HARIS MARINE PRODUCTS versus EXPORT CREDIT GUARANTEE CORPORATION (ECGC) LIMITED on 25 April 2022

[2022] 17 S.C.R. 297

HARIS MARINE PRODUCTS

v.

EXPORT CREDIT GUARANTEE CORPORATION (ECGC)LIMITED

(Civil Appeal No. 4139 of 2020)

APRIL 25, 2022

[UDAY UMESH LALIT, S. RAVINDRA BHAT ANDPAMIDIGHANTAM SRI NARASIMHA, JJ.]

Insurance – Respondent-ECGC provides a range of creditrisk insurance cover to exporters – Appellant-exporter paid premiumto ECGC for the Single Buyer Exposure Policy which coveredforeign buyer’s failure to pay for goods exported – Coverage ofthe Policy was w.e.f 14.12.2012-13.12.2013 – The vessel set sailon 15.12.2012 – The Bill of Lading was prepared with a linespecifying the date of ‘onboard’ (i.e., date on which vesselcommenced loading the goods in question on board) as 13.12.2012– The overseas buyer defaulted on payment – Appellant’s claimrejected by ECGC – Filed complaint before NCDRC, dismissed –On appeal, held: A plain reading of the policy in questiondemonstrates that it was taken to protect against failure of theforeign buyer in paying the Indian exporter for goods exported – Itwas not a policy taken to cover in-transit insurance, and the causeof action triggering the claim arose much later, i.e., on 14.02.2013,well within the coverage of the policy – While interpreting insurancecontracts, the risks sought to be covered must also be kept in mind– The date of loading goods onto the vessel, which commenced oneday prior to the effective date of the policy, is not as significant asthe date on which the foreign buyer failed to pay for the goodsexported, which was well within the coverage period of the Policy– Thus, the claim could not be dismissed simply on such basis,especially given that the date of loading the goods onto the vesselwas immaterial to the purpose for which the policy was taken bythe appellant – On harmoniously construing the documents of thepolicy, it is in fact the date on the Bill of Lading, and not the Mate’sReceipt / date of shipment which ought to be considered as the dateof ‘despatch / shipment’, for the Bill of Lading is the legal documentconferring title and possession of the goods to the carrier – Further,

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Adeviating from the rule of contra proferentem, even if in the presentinstance the third-party DGFT Guidelines were to be applied, itwould not favour the ECGC – Impugned order set aside and theappellant’s complaint is allowed – Foreign Trade (Development andRegulation) Act, 1992.

BInsurance – Rule of contra proferentem – Standard forminsurance policies – Contract d’ adhesion or boilerplate contracts –Reconciliation of ambiguous terms – Held: An ambiguous term inan insurance contract is to be construed harmoniously by readingthe contract in its entirety – If after that, no clarity emerges, thenthe term must be interpreted in favour of the insured, i.e., againstCthe drafter of the policy – The rule of contra proferentem thus protects the insured from the vagaries of an unfavourable interpretation ofan ambiguous term to which it did not agree – The rule assumesspecial significance in standard form insurance policies, calledcontract d’ adhesion or boilerplate contracts, in which the insuredDhas little to no countervailing bargaining power – This considerationis highlighted in the present case, since the risks that respondent-ECGC is mandated to cover is its business, and other insurers rarelyforay into the field.

Allowing the appeal, the CourtE

HELD: 1.1 The date of loading goods onto the vessel, whichcommenced one day prior to the effective date of the policy, isnot as significant as the date on which the foreign buyer failed topay for the goods exported, which was well within the coverageperiod of the Policy. Thus, the claim could not be dismissed simplyFon such basis, especially given that the date of loading the goodsonto the vessel was immaterial to the purpose for which the policywas taken by the appellant. [Para 15][311-G-H; 312-A]

Conclusion

1.2 The rule of contra proferentem protects the insured fromthe vagaries of an unfavourable interpretation of an ambiguousGterm to which it did not agree. The rule assumes specialsignificance in standard form insurance policies, called contractd’ adhesion or boilerplate contracts, in which the insured has littleto no countervailing bargaining power. This consideration ishighlighted in the facts of this case, since the risks that ECGC is H

mandated to cover is its business, and other insurers rarely forayinto the field. A plain reading of the policy in question demonstratesthat it was taken to protect against failure of the foreign buyer inpaying the Indian exporter for goods exported. It was not a policytaken to cover in-transit insurance, and the cause of actiontriggering the claim arose much later, i.e., on 14.02.2013, wellwithin the coverage of the policy. While interpreting insurancecontracts, the risks sought to be covered must also be kept inmind. As argued on behalf of the appellant, the Mate’s Receiptindicating the completion of loading of the goods onto the shipwas issued on 15.12.2012, pursuant to which the vessel sailed on15.12.2012, and the Bill of Lading was issued on 19.12.2012. Theterm ‘despatch’ -contained in the policy implied ‘completion’ ofhanding over of possession of the goods to the first carrier (theship herein), and not the date on which the loading ‘commenced’– such an interpretation would give rise to an absurdity. Onharmoniously construing the documents of this policy, it is the infact the date on the Bill of Lading, and not the Mate’s Receipt /date of shipment which ought to be considered as the date of‘despatch / shipment’, for the Bill of Lading is the legal documentconferring title and possession of the goods to the carrier.Therefore, reliance on the DGFT Guidelines to disallow the claimof the appellant was not good in law. [Paras 16-18][313-G; 314-A-C, F-G; 315-B]

