IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 06.06.2011 CORAM THE HONOURABLE MR. JUSTICE S. PALANIVELU C.S.No.1269 of 1991 Tamilnadu Electricity Board, rep.by the Superintending Engineer (Electrical) Mettur Thermal Power Project Mettur Dam. ... Plaintiff Vs 1. United India Insurance Co. Ltd., 2. New India Assurance Co. Ltd., 3. National Insurance Co.Ltd., 4. The Oriental Insurance Co.Ltd., ... Defendants Civil Suit filed under Order IV Rule 1 of O.S. Rules read with Order VII Rule 1 of C.P.C. For Plaintiff : Mr. N. Muthusami For Defendants : Mr. K.S. Narasimhan for D1, D3 and D4 Mr. N. Vijayaraghavan for D2 JUDGMNET The Civil Suit is filed for a judgment and decree, to direct the 1st defendant to pay Rs.37,34,700/- with further interest at 18% p.a. on Rs.24,93,125/- from the date of plaint to date of realisation and to direct the 2nd to 4th respondents to pay Rs.18,67,350/- each with further interest at 18% p.a. each on Rs.12,46,563/- each from the date of plaint till the date of realisation with the costs. 2. The following are the contents in the plaint:- 2.(a) The plaintiff is a statutory body represented by its Superintending Engineer/Electrical, Mettur Thermal Power Project, Mettur Dam, Salem District. In the course of their requirement of materials for the project, they had placed orders for Turbo General Materials including Condenser Tubes from various parts of India on M/s.Bharat Heavy Electricals Ltd. (BHEL), that the plaintiff insured covering all risks for the transport of the said Turbo Generator materials including Condenser Tubes from various parts of India on behalf of Bharat Heavy Electricals Ltd., for a sum of Rs.51 Crores with the first defendant, that as per the 'Co-Insurance Clause', 2nd, 3rd and 4th defendants were included in the policy, that the liability of the companies shall be several and in the proportion as set forth against their names as below: 1. United India Insurance Company Limited .. 40% 2. The New India Assurance Company Limited .. 20% 3. The Oriental Insurance Company Limited .. 20% 4. National Insurance Company Limited .. 20% and that as per the terms, the defendants are liable to pay the claims, if any, in the aforesaid proportion. 2.(b) M/s.Alcobex, Jodhpur a sub-vendor of Bharat Heavy Electricals Ltd., at Hardwar, despatched Condenser Tubes through M/s. Transport Corporation of India, that the entire consignment was received by the plaintiff in damaged condition, that the plaintiff made a claim with the 1st defendant on 4.1.1989 for a sum of Rs.62,32,814/- towards the cost of the materials received in a damaged condition, covered by the said Insurance Policy, that after a prolonged correspondence, the 1st defendant, by a letter dated 3.1.1991 stated that under Section 64-V.B of the Insurance Act, the subject claim cannot be processed, that Section 64-V.B will not apply to the present case and even if it is made applicable, the plaintiff being a state owned Board, stands exempted, that the policy itself is open policy and having accepted advance premium and the premium for the entire risk covered, the 1st defendant is estopped from taking shelter under the provisions of the Insurance Act, that as the 1st defendant did not come forward to settle the lawful claim made by the plaintiff, the plaintiff issued lawyer's notice dated 20.2.1991 to the 1st defendant at its Regional office at Madras as well as the Branch office at Mettur Dam, that the 1st defendant sent a reply on 6.3.1991 through its lawyer informing that a reply will be sent after two weeks, that by a further reply dated 15.6.1991, the advocate for the 1st defendant called for certain details which are already available with the first defendant, that the 1st defendant representing all the other defendants has failed to settle the claim and they are liable to pay interest which is claimed at 18% p.a. from 4.1.1989, the date of claim. 2.(c) The plaintiff had paid the cost of the materials to the suppliers and could not use them to its benefit as the same were received in damaged condition and thus the amounts paid have been blocked, that if the defendants had settled the claim immediately on the submission of the claim by the plaintiff, the plaintiff would have had the benefit of the same, that the plaintiff has borrowed amounts from various financial agencies for interest at the rate of more than 18% p.a. and that the suit may be decreed as prayed for. 3. In the written statement filed by the 1st defendant, the following are averred:- 3.