Manju Agro Private Limited vs EXPORT CREDIT GUARANTEE CORPORATION OF INDIA LTD.

THERE can be no conflictions on the point that insurance is a contract of Uberrimae fidei, meaning a contract of utmost good faith on the part of the both the parties. It is a fundamental principle of insurance law that utmost faith must be observed by the contracting parties. Good, faith forbids either party from nondisclosure of the facts which the party privately knows, to draw the other into a bargain, from his ignorance of that fact and his believing the contrary. Manju Agro Private Limited, the complainant exported 200 MT. Indian Non Basmati Parboiled Long Grain Sortex Rice for USD $62000.00 to M/s. Prime Dime CC, Durban as per mutual contract and the insurance was obtained from Export Credit Guarantee Corporation of India Limited, Mumbai Branch, Maharashtra, (hereinafter referred as ''ECGC''), opposite party. The term of payment was 45 days from the date of bill of lading. The bill was due for payment on 1.1.1999. However, at the request of the buyer i.e. M/s. Prime Dime the due date was extended upto June 30, 1999 with RBI after obtaining prior permission from ECGC. The said buyer has not made the payment to the complainant till the filing of this complaint. The claim made to ECGC was rejected. The renewal of the policy was also denied as the complainant was to make payment of premiums on various shipments but not declared by the firm during the policy period. Both these actions of the opposite party have been called into question.

THE complainant obtained policy dated 20.4.1998 for the period from 15.4.1998 to 30.4.2000 on payment of minimum premium of Rs. 7,500 ECGC to cover up the shipments'' comprehensive risk to the maximum extent of Rs. 1,50,00,000 (Rs. one crore and fifty lakh only). According to Clause 9 of the policy the minimum premium paid "shall be adjusted towards premium payable on the shipments declared to the Corporation" and Clause 10 thereof provides, "for payment of additional premium that may become due and payable after adjustment of the Minimum premium." The ECGC approved a credit limit of Rs. 28,00,000 (twenty eight lakh only) on M/s. Prime Dime CC, 34/36, Richards Road, Durban 4001, South Africa vide their letter dated 28.11.1998 "on terms of payment after acceptance of documents but within 60 days from the date of shipment." The credit limit was applicable for the shipments made on or after 11.11.1998. On the basis of the credit limit, the complainant/firm exported food grains worth Rs. 26,13,300.00 to M/s. Prime Dime CC to South Africa on 17.11.1998. The time for payment of the cargo was 45 days from the date of bill of lading. As the buyer could not pay the price within the stipulated time, time for payment was extended at the request of buyer till 30.6.1999 with the, consent of the Corporation and after payment of further premiums demanded. Payment was not made by the buyer even within the extended time and, therefore, the complainant firm was advised to raise its claim with the respondent/corporation. Vide letter dated 23.4.1999, Shri R. Mohan, Branch Manager of opposite party in connection with the complainants declaration of overdue payments for the month of March, 1999 directed/informed the complainant that it should not make further shipments to the defaulting buyer till the earlier payments are realized. The extension could be made with the prior approval of the opposite party. The complainant was advised to inform about the latest developments vide copy of letter dated 23.4.1999. The balance premium was paid. On 25.5.1990, the Reserve Bank of India granted permission. Thereafter, correspondence was exchanged. The complainant deposited premium of Rs. 32,749 vide letters dated 24.6.1999 and 9.7.1999 as Annexure 6 and 7. The complainant vide its letter dated 31.8.1999 submitted the claim against non -payment of export bill drawn on M/s. Prime Dime, South Africa vide Annexure 8 ''Colly'' and 9, respectively.

THE ECGC repudiated the claim of the complainant on the following grounds vide letter dated 4th February, 2000: "1. The report of default with regard to non -payment by the buyer has to be sent to the Corporation immediately after 30 days from the due/extended due date. It is found that the non -payment is reported with the delay of one month;

The Corporation has been advising you to get the bills noted and protested for non -payment. This has not been done;

You have effected 27 shipments on Non -L/C terms and 22 shipments on L/C terms during the currency of the policy. At the time of obtaining the policy, you have opted to cover the exports against L/C terms for comprehensive risks. But 19 shipments effected on Non -L/C terms and all the 22 shipments effected on L/C terms have not been declared with premium. In terms of Clause 8 of the policy, all exports made during the currency of the policy have to be declared on or before the due date. It is also found that since December 1998, we have been getting ''Nil'' declarations where as your company has been exporting on L/C and Non L/C terms. This is a violation of the terms and conditions of the policy. You have desired not to cover the exports made against L/C terms from 30th October 1999. Till then all your exports were insured but no declaration with premium was sent to us."

