EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. & ANR. versus M.S. CREATIONS & ANR. on 13 March 2019

484

SUPREME COURT REPORTS

[2019] 5 S.C.R.

AEXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. & ANR.

v.

M.S. CREATIONS & ANR.(Civil Appeal No.2987of 2019)

B

MARCH 13, 2019

[DR DHANANJAYA Y CHANDRACHUD ANDHEMANT GUPTA, JJ.]

CInsurance– Shipments Policy– First Respondent obtainedShipments (Comprehensive Risk) Policy from the appellant-ECGC– First respondent obtained purchase order for handloom goods,worth about Rs 64 lakhs, from one Society Ivoirienne De CommerceET DE Representation (SICOREP) situated in the Ivory Coast – Firstrespondent made shipments to SICOREP – SICOREP sought changeDin the name of its bank under the contract from Credit Lyonnais toBanqyue De ‘L’ Habitat De Cote D’Ivoire (BHCI)– BHCI allegedlyreleased the documents without receiving any acceptance fromSICOREP – First respondent was unable to make payment to itsown banker, Punjab National Bank (PNB)-second respondent – PNBEmade application for provisional payment of its claim under thepolicy called ‘Whole Turn Over Post Shipment Export CreditGuarantee’ (WTPSG Policy) issued to it by ECGC – ECGC paid Rs.6 lakhs to PNB – First respondent submitted two claims of Rs.22.87lakhs to ECGC against the overdue amounts from SICOREP – ECGCcalled upon the first respondent to submit various documentsFtogether with its claim forms – First respondent invoked theintervention of the Indian Embassy in the Ivory Coast in order toproduce the necessary documents – Indian Embassy informed thataccording to BHCI it did not have SICOREP as client at all and thatthe possibility of the documents being forged could not be excluded– ECGC rejected the claim of the first respondent inter alia invokingGexclusionary provision – First respondent’s complaint allowed bythe State Commission – National Commission confirmed the order –On appeal, held: First respondent was unable to produce therelevant documents as required by ECGC – Further, ECGC raisedthe exclusion contained in the insurance policy, in terms whereofH

the insurer was not to be held liable for any loss from any act ordefault on the part of the collecting bank – Evidently, BHCI handedover the original documents to a person representing SICOREPwithout acceptance – There was clear default on the part of BHCI– State Commission and the National Commission held against ECGCinter alia on the ground that by honoring its commitment to PNBunder WTPSG Policy, ECGC had in turn admitted its liability to thefirst respondent – Guarantee which ECGC furnished to PNB, similarto those it furnishes to other bankers, was to secure their exposureagainst the risks involved in the advances which the bank had madein respect of export contracts to its constituent – This guaranteewould not conclude the issue as to whether the claim made by thefirst respondent under a distinct insurance policy was sustainable– Basis on which the State Commission and National Commissionheld against ECGC was erroneous– However, order passed by theState Commission was duly executed and in compliance, the amountdue and payable has been paid over by ECGC to the first respondent– There is no allegation that the first respondent was in any wayconnected with or colluded with SICOREP – First respondent wasitself a victim of SICOREP having retired the documents withoutmaking payment for the export consignments – No recoveries bemade from the first respondent – Judgment of the NationalCommission set aside – Constitution of India – Art.142.

The First Respondent obtained Shipments (ComprehensiveRisk) Policy from the appellant-ECGC. ECGC also issues policycalled ‘Whole Turn Over Post Shipment Export Credit Guarantee’(WTPSG Policy) to various banks. First respondent obtainedpurchase order for handloom goods, worth about Rs 64 lakhs,from a buyer named Society Ivoirienne De Commerce ET DERepresentation (SICOREP) situated in the Ivory Coast. Firstrespondent entered into sales contract with SICOREP and madeshipments to SICOREP. SICOREP sought change in the nameof its bank under the contract from Credit Lyonnais to BanqyueDe ‘L’ Habitat De Cote D’Ivoire (BHCI). BHCI allegedlyreleased the documents without receiving any acceptance fromSICOREP. First respondent was unable to make payment to itsown banker, Punjab National Bank (PNB)-second respondent.PNB made application for provisional payment of its claim under A

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Aits own WTPSG Policy. ECGC paid Rs. 6 lakhs to PNB asprovisional payment. First respondent submitted two claims ofRs.22.87 lakhs to ECGC against the overdue amounts fromSICOREP. ECGC rejected the claim of the first respondent.Complaint filed by the first respondent before the StateCommission, which was allowed. National Commission confirmedBthe said order. Hence, the present appeal.