(a) The allegations contained in the plaint are denied, that the suit is barred by limitation, that it is specifically denied that there was a valid policy or a concluded contract in existence, covering the consignment for the transit risk, that on 29.3.88 the date on which the consignment was despatched, there was no adequate premium paid to the defendant, that the plaintiff was given a facility of open policy and they are required to deposit adequate premium with this defendant and are expected to declare the value of the consignment prior to despatch, that the insurer used to adjust the premium and it is the duty of the insured plaintiff to provide adequate funds towards deposit account, that there was huge outstanding premium due and the deposit account of the plaintiff was due to the defendant which was not paid inspite of several letters, that the amount was paid only on 10.6.88 but the consignment was despatched on 29.3.88 which was not covered as no premium was paid to the same and hence the contention that there was a valid policy in force is incorrect, especially in the light of Section 64.V-B of the Insurance Act. The plaintiff has suppressed the material particulars inasmuch as non-declaration of correct value of the consignment, which amounts to suppression of material particulars,which renders the policy void. 3.(b) The suit is bad for non-joinder of parties, that the plaintiff had neglected to implead the Carrier as a party under whose custody the damage had occurred and from whom the insurer of the consignment would be entitled to recover the amount paid, by way of indemnity, that inspite of the repeated requests of the defendant to preserve the right of recovery by issuing a notice under Section 10 of Carriers Act, which was not complied with by the plaintiff, that the plaintiff was reminded to take suitable steps by various letters by the defendant but the plaintiff has failed and neglected to do so and hence the insured plaintiff is not entitled to claim any amount from this defendant, that under the law of Insurance the right of the Insurer on payment of the loss to the assured is to be subrogated to the rights of the assured so as to enable the Insurer to proceed against the carriers and any default committed by the assured either by allowing the remedy to get time barred or by abdicating or abandoning his rights against the carrier or the third party will deprive the insurer of its remedies against the third party for indemnity and that in such cases it is not open to the insured, the plaintiff herein to claim any indemnity from this defendant. 3.(c) There were some disputes regarding freight charges and ultimately the consignment was brought to Mettur on 8.10.1988, that the consignment was kept with the Carrier for a period of three months by the consignee, that the plaintiff had demanded a open delivery certificate and survey was conducted, that the contention that the consignment was damaged beyond repair is factually unsustainable, that a survey was arranged on 11.10.88 in the presence of plaintiff and representatives of M/s.Bharat Heavy Electricals Limited and after assessing the damages a meeting was held by the surveyor, that as per the request of the plaintiff, it was agreed to send the surveyor alongwith representatives of M/s.MTPP to discuss with M/s.Bharat Heavy Electricals Limited regarding re-processing, that the surveyor alongwith representatives of M/s.MTPP went to Hardwar and as per the minutes of the meeting held on 22.2.1989 M/s.Bharat Heavy Electricals Limited had expressed their inability to accept for reprocessing but would supply fresh tubes if M/s.MTPP places order and take back the tubes for salvage value subject to tubes being cut to convenient size for transportation to M/s.Alcobex Metals Pvt. Ltd., or in the alternative customer can enter into contract with M/s.Alcobex Metals Pvt. Ltd., directly for reprocessing when M/s.Bharat Heavy Electricals Limited would assist in sending their representative for inspection, that on 24.2.1989 the Surveyor had contacted M/s.Alcobex Metals Pvt. Ltd., who had agreed to process the tubes if taken for re- processing before 15.3.1989, that the re-processing would greatly reduce the loss to the consignment and the liability works out as per survey report in a sum of Rs.12,58,320/- only and thus the total loss is factually unsustainable. 3.