Holding

Non‑compliance with the contractual declaration requirement under clause 8(b) exonerates the insurer, and the insurance policy terms must be strictly construed, rendering only the two compliant claims allowable.

Summary

The Export Credit Guarantee Corporation of India Ltd. (the insurer) issued an export credit insurance policy to Garg Sons International (the insured) which required the insured to submit a monthly declaration of any overdue payments by the foreign importer under clause 8(b). The foreign buyer defaulted and Garg filed seventeen claims, which the insurer rejected on the ground that Garg had not complied with the declaration requirement, except in two instances. The disputes were escalated through the State Disputes Redressal Commission and the National Consumer Disputes Redressal Commission before reaching the Supreme Court. The Court held that the terms of an insurance contract must be given paramount importance and strictly construed, and that non‑compliance with clause 8(b) discharges the insurer’s liability. Consequently, only the two claims where the statutory declaration was made on time were allowed, while the remaining fifteen were disallowed. The Court also clarified that the rule of contra proferentem does not apply to commercial insurance contracts.

Issues considered

Whether the insurer is liable for claims where the insured failed to comply with the contractual requirement of clause 8(b) to declare overdue payments within the stipulated time.
Whether the terms of an insurance contract must be strictly construed and whether the rule of contra proferentem applies to commercial insurance contracts.
Whether a court may substitute or modify the terms of an insurance agreement in the exercise of interpretation.

Legislation cited

Consumer Protection Act, 1986s. 19

Subjects

insurance contractstrict constructionclause 8(b)declaration of overdue paymentscontra proferentemcommercial contractConsumer Protection Actexport credit guaranteeclaim rejection

Judgment

[2013] 1 S.C.R. 336

A EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD.
v.
M/S. GARG SONS INTERNATIONAL
(Civil Appeal No.1557 of 2004)

JANUARY 17, 2013
B
[DR. B.S. CHAUHAN AND V. GOPALA GOWDA, JJ.]

Insurance - Contract of Insurance - Interpretation of -
Held: While construing the terms of a contract of insurance,
C the words used therein must be given paramount imporlance,
and it is not open for the Courl to add, delete or substitute any
words -Since upon issuance of an insurance policy, the
insurer undertakes to indemnify the loss suffered by the
insured on account of risks covered by the policy, its terms
D have to be strictly construed in order to determine the extent
of the liability of the insurer - It is not permissible for the courl
to substitute the terms of the contract itself, under the garb of
construing terms incorporated in the agreement of insurance
- No exceptions can be made on the ground of equity.
E
Insurance - Policy terms - Non-compliance - Effect -
Appellant, a government company, in the business of insuring
exporters - Respondent purchased insurance policy for
purpose of insuring shipment to a foreign buyer/importer -
F Foreign buyer committed default in making payments -
Claims presented by respondent-insured rejected by
appellant-insurer - Validity - Held: Respondent-insured failed
to comply with the requirement under clause B(b) of the
insurance agreement, of informing the appellant-insurer about
G the non-payment of outstanding dues by the foreign imporler
within the stipulated time except in two cases - Liability of
appellant-insurer exonerated to that extent - Thus, only two
claims deserve to be allowed - Other claims dis-allowed.

H 336
EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. v. 337
GARG SONS INTERNATIONAL

Contract - Commercial contract - Inapplicability of the A
rule of contra proferentem - Held: Rule of contra proferentem
does not apply in case of commercial contract, for the reason
that a clause in a commercial contract is bilateral and has
mutually been agreed upon.
B
The appellant is a government company, in. the
business of insuring exporters. Respondent purchased
insurance policy for the purpose of insuring shipment to
a foreign buyer/importer. The foreign buyer committed
default in making payments towards such policy, with C
respect to the· said consignment. Respondent- insured
sought enhancement of credit limit with respect to the
defaulting foreign importer and subsequently, presented
17 claims. The appellant-insurer rejected all the claims on
the ground that the respondent-insured failed to
0
communicate information pertaining to the default made
by the foreign importer, to the appellant-insurer, within
the stipulated period and thus, failed to ensure
compliance with the mandatory requirement under
Clause 8 (b) of the insurance agreement.
E
Respondent-insured thereafter filed several
complaints before the State Disputes Redressal
Commission, which directed the appellant-insurer to
make various requisite payments due under different
claims, with 9 per cent interest and litigation expenses F
etc. Aggrieved, the appellant-insurer preferred appeals
under Section 19 of the Consumer Protection Act, 1986,
before the National Consumer Disputes Redressal
Commission, which rejected some of the claims made by
the insured while accepting the other claims. Hence, both G
the parties preferred appeals before this Court.
Disposing of the appeals, the Court
HELD: 1.1. It is a settled legal proposition that while
H
338 SUPREME COURT REPORTS [2013] 1 S.C.R.