1.3 The DGFT Guidelines are part of a ‘Handbook ofProcedures (Volume I)’ to enforce the Foreign Trade Policy of2009-2014, which in turn emerge from Section 5 of the ForeignTrade (Development and Regulation) Act, 1992. Deviating fromthe rule of contra proferentem, even if in the present instance thethird-party DGFT Guidelines were to be applied, it would notfavour the ECGC, as a plain reading of provision 9.12 shows thatthe date on the Bill of Lading has to be considered as the date ofdespatch/shipment. The date of ‘onboard’ Bill of Lading is notapplicable to the present facts as no letter of credit was executed,much less providing for application of such date. Therefore, ECGCcould not have denied the appellant’s claim, even on aconsideration the DGFT Guidelines. ECGC enjoys a significantposition in the market for export credit insurance in India – inF.Y. 2012-2013, the total income received by way of premiums ABC

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Aexceeded Rupees one thousand crores, with the figures onlygrowing ever since. It is the only government company offeringsuch niche services, and is exempt from following the TradeCredit Insurance Guidelines periodically revised by the InsuranceRegulatory and Development Authority of India. To deny theappellant’s claim over an incorrect interpretation of an ambiguousBterm, that too with delay amounting to only one day, goes againstsuch duties, especially given the fact that the appellant hadtransacted with the respondent on several previous occasions.The impugned order of the NCDRC is hereby set aside; theappellant’s complaint is consequently allowed. ECGC is herebyCdirected to pay the claim amount of ` 1,96,38,400/- crores to theappellant, with interest at the rate of 9% p.a. [Paras 19-22][315-B-C; 316-G; 317-A-D]

General Assurance Society Ltd. v. Chandumull Jain[1966] 3 SCR 500 – followed.

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United India Insurance Co. Ltd. v. Pushpalaya Printers(2004) 3 SCC 694 : [2004] 2 SCR 631; SushilabenIndravadan Gandhi v New India Assurance CompanyLtd., (2021) 7 SCC 151; Jacob Punnen & Anr. v UnitedIndia Insurance Co. Ltd. (2021) SCC Online SC 1207;EPeacock Plywood (P) Ltd. v. Oriental Insurance Co.Ltd. (2006) 12 SCC 673 : [2006] 10 Suppl. SCR 140 -relied on.

Shaw Wallace & Co. Ltd. v. Nepal Food Corpn. (2011)15 SCC 56 : [2011] 15 SCR 1181; Modern InsulatorsLtd. v Oriental Insurance Co. Ltd., (2000) 2 SCC 734 :[2000] 1 SCR 1076; Polymat India (P) Ltd. & Ors. vNational Insurance Co. Ltd. & Ors. (2005) 9 SCC 174: [2004] 6 Suppl. SCR 535; United India Insurance Co.Ltd. v. Harchand Rai Chandan Lal (2004) 8 SCC 644 :[2004] 4 Suppl. SCR 662; LIC v. Insure Policy PlusServices (P) Ltd. (2016) 2 SCC 507; IndustrialPromotion & Investment Corpn. of Orissa Ltd. v. NewIndia Assurance Co. Ltd. (2016) 15 SCC 315; PolymatIndia (P) Ltd. v. National Insurance Co. Ltd. (2005) 9SCC 174 : [2004] 6 Suppl. SCR 535; Export CreditGuarantee Corpn. of India Ltd. v. Garg Sons F

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HARIS MARINE PRODUCTS v. EXPORT CREDIT GUARANTEECORPORATION (ECGC) LIMITED

International (2014) 1 SCC 686 : [2013] 1 SCR 336;Rainy Sky SA v. Kookmin Bank [2011] UKSC 50; Arnoldv. Britton [2015] UKSC 36; Woods v Capita Insurance[2017] UKSC 24 – referred to.

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CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4139of 2020.

From the Judgment and Order dated 13.07.2020 of the NationalConsumer Disputes Redressal Commission, New Delhi in ConsumerComplaint No. 1546 of 2016.

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Ms. Anjana Prakash, Sr. Adv., Shahbaaz Husain, Mahesh Thakur,Ms. Vipasha Singh, Ms. Shailaja Das, Advs. for the Appellant.

Rajnish Kumar Jha I, Adv. for the Respondent.