(d) The insurer is entitled to replace or repair the machinery to the satisfaction of the plaintiff, that the supplier themselves have stated that the machinery can be repaired and therefore, the plaintiff ought to have accepted the same, that under the terms of policy the insured the plaintiff had a duty to mitigate the loss and as such the plaintiff has violated the same, that the salvage value in a sum of Rs.17,00,000/- was not deducted out of the value of the damaged machinery, that a proper assessment relating to the value of the loss if the machinery was returned for reprocessing would have reduced the loss to the great extent as assessed by the surveyor which was brought to the knowledge of the plaintiff and they were repeatedly requested by this defendant to take early action and reminded about their obligations under the policy repeatedly by various letters, that instead the plaintiff have chosen to file this suit without even adhering to the correct value of the loss adjusting the salvage value, that the claim for interest is also not maintainable under law, that on account of non-cooperation, various lapses and violation of policy conditions the plaintiff have forfeited their right of indemnity, that the plaintiff is not entitled to capitalise on their lapses by way of interest also and that the suit is not maintainable under law or on facts and the same be dismissed with costs. 4. In the written statement filed by the 2nd defendant it is stated that the policy was issued by the 1st defendant and this defendant is a co-insurer, that the correspondence between parties filed alongwith the plaint shows that it was between the plaintiff and the 1st defendant, that this defendant has not independent liability, that as the privity of contract being is between plaintiff and the 1st defendant, insofar as the plaintiff is concerned, the suit against this defendant is not maintainable and that unless there is any liability established as against the 1st defendant, this defendant cannot be held liable for any portion of the suit claim in all other respects and that this defendant adopts the written statement filed by the 1st defendant. 5. In the written statements filed by the 3rd and r4th defendants it is expressed that they adopt the paragraphs 2 to 11 of the written statement filed by the 1st defendant and the same may be treated as part and parcel of their written statement. 6. On the strength of the above said pleadings, the following issues were framed by this Court:- 1. Whether there was valid insurance cover for the suit consignment? 2. Whether the plaintiff had paid premium prior to transit in respect of suit consignment? 3. Whether there was any short fall in the premium on the date of claim i.e., on 04.01.1989 in the open policy? 4. Whether the Insurer is relieved from liability on the ground that the Plaintiff has not proceeded against or preserved right of recovery against the carrier? 5. Whether the entire consignment was damaged in transit and received in damaged condition? What is the extent of loss? 6. Whether the Defendants are right in rejecting the legitimate claim of the plaintiff? 7. Whether the defendants are jointly and severally liable to pay the suit claim? 8. To what relief the parties are entitled to? 7. Both the learned counsel, at the time of argument, concentrated on the point of limitation also. Hence I deemed it necessary to frame the following Additional Issue: "Whether the suit is in time?" Issue Nos.1 to 3 8. The plaintiff is a statutory body. The project was initiated for construction of 4 units of 210 MW Thermal Power Generation. The first defendant issued a Transit Insurance Policy for an assured sum of Rs.50 lakhs on 23.1.1984 covering all the risk for transport of Turbo Generator materials including Condenser Tubes from various parts of India on behalf of Bharat Heavy Electricals Ltd. M/s.Alcobex, Jodhpur, a sub-vendor of Bharat Heavy Electricals Limited, on 29.3.1988 despatched the Condenser Tubes through M/s.Transport Corporation of India. The consignment was received at the destination, namely at Mettur in a damaged condition on 11.10.1988. Ex.P.1 is the Policy issued by the 1st defendant to the plaintiff dated 20.02.1984 which contains the warranties and conditions attached to and forming part of marine open policy. Even though Ex.P.1 is dated earlier, the above said conditions assumed much importance in the case to show the rights of both the parties viz., the plaintiff and the 1st defendant. Ex.P.2 is the xerox copy of the policy dated 10.10.1986 issued by the 1st defendant to the plaintiff for Rs.51 lakhs. Ex.P.3 dated 23.01.1989, is a policy issued by the first defendant, in which it is stated that all the defendants have got liability as co-insurers as follows: 1st defendant United India Insurance Co. Ltd., .. 40% 2nd defendant The New India Assurance Co. Ltd,... 20% 3rd defendant The Oriental Insurance Co.Ltd., .. 20% 4th defendant National Insurance Co.Ltd., .. 