MOREOVER , the policy was not renewed. It is contended that all the reasons given in the repudiation letter are baseless. The complainant has also quoted Clause (2) of the policy, Annexure 1, which reads as follows: "2. Disclosure of facts - -Without prejudice to any rule of law it is declared that this policy is given on condition that the insured has at the date of issue of this policy disclosed and will at all times during the operation of this policy promptly disclose all facts in any way affecting the risks insured."

It is contended that this clause clearly means that the insured has to disclose everything in connection with the ''risk insured'' and nothing else. Consequently, if the insured did not disclose information with regard to non -insured goods i.e. risk not insured, it would not make the policy ineffective. The term "risk insured" could only mean the goods which have been insured and would not encompass the non -insured goods. The interpretation of the respondent corporation that in view of Clause 8(a) of the policy, declaration in respect of each and every shipment made to the foreign buyer has to be made is, therefore, erroneous. Again, paragraph 3(i) of the letter deals with credit limits on buyers and says: "Wherever shipments are made on D/P, D/A or open delivery terms, it is essential that you get a suitable Credit Limit approved by the Corporation on each of the buyers unless your requirements are met by Clause 21(b) of the Policy. In the absence of such Credit Limits, the Corporation will not admit claim arising from any of the commercial risks despite your having paid premium for covering comprehensive risks on such shipments...."

THE complainant has also quoted Clause 21 of the policy which deals with amount of Credit Limit and Sub -clauses (a) and (b) thereof say: "(a) Where, on an application made by the insured, the Corporation has approved and communicated to the insured in writing an amount on specified terms of payment as the Credit Limit for that particular buyer, the amount so specified.

(b) Where no such amount has been specified and communicated by the Corporation, then

(i) if the transaction is on documents against payment or cash against documents terms, Rs. 5,00,000 provided that the liability of the corporation to pay claims on Credit Limits availed under this sub -clause shall be limited to two buyers during the currency of this Policy; or

(ii) if the insured has made at least'' three shipments to that particular buyer...."

IT is averred that the ECGC cannot insist the complainant firm to pay premium on each and every shipment which is not insured with the Corporation. The shipments made to Dubai in UAE and Bangladesh were, therefore, not declared to the Corporation as it had nothing to do with the policy. The policy could not be renewed as it was stated that the policy can be renewed only if the company admits whatever premium is due under the policy issued and no claim would be considered for any shipment made prior to the date. There are several inquiries and orders from overseas buyers but because of the non -renewal of the policy, the complainant firm is unable to give a firm or positive answer to the said buyers. Copies of the order and inquires have been placed on record as annexure 13 ''colly''. Consequently, this complaint was filed before this Commission on 24.7.2000 with the following prayers: "1. Sum insured to the tune of Rs. 26,13,300.00 (twenty six lacs, thirteen thousand three hundred only)

Compensation quantified at Rs. 5 (five) lakh.

Grant interest at the rate of 18% from the date of the raising of the claim with the respondent corporation.

Direct renewal of the policy of the complainant firm without any pre -condition.

Pass such other orders which this Hon''ble Commission deem fit and proper in the facts and circumstances of the case."

Defence

THE opposite party has enumerated the following defences in its written statement. The jurisdiction of this Commission has been questioned. It is contended that the complainant is not a consumer. The opposite party is a government undertaking under the administrative control of Ministry of Commerce. The opposite party issues policies to insured(s) and guarantees to banks to cover their risk in exporting goods to foreign buyers and granting credit facilities to insured(s)/policy holder(s). Export Credit Insurance is designed to protect Insured from the consequences of the payment risk, both political and commercial and to enable them to expand their overseas business without fear and loss.

IN this case, the complainant was holding a valid policy upto 30.4.2000. The policy holder has to abide by and comply with terms of the said policy. The reference was made to Clauses 28 and 29 of the policies. The reference has also been made to Clauses 8, 9, 10 and 19 of the policy, etc. In the instant case, the complainant, policy holder did not file (a) The declaration regarding three shipments made by it for the total value of Rs. 46,72,952 or make payment of relevant premium within the time as required by the said Clauses 8, 9 and 10 of the policy and as such the complainant is not entitled to make any claim under the policy. Again, insured failed to declare 19 out of 22 shipments. Thus 70% of the shipments were not declared by it.

(b) Again, under the terms of Clause 19(b) of the policy, the Corporation ceases to have any liability in cases where the Insured does not intimate to the Corporation, the non -payment of its amounts by the importer, by the 15th of the next Calendar month. The complainant has failed to declare the factum of non -payment by the exporter to the Corporation within the time period prescribed by the policy. The complainant was to inform the Corporation about the default in payment on 15.2.1999 wherein it was notified only on 15.4.1999. Thus, there was a delay of two months in the declaration.

