SCA/22891/2006 1/90 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 22891 of 2006 For Approval and Signature: HONOURABLE MR.JUSTICE K.M.MEHTA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ?Yes 2 To be referred to the Reporter or not ?Yes 3 Whether their Lordships wish to see the fair copy of the judgment ?No 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?No 5 Whether it is to be circulated to the civil judge ?No ========================================================= THE NEW INDIA ASSURANCE COMPANY LTD., - Petitioner(s) Versus THE STATE TRADING CORPORATION OF INDIA LTD., & 1 - Respondent(s) ========================================================= Appearance : MR PV NANAVATI for Petitioner(s) : 1,MR VIBHUTI NANAVATI for Petitioner(s) : 1, MR MIHIR THAKORE WITH MR AMAR N BHATT for Respondent(s) : 1, None for Respondent(s) : 2, ========================================================= CORAM : HONOURABLE MR.JUSTICE K.M.MEHTA Date :01/12/2006 SCA/22891/2006 2/90 JUDGMENT CAV JUDGMENT 1. New India Assurance Company Limited, the petitioner, original defendant has filed petition under Article 227 of the Constitution of India praying for issuance of writ of certiorari for challenging the judgment and order dated 22nd September 2006 passed by the Chamber Judge, City Civil Court, Ahmedabad in Summary Suit No.2812 of 2004 below Summons for Judgment Exhibit 12. The learned trial Judge by his impugned order held that leave to defend be granted to the defendants in summary suits No.2812 of 2004 and 2813 of 2004 on condition to deposit 50% of the said amount in both the suits within four weeks from today. On depositing the amount thus suits to be transferred to allow the long cause suit. BASIC FACTS OF CIVIL SUIT NO.2812 OF 2004: 1.1 The State Trading Corporation of India Ltd. (Government of India undertaking, plaintiff SCA/22891/2006 3/90 JUDGMENT No.1 and Adani Exports Ltd., plaintiff No.2 (hereinafter referred to as the plaintiffs) had filed a suit under Order 37 of Code of Civil Procedure (for short C.P.C.) for the liquidated demand of total amount of Rs.4,48,32,365/- interest on the same from date of the suit over the same. All these amounts have been claimed for loss of goods at Porbandar, Kandla and Mundra Ports being principal amount Rs.3,59,07,604.00 and interest on the said amounts from 5.6.2003 to 20.10.2004 – from the date of notice till filing of the suit and further interest on the said amount till realisation in favour of the plaintiff i.e. Rs.3,59,07,604.00 (principal amount) + Rs.89,24,761.00 (interest amount) = Rs.4,48,32,365/-. 1.2 Plaintiff No.1 is a Government Undertaking Company registered under the provisions of Companies Act, 1956. Plaintiff No.1 is carrying on business inter alia trading business and more particularly business of exporting and importing SCA/22891/2006 4/90 JUDGMENT of various commodities including food grains. The majority of the shares of plaintiff No.1 Company are owned by Government of India. 1.2A Plaintiff No.2 is a Company registered under the Companies Act, 1956 and is carrying on business of export and import in India. 1.3 It is case of the plaintiffs that plaintiff No.1 entered into a contract on 05.02.2001 with plaintiff No.2 under which plaintiff No.2 was responsible for execution of the contract entered into between plaintiff No.1 and M/s. Al Hadha Trading Co. (L.L.C.) of Dubai for export of 90,000 MTs. of Indian wheat in bulk under which plaintiff No.1 had agreed to supply wheat to the said foreign buyer. As an associate supplier, plaintiff No.2 was required to arrange for the movement of the cargo from upcountry centers to various ports from which the said goods were to be shipped to the foreign buyer at destination. SCA/22891/2006 5/90 JUDGMENT 1.4 Plaintiff No.1 by its letter dated 28.5.2001 appointed plaintiff No.2 as its authorized agent and to do all necessary acts and deed for the recovery of the amount of their claim arising out of marine insurance policy issued by the New India Assurance Company Ltd. (petitioner herein and original defendant in Summary Suit). Plaintiff No.2 was authorized to make claim, negotiate, compromise, settle and receive the payment in respect thereof from the defendant. Plaintiff No.1 also gave sufficient instructions to the defendant to deal with plaintiff No.2 as agent of plaintiff No.1 in respect of all the matters relating to the marine insurance policy issued by the defendant in this behalf. 