Allowing the appeal, the Court

HELD: 1.1 The first respondent was unable to producethe relevant documents or to indicate that there was anCacceptance of the documents, in terms as required under theapproval of the sales contract by ECGC. It was in this backgroundthat ECGC rejected the claim of the first respondent on 3 October2002. [Para 22, 23] [492-E-F]

1.2 In terms of the exclusion contained in the insuranceDpolicy, the insurer was not to be held liable for any loss from anyact or default on the part of the collecting bank. Evidently, thecollecting bank, as its communication dated 22 November 2002indicates, handed over the original documents, but then soughtto justify its action by contending that the bank was in the housingsector and could not accept the shipment for payment. If this wasEthe position, there was no reason or justification on the part ofthe collecting bank to hand over the original documents to aperson representing SICOREP without acceptance. There was,therefore, clearly a default on the part of the collecting bank.The State Commission and the National Commission held againstFECGC inter alia on the ground that by honoring its commitmentto PNB under WTPSG Policy, ECGC had in turn admitted itsliability to the first respondent. There is a fallacy in this hypothesis.The guarantee which ECGC furnished to PNB, similar to those itfurnishes to other bankers, was to secure their exposure againstthe risks involved in the advances which the bank had made inGrespect of export contracts to its constituent. This guaranteewhich ECGC issued to PNB would not conclude the issue as towhether the claim made by the first respondent under a distinctinsurance policy was sustainable. Consequently, the basis onwhich the State Commission and National Commission heldHagainst the appellant is erroneous. [Paras 25-26] [493-A-E]

1.3 The order passed by the State Commission was dulyexecuted and in compliance, the amount due and payable hasbeen paid over by ECGC to the first respondent. There is noallegation that the first respondent was in any way connected withor colluded with SICOREP. From the record, it appears that thefirst respondent was itself a victim of SICOREP having retiredthe documents without making payment for the exportconsignments. No submission has been urged on behalf of ECGCto indicate the complicity of the first respondent. In the exerciseof our jurisdiction under Article 142 of the Constitution, it isdirected that no recoveries should be made from the firstrespondent. [Para 27] [493-F-H]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2987of 2019

From the Judgment and Order dated 13.12.2013 of the NationalConsumers Disputes Redressal Commission, New Delhi in FA No. 282of 2008.

Bharat Sangal, Ms. Laiman R. Bano, Ms. Babita Kushwaha, Advs.for the Appellants.

Anil Kumar Tandale, M. T George, Subhash Chandra, Ms. KavithaK.T., A. N. Arora, Himanshu Gupta, Advs. for the Respondents.

The Judgment of the Court was delivered by DR DHANANJAYA Y CHANDRACHUD, J.

1. Leave granted.

2. A claim based on a policy of insurance issued by the ExportCredit Guarantee Corporation of India Ltd.[1] was allowed by the HaryanaState Consumer Disputes Redressal Commission[2]. The appellant wasdirected to pay 90 per cent of the claim amounting to Rs. 9.25 lakhs andRs. 13.61 lakhs after deducting an amount of Rs. 6 lakhs already receivedby the respondent along with interest at 9 per cent per annum.

3. This order has been affirmed in appeal by the NationalConsumer Disputes Redressal Commission[3] on 13 December 2013. TheECGC is in appeal.