A construing the terms of a contract of insurance, the
words used therein must be given paramount
importance, and it is not open for the Court to add, delete
or substitute any words. It is also well settled, that since
upon issuance of an insurance policy, the insurer
B undertakes to indemnify the loss suffered by the insured
on account of risks covered by the policy, its terms have
to be strictly construed in order to determine the extent
of the liability of the insurer. Therefore, the endeavour of
the Court should always be to interpret the words used
c in the contract in the manner that will bes.t express the
intention of the parties. [Para 8) [344-C-E]

1.2. The insured cannot claim anything more than
what is covered by the insurance policy. " ... the terms of
the contract have to be construed strictly, without altering
0
the nature of the contract as the same may affect the
interests of the parties adversely." The clauses of an
insurance policy have to be read as they are ...
Consequently, the terms of the insurance policy, that fix
E the responsibility of the Insurance Company must also
be read strictly. The contract must be read as a whole and
every attempt should be made to harmonize the terms
thereof, keeping in mind that the rule of contra
proferentem does not apply in case of commercial
contract, for the reason that a clause in a commercial
F contract is bilateral and has mutually been agreed upon.
[Para 9) [344-F-H; 345-A]

1.3. It is not permissible for the court to substitute the
terms of the contract ,itself, under the garb of construing
G terms incorporated in the agreement of insurance. No
exceptions can be made on the ground of equity. The
liberal attitude adopted by the court, by way of which it
interferes in the terms of an insurance agreement, is not
permitted. The same must certainly not be extended to
H the extent of substituting words that were never intended
EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. v. 339
GARG SONS INTERNATIONAL
to form a part of the agreement. [Para 11] [345-E-G] A

Mis. Suraj Mal Ram Niwas Oil Mills (P) Ltd. v. United India
Insurance Co. Ltd. (2010) 10 SCC 567: 2010 (13) SCR 138;
Oriental Insurance Co. Ltd. v. Sony Cheriyan AIR 1999 SC
3252: 1999 (1) Suppl. SCR 622; Po/ymat India P. Ltd. v. B
National Insurance Co. Ltd. AIR 2005 SC 286: 2004 (6)
Sappl. SCR 535; Mis. Sumitomo Heavy Industries Ltd. v. Oil
& Natural Gas Company AIR 2010 SC 3400: 2010 (9) SCR
176; Rashtriya /spat Nigam Ltd. v. Mis. Dewan Chand Ram
Saran AIR 2012 SC 2829: 2012 (5) SCC 306; Vikram C
Greentech (/) Ltd. & Anr. v. New India Assurance Co. Ltd. AIR
2009 SC 2493: 2009 (5) SCR 437 and Sikka Papers Limited
v. National Insurance Company Ltd & Ors. AIR 2009 SC
2834: 2009 (7) sec 777 - relied on.

2.1. In the case at hand, the insurance policy dated D
23.3.1995 makes it evident that the insured was required
to make a declaration in the prescribed form (Form No.
205), on the 15th of every month as regards whether or
not, there was any default committed by the foreign
importer, either in part, or in full, for a period exceeding E
30 days from the date on which the payment fell due,
with respect to shipments made within the policy period.
Non-compliance with the said term(s) of contract, will
exonerate the insurer of all liability in this regard. [Paras
6, 7] [343-B; 344-A-B] F·

2.2. The requisite record/chart reveals the factual
matrix and clearly establishes that the insured failed to
comply with the requirement of clause 8(b) of the
agreement informing the insurer about the non-payment G
of outstanding dues by the foreign importer within the
stipulated time except in two cases. Thus, only two
claims deserve to be allowed. The others are dis-allowed.
[Paras 12, 13 & 14] [345-H; 346-G-H; 347-A]
H

...
340 SUPREME COURT REPORTS [2013) 1 S.C.R.

