Case: Economic Transport Organisation Delhi Vs. M/S Charan Spinning Mills (P) Ltd

2. The first respondent (also referred to as the `Assured or the `consignor) is a manufacturer of the cotton yarn. It took a policy of insurance from the second respondent (National Insurance Co. Ltd, referred to as the `Insurer), covering transit risks between the period 11.5.1995 and 10.5.1996 in respect of cotton yarn sent by it to various consignees through rail or road against theft, pilferage, non-delivery and/or damage. The first respondent entrusted a consignment of hosiery cotton yarn of the value of Rs.7,70,948/- to the appellant (also referred to as the `carrier) on 6.10.1995 for transportation and delivery to a consignee at Calcutta. The goods vehicle carrying the said consignment met with an accident and the consignment was completely damaged. On the basis of a surveyors certificate issued after assessment of the damage, the second respondent settled the claim of the first respondent for Rs.447,436/- on 9.2.1996. On receiving the payment, the first respondent executed a Letter of Subrogation-cum-Special Power of Attorney in favour of the second respondent on 15.2.1996. Thereafter, respondents 1 and 2 filed a complaint underthe Consumer Protection Act, 1986 (`Act for short) against the appellant before the District Consumer Disputes Redressal Commission, Dindigul, claiming compensation of Rs.447,436/- with interest at 12% per annum, for deficiency in service, as the damage to the consignment was due to the negligence on the part of the appellant and its servants. It was averred that the insurer as subrogee was the co-complainant in view of the statutory subrogation in its favour on settlement of the claim and the letter of subrogation-cum-special power of attorney executed by the Assured.3. The District Forum by its order dated 8.11.1996 allowed the complaint and directed the appellant to pay Rs.447,436/- with interest at the rate of 12% per annum from the date of accident (8.10.1995) till date of payment to the Insurer, on the basis of the subrogation. The District Forum held that the failure to deliver the consignment in sound condition was a deficiency in service, in view of the unrebutted presumption of negligence arising under sections 8 and 9 ofthe Carriers Act, 1865. The appeal filed by the appellant before the State Consumer Disputes Redressal Commission, Madras, challenging the said order was dismissed on 2.4.1998. The appellant thereafter filed a revision before the National Consumer Disputes Redressal Commission in the year 1999. The National Commission dismissed the appellants revision petition by a short non-speaking order dated 19.7.1999 which readsdo not find any illegality or jurisdictional error in the order passed by the StateThe said order is challenged in this appeal by specialIssue4. The appellant herein resisted the complaint on the followingThe Assured (consignor) had insured the goods against transit risk with the Insurer. The Insurer had already settled the claim of the Assured. As a consequence, the Assured had no surviving claim that could be enforced against the carrier. At all events, as the Assured had transferred all its interest in the claim to the Insurer, it had no subsisting interest or enforceable right.(ii) The Insurer did not entrust the consignment to the carrier for transportation. The appellant did not agree to provide any service to the Insurer. There was no privity of contract between the Insurer and the appellant. As a result, the Insurer was not a `consumer as defined in the Act and a complaint under the Act was not maintainable.(iii) The letter of subrogation was executed by the Assured (consignor), after the goods were damaged. This amounted to a transfer of a mere right to sue by the Assured in favour of the Insurer, which was invalid and enforceable.(iv) There was no negligence on the part of its driver and the accident occurred due to circumstances beyond his control. The respondents did not place any evidence to prove any negligence, in spite of appellants denial of negligence. Having regard to section 14(1)(d) of the Act, liability can be fastened on a carrier, for payment of compensation, only by establishing that the consumer had suffered loss or injury due to the negligence of the carrier as a service provider. In view of the special provision in section 14(1)(d) of the Act, the complainants under the Act were not entitled to rely upon the statutory presumption of negligence available under section 9 ofthe Carriers Act, 1865 which is available in civil suits brought against carriers. In the absence of proof of negligence, it was not liable to pay compensation for damage to the goods.After leave was granted in this case on 27.9.1999, a three-Judge Bench of this Court rendered its decision in Oberai Forwarding Agency on 1.2.2000, making a distinction between `assignment and `subrogation. This Court held that where there is a subrogation simpliciter in favour of the insurer on account of payment of the loss and