1“ECGC”

2“State Commission”

3“National Commission”

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A4. On 27 July 2000, the respondent obtained a Shipments(Comprehensive Risk) Policy[4] which was valid upto 31 July 2002. On31 July 2000, the ECGC forwarded the policy to the first respondentwith a cover note highlighting important terms and conditions of the policy.Apart from the Shipments Policy which was issued to the first respondent,the appellant also issues another policy, amongst others, called the ‘WholeBTurn Over Post Shipment Export Credit Guarantee’[5] to various bankswhich make advances to exporters. The policy is designed to protectbanks against the risks towards the exposure undertaken by them.

5. On 6 October 2001, the first respondent obtained a purchaseorder for handloom goods from a buyer situated in the Ivory Coast byCthe name of Society Ivoirienne De Commerce ET DE Representation[6]worth about Rs 64 lakhs.

6. In pursuance of the purchase order, the first respondent enteredinto a sales contract with SICOREP on 18 October 2001. In pursuanceof the Shipments Policy, the first respondent applied for the approval ofDECGC for covering the shipments to SICOREP under the above purchaseorder. ECGC granted a specific approval on 7 November 2001 to theextent of Rs 64.86 lakhs, subject to the term of payment being DA[7] 90days.

7. The first respondent made its first shipment to SICOREP on 16ENovember 2001, in pursuance of which it filed a declaration under Clause8(a) of the policy to ECGC on 19 December 2001. On 21 November2001, SICOREP issued a second contract to the first respondent. On 7January 2002, the first respondent made its second shipment to SICOREP,which was also declared to ECGC on 18 January 2002.F

8. Under the sales contract, SICOREP’s bank, as originally notified,was Credit Lyonnais Agency 965[8], Agence International Boulevaard DesItaliens, 75 Paris Zeme France. On 18 January 2002, SICOREP soughta change in the name of the bank to Banqyue De ‘L’ Habitat De CoteD’Ivoire[9], Seige Social 22, Avenue Joseph Anoma 01 BP 2325 Abidjan G4“Shipments Policy”

5 “WTPSG Policy”

6 “SICOREP”

7Documents against Acceptance (DA) is an arrangement in which someone has theright to collect imported goods only after they have signed an agreement at a bank to pay for the goods and have shown proof of having signed it.

8 “Credit Lyonnais”H9 “BHCI”

EXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. v.M.S. CREATIONS [DR DHANANJAYA Y CHANDRACHUD, J.]

01 Ivory Coast. In view of the request by SICOREP, the first respondentby its letter dated 21 January 2002 sought the permission of ECGC for achange in the name of the bank and in terms of the payment.

9. BHCI, the newly notified bank in the Ivory Coast, is alleged tohave released the documents without receiving any acceptance fromthe consignee. Since no payment was forthcoming, the first respondentwas unable to make payment to its own banker, Punjab National Bank[10].Consequently, PNB, the second respondent to these proceedings, madean application for provisional payment of its claim under its own WTPSGPolicy on 12 February 2002. On 14 March 2002, the appellant made apayment of Rs. 6 lakhs to PNB, as and by way of a provisional payment.

10. On 16 March 2002, ECGC sought further information fromthe first respondent in regard to its overdue payment from SICOREP.Subsequently, on 28 May 2002, the first respondent submitted two claimsin the aggregate value of Rs. 22.87 lakhs to ECGC against the overdueamounts from two shipments.Thereafter, on 25 June 2002, ECGCcalled upon the first respondent to submit necessary documents togetherwith its claim forms.

11. In order to produce the necessary documents, the firstrespondent invoked the intervention of the Indian Embassy in the IvoryCoast in July 2002. However, on 2 July 2002, the first respondent expressedits inability to ECGC to produce the documents which were sought bythem. The Indian Embassy, which had attempted to intervene on behalfof the first respondent, informed the latter on 19 August 2002 thataccording to BHCI it did not have SICOREP as a client at all. TheIndian Embassy also opined that the possibility of the documents beingforged could not be excluded. By its letter dated 3 October 2002, ECGCinformed the first respondent that it was not accepting its claim in viewof its failure to produce the requisite documents.

12. It appears that PNB also addressed a communication to BHCIto inform it about the shipments and the documents. BHCI, by a facsimilemessage on 22 November 2002, informed PNB that the originaldocuments had been made over to a person by the name M. Reda Ali.BHCI indicated that it had refused to accept the documents for paymentfor the shipments since it did not conduct such transactions, being abank in the housing sector.

