United India Insurance Company Limited vs G.M. Electrical Works

Thangamani, J.—Suit for recovery of Rs. 1,02,900/- with interest at 15 per cent per annum from the date of plaint till the date of realisation.

The plaint averments are as follows:- On or about 14.12.1981 defendant G.M. Electrical works placed an order with M/s. Semikron

International, Nurnberg, Federal Republic of Germany for the import of 1,000 pieces of Schottky Diodes for home consumption. The cargo in

question was to be carried by air from Nurnberg to Madras. As per the contract 600 pieces of Diodes were to be supplied from ready stock and

the balance of 400 pieces at a later date. At the request of the defendant the plaintiff insured the goods imported and issued two Marine policies

dated 18.12.1981 and 21.12.1981 for 600 pieces and 400 pieces respectively. The terms and conditions of both the policies were identical. The

policies covered all the risks of physical loss or damage from warehouse to warehouse and as per Institute (Air) Clause and War and S.R.C.C.

Though as per the contract between the defendant and the foreign suppliers the diodes had to be despatched in two lots one consisting of 600

pieces and the other consisting of 400 pieces, 950 pieces of diodes were consigned under Airway Bill No. 7841 and the remaining 50 pieces

under Airway Bill No. 7883. The documents relating to the import were negotiated through the Foreign Department of the Mount Road Branch of

Canara Bank. It appears that 950 pieces of diodes despatched under Airway Bill No. 098-3037 7841 dated 16.1.1982 did not reach the

destination within a reasonable time. The remaining 50 pieces of diodes were however stated to have been delivered to the defendant. On

5.3.1982 the defendant had sent a telegram to the carriers'' office at Bombay intimating about the non-arrival of the consignment. This was

followed by letters dated 8.3.1982, 17.3.1982 and 27.4.1982. Ultimately the defendant reported to the plaintiff that the cargo covered under the

policies referred to above were not landed at Madras Airport. The carrier Air India had by its letter dated 30.4.1982 certified the short landing of

the cargo in question. On the strength of this letter the defendant preferred a claim on the plaintiff for Rs. 1,02,900/- being the value of 950 pieces

of diodes. The plaintiff understands that while the claim was being processed, the carrier, Air India had sent a cargo arrival notice on 26.7.1982 to

Canara Bank, 185, Linghi Chetty Street, Madras informing about the arrival of the cargo at the Madras Air Port on 28.5.1982. The copy of the

said notice was marked to the defendant also. Immediately on receipt of the Cargo Arrival Notice dated 26.7.1982 by Canara Bank one Mrs.

Vijayalakshmi, an employee of the Bank, duly informed the defendant over the telephone of the arrival of the cargo and requested the defendant to

clear the same. However, the defendant did not take any steps in this direction. Nor he brought to the notice of the plaintiff about the arrival of the

cargo. So on the strength of the representations furnished by the defendant earlier the plaintiff settled the insurance claim under the policies and

paid the defendant Rs. 1,02,900/- on 28.8.1982. The defendant executed a letter of subrogation dated 3.9.1982 in favour of the plaintiff. At the

time of settlement of the claim under the policies as stated above the plaintiff had no knowledge of the arrival of the cargo. Only on 13.9.1982 the

defendant informed the plaintiff about the information received from the Canara Bank. The plaintiff also received from Canara Bank a copy of the

letter dated 16.9.1982 addressed by the Bank to Air India. Again on 25.11.1982 the defendant addressed a registered letter to the plaintiff

enclosing therewith the letter dated 5.11.1982 stated to have been addressed by the Bank to the defendant and the cargo arrival notice dated

26.7.1982. The defendant was bound to clear the cargo as soon as it was available for delivery. He was under an obligation to bring to the notice

of the plaintiff the circumstances attending the arrival of the cargo at the time when the loss was claimed. There is an implied undertaking on the

part of the assured in a contract of marine insurance to refund the money paid under the policy in the event of the subject matter of the policy being

traced and delivered to the assured. The defendant was bound to disclose to the plaintiff before the settlement of the claim, the fact that the cargo

covered by the policies had been landed. By withholding vital information the defendant had caused wrongful loss to the plaintiff. Hence the suit to

recover Rs. 1,02,900/- with further interest at 15% per annum from the date of plaint till the date of realisation.