settlement of the claim of the assured, the insurer could maintain an action in the Consumer Forum in the name of the assured, who as consignor was a consumer. This Court further held that when there is an assignment of the rights of the assured in favour of the insurer, the insurer as assignee cannot file a complaint under the Act, as it was not a `consumer under the Act. This Court held that even if the assured was a co-complainant, it would not enable the insurer to maintain a complaint under the Act, if it was an assignee of the claim. We extract below the relevant portion of the saidIn its literal sense, subrogation is the substitution of one person for another. The doctrine of subrogation confers upon the insurer the right to receive the benefit of such rights and remedies as the assured has against third parties in regard to the loss to the extent that the insurer has indemnified the loss and made it good. The insurer is, therefore, entitled to exercise whatever rights the assured possesses to recover to that extent compensation for the loss, but it must do so in the name of the assured.x x x x x19. With the distinction between subrogation and assignment in view, let us examine the letter of subrogation executed by the second respondent in favour of the first respondent. Its operative portion may be broken up into two, namely, (i) "we hereby assign, transfer and abandon to you all our rights against the Railway Administration, road transport carriers or other persons whatsoever, caused or arising by reason of the said damage or loss and grant you full power to take and use all lawful ways and means in your own name and otherwise at your risk and expense to recover the claim for the said damage or loss"; and (ii) `we hereby subrogate to you the same rights as we have on consequence of or arising from the said loss or damage".20. By the first clause the second respondent assigned and transferred to the first respondent all its rights arising by reason of the loss of the consignment. It granted the first respondent full power to take lawful means to recover the claim for the loss, and to do so in its own name. If it were a mere subrogation, first, the word "assigned" would not be used. Secondly, there would not be a transfer of all the second respondents rights in respect of the loss but the transfer would be limited to the recovery of the amount paid by the first respondent to the second respondent. Thirdly, the first respondent would not be entitled to take steps to recover the loss in its own name; the steps for recovery would have to be taken in the name of the second respondent. Thus, by the first clause there was an assignment in favour of the first respondent.21. The second clause, undoubtedly, used the word "subrogate", but it conferred upon the first respondent "the same rights" that the second respondent had "in consequence of or arising from the said loss or damage", which meant that the transfer was not limited to the quantum paid by the first respondent to the second respondent but encompassed all the compensation for the loss. Even by the second clause, therefore, there was an assignment in favour of the first respondent.22. Learned counsel for the first respondent submitted that the letter of subrogation and the special power of attorney should be read together and, so read, it would be seen that the first respondent was not an assignee of the second respondents rights but was merely subrogated to them. The terms of the letter of subrogation are clear. They cannot be read differently in the light of another, though contemporaneous, document.23. Now, as is clear, the loss of the consignment had already occurred. All that was assigned and transferred by the second respondent to the first respondent was the right to recover compensation for the loss. There was no question of the first respondent being a beneficiary of the service that the second respondent had hired from the appellant. That service, namely, the transportation of the consignment, had already been availed of by the second respondent, and in the course of it the consignment had been lost.The first respondent, therefore, was not a "consumer" within the meaning of the Consumer Protection Act and was, therefore, not entitled to maintain the complaint.24. By reason of the transfer and assignment of all the rights of the second respondent in the first respondents favour, the second respondent retained no right to recover compensation for the loss of the consignment. The addition of the second respondent to the complaint as a co-complainant did not, therefore, make the complaint maintainable.The referring Bench which heard this appeal considered the decision in Oberai. It was of the view that Oberai required reconsideration by a larger Bench,

Reasoning:
14. Subrogation, as an equitable assignment, is inherent, incidental and collateral to a contract of indemnity, which occurs automatically, when the insurer settles the claim under the policy, by reimbursing the entire loss suffered by the assured. It need not be evidenced by any writing. But where the insurer does not settle the claim of the assured fully, by reimbursing the entire loss, there will be no equitable assignment of the claim enabling the insurer to stand in the shoes of the assured, but only a right to recover from the assured, any amount remaining out of the compensation recovered by the assured from the wrongdoer, after the assured fully recovers his loss. To avoid any dispute with the assured as to the right of subrogation and extent of its rights, the insurers usually reduce the terms of subrogation into writing in the form of a Letter of Subrogation which enables and authorizes the insurer to recover the amount settled and paid by the insurer, from the third party wrong-doer as a Subrogee-cum-Attorney. When the insurer obtains an instrument from the assured on settlement of the claim, whether it will be a deed of subrogation, or subrogation-cum-assignment, would depend upon the intention of parties as evidenced by the wording of the document. The title or caption of the document, by itself, may not be conclusive. It is possible that the document may be styled as `subrogation but may contain in addition an assignment in regard to the balance of the claim, in which event it will be a deed of subrogation-cum-assignment. It may be a pure and simple subrogation but may inadvertently or by way of excessive caution use words more appropriate to an assignment. If the terms clearly show that the intention was to have only a subrogation, use of the words "assign, transfer and abandon in favour of" would in the context be construed as referring to subrogation and nothing more.The principles relating to subrogation can therefore be summarized thusEquitable right of subrogation arises when the insurer settles the claim of the assured, for the entire loss. When there is an equitable subrogation in favour of the insurer, the insurer is allowed to stand in the shoes of the assured and enforce the rights of the assured against the wrong-doer.(ii) Subrogation does not terminate nor puts an end to the right of the assured to sue the wrong-doer and recover the damages for the loss. Subrogation only entitles the insurer to receive back the amount paid to the assured, in terms of the principles of subrogation.(iii) Where the assured executes a Letter of Subrogation, reducing the terms of subrogation, the rights of the insurer vis-à-vis the assured will be governed by the terms of the Letter of Subrogation.(iv) A subrogation enables the insurer to exercise the rights of the assured against third parties in the name of the assured. Consequently, any plaint, complaint or petition for recovery of compensation can be filed in the name of the assured, or by the assured represented by the insurer as subrogee-cum-attorney, or by the assured and the insurer as co-plaintiffs or co-complainants.(v) Where the assured executed a subrogation-cum-assignment in favour of the insurer (as contrasted from a subrogation), the assured is left with no right or interest. Consequently, the assured will no longer be entitled to sue the wrongdoer on its own account and for its own benefit. But as the instrument is a subrogation-cum-assignment, and not a mere assignment, the insurer has the choice of suing in its own name, or in the name of the assured, if the instrument so provides. The insured becomes entitled to the entire amount recovered from the wrong-doer, that is, not only the amount that the insured had paid to the assured, but also any amount received in excess of what was paid by it to the assured, if the instrument so provides.We may clarify the position with reference to the following illustration: The loss to the assured is Rs.1,00,000/-. The insurer settles the claim of the assured for Rs.75,000/-. The wrong-doer is sued for recovery of Rs.1,00,000/-.Where there is no letter of subrogation and insurer relies on the equaitable doctrine of subrogation (The suit is filed by theIf the suit filed for recovery of Rs.100,000/- is decreed as prayed, and the said sum of Rs.1,00,000/- is recovered, the assured would appropriate Rs. 25,000/- to recover the entire loss of Rs. 100,000/- and the doctrine of subrogation would enable the insurer to claim and receive the balance of Rs.75,000(ii) If the suit filed for recovery of Rs.100,000/- is decreed as prayed for, but the assured is able to recover only Rs.50,000/- from the Judgment-Debtor (wrong-doer), the assured will be entitled to appropriate Rs.25,000/- (which is the shortfall to make up Rs.100,000/- being the loss) and the insurer will be entitled to receive only the balance of Rs. 25,000/- even though it had paid Rs. 75,000/- to the assured.(iii) Where, the suit is filed for recovery of Rs.100,000/- but the court assesses the loss actually suffered by the assured as only Rs.75,000/- (as against the claim of the assured that the value of goods lost is Rs.100,000/-) and then awards Rs.75,000/- plus costs, the insurer will be entitled to claim and receive the entire amount of Rs.75,000/- in view of the doctrine ofthe assured executes a letter of subrogation entitling the insurer to recover Rs. 75,000/- (The suit is filed in the name of the assured or jointly by the assured and insurer).