Case: M/S Bhs Industries Vs. Export Credit Guarantee Corp

Ltd., an instrumentality of State, had repudiated the claim of the claimant against which a writ petition was filed before the learned Single Judge of the Calcutta High Court praying for quashment of the repudiation. The learned Single Judge after hearing parties came to the conclusion that the dispute between the parties arose out of a contract of insurance and the first respondent being a State for the purpose of Article 12, was bound by the terms of the contract and accordingly allowed the writ petition. In intra-court appeal the Division Bench opined that the claim of the writ petitioner involved disputed questions of fact and hence, could not be adjudicated in a writ proceeding under Article 226 of the Constitution. However, it proceeded to state that the learned Single Judge had erroneously applied the law and further came to hold that the insured had violated certain terms of the contract. This Court referred to number of decisions as regards the maintainability of the writ petition and expressed the view that merely because one of the parties to the litigation raises a dispute in regards to the facts of the case, the court entertaining such petition under Article 226 of the Constitution is not always bound to relegate the parties to a suit. After so holding the Court opined once the State or instrumentality is a party to the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India, and therefore, being the instrumentality of the State, the Corporation had acted in contravention of the requirements of Article 14, and hence, the writ court could issue appropriate writ to nullify the arbitrary action. The court referred to relevant Clauses of contract of insurance in the background of admitted facts. The contract of insurance between the insured and insurer was primarily based on the contract between exporter and the Kazak Corporation. The relevant Clause in regard to payment of the tea exported was incorporated in Clause 6. The said Clause came to be amended on the very same day when the contract was signed by the exporter and the Kazak Corporation by way of an addendum. The Court opined the addendum in the obtaining facts therein had become an integral part of the original Clause 6 of the Contract. The Court further proceeded to deal with the Clauses in the agreement and held that alternative modes of payment of consideration were permissible as per Clause 6. In that context the Court further opined:- “The terms of the insurance contract which were agreed between the parties were after the terms of the contract between the exporter and the importer were executed which included the addendum, therefore, without hesitation we must proceed on the basis that the first respondent issued the insurance policy knowing very well that there was more than one mode of payment of consideration and it had insured failure of all the modes of payment of consideration. From the correspondence as well as from the terms of the policy, it is noticed that existence of only two conditions has been made as a condition precedent for making the first respondent Corporation liable to pay for the insured risk, that is: (i) there should be a default on the part of the Kazak Corporation to pay for the goods received; and (ii) there should be a failure on the part of the Kazakhstan Government to fulfil their guarantee.” After so stating the court ruled that there was no violation of the stipulations of the contract by the insured. While dealing with the grant of relief the court referred to the decision in Kumari Shrilekha Vidyarthi v. State of U.P. (1991) 1 SCC 212 ) and held thus:- “53. From the above, it is clear that when an instrumentality of the State acts contrary to public good and public interest, unfairly, unjustly and unreasonably, in its contractual, constitutional or statutory obligations, it really acts contrary to the constitutional guarantee found in Article 14 of the Constitution. Thus if we apply the above principle of applicability of Article 14 to the facts of this case, then we notice that the first respondent being an instrumentality of the State and a monopoly body had to be approached by the appellants by compulsion to cover its export risk. The policy of insurance covering the risk of the appellants was issued by the first respondent after seeking all required information and after receiving huge sums of money as premium exceeding Rs. 16 lakhs. On facts we have found that the terms of the policy do not give room to any ambiguity as to the risk covered by the first respondent. We are also of the considered opinion that the liability of the first respondent under the policy arose when the default of the exporter occurred and thereafter when the Kazakhstan Government failed to fulfil its guarantee. There is no allegation that the contracts in question were obtained either by fraud or by misrepresentation. In such factual situation, we are of the opinion, the facts of this case do not and should not inhibit the High Court or this Court from granting the relief sought for by the petitioner.” 29. Mr. Gupta learned senior counsel has laid immense emphasis on the aforequoted paragraph. We have analysed the decision to appreciate the context and the factual score as depicted in the decision which clearly show that the court had arrived at indubitable conclusion that there had been no violation of the terms of the contract of insurance. Therefore, the said decision in our considered opinion is not applicable to the facts of the present case as in the instant case, as has been held earlier, there have been violations of the terms and conditions of the contract of insurance. We are compelled to observe that the said decision possibly has been cited as an authority as the respondent-corporation was also the respondent therein.