A Case Law Reference
2010 (13) SCR 138 relied on Para 8

1999 (1) Suppl. SCR 622 relied on Para 9

2004 (6) Suppl. SCR 535 relied on Para 9
B
2010 (9) SCR 176 relied on Para 9

2012 (5) sec 306 relied on Para 9

2009 (5) SCR 437 relied on Para 10
c
2009 (7) sec 111 relied on Para 10

CIVIL APPELLATE JURISDICTION : Civil Appeal No.
1557 of 2004.

D From the Judgment & Order dated 18.02.2003 of the
National Consumer Disputes Redressal Commission, New
Delhi in First Appeal No. 246 of 2001.
WITH
E C.A. Nos. 1553, 1548, 1555, 1556, 1549, 1552, 1551, 1558,
1550, 1559, 1543, 1542, 1546, 1544, 1545, 1547 of 2004.

Santosh Paul, Arvind Gupta, Ranjan Kumar, Ashu Gupta,
Satinder S. Gulati, Kamaldeep Gulati, K.K. Mohan for the
appearing parties.
F
The Judgment of the Court was delivered by

DR. B.S. CHAUHAN, J. 1. All the above-mentioned
appeals have been preferred against the common impugned
G judgment and order dated 18.2.2003 passed by the National
Consumer Disputes Redressal Commission, New Delhi, in
Revision Petition Nos. 662, 663, 664, 665, 666, 667, 668,
669, 670, 671, 672, 673, 674, 933 of 2002 and F.A. 238, 246
and 247 of 2001.
H
EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. v. 341
GARG SONS INTERNATIONAL [DR. B.S. CHAUHAN, J.]
2. Facts and circumstances giving rise· to these appeals A
are that:
A. The appellant herein; Export Credit Guarantee
Corporation of India Ltd., (hereinafter referred to as 'the
insurer'), is a government company, which is in the business 8
of insuring exporters. Respondent, M/s Garg Sons International,
on 23.3.1995 purchased a policy for the purpose of insuring a
shipment to foreign buyers i.e. M/s Natural Selection Co. Ltd.
of UK, and the said buyer committed default in making
payments towards such policy from 28.12.1995 onwards, with C
· respect to the said consignment.

B. The insured, that is M/s Garg Sons International, sought
enhancement of credit limit to the tune of Rs.50 lakhs with
respect to the said defaulting foreign importer. Subsequently,
he presented 17 claims. D
C. The insurer rejected all the abovementioned claims on
the ground that the insured did not ensure compliance with
Clause 8 (b) of the insurance agreement, which stipulated the
period within which the insurer is to be informed about any E
default committed by a foreign importer.
D. Thus, the insured then filed several complaints before
the State Disputes Redressal Commission, to which the insurer
filed replies. The State Disputes Redressal Commission
adjudicated upon the case and disposed of the said complaint, F
vide order dated 4.6.2001, directing the insurer to make various
requisite payments due under different claims, with 9 per cent
interest and litigation expenses etc.
E. Being aggrieved against the orders passed in all 17 G
claims, the insurer preferred appeals under Section 19 of the
Consumer Protection Act, 1986, before the National Consumer
Disputes Redressal Commission, wherein the impugned
judgment and order was disputed, stating that it was evident
from the said judgment that 11 claims had been rejected and H
342 SUPREME COURT REPORTS [2013] 1 S.C.R.

A that 5 claims made by the insured were accepted.

Hence, both the parties preferred these appeals.

3. Shri Santosh Paul, learned counsel appearing on behalf
of the insurer, has submitted that the insured failed to
B communicate information pertaining to the default made by the
foreign importer, to the insurer, within the stipulated period,
which was fixed as 45 days from the date on which the payment
became due, and thus, failed to ensure compliance with the
mandatory requirement under Clause 8 (b), owing to which, the
C claims with respect to which the said information was not
furnished within the time period stipulated in the agreement,
have wrongly been allowed. Moreover, it is evident from the
judgment that only 5 claims made by the insured were
accepted, and that 11 claims were rejected, though in the said
D order, only 9 claims were found to be rejected and 4 were
shown as accepted. As the only numbers of 4 revisions have
been mentioned, stating that only these were worth acceptance,
and those of 9 revisions have been mentioned, as those that
were rejected, which was all stated to show that there were
E typographical errors in the judgment itself.