(iv) If the suit is filed for recovery of Rs.1,00,000/-, and if the court grants Rs.1,00,000/-, the insurer will take Rs.75,000/- and the assured will take Rs.25,000/-.(v) If the insurer sues in the name of the assured for Rs.75,000/- and recovers Rs.75,000/-, the insurer will retain the entire sum of Rs.75,000/- in pursuance of the Letter of Subrogation, even if the assured has not recovered the entire loss of Rs.1,00,000/-. If the assured wants to recover the balance of the loss of Rs.25,000/- as he had received only Rs. 75,000/- from the insurer, the assured should ensure that the claim is made against the wrongdoer for the entire sum of Rs.100,000/- by bearing the proportionate expense. Otherwise the insurer will sue in the name of the assured for only for Rs. 75,000/-.(vi) If the letter of subrogation executed by the assured when the insurer settles the claim of the assured uses the words that the "assured assigns, transfers and abandons unto the insurer, the right to get Rs.75,000/- from the wrong-doer", the document will be a `subrogation in spite of the use of words `transfers, assigns and abandons. This is because the insurer has settled the claim for Rs.75,000/- and the instrument merely entitles the insurer to receive the said sum of Rs.75,000/- which he had paid to the assured, and nothing more.Where the assured executes a letter of subrogation-cum-assignment for Rs.100,000/-(vii) If the document executed by the assured in favour of the insured provides that in consideration of the settlement of the claim for Rs.75,000/-, the assured has transferred and assigned by way of subrogation and assignment, the right to recover the entire value of the goods lost and retain the entire amount without being accountable to the assured for any excess recovered (over and above Rs.75,000/-) and provides that the insurer may sue in the name of the assured or sue in its own name without reference to the assured, the instrument is a subrogation-cum-assignment and the insurer has the choice of either suing in the name of the assured or in its own name.Where the assured executes a letter of assignment in favour of a third party to sue and recover from the carrier, the value of the consignment(viii) If the assured, having received Rs.75,000/- from the insurer, executes an instrument in favour of a third party (not being the insurer) assigning the right to sue and recover from the carrier, damages for loss of the consignment, such a document will be an Assignment. The assignee cannot file a complaint before the consumer fora, as he is not a `consumer. Further, such a document being a transfer of a mere right to sue, will be void and unenforceable, having regard to section 6(e) of Transfer of Property Act, 1882. It is well settled that a right to sue for unliquidated damages for breach of contract or for tort, not being a right connected with the ownership of any property, nor being a right to sue for a debt or actionable claim, is a mere right to sue and is incapable of being transferred.Whether the document executed by the assured in favour of the insurer is a subrogation simpliciter, or a subrogation-cum-assignment is relevant only in a dispute between the assured and the insurer. It may not be relevant for deciding the maintainability of a complaint under the Act. If the complaint is filed by the assured (who is the consumer), or by the assured represented by the insurer as its attorney holder, or by the assured and the insurer jointly as complainants, the complaint will be maintainable, if the presence of insurer is explained as being a subrogee. Whether the amount claimed is the total loss or only the amount for which the claim was settled would make no difference for the maintainability of the complaint, so long as the consumer is the complainant (either personally or represented by its attorney holder) or is a co-complainant along with his subrogee. On the other hand, if the assured (who is the consumer) is not the complainant, and the insurer alone files the complaint in its own name, the complaint will not be maintainable, as the insurer is not a `consumer, nor a person who answers the definition of `complainant under the Act. The fact that it seeks to recover from the wrongdoer (service provider) only the amount paid to the assured and not any amount in excess of what was paid to the assured will also not make any difference, if the assured - consignor is not the complainant or co-complainant. The complaint will not be maintainable unless the requirements of the Act are fulfilled. The remedy under the Act being summary in nature, once the consumer is the complainant or is a co-complainant, it will not be necessary for the Consumer Forum to probe the exact nature of relationship between the consumer (assured) and the insurer, in a complaint