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13. The first respondent, being aggrieved by the rejection of itsclaim, instituted a consumer complaint before the State Commission.The complaint was allowed on 23 April 2008.

14. ECGC contested the matter before the National Commissionin appeal which has resulted in the confirmation of the order of the StateBCommission allowing the complaint.

15. On behalf of the appellant, it has been submitted by Mr BharatSangal, learned counsel that the Shipments Policy which was obtainedby the first respondent was a comprehensive policy covering shipmentrisks. However, there was a specific exclusion in the policy of a situationCinvolving an act or default on the part of the collecting bank. In thepresent case, it was submitted that ECGC agreed to the change in thenomination of the buyer’s bank from Credit Lyonnais to BHCI in goodfaith, with a view to facilitate the export transaction. The sales contractenvisaged that the payment terms were to be, through the bank, 60 daysDA from the date of the Bill of Lading. Learned counsel submitted thatDin breach of these conditions, BHCI informed PNB by its communicationdated 22 November 2002 that the original documents of the two shipmentshad been handed over to the foreign party. At the same time, BHCIstated that it could not accept the shipment for payment and that it hadnot conducted any transaction with or made any payment to PNB. OnEthis basis, it was sought to be urged that there was a clear default on thepart of the collecting bank which would result in the applicability of theexclusionary provision.

16. The next submission which was urged on behalf of the appellantis that the State Commission and National Commission were in error inFcoming to the conclusion that because the appellant had made a paymentto PNB against the WTPSG Policy, it amounted to an admission of liabilityto the first respondent. It was also urged that the guarantee which wasissued to the bank was to protect the risk of its exposure to a clientinrespect of a foreign transaction. The Shipments Policy which was issuedto the first respondent was separate from the WTPSG Policy whichGwas issued to the bank. Hence, it was submitted that the mere fact thatECGC honoured the guarantee to PNB would not lead to the conclusionthat there was an admission of liability to the first respondent.

17. On the other hand, the learned counsel appearing on behalf ofthe first respondent submits that the claim fell within the terms of the H

EXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. v.M.S. CREATIONS [DR DHANANJAYA Y CHANDRACHUD, J.]

Shipments Policy. Learned counsel submitted that this was a case wherethere was a failure on the part of the buyer to pay for the goods withinthe stipulated period. The first respondent having sustained the loss, wasentitled to seek an indemnification from the insurer under the terms ofthe Shipments Policy. Moreover, it was urged that the change in thenomination of the bank from Credit Lyonnais to BHCI had been effectedwith the consent and approval of ECGC. Consequently, the failure, ifany on the part of SICOREP, to retire the documents and to perform itsobligation to pay for the goods would not exclude the liability of ECGCunder the terms of the insurance policy.

18. The policy document dated 27 July 2000 executed by ECGCin favour of the first respondent defines the risks which were insured.Among them, Clauses (ii), (iii) and (iv) provide as follows:

“(ii) failure of the buyer to pay to the insured, within four monthsafter the due date of payment the gross invoice value of the goodsdelivered to and accepted by the buyer; or

(iii) the failure of the buyer to pay to the Exporter within fourmonths after the date of payment the gross invoice value of goodsdelivered to and accepted by the buyer, or

(iv) failure or refusal on the part of the buyer to accept goodswhich have already been exported from India, where any suchfailure or refusal is not excused by and does not arise from or inconnection with any breach of condition or warranty on the partof the Exporter or from any other cause within his control; andprovided also that the Corporation is satisfied that no good purposewould be served by the institution of legal proceedings against thebuyer 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 asfollows:

“PROVIDED ALWAYS that the Corporation shall not be liablefor loss:

(a) …

(b) which arises from the insolvency of any agent of the Exporteror the insolvency of a co1lecting bank or from any act or defaulton the part of such agent or collecting bank;”

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A19. The sales contract between the first respondent and SICOREPenvisaged that the payment terms, through the bank, would be 60 days’DA from the date of the Bill of Lading. The first respondent by itscommunication dated 1 November 2001 to ECGC, declared that it wouldconduct business on 60 days’ DA basis from the date of the Bill ofLading and only with the acceptance of Credit Lyonnais. It was to thisBdocument that the specific approval of the ECGC was obtained on 7November 2001 with reference to the export contract with SICOREP.