20% 9. Ex.P.4. is the copy of Lorry Receipt issued by M/s. Transport Corporation of India Ltd., It is conceded that date of despatch is 29.3.1988, but the premium amount was paid on l0.6.1988; date of delivery at Mettur Dam MTPP is 11.10.1988 and the plaintiff made claim on 4.1.1989. Ex.P.5 dated 4.4.1988 plays a vital role to show that excepting the suit claim all other claims were settled by the 1st defendant. Declaration No.376 emanated from the plaintiff addressed to the first defendant. The contents of the declaration are as follows: S.No. Despatch details R.R.No. & Date Pkg. No. Description Weight in Kgs. 1 991762/29.3.88 Condensor Tubes 352 Nos. 2,886 KGs 2 991764/29.3.88 Condensor Tubes 176 Nos. 1,452 Kgs 3 Tcl:18511/29.3.88 Condensor Tubes 2068 Kgs. 16,990 Kgs 4 993230l/16.3.88 Condensor Tubes 5,832 Kgs 5 991765/29.3.88 Condensor Tubes 711 Kgs 27,871 Kgs 10. A defence has been raised by the first defendant to the effect that inadequate premium was paid by the plaintiff which could not cover all the claims made by them, that the plaintiff were required to deposit adequate premium and the plaintiff were expected to require and declare the value of the consignment prior to the despatch, that the Insurer used to adjust the premium ant it is the duty of the Insured to provide adequate funds towards advance deposit and that there was huge outstanding premium due and the same was not paid inspite of several letters. The first defendant has produced very many communications addressed to the plaintiff. But in none of them the first defendant has intimated the plaintiff as regards the inadequacy of premium and required them to pay the same. Further it is also admitted by D.W.1, defendant's witness, that excepting the suit claims all other claims contained in Declaration No.376 (Ex.P.5) were settled by the first defendant. In this respect it is to be treated that the first defendant has accepted the premium paid by the plaintiff and honoured the claims projected by the plaintiff excepting the suit claim. 11. The learned counsel for the plaintiff Mr.N.Muthusamy would contend that even though it is stated by the first defendant that the premium was paid belatedly it was accepted by the first defendant, that the insufficiency of the premium was not intimated on any occasion and that the other claims contained in the same Declaration No.376 have been settled which would show that the first defendant is wilfully denying to settle the suit claim. In view of the above said circumstances, it is to be observed that the first defendant is estopped by the settlement of other claims barring the suit claim. 12. Even though the premium was paid posterior to the loading of the materials at Jodhpur, evidence is available to show that the same was accepted by the first defendant and the other claims were settled. By the conduct, they have allowed the plaintiff to claim the insurance amount. Worth saying it is that the first defendant has not specified proper premium to the paid by the plaintiff. Even in the reply notice issued by the first defendant (Ex.P.15.), in reply to the legal notice given by the plaintiff under Ex.P.13, nothing was said about the inadequacy of premium and there is no explanation nor reasons for dishonouring the claim. It is merely stated that there is serious breach on the part of the plaintiff which would vitiate the contract itself. Even then, the above said circumstances would candidly indicate that there were valid insurance cover for the suit consignment and on the date of damage of the cargo was found out, i.e., the date of delivery, the insurance cover was existing and that there is no material to show that there were short fall in the premium on the date of claim i.e. on 4.1.89. 13. In view of the above, Issue No.2 is answered as indicated above. I answer Issue No.1 in affirmative and Issue No.3 in negative. Issue No.4 14. It is the grievance of the defendants, particularly the first defendant that the plaintiff should have issued notice to the carrier namely M/s. Transport Corporation of India Ltd., and initiated proceedings against the carrier before entering into litigation with the defendants and by not preserving the right of the defendants, legal proceedings with a suit is not lawful and on this score the plaintiff has to be non-suited for the relief claimed. The learned counsel for the first defendant Mr.K.Narasimhan would strenuously contend that there is a specific clause in the terms and conditions of the policy itself in this regard and by not observing the conditions therefor, the plaintiff has violated not only the statutory requirement but also the conditions as agreed. 15. It is his further argument that the terms of the agreement have to be strictly construed to determine the extent of the liability of the Insurer as per law. It is well settled that the terms of the agreement have to be construed and observed as per the tenor of the agreement and neither the Court nor the parties can alter or supplement with the conditions contained therein to suit their convenience. In this context, the contention of the learned counsel for the first defendant is two pronged. One is with regard to strict construction of terms of contract by the parties concerned and another is that the preservation of rights against the carrier by the plaintiff so as to safeguard the interests of the first defendant. As far as the first leaf of contention is concerned, the learned counsel for the first defendant placed reliance upon various authorities which are as follows:- 1. 