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The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

1. With consent of counsel for the parties, the appeal was heardfinally. The appellant is aggrieved by an order[1] of the National ConsumerDisputes Redressal Commission (hereinafter, “NCDRC”) dismissing itscomplaint. The issue urged by the appellant is whether the NCDRCwas correct in placing reliance on guidelines issued by the DirectorateGeneral of Foreign Trade (hereinafter, “DGFT Guidelines”)[2] to interpret G

1 CC No. 1546/2016, dated 13.07.2020.

2 Ministry of Commerce and Industry, Directorate General of Foreign Trade, ForeignTrade Policy, Handbook of Procedures (Volume I) w.e.f. 27.08.2009 – 31.03.2014.

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Athe date of ‘despatch / shipment’ in the Single Buyer Exposure Policy ofthe respondent (hereinafter, “Policy”), and thereby deny the appellant’sclaim.

The facts

2. The appellant is an exporter of fish meat and fish oil, whereasBthe respondent (hereafter, “ECGC”) is a government company (underthe control of the Ministry of Commerce and Industry, UnionGovernment). ECGC provides a range of credit risk insurance cover toexporters. On 13.12.2012, the appellant paid premium to ECGC for thePolicy (bearing no. 0540000143), which covered foreign buyer’s failureCto pay for goods exported. The coverage of this Policy, (with effectfrom 14.12.2012-13.12.2013), was for ` 2.45 crores. The vessel (TigerMango Voyage 62) set sail on 15.12.2012. The Bill of Lading (hereinafter,“BOL”) was prepared on 19.12.2012, with a line specifying the date of‘onboard’ (i.e., date on which vessel commenced loading the goods inquestion on board) as 13.12.2012. The vessel delivered the goods onD22.01.2013. The overseas buyer defaulted on payment. The appellantthen lodged a claim with ECGC on 14.02.2013.

3. ECGC rejected the appellant’s claim on several levels; with thefinal rejection by the Independent Review Committee (hereinafter, “IRC”)on 28.03.2015. IRC’s view was that the date of ‘despatch/shipment’E(provided in the Policy) was not clearly defined, and it placed relianceon the definition contained in the DGFT Guidelines. For containerizedcargo, the same was to be interpreted as the date of ‘Onboard Bill ofLading’[3], which in the present case was 13.12.2012. This was just a dayprior to the effective date of the Policy, i.e., 14.12.2012. It was thereforeFreasoned that the appellant was not entitled to the claim amount. Theappellant, feeling aggrieved, complained of deficiency of service, andapproached the NCDRC for compensation. ECGC resisted the claim.

4. By the impugned order, NCDRC upheld the rationale of theIRC and rejected the appellant’s contention that in absence of a clearlyGspecified provision in the Policy, it was entitled to the benefit of the ruleof verba chartarum fortius accipiuntur contra proferentem(hereinafter, “contra proferentem”). Hence the present appeal.

Contentions of parties

3 Id., Chapter 9 Definitions – Clause 9.12(i) (Date of shipment / Dispatch in respect ofHExports by Sea).

5. Ms Anjana Prakash, the appellant’s Senior Advocate, broughtthe Court’s attention to the relevant clause in the Policy, which isreproduced as follows:

“Part IV – Definitions

(1) DESPATCH OR DESPATCHED

‘Despatch’ means passing or handing over of the goods tothe first carrier for through carriage to the place where theInsured Buyer or his nominee is to accept them ‘despatched’will be construed accordingly”.

Ms Prakash submitted that a plain reading of the above stipulationdid not clarify the exact date of initiation of the coverage. However, thecondition must be interpreted to mean the date on which the vessel setsail, and not the initial date of loading of the goods, given that four thousandcontainers were to be loaded, which took time, and was completed by10 PM on 14.12.2012. Thus, possession by the first carrier (the vesselherein) could only be completed when all the goods were loaded, andthe vessel sailed. To support her submissions, Ms Prakash alluded to theMate’s Receipt, i.e., the receipt issued by the Master of the vessel whenthe cargo was loaded on board[4], issued on 15.12.2012. Therefore, thedate of ‘despatch/shipment’ had to be construed as 15.12.2012, and not13.12.2012.

6. Ms Prakash submitted that as opposed to this, the DGFTGuidelines defined the date of ‘shipment’ as follows:

“Date of shipment/despatch for exports will be reckonedunder:-

(i) By Sea: For bulk cargo, date of Bill of Lading or date ofmate receipt, whichever is later.

a) For containerised cargo, date of “Onboard Bill of Lading”,or “Received for Shipment Bill of Lading”, where the L/Cprovides for such Bill of Lading. For exports by containersfrom Inland Container Depot (ICD), date of Bill of Ladingissued by shipping agents at the time of loading of exportgoods in ICD after customs clearance.

4 See Shaw Wallace & Co. Ltd. v. Nepal Food Corpn., (2011) 15 SCC 56, paras 26-28 forrelationship between Mate’s Receipt and Bill of Lading.

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304SUPREME COURT REPORTS

Ab) For Lash barges, date of Bill of Lading evidencing loadingof export goods on board”.