against the serviceThere is no doubt that the first portion which stated that all rights were assigned, transferred and abandoned in favour of the insurer and also empowered the insurer to sue in its own name, if read in isolation would amount to an assignment. But if those words are read with the other recitals and the words "in consideration of your paying to us the sum of Rs.64,137/- only in full settlement of our claim for non-delivery/shortage and damage, under policy issued by you...." make it clear that it was a subrogation-cum-assignment. Further, the second operative portion which states that "we hereby subrogate to you the same rights as we have in consequence of or arising from the said loss or damage" are not words of assignment. When the words used are : "we hereby subrogate to you" and not "we hereby transfer or assign in your favour", having regard to the settled meaning of "subrogate", the said words could not operate as an absolute assignment, but only as an subrogation. The genesis of the document is subrogation. The inclusion of an assignment is an additional right given to the insurer. The document did not cease to be a subrogation by reason of enlargement of subrogation by granting such additional right. In para 22 of the judgment, this Court negatived the contention that the letter of subrogation and the special power of Attorney should be read together and if so read, the document would be a subrogation. But the special power of attorney when read with the term in the letter of subrogation, "we hereby subrogate to you the same rights as we have in consequence of or arising from the said loss of damage" will certainly show that the document was intended to be a subrogation also and not a mere assignment. With great respect to the learned Judges who decided Oberai, it has to be held that Oberai was not correctly decided, as it held a `subrogation-cum-assignment as a mere `assignment. It ignored the fact that, shorn of the cover and protection of subrogation, the document, if read as a simple assignment would fall foul of section 6(e) of Transfer of Property Act and thus would be unenforceable. But the ultimate decision in Oberai may be correct as the complaint was filed by the insurer, in its own name and on its own behalf making a claim for the entire value of the goods, in excess of what was paid to the assured. Though the assured was belatedly impleaded as a co-complainant, the nature and contents of the complaint was not apparently changed, and continued to be one by the insurer as assignee. On those peculiar facts, the finding that the complaint under the Act by the insurer (who was not a consumer) was not maintainable, was justified.23.2) We may also refer to the frequent misconstruction of para 23 of the decision in Oberai by some carriers. The said para does not mean that when the consignment is received by the carrier from the consignor and put it in the course of transportation, the carrier has provided the service and thereafter either ceases to be a service provider or ceases to be responsible for delivery of the goods, and that consequently, the consignor ceases to be a `consumer. All that para 23 of Oberai meant was that in a contract for carriage of goods between the consignor (assured) and the carrier, if the consignor assigns the right to claim damages to an assignee, after the goods are lost or damaged, the assignee cannot claim to be a "consumer" under the Act. It impliedly meant that if the assignment had been done before the loss or damage to the goods, then the assignment would have been in regard to `property and not a mere right to sue, and the assignee as consignee would be entitled to sue the carrier. Be that as it may.It is no doubt true that Section 14(1)(d) of the Act contemplates award of compensation to the consumer for any loss suffered by consumer due to the negligence of the opposite party (Carrier). Section 9 of Carriers Act does not lay down a preposition that a carrier will be liable even if there was no negligence on its part. On the other hand, it merely raises a presumption that when there is loss or damage or non-delivery of goods entrusted to a carrier, such loss, damage or non-delivery was due to the negligence of the carrier, its servant and agents. Thus where the consignor establishes loss or damage or non-delivery of goods, it is deemed that negligence on the part of the carrier is established. The carrier may avoid liability if it establishes that the loss, damage or non- delivery was due to an act of God or circumstances beyond its control. Section 14(1)(d) of the Act does not operate to relieve the carrier against the presumption of negligence created under Section 9 of the Carriersreiterate the said settled position and reject the contention of the appellant that the presumption under section 9 of Carriers Act is not available in a proceeding under the Consumer Protection Act and that therefore, in the absence of proof of negligence, it is not liable to compensate the respondents for the