. 9 SJ.291.09.doc 10 The Defendants contended that the suit was not maintainable as a summary suit under Rule 2 of Order XXXVII of the Code of Civil Procedure, 1908. The Defendants relied upon the averments made in paragraph No.16 of the plaint. It was contended that there was neither an express nor any implied promise to pay the amount by the Defendants to the Plaintiffs. It is contended that neither in the said Policy nor in the counter guarantee, there is any express or implied promise to pay the amount of Rs.15,25,000/- to the Plaintiffs. 11 The Defendants submitted that even otherwise the amount of Rs.15,25,000/- claimed by the Plaintiffs from the Defendants as deductible under Clause 12 of the said Policy becomes deductible only upon adjudication of the final claim of the Defendants under the said Policy. It was pointed out that final award is not yet issued, which is the admitted position. It was 10 SJ.291.09.doc contended that till final adjustment report by the Adjuster and final salvage award is passed, the Plaintiffs are not entitled to make deduction of the aforesaid amount. It is contended that the amount has not at all become due and payable under the terms of the said Policy. It is contended that the said Policy is subject to English Law and Practice. It was contended that the Plaintiffs have failed to plead as a matter of fact what is Foreign Law upon which the case is based and the entitlement of the Plaintiffs to the claim under the said Foreign Law. It is contended that the Plaintiffs have failed to plead what is English Law and Practice applicable to the contract of the said Policy, which entitles them to make a claim against the Defendants. It was contended that in any event, the claim towards interest was not maintainable and it falls outside the purview of Rule 2 of Order XXXVII of the said Code. The Defendants prayed for grant of unconditional eave to defend. 12 The learned counsel appearing for the Plaintiffs 11 SJ.291.09.doc submitted that the terms and conditions of the Policy of insurance as well as counter guarantee given by the Defendants are admitted. He submitted that under clause 12.1 of the terms and conditions of the Policy, a sum of Rs.15,25,000/-is deductible from the clam amount payable under the Policy. He submitted that the fact that the said amount is deductible is not disputed by the Defendants. He submitted that on the basis of the Policy, the Plaintiffs had to execute a deed of guarantee in favour of the arbitration Council as and by way of security for the amount which may be awarded to the tug assistance company. He submitted that there is no dispute that the Plaintiffs deposited US$ 166,000.49/- with Lloyds. He submitted that as the said claim exceeded the sum of Rs.15,25,000/-, the Plaintiffs were entitled to deduct the said amount. In terms of the deed of guarantee, the Plaintiffs had to pay the entire amount without any deduction. He submitted that by Fax message dated 3 rd of December 2003, the Plaintiffs informed the Defendants that with a view to avoid payment of interest on the amount payable under 12 SJ.291.09.doc the interim award, the Plaintiffs had to pay the entire amount without making any deduction. By the said communication, the Defendants were called upon to deposit the said deductible amount. He pointed out that by way of reply, a fax message dated the 5 th December 2003 was sent by the Defendants. In the said reply, the Defendants admitted that their claim exceeded the deductible amount. But the Defendants stated that if upon the completion of the adjustment, their claim was less than the deductible amount under the terms of Policy, the Defendants would pay the difference. He submitted that the liability was admitted by the Defendants. He submitted that apart from the terms of the Policy, the liability of the Defendants arises out of a promise which is implied from the counter guarantee given by the Defendants. He submitted that the Defendants have no defence and the liability is an admitted liability. 13 The learned counsel appearing for the Defendants submitted that under the relevant clause of the Policy, the amount is 13 SJ.291.09.doc deductible at the time of final settlement of the claim. He submitted that the final adjustment report of the average adjuster and the final award is not yet issued. He submitted that the claim of the Defendants under the Policy will be determined only after adjustment report by the average adjuster and final salvage award is passed by the Lloyds. Therefore, the deductible amount will become due when the claim under the Policy is finalized. He submitted that there is neither an express nor an implied promise to pay under the counter guarantee issued by the Defendants. He submitted that even under the Policy of insurance there is no express or implied promise to pay by the Defendants. The right to deduct the amount will accrue to the Plaintiffs only on the final determination of the liability under the Policy of insurance. Relying upon a decision of Full Bench of this court in the case of Jyotsna K. Valia vs T.S.Parekh and Co.