The date of ‘Onboard Bill of Lading’ had no application to thepresent facts, as no Letter of Credit (hereafter, “L/C”) was issued. InBany event, such an interpretation of an unspecified term was contrary toconsensus ad idem arrived at by the parties. The unjustness of such aninterpretation was compounded by the fact that the appellant was not ina position to negotiate the standard terms of the Policy issued by therespondent, and thus ECGC could not have unilaterally relied on such aCdefinition.

7. Ms Prakash further submitted that as the policy was silent onthe date of ‘despatch’ or ‘shipment’, an insurance policy being acommercial contract, had to be strictly interpreted in terms of the clausesit contained, which reflected the intentions of the parties, and notDsecondary sources. In the event that a contract contained an ambiguousterm, which could be interpreted in more than one way, the well-recognized rule of contra proferentem must be made available to theappellant, i.e., it must be interpreted against the drafter of the contract(the respondent herein) who is deemed to be aware of the consequencesof imprecise drafting. The NCDRC therefore, could not have placedEreliance on the guidelines issued by a third party (DGFT) which was anexternal entity not privy to the contract between the present parties, todisallow the claim[5].

8. Ms Prakash placed reliance on certain judgments of this Court.In United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal[6],Fon the interpretation of the word ‘burglary’ in the insurance policy, thisCourt held:

“It is settled law that terms of the policy shall govern thecontract between the parties, they have to abide by thedefinition given therein and all those expressions appearingGin the policy should be interpreted with reference to the termsof policy and not with reference to the definition given in 5 See also, Modern Insulators Ltd. v Oriental Insurance Co. Ltd., (2000) 2 SCC 734 andPolymat India (P) Ltd. & Ors. v National Insurance Co. Ltd. & Ors., (2005) 9 SCC174.H6 (2004) 8 SCC 644, para 9.

other laws. It is a matter of contract and in terms of thecontract the relation of the parties shall abide and it ispresumed that when the parties have entered into a contractof insurance with their eyes wide open, they cannot rely onthe definition given in other enactment”.

Thus, the Court refused to import the definition of the term‘burglary’ from criminal statutes into the insurance policy. However, it ispertinent to note that this Court also went on to hold the following[7]:

“Therefore, it is settled law that the terms of the contract haveto be strictly read and natural meaning be given to it. Nooutside aid should be sought unless the meaning isambiguous”.

Ms Prakash then placed reliance on LIC v. Insure Policy PlusServices (P) Ltd.,[8]in which the assignment of insurance policies priorto the 2015 amendment to the Insurance Act, 1938 was in question.While dealing with an argument on disallowing such assignment on groundsof public policy, this Court held:

“We also think that it is not appropriate to import the principlesof public policy, which are always imprecise, difficult to define,and akin to an unruly horse, into contractual matters. Thecontra proferentem rule is extremely relevant inasmuch as itis the appellant who has drafted the insurance policy andwas, therefore, well positioned to include clauses making itspecifically impermissible to assign policies”.

Lastly, in Industrial Promotion & Investment Corpn. of OrissaLtd. v. New India Assurance Co. Ltd.,[9]while again interpreting theterm ‘burglary’ in the insurance policy, the rule of contra proferentemas explained in Colinvaux’s Law of Insurance[10]was reiterate by thisCourt:

“Quite apart from contradictory clauses in policies,ambiguities are common in them and it is often very uncertain

10 Robert and Merkin (Eds.), Colinvaux’s Law of Insurance (6th Edn., 1990) at p. 42.

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Awhat the parties to them mean. In such cases the rule is thatthe policy, being drafted in language chosen by the insurers,must be taken most strongly against them. It is construedcontra proferentes, against those who offer it. In a doubtfulcase the turn of the scale ought to be given against the speaker,because he has not clearly and fully expressed himself.BNothing is easier than for the insurers to express themselvesin plain terms. The assured cannot put his own meaning upona policy, but, where it is ambiguous, it is to be construed inthe sense in which he might reasonably have understood it. Ifthe insurers wish to escape liability under given circumstances,Cthey must use words admitting of no possible doubt”.

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However, it must be noted that the Court found no necessity toinvoke the rule of contra proferentem in the aforementioned matter,holding that the terms of the policy were clear enough to be correctlyinterpreted with no ambiguity.

D9. Appearing for ECGC, Mr Rajnish Kumar Jha, Advocatesubmitted that the DGFT as the statutory body for regulation andpromotion of foreign trade, had formulated the DGFT Guidelines toprovide a legal framework to the Foreign Trade Policy 2009-2014 asenvisioned by the Ministry of Commerce and Industry, Government ofEIndia. It was empowered to do so under Section 5 of the Foreign Trade(Development and Regulation) Act, 1992:

“5. Foreign Trade Policy.—The Central Government may, fromtime to time, formulate and announce, by notification in theOfficial Gazette, the foreign trade policy and may also, inFlike manner, amend that policy:

Provided that the Central Government may direct that, inrespect of the Special Economic Zones, the foreign tradepolicy shall apply to the goods, services and technology withsuch exceptions, modifications and adaptations, as may beGspecified by it by notification in the Official Gazette.”.