In addition thereto, there were also certain appeals and
thus, the order was required to be modified to the extent that
only two claims which were made in respect of Civil Appeal
F Nos. 154 7 of 2004 and 1557 of 2004, wherein all statutory
requirements were complied with deserve to be allowed, while
the others, owing to default on the part of the insured, are liable
to be rejected.
4. On the other hand, Shri Satinder Singh Gulati, learned
G counsel appearing on behalf of the insured, has submitted that
admittedly, there is in fact a typographical error in the impugned
judgment and order, and has stated that the claims of the
insured, with respect to which there has been no default on the
part of insured, i.e., some claims have wrongly been rejected.
H
EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. v. 343
GARG SONS INTERNATIONAL [DR S.S. CHAUHAN, J.]

Therefore, the appeals filed by him i.e. Civil Appeal Nos. 1559, A
1544, 1545, 1543 and 1546 of 2004 should be allowed and
the other appeals, should be rejected accordingly.

5. We have considered the rival submissions made by
learned counsel for the parties and perused the record. 8
6. Relevant clauses of the insurance policy dated
23.3.1995, read as under:

"8. Declarations:
c
(a) Declaration of shipments :- ........... .

(b) Declaration of overdue payments: The insured shall
also deliver to the Corporation, on or before the 15th of
every month, declaration in the term prescribed by the
Corporation, of all payments which remained wholly or D
partly unpaid for more than 30 days from the due date of
payment in respect of shipments made within the policy
period and such declaration shall continue to be rendered
to the Corporation even after the expiry of the policy period
so long as any such payment remains overdue. E

xx xx xx
19. Exclusion of Liability: Notwithstanding anything to the
contrary contained in this policy, unless otherwise agreed F
to by the Corporation in writing, the Corporation shall
cease to have any liability in respect of the gross invoice
value of any shipment or part thereof, if:

(a) the insured has failed to declare, without any omission,
all the shipments .required to be declared in terms of G
clause 8(a) of the policy and to pay premium in terms of
clause 1O of the policy;

(b) the insured has failed to submit declaration of overdue
payments as required by clause 8(b) of the policy; or H
344 SUPREME COURT REPORTS [2013] 1 S.C.R.

A (c) .........

7. If both the conditions referred to hereinabove are read
together, it becomes evident that the insured must make a
declaration in the prescribed form (Form No. 205), on the 15th
8 of every month as regards whether or not, there has been any
default committed by the foreign importer, either in part, or in
full, for a period exceeding 30 days from the date on which the
payment fell due, with respect to shipments made within the
policy period. Non-compliance with the said term(s) of contract,
C will exonerate the insurer of all liability in this regard.

8. It is a settled legal proposition that while construing the
terms of a contract of insurance, the words used therein must
be given paramount importance, and it is not open for the Court
to add, delete or substitute any words. It is also well settled,
D that since upon issuance of an insurance policy, the insurer
undertakes to indemnify the loss suffered by the insured on
account of risks covered by the policy, its terms have to be
strictly construed in order to determine the extent of the liability
of the insurer. Therefore, the endeavour of the Court should
· E always be to interpret the words used in the contract in the
manner that will best express the intention of the parties. (Vide:
Mis. Suraj Mal Ram Niwas Oil Mills (P) Ltd. v. United India
Insurance Co. Ltd., (2010) 10 SCC 567).
F 9. The insured cannot claim anything more than what is
covered by the insurance policy. "... the terms of the contract
have to be construed strictly, without altering the nature of the
contract as the same may affect the interests of the parties
adversely." The clauses of an insurance policy have to be read
G as they are ... Consequently, the terms of the insurance policy,
that fix the responsibility of the Insurance Company must also
be read strictly. The contract must be read as a whole and every
attempt should be made to harmonize the terms thereof,
keeping in mind that the rule of contra proferentem does not
H apply in case of commercial contract, for the reason that a
EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. v. 345
GARG SONS INTERNATIONAL [DR. B.S. CHAUHAN, J.]

clause in a commercial contract is bilateral and has mutually A
been agreed upon.
(Vide : Oriental Insurance Co. Ltd. v. Sony Cheriyan AIR
1999 SC 3252; Polymat India P. Ltd. v. National Insurance
Co. Ltd., AIR 2005 SC 286; M/s. Sumitomo Heavy Industries B
Ltd. v. Oil & Natural Gas Company, AIR 2010 SC 3400; and
Rashtriya /spat Nigam Ltd. v. Mis. Dewan Chand Ram Saran
AIR 2012 SC 2829).