1.5 Defendant is an insurance company having its Registered Office and Head Office at Mumbai and a Regional Office and Divisional Office at Ahmedabad. Defendant has issued in favour of the plaintiff No.1, the Marine Insurance Policy SCA/22891/2006 6/90 JUDGMENT initially for Rs.25,65,00,000/- for 50,000 MTs of wheat at the rate of Rs.5130/- per MT, which was subsequently increased to an insured value of Rs.38.475 crores being the value for 75,000 MTs at the rate of Rs.5130/- per MT by further endorsement. A total premium of Rs.4,78,389/- was paid for said sum insured, which was the agreed value of the subject matter. The period of the said policy was from 16.4.2001 to 15.4.2002. The said Open Marine Policy was issued to protect the assured against losses on the land incidental to the intended sea voyage. The said open Marine Policy was for the consignment of wheat in jute bags and/or bulk to be dispatched from the godowns of Food Corporation of India Ltd. anywhere in India by Rail or Road to any port in Gujarat. 1.6 A cyclone formed near Goa in Arabian Sea during mid May, 2001 travelled towards coastal area of Gujarat including Porbandar, Kandla and Mundra. All the coastal areas of Saurashtra and more particularly the three ports referred to SCA/22891/2006 7/90 JUDGMENT above experienced cyclonic winds accompanied by rain in the last week of the month of May and 1st half of June, 2001. Due to cyclonic winds and rain, wheat stored on the aforesaid ports either in godown or in open plots or in jetty areas was severely damaged by heavy rains, risk of which was covered under the aforesaid policy. Thereafter the correspondence was made between the parties. 1.7 Immediately plaintiff No.2 informed the Insurance Company about the damage caused by the cyclone and requested the defendant to depute its surveyors for assessing the loss. The defendant appointed M/s. Indian Surveyors Private Ltd. Rajkot, on 3.6.2001 to survey and assess the loss and the representative of the said surveyor visited Porbandar on 4.6.2001. Defendant also appointed another surveyor M/s. Mehta and Padamsey Pvt. Ltd. Ahmedabad as joint surveyor for the very work on 14.8.2001 and both the aforesaid surveyors appointed by defendant visited Porbandar several times i.e. 14.8.2001, SCA/22891/2006 8/90 JUDGMENT 20.8.2001 and 21.8.2002 and conducted the detailed survey on 7.12.2001. Thus, both the said joint surveyors jointly and severally visited Porbandar site several times. Based on the said report, plaintiffs submitted a detailed claim statement dated 3.1.2002 and accordingly plaintiffs claim in respect of the policy was Rs.1,29,18,586/- in respect of the loss suffered at Porbandar port, similarly for Kandla Port Rs.1,29,05319/- and for Mundra Port Rs.92,65,085/- in all Rs.1,29,18,586/- + Rs.1,29,05,319/- + Rs.92,65,085/-= Rs.3,50,88,990/-. (Rupees Three Crores Fifty Lacs Eighty Eight Thousand Nine Hundred Ninety only). 1.8 The plaintiffs have also stated that in view of the decision of ONGC Vs. Collector of Central Excise reported in (1995) Supreme Court (4) SCC 541, in which it is held that in every case where a dispute is between Government Departments and/or between a Government Department and Public Sector Undertaking, the matter should be referred to the High Power SCA/22891/2006 9/90 JUDGMENT committee established by the Government pursuant to the order of the Hon'ble Supreme Court. As the dispute between State Trading Corporation which is Government undertaking and the New India Assurance Co. Ltd., which is also Government of India undertaking. The meeting of the committee held on 2.9.2004, the committee have finally decided to refer this matter for adjudication to the jurisdictional Court of law. PRESENT CONTROVERSY : 2. The plaintiffs therefore filed suit for liquidated demand of money on account of percentage loss arrived by arithmetic calculation and suit is filed under Order 37 of the CPC. The suit was filed accordingly somewhere in October 2004. Along with the suit, the plaintiffs have filed voluminous record- documents with list Exhibit 2 i.e. 2/1 to 2/48 (with other relevant papers – paper book running into about 400 pages) which are produced by the plaintiffs by way of separate paper book. After SCA/22891/2006 10/90 JUDGMENT filing of the suit, the notice has been issued to the defendant and they have been served and filed appearance before this Court. 2.1 Thereafter, the plaintiffs took out Summons For Judgment somewhere on 10.1.2005 and filed affidavit in support of the same. In support of the same, whatever contentions raised in the plaint, have been set out therein, therefore, I do not repeat the said averments again in this behalf. DEFENDANTS' REPLY : 2.2 Against the said Summons For Judgment, the defendants had filed reply to summons for Judgment taken out by the plaintiffs. The facts stated in the plaint have been stated in support of suit and in support of the same, so this substantially admitted by the defendant. However, it has been stated that the defendant appointed M/s. J. Basheer & Associates Surveyors Pvt. Ltd. for investigation in the matter and the said agency has carried out survey in this behalf. The SCA/22891/2006 11/90 JUDGMENT defendant has relied upon the report of the said surveyor, and on the said basis, the defendant repudiating the claim on the grounds that there has been inordinate delay in intimating the losses which has led to breach of the policy. It was also stated that the insured