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

Explanation:
0[ds]7. On a scrutiny of facts, it is clear as crystal that one consignment of Rs.6,50,000/was sent to M/s. Treasures of India on 15.7.1999 and a declaration to that effect was also communicated to the respondents. Similarly, on 20.8.1999, the appellant made another shipment of Rs.4,76,139/to the same buyer i.e. M/s. Treasures of India and declaration was sent to the Corporation.Clause 5(c) of the policy, as we find, requires the grant of credit by the insured to the buyer not for a longer period than 180 days unless specifically agreed to the contrary by the Corporation in writing. As per the letter dated 2.9.1999, the appellant has shown the terms of payment due within 90 days of the shipment. The appellant had given a credit of 60 days which is well within the outer limit of 90 days. If the Clause 5(c) is properly understood, in the obtaining factual matrix we are unable to agree with the findings recorded by the State Commission and the Commission that there has been violation of the terms of the policy as regards the reduction of the period for payment. What is stipulated is that the Corporation should not be liable if the insured gives credit for more than 180 days. That is the outer limit and as the insured has fixed the debt within the said period, that cannot be held against him.Keeping in view the aforesaid parameters of law, we are required to appreciate the stipulations in the policy pertaining to rejection on the said score. Clause 8(a) which deals with declarations, assumes significance. The said clause requires that before the 15th day of each calendar month, the insured shall deliver to the Corporation a declaration in the prescribed format of all shipments made by him during the previous month and if no shipment has been made during a month, adeclaration shall nevertheless beprescription of twin requirements in Clause 19(a) are cumulative. They cannot be read in segregation. The insured has to declare the shipments in terms of Clause 8(a) without omission and also pay the premium in terms of Clause 10. Premium of payment alone does not make the Corporation liable to indemnify the loss or fasten the liability on it. It is also required on the part of the insured for the purpose of sustaining the claim to show that there has been compliance as regards the declaration. To construe Clause 8(a) that the insured has a choice to declare which shipment he would cover and which ones he would leave, would run counter to the mandate of the policy. It has to be borne in mind that these are specific clauses relating to the obligations of the insured. The attempt on the part of the appellant to inject concept of payment of premium and the risk covered to this realm would not be acceptable. The general clauses basically convey which risks are covered and which risks are not covered, how the premium is to be computed and paid. What eventually matters is where the liability of the insurer is exclusively excluded, the said clauses of the policy are absolutely clear, unequivocal and unambiguous. The insured after availing a policy in commercial transactions is to understand the policy in entirety. The construction of the policy in entirety and in a harmonious manner leaves no room for doubt that there is no equivocality or ambiguity warranting an interpretation in favour of theWhatever the reasons the appellant may give, he having not declared as prescribed in Clause 8(a), which is again reiterated by way of reference in Clause 19(a), the exclusionary clause, it will be an anathema to the concept of interpretation of contract of insurance of such a nature, if liability is fastened on the insurer. The finding of the Commission that the appellant had not take steps to retrieve the goods is absolutely immaterial for the present purpose. The said finding though is flawed, the ultimate conclusion, which is based upon our independent analysis, isCourt referred to number of decisions as regards the maintainability of the writ petition and expressed the view that merely because one of the parties to the litigation raises a dispute in regards to the facts of the case, the court entertaining such petition under Article 226 of the Constitution is not always bound to relegate the parties to a suit. After so holding the Court opined once the State or instrumentality is a party to the contract, it has an obligation in law to act fairly, justly and reasonably which is the requirement of Article 14 of the Constitution of India, and therefore, being the instrumentality of the State, the Corporation had acted in contravention of the requirements of Article 14, and hence, the writ court could issue appropriate writ to nullify the arbitrary action. The court referred to relevant Clauses of contract of insurance in the background of admitted facts. The contract of insurance between the insured and insurer was primarily based on the contract between exporter and the Kazak Corporation. The relevant Clause in regard to payment of the tea exported was incorporated in Clause 6. The said Clause came to be amended on the very same day when the contract was signed by the exporter and the Kazak Corporation by way of an addendum. The Court opined the addendum in the obtaining facts therein had become an integral part of the original Clause 6 of the Contract. The Court further proceeded to deal with the Clauses in the agreement and held that alternative modes of payment of consideration were permissible as per Clause 6.Mr. Gupta learned senior counsel has laid immense emphasis on the aforequoted paragraph. We have analysed the decision to appreciate the context and the factual score as depicted in the decision which clearly show that the court had arrived at indubitable conclusion that there had been no violation of the terms of the contract of insurance. Therefore, the said decision in our considered opinion is not applicable to the facts of the present case as in the instant case, as has been held earlier, there have been violations of the terms and conditions of the contract of insurance. We are compelled to observe that the said decision possibly has been cited as an authority as thewas also the respondent therein.