The defendant pleads in the written statement that the cargo was to come by flight leaving Numberg on 16.1.1982 and the goods ought to have

arrived on 19.1.1982 at Madras as per the Air Way Bill. Immediately after 19.1.1982 the defendant approached the Air India Authorities and

learnt that the goods have not arrived. Thereafter, the defendant had been regularly contacting the Air India Office at Meenambakkam Air Port to

find out the whereabouts of the goods. On all those occasions this defendant was informed that the goods were yet to be traced. Since the goods

were not delivered to the defendant on 20.3.1982 the plaintiff company was informed about the non-delivery of the consignment. The Air India

Office at Madras finally admitted in the letter dated 30.4.1982 about the non-delivery of the consignment covered under the relevant Air Way Bill

dated 13.1.1982. On the basis of the certificate given by the Air India, this defendant preferred a claim before the plaintiff company. The plaintiff

after processing the claim of this defendant admitted their liability to pay Rs. 1,02,757.20 and the payment was made on from the defendant. (sic).

At the time of executing the letter of subrogation the plaintiff insisted that in the event of the goods non-delivered till that time were traced at a later

point of time this defendant should accept and take delivery of the same and the claim thereafter shall be readjusted. This defendant did not agree

to this clause and therefore it was struck off. The plaintiff settled the claim of the defendant taking the responsibility on themselves in proceeding

against the carrier.

The Canara Bank had received information from the Carrier on 29.7.1982 about the arrival of the goods. This defendant came to know about

landing of the cargo for the first time only through the phone message from Canara Bank on 6.9.1982. Right from the time when the claim was

made to the plaintiff by the defendant till it was settled, the defendant had no knowledge at all about the receipt of the consignment. Under the law

the carrier is under an obligation to deliver the goods to the consignee within a reasonable time. This defendant had informed the carrier about the

non-delivery within the time prescribed under law and thereafter the claim was made to the plaintiff as the insurer. Once the contract with the

carrier has come to an end the defendant has a right to look to the Insurance company for settlement of his claim. The plaintiff Insurance company

is also under an obligation to settle the claim of the defendant and then proceed against the carrier for recovery of the sum. Having obtained a letter

of subrogation executed by this defendant in their favour it is not open to the plaintiff to proceed against this defendant after the arrival of the goods

for recovery of the money paid. The Insurance company has to take delivery of the goods, sell it in the market and proceed against the carrier to

realise the difference in price. This defendant did not receive any phone message at any time about the arrival of goods from one Vijayalakshmi of

Canara Bank. There was no suppression of fact on any occasion on the part of the defendant. This defendant came to know about the arrival of

the goods only after the settlement of the claim. The plaintiff has no right to recover the money from this defendant after the claim was settled.

On these pleadings the following issues arise for trial--

Whether the defendant had knowledge of the arrival of the cargo after the claim was made and before actual settlement of the same by the

plaintiff under the policy of insurance?

Whether the defendant was guilty of suppression veri amounting to fraudulent misrepresentation at the material time and as such is not entitled to

retain in its hand the benefit derived under the policy?

Whether the plaintiff is entitled to recover back from the defendant the sum of Rs. 1,02,900/- paid under the policy of insurance, as money had

and received?

Whether there is an implied undertaking on the part of the defendant to refund the money paid under the policy in the event of the subject-matter

of the policy being traced and made available for delivery to the defendant?

To what relief or reliefs the parties are entitled?