2005 ACJ 570 SC [United India Insurance Co.Ltd., v. Harchand Rai Chandan Lal] 2. 2007 ACJ 721 SC [National Insurance Co. Ltd., v. Laxmi Narain Dhut] 3. AIR 1999 SC 3252 [Oriental Insurance Co. Ltd., v. Sony Cheriyan] 4. MANU/SC/0814/2010 = 2010 (9) UJ 4640 (SC) [Suraj Mal Ram Nivas Oil Mills (P.) Ltd., v. United India Insurance Co. Ltd., and Anr.] 15.(a) In Harchand Rai Chandan Lal's Case cited supra, it is held by Their Lordships that it is not open to interpret the expression appearing in policy in terms of common law; but it has to give meaning to the expression as defined in the policy and that the act that causes the loss must fall within the definition in the policy and it cannot take the cover and contents of the definition as laid down in the criminal law. 15.(b) In Laxmi Narain Dhut's case above, the Honourable Supreme Court as held as follows:- "35. A statute is an edict of the legislature and in construing a statute, it is necessary to seek the intention of its maker. A statute has to be construed according to the intent of those who make it and the duty of the court is to act upon the true intention of the legislature. If a statutory provision is open to more than one interpretation the Court has to choose that interpretation which represents the true intention of the legislature. This task very often raises difficulties because of various reasons, inasmuch as the words used may not be scientific symbols having any precise or definite meaning and the language may be an imperfect medium to convey one's thought or that the assembly of legislatures consisting of persons of various shades of opinion purport to convey a meaning which may be obscure." 15.(c) In Sony Cheriyan's case aforenoted, the Apex Court has formulated the principles as under:- "15. The insurance policy between the insurer and the insured represents a contract between the parties. Since the insurer undertakes to compensate the loss suffered by the insured on account of risks covered by the insurance policy, the terms of the agreement have to be strictly construed to determine the extent of liability of the insurer. The insured cannot claim anything more than what is covered by the insurance policy. That being so, the insured has also to act strictly in accordance with the statutory limitations or terms of the policy expressly set out therein." 15.(d) In Suraj Mal Ram Niwas Oil Mills (P.) Ltd. Case, referred above, the Supreme Court has referred to a decision of the Constitution Bench of the Apex Court and ruled as follows:- "22. Before embarking on an examination of the correctness of the grounds of repudiation of the policy, it would be apposite to examine the nature of a contract of insurance. It is trite that in a contract of insurance, the rights and obligations are governed by the terms of the said contract. Therefore, the terms of a contract of insurance have to be strictly construed, and no exception can be made on the ground of equity. In General Assurance Society Ltd. (supra), a Constitution Bench of this Court had observed that: "In interpreting documents relating to a contract of insurance, the duty of the court is to interpret the words in which the contract is expressed by the parties, because it is not for the court to make a new contract, however reasonable, if the parties have not made it themselves." (See also: Oriental Insurance Co. Ltd. Vs. Sony Cheriyan MANU/SC/0495/1999 : (1999) 6 SCC 451; Vikram Greentech (supra); Sikka Papers Limited Vs. National Insurance Company Limited & Ors.MANU/SC/0907/2009 : (2009) 7 SCC 777; New India Assurance Company Limited Vs. Zuari Industries Limited & Ors. MANU/SC/1586/2009 : (2009) 9 SCC 70; Amravati District Central Cooperative Bank Limited Vs. United India Fire and General Insurance Company Limited. MANU/SC/0250/2010 : (2010) 5 SCC 294" 23. Similarly, in Harchand Rai Chandan Lal's case (supra), this Court held that: "The terms of the policy have to be construed as it is and we cannot add or subtract something. Howsoever liberally we may construe the policy but we cannot take liberalism to the extent of substituting the words which are not intended." 24.Thus, it needs little emphasis that in construing the terms of a contract of insurance, the words used therein must be given paramount importance, and it is not open for the Court to