20. When SICOREP indicated to the first respondent that it wassuggesting a change in the nomination of the foreign bank to BHCI, thefirst respondent in turn applied for and obtained the approval of ECGCCon 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, acommunication was addressed on 25 June 2002 requiring the firstrespondent to arrange for: (i) the originals of the unpaid bills of exchange;D(ii) Advices of non-payment by the foreign correspondent bank; (iii)Advice of the acceptance of documents by the foreign bank, amongother documents.

22. ECGC indicated that unless those documents were produced,it would be unable to proceed further in the matter. As the correspondenceEon the record indicates, the first respondent was unable to produce therelevant documents or to indicate that there was an acceptance of thedocuments, in terms as required under the approval of the sales contractby ECGC.

23. It was in this background that ECGC rejected the claim of theFfirst respondent on 3 October 2002. The facsimile message dated 22November 2002 of BHCI to PNB indicates that the original documentsof the two shipments had been handed over to M Reda Ali. Thecommunication, however, indicates that the bank could not accept theshipment for payment and that it had not either made any transactionGwith or effected any payment to PNB.

24. ECGC took up the matter with PNB which in turn correspondedwith BHCI. The correspondence was evidently fruitless since there wasnothing to indicate that the documents had been duly accepted in termsof the conditions governing the sales contract.

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25. Now, it is in this background that ECGC had sought to raisethe exclusion contained in the insurance policy. In terms of the proviso(b) extracted above, the insurer was not to be held liable for any lossfrom any act or default on the part of the collecting bank. Evidently, thecollecting bank, as its communication dated 22 November 2002 indicates,handed over the original documents, but then sought to justify its actionby contending that the bank was in the housing sector and could notaccept the shipment for payment. If this was the position, there was noreason or justification on the part of the collecting bank to hand over theoriginal documents to a person representing SICOREP withoutacceptance. There was, therefore, clearly a default on the part of thecollecting bank.

26. The State Commission and the National Commission heldagainst ECGC inter alia on the ground that by honoring its commitmentto PNB under WTPSG Policy, ECGC had in turn admitted its liability tothe first respondent. There is a fallacy in this hypothesis. The guaranteewhich ECGC furnished to PNB, similar to those it furnishes to otherbankers,was to secure their exposure against the risks involved in theadvances which the bank had made in respect of export contracts to itsconstituent. This guarantee which ECGC issued to PNB would notconclude the issue as to whether the claim made by the first respondentunder a distinct insurance policy was sustainable. Consequently, the basison which the State Commission and National Commission held againstthe appellant is erroneous.

27. During the course of the hearing of these proceedings, theCourt has been apprised of the fact that the order which was passed bythe State Commission was duly executed and in compliance, the amountdue and payable has been paid over by ECGC to the first respondent.There is no allegation that the first respondent was in any way connectedwith or colluded with SICOREP. From the record, it appears that thefirst respondent was itself a victim of SICOREP having retired thedocuments without making payment for the export consignments. Nosubmission has been urged on behalf of ECGC to indicate the complicityof the first respondent. In the circumstances, we are of the view that theloss must, in the present case, lie where it falls. In the exercise of ourjurisdiction under Article 142 of the Constitution, we direct that norecoveries should be made from the first respondent.

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494SUPREME COURT REPORTS

[2019] 5 S.C.R.

A28. However, since the appellant has been concerned with theposition of law as set down in the judgments of the State Commissionand National Commission, we have clarified the position in terms of thepresent judgment.

29. Subject to the directions under Article 142 issued above, weBallow the appeal and set aside the impugned judgment and order of theNational Commission. There shall be no order as to costs.

Divya Pandey

Appeal allowed.

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