Issue No. 1:- There is no dispute that under Ex.P3 invoice dated 13.1.1982, 950 Schottky Diodes were despatched to the defendant company

from Nurnberg, Federal Republic of Germany through Flight Air India 150 of January 16th, 1982. As per this invoice the goods were to have

arrived in Madras on January 19th, 1982. Ex.P4 is the relevant Air Way Bill dated 15.1.1982. The goods imported were covered by the two

insurance policies Ex.P1 and P2 dated 18.12.1981, issued by the plaintiff Insurance company. The insurance was against all risks of physical loss

or damage as per Institute (AIR) Clause and war and S.R.C.C. from warehouse to warehouse. The risk commenced from the date of Airway Bill.

The foreign supplier was to send the diodes in two lots of 600 or 400. But they despatched them in two lots of 950 and 50 pieces. The second lot

containing of 50 pieces reached the destination in time and was taken delivery of by the defendant. The consignment covered by Ex.P4 did not

land at Madras on 19.1.1982. Thereupon the defendant sent Ex.P5 notice on 8.3.1982 to Air India, Cargo--Foreign Section, Meenambakkam

Air Port complaining about the non-arrival of the consignment and requesting the carrier to take immediate steps to get the consignment at the

earliest. This was followed by another letter Ex.P6 dated 17.3.1982. On 20.3.1982 the defendant addressed Ex.P7 letter to the plaintiff Insurance

company enclosing the copies of Ex. P5 and P6 informing about the non-arrival of the cargo and seeking guidance from the Insurance company as

to what it has to do in this regard. On 30.4.1982 Air India informed the defendant as per Ex.P8 about the short landing of the cargo and their

inability to locate the same till that date in spite of their best efforts. On the basis of Ex.P8 the defendant preferred Ex.P9 claim on 3.5.1982 before

the plaintiff Insurance company. Ex.P10 is another letter dated 5.7.1982 from the defendant to the plaintiff requesting the Insurance company to

settle the claim at an early date. The plaintiff Company processed the claim and made the payment on 28.8.1982. The company obtained Ex. P11

subrogation letter from the defendant on 3.9.1982.

However in the intervening period the cargo had arrived at the Madras Air Port on 28.5.1982. The second enclosure to Ex.P15 discloses that

only on 26.7.1982 the Air India had informed the Canara Bank about the arrival of the consignment and requested to collect the delivery order

from them against payment of charges. Another enclosure to Ex. P15 is the letter dated 5.11.1982 written by Canara Bank to the defendant. This

letter reads that as the bills had been paid already they were returning the notice to the defendant for further action from their end. The defendant

has in his turn forwarded these two enclosures to the plaintiff Insurance company with the covering letter Ex.P15 dated 25.11.1982. We also find

from the letter enclosed with Ex.P14 that on 6.9.1982 the defendant has written to the Canara Bank mentioning about intimation received by them

from the Bank over telephone about the arrival of goods.

It is the argument of the learned Counsel for the plaintiff that the defendant had knowledge of the arrival of cargo as early as on 29.7.1982 itself.

When the claim was settled one month later the defendant did not disclose this material fact to the Insurance company. At the time of settlement of

claim, he withheld this vital information and made it appear as if goods had not arrived. It is true that there is no direct evidence that Canara Bank

had informed the defendant about the arrival of the Cargo before payment of the claim amount on 28.8.1982. However from the circumstances

available in this case we can safely attribute knowledge of the arrival of the cargo on the part of the defendant at the time of the settlement of the

insurance claim. On the other hand the learned Counsel for defendant maintains that this client had no knowledge about the arrival of goods on

28.8.1982. So we have only to find out whether the materials on record warrant an inference that defendant was aware of the arrival of cargo

when he received the payment from the Insurance company on 28.8.1982.