(c) The policy holder failed to comply with the directions of the covering note issued along with the concerned policy which requires vide Sub -clause (ii) of Clause (a) that on or before the 15th day of each calendar month the Insured should forward to the Corporation a declaration in Form 205 regarding all amounts, which at the end of the previous month, remained wholly or partially unpaid for more than one month from the original date, in respect of shipment previously declared.

Since there is a contravention of policy, the complainant is not entitled to any relief.

The complainant vide its letter dated 8.10.1999 acknowledged the rejection of its claim and pleaded that they were not aware of the conditions. Besides other shipments, two shipments pertaining to South Africa also, made on 4.5.1998 and 8.7.1998 to Spearhead Rice Mill and Prime Dime CC, respectively, for the total value of Rs. 46,72,952 which were not declared. Moreover, in spite of obtaining cover for comprehension risks against letter of credit exports, the complainant did not declare any shipment made on L.C. terms and pay any premium on the same. The complainant had mala fidely been submitting ''Nil declaration'' from December, 1998, though exports on non -L.C. terms as well as L.C. terms were being effected. Consequently, the opposite party Corporation has rightly refused to renew the policy of the complainant. Even after the said extension, the complainant was required to declare the non -payment by Prime Dime CC, South Africa under Clause 8(b) of the policy. However, the default was reported with delay of one month. Consequently, the letter dated 4.2.2001 was rejected on the following grounds.: (1) One month''s delay in reporting default.

(2) Noting and protesting not done.

(3) Non -declaration of 70% of the shipments.

DURING the period May, 1998 to March, 1999 the exporter effected 19 shipments for Rs. 323.01 lakh under non L/C terms. Out of these 19 shipments, 11 shipments worth Rs. 121.18 lakh were not declared and no premium was paid to the Corporation. The exporter did not declare shipments effected against letters of credit though he has agreed to insure the said shipments. There are in all 22 shipments effected by the exporter under L.C. since issue of policy till August, 1999, which have not been declared with premium. Under the policy, all shipments are covered except that the Corporation is liable only for shipments covered by a valid credit limit and in whose regard valid declarations are made and required premium paid within the prescribed period. The opposite party has also referred to a judgment of this Commission in New India Assurance Co. Ltd. v. A. Nazarji,, II (1995) CPJ 14 (NC, at page 5), wherein it was held that it is immaterial whether it is major or minor violation of terms and conditions. In the present case, the complainant intentionally did not inform the opposite party about more than 70% of the shipments to avoid paying credit limit fee and premium amounting to more than Rs. 2 lakh, that is why, the opposite party did not renew the policy of a person like the complainant who conceals facts and provides false information to the opposite party. Submissions and findings

WE have heard the learned Counsel for the parties. Learned Counsel for the complainant vehemently argued that Clause 8 of the policy Declaration of shipments meant those shipments insured by the consumer insured and would not apply to all the shipments made by the consumer. The policy does not mention that a consumer would have to pay premium for the uninsured shipment also. The complainant was never informed about the same. The complainant had made 27 shipments in all during the tenure of the policy to the overseas buyers. The opposite party has been informed by the insured directly or indirectly about the same. The complainant made shipments to the overseas buyers under Non -LC and LC terms during the policy period and has no arrears of payment of premium in lieu of Clause 10 of the policy. As per Clause 19 of the policy, the opposite party''s liability towards the complainant is not only obligatory but also mandatory for the shipments made that have been agreed to the complainant insured. It was also argued that the complainant never contravened Clause 19B of the policy. In response to the letter dated 24.6.1999, the due date for payment that was earlier fixed as 1st January, 1999, which was extended to 30.6.1999. The complainant had intimated the matter of non -payment by the buyer on 30.1.1999. It was lastly submitted that the terms and conditions of the policy were never disclosed to the complainant. The opposite party accepted the premium after extending the period on two occasions and realizing extra premium. Learned Counsel for the complainant stressed that this plea is liable to be rejected at the threshold. The opposite party itself admitted in para 15 at page 107 of its counter that under the policy, all shipments are covered except that Corporation is liable only for those shipments covered by a valid credit limit and in whose regard valid declarations are made and required premium paid within the prescribed period. It was stressed that the opposite party has committed deficiency and it should be directed to pay the compensation.

ALL these arguments lack conviction. It is clear that the complainant has not complied with the terms and conditions of the policy. The admission of this case comes from the horse''s mouth itself. The letter dated 8.10.1999 is crucial. The relevant extract of this letter is reproduced as herein under: "SIR, AS A NEW EXPORTER WE ARE NOT HAVING PROPER GUIDANCE/INSTRUCTIONS IN RESPECT OF TERMS AND CONDITIONS OF E.C.G.C. POLICY REGARDING PROCEDURES. EVEN AFTER TRANSFER OF OUR POLICY FROM BOMBAY TO INDORE, OUR EXPECTATIONS FOR GETTING FULL AWARENESS REGARDING TERMS WHICH THROUGH BRANCH IS STILL AWAITING. YOU HAVE NOT GIVEN ANY INSTRUCTIONS REGARDING THE PROCEDURES OF DECLARING EXPORTS EVEN AT THE TIME OF YOUR PERSONAL VISIT AT RAIPUR AS WELL AS DURING VARIOUS EXPORT PROMOTION SEMINARS. AS YOU KNOW, THERE IS NO INTENSION FROM OUR PART TO CREATE ANY COMPLICATIONS."