had neither taken any precautions to protect the cargo which was lying in the Port nor has acted as if prudent uninsured by undertaking loss minimization measures for preventing further aggravation of losses. It has further stated that such contract of insurance has become null and void and all the benefits under the policy are forfeited. PLAINTIFFS REJOINDER : 2.3 The plaintiffs have filed rejoinder of ons Shri Brigadier S.S. Bhatti of the plaintiff No.2, which is on page 371 of the paper book. It was contended that the defendant is not entitled to rely upon report of M/s. J. Basheer & Associates Surveyors Pvt. Ltd. It was further stated that the defendant has also suppressed SCA/22891/2006 12/90 JUDGMENT from the Court and the plaintiffs, the alleged letters of appointment of Basheer as the investigator and/or surveyor. The defendant neither disclosed as to who appointed him i.e. which particular officer of the defendant appointed him nor what were his terms of reference and within how much time they were asked to submit the report. The defendant informed the plaintiffs by its letter dated 8.11.2001 that Basheer and Associates Surveyors Pvt. Ltd. was appointed for finalisation of the claim. The plaintiffs were never informed that Basheer and Associates Surveyors Pvt. Ltd. was appointed either as an independent investigator or an appellate assessor. The plaintiffs further submitted, that in this case, Indian Surveyors Private Ltd. were appointed on 3.6.2001 as surveyors to carry out the survey at Porbandar and their Mr. Lalit Oza, representative visited several times thereafter. It is submitted that M/s. Mehta and Padamsey Pvt. Ltd., Ahmedabad were also appointed on 14.8.2001 as joint surveyor for the purpose and its representative Mr. Rajiv Shah SCA/22891/2006 13/90 JUDGMENT visited the site several times. Thereafter both the said surveyors submitted their joint report on 7.12.2001 about the loss damage to the goods suffered at Porbandar. It was stated that on this report plaintiffs filed their detailed claim on 3.1.2002. 2.3A M/s. J.B. Boda surveyors Private Limited were appointed on 8.6.2001 to carry out the survey for the loss/damage suffer at Kandla and submitted their detailed report on 14.9.2001 based on which the plaintiffs filed their detailed claim on 25.2.2002. 2.3B M/s. G.P. Dave and Sons were appointed as Surveyors on 15.6.2001 to carry out the survey of loss/damage suffer at Mundra Port, and their representative visited the site several times and submitted their report on 7.1.2002 and revised report on 17.10.2002 and the plaintiffs filed their detailed claim on 22.2.2002 and revised claim on 21.8.2002. SCA/22891/2006 14/90 JUDGMENT 2.4 The plaintiffs further submitted that the second surveyor had no occasion to see, inspect or assess the damaged cargo or the operation carried out at respective place/ports for salvaging the goods or for segregating the damaged goods from undamaged goods, as the goods were already removed from the side by that time (i.e. by the time second surveyor visited the site). In fact Basheer has not at all carried out any survey. Even only when the suit is filed, in reply, the defendant has come with a case that the defendant has already appointed another surveyor and that surveyor has assessed damage at the different amount and therefore, the defendant has no liability to pay damages as per the report of the earlier surveyor. The Basheer and Company took 19 months to give their report. 2.5 It was further submitted that the defendant has neither rejected their reports nor disagreed with the said reports. The defendant neither disapproved the same nor given any reasons for appointing Basheer and Associates SCA/22891/2006 15/90 JUDGMENT Surveyors Pvt. Ltd. It appears that even a copy of the report of M/s. Basheer and Associates Surveyors Pvt. Ltd. was never supplied to the plaintiffs in spite of several requests in writing made by letters dated 23.7.2003, 29.7.2003 and 6.8.2003. Basheer's reports disclosed that they have considered themselves as an appellate authority to give reasons or grounds with a view to prepare a defence in the suit that the plaintiffs may file. Defendant has also suppressed the correspondence made between defendant and Basheer at various stages. 