ECGC, being a government insurance company specificallyproviding coverage for exports, had to thus abide by the DGFT Guidelines,including the definitions contained in them. On an application of thedefinition of date of ‘despatch / shipment’ under the DGFT Guidelines, itwas clear that the date to be construed was 13.12.2012, which was aHday prior to the effective date of the Policy.

10. ECGC relied on Polymat India (P) Ltd. v. National InsuranceCo. Ltd[11] where this Court, while interpreting the term ‘factory-cum-godown’ and the application of a fire insurance policy on goods keptwithin the boundary wall, held as follows:

“Therefore, the terms of the contract have to be construedstrictly without altering the nature of the contract as it mayaffect the interest of parties adversely”.

Coverage was thus denied on a contextual interpretation of theterm, including placing reliance on the definition of ‘factory’ under Section2(m) of the Factories Act, 1948 and under the Law Lexicon, to excludegoods destroyed by fire placed outside the plant premises but within thefactory-cum-godown wall. Mr Jha submitted, therefore, that in absenceof an express definition of a term, other relevant laws cannot be ignored.

11. Further, Mr Jha submitted that the court could not alter theinterpretation of terms of the policy by reading in something which didnot exist. In Export Credit Guarantee Corpn. of India Ltd. v. GargSons International[12], denying the application of contra proferentemwhere the insurance contract clearly specified that any default on partof a foreign buyer had to be brought to the respondent’s attention withina specified time period[13], it was held:

“Thus, it is not permissible for the court to substitute the termsof the contract itself, under the garb of construing termsincorporated in the agreement of insurance. No exceptionscan be made on the ground of equity. The liberal attitudeadopted by the court, by way of which it interferes in theterms of an insurance agreement, is not permitted. The samemust certainly not be extended to the extent of substitutingwords that were never intended to form a part of theagreement”.

And further:

“The insured cannot claim anything more than what is coveredby the insurance policy. “The terms of the contract have to

13 But see Oriental Insurance Company Limited v Sanjesh & Anr., SLP(C) No. 3978 of2022, dated 11.03.2022, which qualified such a restriction as being void under Section 28 of the Contract Act, 1872.

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Abe construed strictly, without altering the nature of thecontract as the same may affect the interests of the partiesadversely.” The clauses of an insurance policy have to beread as they are. Consequently, the terms of the insurancepolicy, that fix the responsibility of the insurance companymust also be read strictly. The contract must be read as aBwhole and every attempt should be made to harmonise theterms thereof, keeping in mind that the rule of contraproferentem does not apply in case of commercial contract,for the reason that a clause in a commercial contract is bilateraland has mutually been agreed upon. (Vide Oriental InsuranceCCo. Ltd. v. Sony Cheriyan [(1999) 6 SCC 451], Polymat India(P) Ltd. v. National Insurance Co. Ltd. [(2005) 9 SCC174], Sumitomo Heavy Industries Ltd. v. ONGC Ltd. [(2010)11 SCC 296] and Rashtriya Ispat Nigam Ltd. v. Dewan ChandRam Saran [(2012) 5 SCC 306].)”[14]

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Thus, according to the counsel for ECGC, the date of shipmentbeing a day prior to the effective date of implementation of the Policy,ECGC was not bound to honour to claim.

Analysis and ConclusionsE

A. Business common sense

12. Reconciliation of ambiguous terms in commercial contractshas been a contentious issue across jurisdictions. A 2011 decision by theSupreme Court of the United Kingdom (hereafter, “UK Supreme Court”)Fin Rainy Sky SA v Kookmin Bank[15] was concerned with theinterpretation of refund guarantees given by a ship builder to the buyers,and whether the same was triggered when the ship builder started facingfinancial difficulties and was subjected to a debt workout procedure.Allowing the appeal, the UK Supreme Court provided the guiding principlefor resolution of such ambiguity, keeping the ‘business common sense’Gas central:

“The language used by the parties will often have more thanone potential meaning. I would accept the submission made 14 (2014) 1 SCC 686, para 11.H15 [2011] UKSC 50, para 21.

on behalf of the appellants that the exercise of constructionis essentially one unitary exercise in which the court mustconsider the language used and ascertain what a reasonableperson, that is a person who has all the backgroundknowledge which would reasonably have been available tothe parties in the situation in which they were at the time ofthe contract, would have understood the parties to have meant.In doing so, the court must have regard to all the relevantsurrounding circumstances. If there are two possibleconstructions, the court is entitled to prefer the constructionwhich is consistent with business common sense and to rejectthe other.”(emphasis supplied)

13. This principle was further developed by the UK SupremeCourt in Arnold v Britton.[16]The facts were that a 99-year lease specifiedthat service charge of £90 levied every year was subject to 10% increaseannually. The lessees submitted that by the end of the lease agreement,the service charge payable would be very high, exceeding the cost ofproviding the services. The UK Supreme Court refused to depart fromthe natural meaning of the clause, holding that:

“When interpreting a written contract, the court is concernedto identify the intention of the parties by reference to “what areasonable person having all the background knowledgewhich would have been available to the parties would haveunderstood them to be using the language in the contract tomean”,to quote Lord Hoffmann in Chartbrook Ltd vPersimmon Homes Ltd [2009] UKHL 38, [2009] 1 AC 1101,para 14. And it does so by focussing on the meaning of therelevant words, in this case clause 3(2) of each of the 25leases, in their documentary, factual and commercial context.That meaning has to be assessed in the light of (i) the naturaland ordinary meaning of the clause, (ii) any other relevantprovisions of the lease, (iii) the overall purpose of the clauseand the lease, (iv) the facts and circumstances known orassumed by the parties at the time that the document wasexecuted, and (v) commercial common sense, but (vi)’disregarding subjective evidence of any partys intentions. In AB

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Athis connection, see Prenn at pp 1384-1386 and Reardon-Smith Line Ltd v Yngvar HansenTangen (trading as HEHansen-Tangen) [1976] 1 WLR 989, 995-997 per LordWilberforce, Bank of Credit and Commerce International SA(in liquidation) v Ali [2002] 1 AC 251, para 8, per LordBingham, and the survey of more recent authorities in RainyBSky , per Lord Clarke at paras 21-30".

14. Thus, a decisive method was suggested to construe theambiguity of a term used in a commercial contract. This was applied byCthe UK Supreme Court in Woods v Capita Insurance.[17]The facts inbrief are that the buyer of an insurance company relied on an indemnityclause to recover losses paid in the form of compensation to thecustomers of the insurance company to which the company has mis-sold products. According to the indemnity clause, any complaint to theFinancial Services Authority (hereinafter “FSA”) would be indemnifiedDby the buyer. However, the contract did not clearly specify what wouldhappen if the company itself raised a complaint before the FSA. TheUK Supreme Court held that a literalist approach to resolving ambiguityin a commercial contract term would yield incorrect results, and a holisticreading was imperative to ascertain meaning of terms agreed to byEparties. Dismissing the appeal, the UK Supreme Court finally held thatthe indemnity clause was in addition to the wide-ranging warrantiesspecified elsewhere in the contract, which was not contrary to businesscommon sense. The agreement might have become a poor bargain forthe buyer, but it was not the Court’s function to improve that bargain:

F“The court’s task is to ascertain the objective meaning of thelanguage which the parties have chosen to express theiragreement. It has long been accepted that this is not a literalistexercise focused solely on a parsing of the wording of theparticular clause but that the court must consider the contractas a whole and, depending on the nature, formality and qualityGof drafting of the contract, give more or less weight to elementsof the wider context in reaching its view as to that objectivemeaning.***

H17 [2017] UKSC 24, paras 10, 13-14.

Textualism and contextualism are not conflicting paradigmsin a battle for exclusive occupation of the field of contractualinterpretation. Rather, the lawyer and the judge, wheninterpreting any contract, can use them as tools to ascertainthe objective meaning of the language which the parties havechosen to express their agreement. The extent to which eachtool will assist the court in its task will vary according to thecircumstances of the particular agreement or agreements.Some agreements may be successfully interpreted principallyby textual analysis, for example because of their sophisticationand complexity and because they have been negotiated andprepared with the assistance of skilled professionals. Thecorrect interpretation of other contracts may be achieved bya greater emphasis on the factual matrix, for example becauseof their informality, brevity or the absence of skilledprofessional assistance.But negotiators of complex formalcontracts may often not achieve a logical and coherent textbecause of, for example, the conflicting aims of the parties,failures of communication, differing drafting practices, ordeadlines which require the parties to compromise in order toreach agreement. There may often therefore be provisions ina detailed professionally drawn contract which lack clarityand the lawyer or judge in interpreting such provisions maybe particularly helped by considering the factual matrix andthe purpose of similar provisions in contracts of the sametype. The iterative process, of which Lord Mance spokein Sigma Finance Corpn (above), assists the lawyer or judgeto ascertain the objective meaning of disputed provisions.

On the approach to contractual interpretation, Rainy”Sky and Arnold were saying the same thing.

15. On application of the above principle to this Policy, and takinginto consideration all relevant documents, this Court is of the opinion thatthe date of loading goods onto the vessel, which commenced one dayprior to the effective date of the policy, is not as significant as the dateon which the foreign buyer failed to pay for the goods exported, whichwas well within the coverage period of the Policy. Thus, the claim couldnot be dismissed simply on such basis, especially given that the date of AB

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Aloading the goods onto the vessel was immaterial to the purpose forwhich the policy was taken by the appellant.