[2007(3) Bom.C.R 772], he submitted that only on the basis of implied promise to pay, a summary suit is not maintainable. He submitted that the Policy of insurance issued by the Plaintiffs is 14 SJ.291.09.doc subject to Institute Time Clauses Hulls which specifically provides that the insurance was subject to English Law and practice. He submitted that the settled position of the law is that whenever a contract provides that a foreign Law will apply and a suit is instituted in a Court in India, it is necessary for the Plaintiffs to plead as a matter of fact what the foreign Law is. He, therefore, submitted that as the Plaintiffs have failed to plead the English law and practice applicable to the subject contract which entitles them to maintain a claim against the Defendants, unconditional leave must follow. He submitted that the Defendants have assigned all rights, title and interest under the said Policy with effect from 8th January 2002 in favour of the State Bank of India, Overseas Branch, Shipping and Guarantees Section, Mumbai. It is submitted that the notice of assignment was issued to the Plaintiffs and as indicated by Exhibit A to the plaint, noting of the assignment has been made by the Plaintiffs. He submitted that the suit itself is not maintainable on account of non-joinder of the State Bank of India as party 15 SJ.291.09.doc Defendant. Lastly he submitted that there is a gross delay in taking out the present Summons for Judgment. He pointed out that Writ of Summons in the suit was served upon the Defendants on 14 th August 2008 and upon such service, appearance was entered by the Defendants on 21 st August 2008. He submitted that summons for judgment was taken out almost after 11 months from the date on which the Defendants entered appearance. He submitted that the suit was lodged on 12 th April 2005. He submitted that as the Summons for Judgment was not taken out within the time provided under Rule 227 of High Court Original Side Rules, the Summons for Judgment is not maintainable and even on this count the Defendants are entitled to unconditional leave to defend. 14 The learned counsel appearing for the Plaintiffs submitted that in view of a decision of a Division Bench of This Court, the delay in taking out Summons for Judgment does not automatically entitle the Defendant for grant of unconditional leave 16 SJ.291.09.doc to defend. He submitted that the Court has power to condone the delay and hear the Summons for Judgment on merits. He submitted that mere delay in taking out the Summons for Judgment is no ground to grant leave to defend. 15 I have given careful consideration to the submissions. As far as delay in taking out the Summons for Judgment is concerned, a Division Bench of this Court in the case of Bankey Bihari B.Agarwal vs. Bhagwanji Meghji and others [2001 (2) Bombay cases reporter 86] has held that the delay in taking out the Summons for Judgment within the time prescribed by Rule 227 does not automatically entitle a Defendant to unconditional leave to defend. This Court has not dismissed the present suit in exercise of powers under Rule 227. Therefore, the Summons for Judgment will have to be considered on merits. 16 It will be necessary to advert to Clause 12.1 of the 17 SJ.291.09.doc Institute Time Clauses Hulls. The Policy of insurance issued by the Plaintiffs is subject to the said clauses. Clause 12.1 reads thus: “12 DEDUCTIBLE 12.1 No claim arising from a peril insured against shall be payable under this insurance unless the aggregate of all such claims arising out of each separate accident or occurrence (including claims under Clauses 8, 11 and 13 exceeds ……………….. in which case this sum shall be deducted. Nevertheless the expense of sighting the bottom after stranding, if reasonably incurred specially for that purpose, shall be paid even if no damage be bound. This Clause 12.1 shall not apply to a claim for total or constructive total loss of the Vessel or, in the event of such a claim, to any associated claim under Clause 13 arising from the same accident or occurrence.” The attachment forming part of the Policy shows that the deductible amount was prefixed by the parties at Rs.15,25,000/-. The Plaintiffs are entitled to deduct the aforesaid amount in case the aggregate of all claims arising out of each separate accident or occurrence exceeds the deductible amount. Prima facie, it appears that the 18 SJ.291.09.doc amount which is deductible can be deducted only after the total claim amount payable under the Policy is determined. On this aspect it will be necessary to go back to the facts of the case. As pointed out earlier, the vessel had run aground. On the intervention of the Plaintiffs, the Defendants were put into contact with a salvage Association. Thereafter, the Defendants signed the Lloyds Standard Form Agreement with a tug assistance company on 3rd September 2002. On 6 th September 2002, with the assistance of the tug assistance company, the vessel was refloated. As per the Lloyds Standard Form Agreement, the amount to