2.6 During correspondence, it is stated that plaintiffs by letter dated 8.3.2002 without prejudice and informing them that the underwriters (defendant) had already appointed approved surveyors and loss assessors as per the provisions of IRDA Act, 1999 as indicated in the said letter and that they had already submitted their reports based on which claim statements were filed by the plaintiffs and therefore, plaintiffs looked forward to an early settlement SCA/22891/2006 16/90 JUDGMENT of their claims. Thus, whatsoever defence raised by the defendant was replied by plaintiffs in their rejoinder in this behalf. The said rejoinder was filed somewhere in October 2005 and the plaintiffs have relied upon the statement showing percentage of damage compared with total cargo in this behalf. TRIAL COURT FINDINGS : 2.6A The trial Court has come to the conclusion that the defendant had issued marine insurance policy for the period from 16.4.2001 to 15.4.2002 for the goods to be carried out from various ports of the country to ports Okha, Kandla, Porbandar, Mundra and Bhavnagar and loaded in the ship for the purpose of export. It was open marine policy. There was cyclone at the end of May 2001 and first week of June. The goods were seriously damaged. Four Government approved surveyors were appointed to assess damages. They have visited sites on ports. They have inspected the goods. Segregation work was carried out in their presence. Insurance Companies were also SCA/22891/2006 17/90 JUDGMENT informed. Their officers have also inspected the site and verified the damaged goods. Four Government approved surveyors have assessed the damages as stated in the report. The plaintiffs raised claim on the basis of damages assessed by the Government approved surveyors. The defendant did not reply for long time. The defendant never raised objection against their report. Thereafter the defendant appointed two surveyors J.Bashir & Company and Trans Ocean Marine & General Survey Agency in the month of November 2001. There was no chance for them to visit or to verify physical condition of the goods as goods were already removed. They have assessed the damages by perusing the papers and earlier reports submitted by four Government approved surveyors. The two surveyors have also admitted the loss in this behalf. There was no justification for the defendants to discard earlier surveyor's report and to appoint another surveyor. The defendant has not produced any material or reason for discarding the earlier surveyor's report and appointing fresh surveyors. SCA/22891/2006 18/90 JUDGMENT 2.6B The trial court came to the conclusion that whatever stated by the subsequent two surveyors in their report cannot be treated as final or conclusive. There are earlier surveyor's reports prepared by the Government approved surveyors having the same authority. In view of the same, the learned trial Judge has passed the order and held that leave to defend granted to the defendants in Summary Suits No.2812/04 and 2813/04 on condition to deposit 50% of the suit amount in both the suits within four weeks from today. 3. Being aggrieved and dissatisfied with the said order, the New India Assurance Co. Ltd. has filed Special Civil Applications before this Court on 2.11.2006. 3.1 The matters were heard at length. On behalf of the petitioner, Mr. V.P. Nanavati, learned advocate for Mr. P.V. Nanavati, learned SCA/22891/2006 19/90 JUDGMENT advocate appearing on behalf of original defendant – petitioner herein. Mr. Mihir Thakore learned Senior Counsel with Mr. Amar Bhatt, learned advocate appeared for original plaintiffs in one matter and in second matter Mr. Kamal Trivedi, learned Senior counsel and Advocate General with Mr. Thakar, on behalf of Trivedi & Gupta appeared for respondent No.1 & 2. 3.2 In this case RULE is issued and Mr.Amar Bhatt, learned advocate waives service of rule on behalf of original plaintiffs in Special Civil Application No.22891 of 2006 and in another case i.e. in Special Civil Application No.22892 of 2006 Mr.K.J.Thakar, learned advocate of Trivedi & Gupta, waives service of rule on behalf of original plaintiffs. With consent of learned advocates for the parties, the matters have been taken for final disposal. PETITIONERS' CONTENTIONS : 4. Mr. Vibhuti Nanavati, learned advocate on SCA/22891/2006 20/90 JUDGMENT behalf Mr. P.V. Nanavati for the petitioners made following submissions. 4.1 The Insurance Company has submitted that the plaintiffs have not been able to prove that the demand, as alleged, has been caused to their insured goods. The damages were aggravated as the plaintiffs have not taken immediate action to minimise the loss. The entire consignment remained at the port upto September 2001 and on account of the said delay damages were aggravated. It was further submitted that if the damaged goods were sold by public auction they would have realized more amounts so damage could have been minimise. The plaintiff No.2 has sold goods at lower price that has aggravated the damages. The plaintiffs have not deducted the amount of sale of damaged cargo from its claim. The defendant Insurance Company has challenged the maintainability of the Suit under Order 37 of the Code of Civil Procedure and it has repudiated the claim under Marine Insurance Policy. Basically the insurance policy provides indemnity SCA/22891/2006 21/90 JUDGMENT to the insured. The defendant has relied on the following definition of 'indemnity' as defined in Black's Law Dictionary, 6th edition. “Indemnity – Reimbursement. An undertaking whereby one agrees to indemnity another upon the occurrence of an anticipated loss. Dawson V. Fidelity & Deposit Co. of Md. D.C.S.D., 189 F. Supp. 854, 865. A contractual or equitable right under which the entire loss is shifted from a tortfeasor who is only technically or possively at fault to another who is primarily or actively responsible. Moorhead Vs. Waelde, La. App., 499 So. 2D 387, 389. Compare Contribution; Subrogation. The benefit payable under an insurance policy. Immunity from the punishment of past offence. Lawson Vs. Halifax-Tonopah Min. Co., 36 Nev. 591, 135 P. 611, 613. The term is also used to denote the compensation given to make a person whole from a loss already SCA/22891/2006 22/90 JUDGMENT sustained; as where the government gives indemnity for private property taken by it for public use. See Condemnation; Eminent 1domain; Expropriation; Just Compensation”. 4.2 Learned Counsel for the petitioners has submitted that in this case, the petitioners have claimed total Rs.4,48,32,365/- with further interest @ 18% p.a. from the date of the suit till realisation in favour of the plaintiffs. The learned counsel submitted that in view of the judgment of this Court in 1982 Guj. (UJ) 7 in the case of Kalubhai Karsanbhai Vs. Bai Jiviben Ramji wherein it has been held that when there is a demand of interest in the plaint, the Court ought to have granted unconditional leave. 4.2A The learned advocate has also relied upon 1990 (2) GLH 438 in the case of Jashbhai Motibhai Patel Vs. Hasmukhbhai Ravjibhai Patel in which it has been held that the defendant by denying the very existence and execution of the suit SCA/22891/2006 23/90 JUDGMENT promissory note, in that cases, unconditional leave to defend has to be granted. 4.3 The lower Court has further stated that the plaintiffs have claimed damages and the same can be exercised only by adducing evidence and in turn can be claimed that too on the date of the decree as per the provisions of Section 73 of the Indian Contract Act. Thereafter, the plaintiffs would be entitled for interest, that too from the date of the decree and not from the date of suit. 4.4 The lower Court has held that in Summary Suit arising under the insurance contract and specifically when the insurance company has repudiated the claim by providing cogent reasons for repudiation. The defendants have contended that when relying upon the survey report, the defendant have disputed the survey report than it cannot be called upon again to raise triable issues or defence in its leave to defend affidavit. Thus, the reasoning of the trial SCA/22891/2006 24/90 JUDGMENT Court is arbitrary and erroneous considering the provisions of law of indemnity and insurance law. The petitioner has completely denied its liability under the policy. 4.5 As regards survey report, it is the case of the defendant that the plaintiffs have contested the appointment of second surveyors for finalisation of the remaining survey work as the earlier surveyors visited the place, noted the damage in their report and further noted the salvage work carried out by the plaintiffs. The said surveyors finalised the report relying upon the earlier survey reports and the information provided and documents supplied by the plaintiffs. In that view of the matter, the plaintiffs have acquiesced/waived their right of protest regarding appointment of final surveyor. The contention of the plaintiffs that they have raised question of appointment of second surveyor is side-track the real issue. 4.6 The learned counsel further submitted SCA/22891/2006 25/90 JUDGMENT that the defendant has rely upon the defence which has been filed before the trail court the defendant has clearly demonstrated that the present suit raises 'triable issue'. 4.7 The learned counsel for the defendant further submitted that the learned trial Court has committed a serious jurisdiction error by not arriving at a finding that the defendant has failed to indicate substantial triable defence. The learned advocate submitted that so the present Special Civil Application is maintainable at law. The defendant may be permitted to defend the suit unconditionally as it has got fair chance of success which can prove by evidence. 4.8 The learned counsel has further submitted that the learned trial Judge has not properly exercised jurisdiction while imposing condition regarding deposit of 50% of the suit amount. In this behalf, he has stated that the learned trial Judge has not followed settled principle of law particularly in decision Santosh SCA/22891/2006 26/90 JUDGMENT Kumar Vs. Bhai Mool Singh, AIR 1958 Supreme Court 321 in the case of M/s. Mechalec Engineers & Manufacturers Vs. M/s. Basic Equipment Corporation, AIR 1977 Supreme Court 577. 5. Contention of Mr.Mihir Thakore, learned Senior Counsel with Mr.Amar Bhatt and contention of Mr.Kamal Trivedi, learned Advocate General and Senior Advocate with Mr.K.J.Thakar of Trivedi & Gupta on behalf of original plaintiffs. 5.1 The learned Senior Counsels for the respondent submitted that in the present case, the