B. Rule of contra proferentem

16. It is entrenched in our jurisprudence that an ambiguous termin an insurance contract is to be construed harmoniously by reading theBcontract in its entirety. If after that, no clarity emerges, then the termmust be interpreted in favour of the insured, i.e., against the drafter ofthe policy. In deciding the applicability of a cover note on houses sweptaway by floods, a Constitution Bench of this Court in General AssuranceSociety Ltd. v. Chandumull Jain[18]held as follows:C“

“In other respects there is no difference between a contractof insurance and any other contract except that in a contractof insurance there is a requirement of uberrima fides i.e., goodfaith on the part of the assured and the contract is likely tobe construed contra proferentem that is against the companyDin case of ambiguity or doubt… (I)n interpreting documentsrelating to a contract of insurance, the duty of the court is tointerpret the words in which the contract is expressed by theparties, because it is not for the court to make a new contract,however reasonable, if the parties have not made itthemselves”.E

While the court ultimately denied insurer’s liability, it laid downthe manner in which ambiguities were to be interpreted. Since then, acatena of judgments has upheld this approach. In United India InsuranceFCo. Ltd. v. Pushpalaya Printers[19], a Division Bench of this Court wasconfronted with interpreting the term ‘impact’ in an insurance policy forprotection against damage caused to the insured building. Interpretingthe term to include damage caused by strong vibrations by heavy vehicleswithout ‘direct’ impact, this Court held:

“The only point that arises for consideration is whether theGword “impact” contained in clause 5 of the insurance policycovers the damage caused to the building and machinery dueto driving of the bulldozer on the road close to the building…

18 (1966) 3 SCR 500, para 11.H19 (2004) 3 SCC 694, para 6.

(I)t is also settled position in law that if there is any ambiguityor a term is capable of two possible interpretations, onebeneficial to the insured should be accepted consistent withthe purpose for which the policy is taken, namely, to coverthe risk on the happening of certain event… Where the wordsof a document are ambiguous, they shall be construed againstthe party who prepared the document. This rule applies tocontracts of insurance and clause 5 of the insurance policyeven after reading the entire policy in the present case shouldbe construed against the insurer”.

(emphasis supplied).

Similarly, in Sushilaben Indravadan Gandhi v New IndiaAssurance Company Ltd.,[20]this Court charted the evolution ofthe rule of contra proferentem, and relied inter alia on itsexplanation as provided under Halsbury’s Laws of England:[21]

“Contra proferentem rule.—Where there is ambiguity in thepolicy the court will apply the contra proferentem rule. Wherea policy is produced by the insurers, it is their business to seethat precision and clarity are attained and, if they fail to doso, the ambiguity will be resolved by adopting the constructionfavourable to the insured. Similarly, as regards languagewhich emanates from the insured, such as the language usedin answer to questions in the proposal or in a slip, aconstruction favourable to the insurers will prevail if theinsured has created any ambiguity. This rule, however, onlybecomes operative where the words are truly ambiguous; it isa rule for resolving ambiguity and it cannot be invoked witha view to creating a doubt. Therefore, where the words usedare free from ambiguity in the sense that, fairly and reasonablyconstrued, they admit of only one meaning, the rule has noapplication.”

The rule of contra proferentem thus protects the insured fromthe vagaries of an unfavourable interpretation of an ambiguous term towhich it did not agree. The rule assumes special significance in standardform insurance policies, called contract d’ adhesion or boilerplate 20 (2021) 7 SCC 151, paras 37-42.

21 5th Edn., vol. 60, para 105.

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Acontracts, in which the insured has little to no countervailing bargainingpower.[22] This consideration is highlighted in the facts of this case, sincethe risks that ECGC is mandated to cover is its business, and otherinsurers rarely foray into the field.

17. A plain reading of the policy in question demonstrates that itBwas taken to protect against failure of the foreign buyer in paying theIndian exporter for goods exported. It was not a policy taken to coverin-transit insurance, and the cause of action triggering the claim arosemuch later, i.e., on 14.02.2013, well within the coverage of the policy.While interpreting insurance contracts, the risks sought to be coveredmust also be kept in mind. In Peacock Plywood (P) Ltd. v. OrientalCInsurance Co. Ltd.[23] while determining the validity of an insurancepolicy for a stranded ship, a Division Bench of this Court, noting thatnone of conditions in the termination clause were triggered, held:

“When the termination of the contract of insurance hasactually taken place, is essentially a question of fact. AnDinsurance policy is to be construed in its entirety. A marineinsurance policy does not come to an end only because theship became stranded at a port”.

And further:

E“(W)hile construing a contract of insurance, the reason forentering thereinto and the risks sought to be covered must beconsidered on its own terms”.

As argued on behalf of the appellant, the Mate’s Receipt indicatingFthe completion of loading of the goods onto the ship was issued on15.12.2012, pursuant to which the vessel sailed on 15.12.2012, and theBill of Lading was issued on 19.12.2012. The term ‘despatch’ -containedin the policy implied ‘completion’ of handing over of possession of thegoods to the first carrier (the ship herein), and not the date on which theloading ‘commenced’ – such an interpretation would give rise to anGabsurdity. On harmoniously construing the documents of this policy, it isthe in fact the date on the Bill of Lading, and not the Mate’s Receipt /date of shipment which ought to be considered as the date of ‘despatch 22 Jacob Punnen & Anr. v United India Insurance Co. Ltd., (2021) SCCOnline SC 1207,paras 30-33.H23 (2006) 12 SCC 673, paras 45 and 69.