be paid to the tug assistance company for the salvage operations was required to be determined by arbitration before the Lloyds Council of Arbitration. As a precondition for the arbitration, as provided in the said agreement, the Plaintiffs had to submit a letter of guarantee to the arbitration Council as and by way of security for the amount which may be awarded to the tug assistance company. The Defendants executed a counter guarantee. Clause 1 of the said counter 19 SJ.291.09.doc guarantee reads thus : “1. In consideration of the Company having at the request of the constituent provided the salvage guarantee/bond as hereinabove stated, the Constituents have unconditionally, irrevocably and absolutely to indemnify and to keep the Company fully indemnified and the Constituent doth hereby confirm that it doth unconditionally irrevocably and absolutely agree, undertake and guarantee that it shall keep the Company fully indemnified saved, defended and harmless from and against all losses damages, claims, demands, liabilities, interest, costs, charges and expenses suffered or incurred or likely to suffer, incur or to be put to or exposed to as a result of or consequent upon or in any wise arising on account of the issue of the aforesaid salvage guarantee or bond or indemnify or any omission or commission on the part of the Constituent or any person, firm, body or corporation whatsoever in breach of or inconsistent with the terms of the said Marine Hull Policy.” 17 The case of the Plaintiffs is that the arbitration final interim award dated 13th November 2003 was made under which total amount of US$ 166,000.49 was made payable by the shipper. 20 SJ.291.09.doc Accordingly, the said amount was deposited by the Plaintiffs with the Lloyds. The Plaintiffs claim that they became entitled to claim deductible amount of Rs. 15,25,000/-. There does not appear to be any dispute that the final determination of the amount payable by the Plaintiffs under the said Policy of insurance has not been made. The communication dated 3rd December 2003 (Exhibit N) sent by the Plaintiffs by way of a fax message to the Defendants makes a demand for payment of deductible amount. In the said communication, the Plaintiffs has stated "Under the circumstances as requested earlier kindly deposit the deductible amount Rs. 15,25,000/- instantly with us and also submit Class Maintenance Certificate to the adjuster as per his demand, to enable him to issue adjustment report." This communication prima facie indicates that there is no final award made and that the total amount payable by the Plaintiffs under the Policy has not been determined. In fact, in the reply dated 5th of December 2003 sent by the Defendants to the Plaintiffs by a fax, the Defendants have stated that "we are of the 21 SJ.291.09.doc firm opinion that our claim exceeds the deductible amount. If upon completion of adjustment our claim is less than the deductible under the terms of the Policy we shall pay the difference, if any." 18 When the claim amount payable by the Plaintiffs to the Defendants as per the Policy of insurance is finally determined, the Plaintiffs can exercise their right of deducting the said amount. As of today, the Plaintiffs have paid the amount payable by them under a guarantee given to the Council of arbitration. It cannot be said that a promise to pay the deductible amount even before the final determination of claim under the policy is implied in the conditions of the Policy of insurance. As far as the counter guarantee is concerned, from the relevant term of the counter guarantee which is quoted about, it is not possible to read implied promise to pay the deductible amount in the said counter guarantee. In my view, triable issues as regards the interpretation of clause 12.1 of the Policy as well as the terms of the counter guarantee arise in the present suit. 22 SJ.291.09.doc 19 A true copy of the Policy annexed to the plaint shows that the Defendants had assigned their rights, interest and title under the Policy to the State Bank of India and a noting of the assignment has been made on the Policy. Therefore the assignment will be binding on the Plaintiffs. Another defence of the Defendants is that the said bank was a necessary party to the suit and therefore, the suit is not maintainable on account of non-joinder of necessary party. This defence cannot be said to be a moonshine defence. 20 Thus, this is a case where the defences raised by the Defendants cannot be said to be moonshine or frivolous. Triable issues as regards the interpretation of contracts arise in the suit. Therefore, a case is made out for grant of unconditional leave to defend the suit. 23 SJ.291.09.doc 21 Hence I pass the following order: (a) The Defendants are hereby granted unconditional leave to defend the suit; (b) The Defendants shall file written statement within a period of 3 months from today. Thereafter, the suit shall be transferred to the list of commercial causes; (c) The summons for judgment is accordingly disposed of with no orders as to costs. [ A.S.OKA, J ]