The cargo arrival notice dated 26.7.1982 enclosed with Ex.P15 letter is a vital piece of evidence in this case. This bears the date seal of the

Canara Bank which indicates that it was received by the Foreign Department of the Bank on 29.7.1982. Besides it contains a reference that a

copy of the same has been marked to the defendant company. No doubt the plaintiff has not produced any record to show that defendant has

acknowledged in writing the receipt of the above said notice. But in this connection as the learned Counsel for the plaintiff has rightly urged u/s 114

of the Evidence Act the Court can draw a presumption that the copy marked to the defendant should have reached the destination. Section 114 of

the Evidence Act states that the Court may presume the existence of any fact which it thinks likely to have happened regard being had to the

common course of natural events, human conduct and public and private business in their relation to the facts of the particular case. As per

Illustration (f) to the section, the Court may presume that the common course of business has been followed in particular cases. There are various

prima facie presumptions which are founded upon the experience of human conduct in the ordinary course of business. Several presumptions are

made from the regular course of business in public offices, of which the post office affords a large number of examples. The presumption of the

course of business having been followed is specially strong in the case of public offices, example the post office. Where a correspondent is sent by

post and correctly addressed, the presumption arises that it reached its destination at the proper time according to the regular course of business of

the post-office and was received by the persons to whom it was addressed. Of course the presumption is rebuttable. But a mere denial by the

addressee may not be sufficient to rebut the presumption. In Janakiram Naidu v. Arumugha Mudaliar (1970 Madras Law Journal Reports page

535) it has been held by this Court that the mere statement on oath by the petitioner that notice had not been received by him will not rebut the

presumption contained in Section 114 of the Evidence Act. In this case since the letter dated 26.7.1982 has been received by the Canara Bank we

can safely assume that the copy of this letter marked to the defendant has also been received at his end.

As per the plaint allegations immediately on receipt of the cargo arrival notice dated 26.7.1982 by Canara Bank, Mrs. Vijayalakshmi an

employee of the Bank duly informed the defendant over the telephone of the arrival of the cargo and requested the defendant to clear the same.

The plaintiff did not examine this Vijayalakshmi to speak about the telephonic conversation. D.W.I Jayaprathab one of the partners of the

defendant-firm states in his evidence that his company had no knowledge about the arrival of the goods before the claim was settled by the

Insurance company. For the first time the defendant came to know about the arrival of the goods covered under Ex.P3 in the first week of

September 1982. At no point of time Air India sent any intimation directly to them about the arrival of the cargo. The Canara Bank also did not

inform the defendant about the arrival of the goods prior to the settlement of the claim by the Insurance company. But during his cross-examination

D.W.I Jayaprathab was asked whether he had knowledge of the arrival of the cargo at some point of time and what was the mode in which the

information was communicated to him. His answer was that somebody from Canara Bank informed him over telephone that the goods had arrived

and he could come and take the documents. The person who had spoken from the other end was a female. He had replied that he was taking

necessary action. It is his further admission that his company used to receive a number of phone messages from Canara Bank off an on. It is also

significant to note the contents of his reply in this connection. D.W.1 would claim that this telephonic conversation took place on 5th or 6th of

September 1982 which is after settlement of the insurance claim on 28.8.1982. But had this conversation taken place subsequent to the settlement

of this claim D.W.I would not have replied that he was taking necessary action. Besides in the letter dated 6.9.1982 addressed to the Canara

Bank by this defendant enclosed with Ex.P14 there is no indication about the date and time of the telephonic intimation received from Canara

Bank. This lends credence to the claim of the plaintiff that defendant was apprised of the arrival of the cargo promptly by Canara Bank over

phone.

Be it also noted that as per the date seal on the cargo arrival notice dated 26.7.1982 enclosed with Ex.P15, this notice has been received by

the Canara Bank on 29.7.1982. When Canara Bank had knowledge about the arrival of the consignment on 29.7.1982 there is no reason why it

should have withheld that information from the defendant for more than a month till the claim was settled on 3.9.1982. Even if the defendant was

not apprised of the fact of the arrival of the cargo before the settlement of the claim, it could only be on account of gross negligence on the part of

the Canara Bank. Besides, the possibility of a collusion between the defendant and the Canara Bank in order to claim the Insurance money

fraudulently from the plaintiff is also there. But considering the fact that the Canara Bank cannot have any particular interest in the defendant and it

being a nationalised institution which would have acted in the regular course of business promptly, we can presume that the defendant was

informed by the Bank about the arrival of the Air cargo immediately on the receipt of cargo arrival notice dated 26.7.1982 enclosed with Ex.P15.