AGAIN , Clauses 8, 28 and 29 of the policy clearly lay down: "8. Declaration:

(a) Declaration of shipments: On or before the 15th day of each calendar month, the insured shall deliver to the Corporation a declaration, in the form prescribed by the Corporation, of all shipments made by him during the previous month. If no shipment has been made during a month, a ''NIL'' declaration shall nevertheless be submitted.

Observance of conditions: The due performance and observance of each term and condition contained therein or in the Proposal or Declaration shall be a condition precedent to any liability of the Corporation hereunder and to the enforcement thereof by the Insured.

Failure to comply with conditions: No failure by the Insured to comply with the terms and conditions of the Policy shall be deemed to have been waived, excused or accepted by the Corporation unless the same is expressly so waived, excused or accepted by the Corporation in writing and such waiver, excuse or acceptance shall be subject to such terms and conditions as the Corporation may stipulate, including a reduction in the percentage specified under Clause 13 of this policy being the percentage of loss payable by the Corporation."

If the complainant was having any doubt, he should have clarified it from the opposite party. Clause 8 -a clearly, specifically and unequivocally mentions for all the shipments. It does not make any distinction which are covered under the policy or otherwise the opposite party was agreed for benefit of exporters. They were required to make payment of those prices, which the exporter in India could not recover. This facility must be utilized properly and in good faith.

IN Carter v. Boehm, (1558 -1774) All ER Rep. 183 Lord Mansfield had succinctly summarized the principles necessitating a duty of disclosure by the assured, in the following words: "Insurance is a contract of speculation. The special facts upon which the contingent chance is to be computed lie most commonly in the knowledge of the assured policy; the underwriter trusts his representation, and proceeds upon confidence that he does not keep back any circumstance in his knowledge to mislead the underwriter into a belief that the circumstances does not exist. The keeping back of such circumstance is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived, and the policy is void; because the risque run is really different from the risque understood and intended to be run at the time of the agreement..... The policy would be equally void against the underwriter if he concealed.... Good faith forbids either party, by concealing what he privately knows, to draw the other into a bargain from his ignorance of the fact, and his believing the contrary."

LEARNED Counsel for the opposite party has also cited few authorities in order to buttress his case. In Oriental Insurance Co. Ltd. v. Sony Cheriyan, : VI (1999) SLT 565 : II (1999) ACC 196 (SC) : II (1999) CPJ 13 (SC) : (1999) 6 SCC 451. In that case, in para 17 it was held: "The insurance policy between the insurer and the insured represents a contract between the parties. Since the insurer undertakes to compensate the loss suffered by the insured on account of risks covered by the insurance policy, the terms of the agreement have to be strictly construed to determine the extent of liability of the insurer. The insured cannot claim anything more that what is covered by the insurance policy. That being so, the insured has also to act strictly in accordance with the statutory limitations or terms of the policy expressly set out therein."

Similar view was taken in another authority reported in Life Insurance Corporation of India and Ors. v. Asha Goel (Smt.) and Another, : I (2001) SLT 89 : (2001) 2 SCC 160 wherein in para 14, it was held: "14. This decision was relied upon in LIC of India v. G.M. Channabasamma, : (1991) 1 SCC 357, in which the following observations were made: (SCC pp. 359 -60, para 7)

"It is well settled that a contract of insurance is contract uberrima fides and there must be complete good faith on the part of the assured. The assured is thus under a solemn obligation to make full disclosure of material facts, which may be relevant for the insurer to take into account while deciding whether the proposal should be accepted or not. While making a disclosure of the relevant facts, the duty of the insured to state them correctly cannot be diluted. Section 45 of the Act has made special provisions for a life insurance policy if it is called in question by the insurer after the expiry of two years from the date on which it was effected. Having regard to the facts of the present case, learned Counsel for the parties have rightly stated that this distinction is not material in the present appeal. If the allegations of fact made on behalf of the appellant Company are found to be correct, all the three conditions mentioned in the section and discussed in Mithoolal Nayak v. LIC of India, must be held to have been satisfied. We must, therefore, proceed to examine the evidence led by the parties in the case."

It is thus clear that the complainant has no bone to pluck with the Insurance Company. The complaint is, therefore, dismissed.