/ shipment’, for the Bill of Lading is the legal document conferring titleand possession of the goods to the carrier.[24]

18. Therefore, reliance on the DGFT Guidelines to disallow theclaim of the appellant was not good in law. The Counsel for the respondenthas argued that the DGFT Guidelines are enforceable against the presentfacts. Therefore, an analysis of the same is merited.

19. The DGFT Guidelines are part of a ‘Handbook of Procedures(Volume I)’ to enforce the Foreign Trade Policy of 2009-2014, which inturn emerge from Section 5 of the Foreign Trade (Development andRegulation) Act, 1992 (supra). The relevant provisions are as follows:

I.Foreign Trade (Development and Regulation) Act, 1992:

Section 5. Foreign Trade Policy25.—The Central Governmentmay, from time to time, formulate and announce, by notificationin the Official Gazette, the foreign trade policy and may also,in like manner, amend that policy:

Provided that the Central Government may direct that, inrespect of the Special Economic Zones, the foreign tradepolicy shall apply to the goods, services and technology withsuch exceptions, modifications and adaptations, as may bespecified by it by notification in the Official Gazette.]***

II. Foreign Trade Policy, 2009-2014:

Paragraph 1.03:Hand Book of Procedures (HBP) andAppendices & Aayat Niryat Forms (AANF): Director Generalof Foreign Trade (DGFT) may, by means of a Public Notice,notify Hand Book of Procedures, including Appendices andAayat Niryat Forms or amendment thereto, if any, laying downthe procedure to be followed by an exporter or importer orby any Licensing/Regional Authority or by any other authorityfor purposes of implementing provisions of FT (D&R) Act,the Rules and the Orders made there under and provisions ofFTP.

24 Carriage of Goods by Sea Act, 1925.

25 W.e.f. 27.08.2010.

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AParagraph 1.04:Specific provision to prevail over the general:Where a specific provision is spelt out in the FTP/Hand Bookof Procedures (HBP), the same shall prevail over the generalprovision.

Paragraph 2.04:Authority to specify Procedures: DGFT may,Bspecify Procedures to be followed by an exporter or importeror by any licensing/Regional Authority (RA) or by any otherauthority for purposes of implementing provisions of FT(D&R) Act, the Rules and the Orders made there under andFTP. Such procedures, or amendments if any, shall bepublished by means of a Public Notice.C***

i. Handbook of Procedures (Vol I):26

Chapter 9: Miscellaneous Matters

DProvision 9.12: ‘Date of shipment/despatch in respect ofExports’ -

(i) By Sea: For bulk cargo, date of Bill of Lading or date ofmate receipt, whichever is later.

a) For containerised cargo, date of “Onboard Bill ofELading”, or “Received for Shipment Bill of Lading”, wherethe L/C provides for such Bill of Lading. For exports bycontainers from Inland Container Depot (ICD), date of Billof Lading issued by shipping agents at the time of loading ofexport goods in ICD after customs clearance.

Fb) For Lash barges, date of Bill of Lading evidencing loadingof export goods on board”.

20. Deviating from the rule of contra proferentem, even if in thepresent instance the third-party DGFT Guidelines were to be applied, itGwould not favour the ECGC, as a plain reading of provision 9.12 showsthat the date on the Bill of Lading has to be considered as the date ofdespatch / shipment. The date of ‘onboard’ Bill of Lading is not applicableto the present facts as no letter of credit was executed, much less 26 The Handbook of Procedures (Volume I) was published by way of a public notice onH27.08.2009.

providing for application of such date. Therefore, ECGC could not havedenied the appellant’s claim, even on a consideration the DGFTGuidelines.

21. ECGC enjoys a significant position in the market for exportcredit insurance in India – in F.Y. 2012-2013, the total income receivedby way of premiums exceeded Rupees one thousand crores,[27] with thefigures only growing ever since. It is the only government companyoffering such niche services, and is exempt from following the TradeCredit Insurance Guidelines periodically revised by the InsuranceRegulatory and Development Authority of India. To deny the appellant’sclaim over an incorrect interpretation of an ambiguous term, that toowith delay amounting to only one day, goes against such duties, especiallygiven the fact that the appellant had transacted with the respondent onseveral previous occasions.

22. Accordingly, the impugned order of the NCDRC is hereby setaside; the appellant’s complaint is consequently allowed. ECGC is herebydirected to pay the claim amount of ` 1,96,38,400/- to the appellant,with interest at the rate of 9% p.a. The appeal is allowed; all pendingapplication(s), are disposed off. There shall be no order on costs.

Divya Pandey and Amarendra Kumar(Assisted by : Adnan Khan, LCRA)

Appeal allowed.

27 Export Credit Guarantee Corporation, 55th Annual Report, 2012-2013, pg. 6.

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