The defendant is a manufacturer of Motion Picture Arc Rectifiers and Transformers. D.W.I admits in cross-examination that the Schottky

Diodes, the cargo imported from West Germany, is one of the raw materials for his business. During the year 1981 they had two orders for the

supply of about 40 Rectifiers. They had no orders for the supply of diodes as such. They had entered into contracts with local buyers for the

supply of those Rectifiers. As per the averments in the written statement if they had not complied with the orders before 30th April, 1982 the

contracts would stand cancelled automatically. Once orders are cancelled his firm has no use for the diodes. These diodes cannot be used for the

subsequent manufacture of Rectifiers. The goods covered by Exs.P3 and P4 are specific diodes for the manufacture of a particular type of

Rectifier. So they had absolutely no use for the diodes imported after 30.4.1982. This circumstance probablises the contention of the learned

Counsel for the plaintiff that because the defendant had no use for the goods by the time they had arrived towards the end of July 1982 he was not

interested in taking delivery of them. And he thought that he could conveniently pass on the buck to the plaintiff. In the circumstances it is quite

likely that though the defendant was apprised of the receipt of the goods soon after the cargo arrival notice had been received by the Canara Bank,

in order to claim the amount from the Insurance Company he has withheld the information from the plaintiff at the time of settlement of the claim.

This issue is therefore answered in favour of the plaintiff.

Issue Nos. 2 to 4:- Marine Insurance is a contract made in utmost good faith. One has necessarily to act on materials furnished by the other.

As we have just seen the defendant herein has suppressed the information regarding the arrival of the goods when the claim was settled. Both in

law and in equity defendant had a duty to speak, but deliberately remained silent. He was under an obligation to bring to the notice of the plaintiff

the arrival of the cargo and the availability of the same at the time when the loss was claimed. Had he known about the arrival of goods the plaintiff

would have resisted the claim of the defendant under the policies. By withholding vital information the defendant has caused wrongful loss to the

plaintiff and has unjustly enriched himself. So the plaintiff is entitled to recover back from the defendant Rs. 1,02,900/- paid by way of settlement

of defendant''s claim.

The learned Counsel for the plaintiff next argues that in any event there is an implied undertaking on the part of the assured to refund the money

paid under the policy once the subject matter of the policy is traced and made available to the assured for delivery at a later date. Any money paid

in the circumstances in which it was paid in this suit could be recovered as money had and received. In any Marine Insurance it is an implied term

of the contract that the assured who receives any payment or benefit on the basis that there was a loss under the policy is bound to return such

payment or benefit if ultimately it turns out that actually there was no loss. Besides, the plaintiff herein is not a dealer in the Diodes. He is only an

insurer. He has no use for the imported cargo. There is a duty on the part of the assured to make every endeavour to reduce the loss by clearing

the goods. We find support for this claim from the terms of the Insurance policy itself. Exs. P1 and P2 provide the procedure in the event of loss or

damage for which underwriters may be liable. As per the terms of the policies it is the duty of the assured and their agents in all cases to take such

measures as may be reasonable for the purpose of averting or minimising a loss and to ensure that all rights against carriers are properly preserved

and exercised. The assured is required to claim immediately on the carriers, Port Authorities or other bailees for any missing packages. He has to

apply immediately for survey by Carriers'' if any loss or damage found at such survey. But the defendant herein has failed to proceed against the

carrier which is Air India. The insured is duty bound to take steps against the carrier at the first instance. The first person to answer the claim of the

defendant is the carrier and not the insurance Company. D.W.I did not even bother to find out even if the goods had arrived. In this case the goods

booked in January 1982 had arrived at the Madras Air Port on 28.5.1982. Ex.P15 discloses that Air India had chosen to convey the information

to the consignee about the arrival of goods only on 26.7.1982. Admittedly the defendant had no use for the goods after 30.4.1982 and the carrier

had not made available the goods till that date. So the defendant could have refused to take delivery of the goods and easily proceeded against Air

India. Instead it has allowed the claim against the carrier to lapse. Inasmuch as the insured has prevented the insurer from proceeding against the

carrier and the Insurer has been deprived of his right of indemnity against the carrier by the conduct of the Insurer [insured?] it is evident that in

equity the Insurer can repudiate the claim of the defendant who is bound to return the suit amount to the plaintiff.

