Case: EXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. AND ANOTHER Vs. M.S. CREATIONS AND ANOTHER

insured. Among them, Clauses (ii), (iii) and (iv) provide as follows: (ii) failure of the buyer to pay to the insured, within four months after the due date of payment the gross invoice value of the goods delivered to and accepted by the buyer; or (iii) the failure of the buyer to pay to the Exporter within four months after the date of payment the gross invoice value of goods delivered to and accepted by the buyer, or (iv) failure or refusal on the part of the buyer to accept goods which have already been exported from India, where any such failure or refusal is not excused by and does not arise from or in connection with any breach of condition or warranty on the part of the Exporter or from any other cause within his control; and provided also that the Corporation is satisfied that no good purpose would be served by the institution of legal proceedings against the buyer in respect of his said failure or refusal, The relevant exclusion, proviso (b) to Clause (xii) of the policy, upon which the controversy in the present case has turned, provides as follows: PROVIDED ALWAYS that the Corporation shall not be liable for loss: (a) … (b) which arises from the insolvency of any agent of the Exporter or the insolvency of a co1lecting bank or from any act or default on the part of such agent or collecting bank; 19. The sales contract between the first respondent and SICOREP envisaged that the payment terms, through the bank, would be 60 days DA from the date of the Bill of Lading. The first respondent by its communication dated 1 November 2001 to ECGC, declared that it would conduct business on 60 days DA basis from the date of the Bill of Lading and only with the acceptance of Credit Lyonnais. It was to this document that the specific approval of the ECGC was obtained on 7 November 2001 with reference to the export contract with SICOREP. 20. When SICOREP indicated to the first respondent that it was suggesting a change in the nomination of the foreign bank to BHCI, the first respondent in turn applied for and obtained the approval of ECGC on 7 February 2002, subject to the terms and conditions set out in the earlier approval. 21. After the first respondent submitted a claim to ECGC, a communication was addressed on 25 June 2002 requiring the first respondent to arrange for: (i) the originals of the unpaid bills of exchange; (ii) Advices of non-payment by the foreign correspondent bank; (iii) Advice of the acceptance of documents by the foreign bank, among other documents. 22. ECGC indicated that unless those documents were produced, it would be unable to proceed further in the matter. As the correspondence on the record indicates, the first respondent was unable to produce the relevant documents or to indicate that there was an acceptance of the documents, in terms as required under the approval of the sales contract by ECGC. 23. It was in this background that ECGC rejected the claim of the first respondent on 3 October 2002. The facsimile message dated 22 November 2002 of BHCI to PNB indicates that the original documents of the two shipments had been handed over to M Reda Ali. The communication, however, indicates that the bank could not accept the shipment for payment and that it had not either made any transaction with or effected any payment to PNB. 24. ECGC took up the matter with PNB which in turn corresponded with BHCI. The correspondence was evidently fruitless since there was nothing to indicate that the documents had been duly accepted in terms of the conditions governing the sales contract. 25. Now, it is in this background that ECGC had sought to raise the exclusion contained in the insurance policy. In terms of the proviso (b) extracted above, the insurer was not to be held liable for any loss from any act or default on the part of the collecting bank. Evidently, the collecting bank, as its communication dated 22 November 2002 indicates, handed over the original documents, but then sought to justify its action by contending that the bank was in the housing sector and could not accept the shipment for payment. If this was the position, there was no reason or justification on the part of the collecting bank to hand over the original documents to a person representing SICOREP without acceptance. There was, therefore, clearly a default on the part of the collecting bank. 26. The State Commission and the National Commission held against ECGC inter alia on the ground that by honoring its commitment to PNB under WTPSG Policy, ECGC had in turn admitted its liability to the first respondent. There is a fallacy in this hypothesis. The guarantee which ECGC furnished to PNB, similar to those it furnishes to other bankers, was to secure their exposure against the risks involved in the advances which the bank had made in respect of export contracts to its constituent. This guarantee which ECGC issued to PNB would not conclude the issue as to whether the claim made by the first respondent under a distinct insurance policy was sustainable. Consequently, the basis on which the State Commission and National Commission held against the appellant is erroneous. 27. During the course of the hearing of these proceedings, the Court has been apprised of the fact that the order which was passed by the State Commission was duly executed and in compliance, the amount due and payable has been paid over by ECGC to the first respondent. There is no allegation that the first respondent was in any way connected with or colluded with SICOREP. From the record, it appears that the first respondent was itself a victim of SICOREP having retired the documents without making payment for the export consignments. No submission has been urged on behalf of ECGC to indicate the complicity of the first respondent.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]23. It was in this background that ECGC rejected the claim of the first respondent on 3 October 2002. The facsimile message dated 22 November 2002 of BHCI to PNB indicates that the original documents of the two shipments had been handed over to M Reda Ali. The communication, however, indicates that the bank could not accept the shipment for payment and that it had not either made any transaction with or effected any payment to PNB24. ECGC took up the matter with PNB which in turn corresponded with BHCI. The correspondence was evidently fruitless since there was nothing to indicate that the documents had been duly accepted in terms of the conditions governing the sales contract25. Now, it is in this background that ECGC had sought to raise the exclusion contained in the insurance policy. In terms of the proviso (b) extracted above, the insurer was not to be held liable for any loss from any act or default on the part of the collecting bank. Evidently, the collecting bank, as its communication dated 22 November 2002 indicates, handed over the original documents, but then sought to justify its action by contending that the bank was in the housing sector and could not accept the shipment for payment. If this was the position, there was no reason or justification on the part of the collecting bank to hand over the original documents to a person representing SICOREP without acceptance. There was, therefore, clearly a default on the part of the collecting bank26. The State Commission and the National Commission held against ECGC inter alia on the ground that by honoring its commitment to PNB under WTPSG Policy, ECGC had in turn admitted its liability to the first respondent. There is a fallacy in this hypothesis. The guarantee which ECGC furnished to PNB, similar to those it furnishes to other bankers, was to secure their exposure against the risks involved in the advances which the bank had made in respect of export contracts to its constituent. This guarantee which ECGC issued to PNB would not conclude the issue as to whether the claim made by the first respondent under a distinct insurance policy was sustainable. Consequently, the basis on which the State Commission and National Commission held against the appellant is erroneous27. During the course of the hearing of these proceedings, the Court has been apprised of the fact that the order which was passed by the State Commission was duly executed and in compliance, the amount due and payable has been paid over by ECGC to the first respondent. There is no allegation that the first respondent was in any way connected with or colluded with SICOREP. From the record, it appears that the first respondent was itself a victim of SICOREP having retired the documents without making payment for the export consignments. No submission has been urged on behalf of ECGC to indicate the complicity of the first respondent.