Macgillivry & Parkington on Insurance Law Seventh Edition (1981) states the law at paragraphs 1156, 1169, 1138, 1143 and 1155 in this

manner:- The insurer is subrogated to any claim of any character which the assured is entitled to bring in proceedings against a third party to

diminish his loss. It matters not whether the right of suit is legal, equitable or statutory....Insurance policies frequently contain a clause expressly

requiring the assured to take all necessary steps to protect the insurer''s rights. If an assured under such a policy allowed a time-bar to elapse,

thereby precluding the insurer from enjoying the exercise of remedies against a third party, the insurers could, it is submitted, recover damages for

the breach of that stipulation in the amount which would have been recoverable from the third party. If it was clear that the clause possessed the

status of a condition, or ""warranty"" in insurance parlance, the insurers could decline liability altogether....The insurer''s rights of subrogation rest

upon terms implied into the contract of insurance by operation of law whereby the assured owes a duty to take proceedings against third parties to

reduce his loss and to account to the insurer for any benefits received by him which to reduce....Equity has reinforced the insurer''s rights of

subrogation in two ways. First equity would compel an uncooperative assured to consent to proceedings being taken in his name for the benefit of

the insurer. Secondly, equity has in more recent years imposed a constructive trust in favour of the insurer on moneys received by the assured in

diminution of his loss after he has been paid by the insurer.... The doctrine of subrogation confers two distinct rights on the insurer. These are the

right to oblige the assured to pursue remedies against third parties for the insurer''s ultimate benefit, and the right to recover from the assured any

benefits received by the assured in extinction or diminution of the loss for which he has been indemnified.

In E.I.D. Parry (India) Limited v. Far Eastern Marine Transport Co. Ltd., reported in 1988 (1) MLJ145 the plaintiff entered into a contract

with one ""P"" for the import of Palmolein Oil. The foreign supplier shipped certain drums of oil to Madras by the Vessel belonging to ""F"". The loads

were insured against all risks including shortage with an insurer. There was a total shortlanding of 125 drums. The plaintiff filed a suit against the

agent of ""F"" and the insurer. The Insurance company contended that since the plaintiff has allowed the liability of the carrier to become extinguished

by its failure to file the suit within the time, the insurer is deprived of its right on indemnity against the carrier. It is therefore open to the insurer to

repudiate the claim under the policy of insurance and the suit against the insurance company must fail. This Court upheld this claim and held, ""As is

laid down in the policy of insurance the insurer''s liability is only to succeed to and not in any way supersede any claim which the insurer may be

entitled to make on any carriers or their agents. It is also laid down therein that it is the duty of the assured and the agents in all cases to take

measures as may be reasonable for the purpose of averting or minimising a loss and to ensure that all the rights against the carriers, bailees or other

third parties are properly observed and exercised in particular, the assured or their agents are required to take these steps and failure to comply

with this requirement may prejudice any claim under this policy. Under the law of Insurance, the right of the Insurer on payment of the loss to the

assured is to be subrogated to the rights of the assured so as to enable the insurer to proceed against the third party and indemnify itself. It is

therefore incumbent upon the assured to keep alive his remedies against the carrier or other third party and any default committed by the assured

either by allowing the remedy to get time barred or by abdicating or abandoning, his rights against the carrier or the third party will deprive the

insurer of its remedies against the third party for indemnity. In such cases, it is open to the insurer to repudiate the liability under the policy, the loss

is not paid to the assured or to lay a counter-claim against the assured for damages if it had paid the loss to the assured�.

So the defendant herein is not entitled to retain in its hands the benefit received from the plaintiff on the strength of the policies under Ex. P1

and Ex. P2. These issues are answered accordingly.

Issue No. 5:- In the result, the suit is decreed as prayed for with cost.