10. In Vikram Greentech (/) Ltd. & Anr. v. New India C
Assurance Co. Ltd. AIR 2009 SC 2493, it was held :

"An insurance contract, is a species of commercial
transactions and must be construed like any other
contract to its own terms and by itself.... The endeavour
of the court must always be to interpret the words in which D
the contract is expressed by the parties. The court while
construing the terms of policy is not expected to venture
into extra liberalism that may result in re-writing the
contract or substituting the terms which were not intended
by the parties." E
(See also : Sikka Papers Limited v. National Insurance
Company Ltd & Ors. AIR 2009 SC 2834).
11. Thus, it is not permissible for the court to substitute the
terms of the contract itself, under the garb of construing terms F
incorporated in the agreement of insurance. No exceptions can
be made on the ground of equity. The liberal attitude adopted
by the court, by way of which it interferes Jn the terms of an
insurance agreement, is not permitted. The same must certainly
not be extended to the extent of substituting words that were G
never intended to form a part of the agreement.
12. The instant case is required to be considered in light
of the aforesaid settled legal propositions. The requisite record
reveals the factual matrix as under: H
346 SUPREME COURT REPORTS (2013] 1 S.C.R.

A CA Invoice Invoice Date Due Period Date for Delay In Amount
No. No. date of ship- date for submls- flllng
men! of payment slon 8(b)
payment of co_mpll-
Form- anee
205 8(b) (I.e.
complle form
nee 205)
B 1555/04 160/95 3.11.95 13.11.95 28.12.95 45 days 17.7.96 More than 87771-
5 months

1548/04 163195 8.11.95 20.11.95 5.1.96 45 days 17.7.96 More than 116424/-
5 months

1552/04 165195 13.11.95 19.11.95 4.1.96 45 days 17.7.96 More than 96474/-
5 months

c 1549/04 166/95 13.11.95 19.11.95 4.1.96 45 days 17.7.96 More than
5 months
67194/-

1551/04 177/96 2.1.96 3.2.96 16.3.96 45 days 17.7.96 More than 52629/-
2 months
-
1558/04 182/96 16.1.96 3.2.96 18.3.96 45 days 17.7.96 More than 249377/-
2 months

1553/04 184/96 29.1.96 15.2.96 31.3.96 45 days 17.7.96 More than 414354/-
D 2 months

1559/04 186/96 7.2.96 6.3.96 6.5.96 60 days 17.7.96 More than 239656/-
1 month

1550/04 191/96 22.2.96 24.2.96 24.4.96 60 days 17.7.96 More than 242055/-
1 month

1544/04 192/96 22.2.96 6.3.96 6.5.96 60 days 17 7.96 More than 343777/-
E 1 month

1545/04 193196 26.2.96 26.2.96 30.4.96 60 days 17.7.96 More than 267229/-
1 month

1543/04 195196 13.3.96 25.3.96 25.5.96 60 days 17.7.96 2 days 306159/

1556/04 196196 22.3.96 25.3.96 25.5.96 60 days 17.7.96 2 days 264400/

F 1547/04 200/98 19.4.96 6.5.96 6.7.96 60 days 17.7.96 314961/-

1546/04 162/95 8.11.95 20.11.95 5.1.96 45 days 17.7.96 More than 528257/-
5 months
1557/04 201/96 19.4.96 6.5.96 6.7.96 eo days 17.7.96 1362688/-

1542/04 184/95 11.11.05 19.11.95 4.1.95 45 days 17.7.96 More than 579766/-
G 5 months

13. The aforesaid chart clearly establishes that the insured
failed to comply with the requirement of clause 8(b) of the
agreement informing the insurer about the non-payment of
H outstanding dues by the foreign importer within the stipulated
EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. v. 34 7
GARG SONS INTERNATIONAL [DR. B.S. CHAUHAN, J.]

time except in two cases. A

14. Thus, we are of the view that only two claims which are
subject-matters in Civil Appeal Nos. 1547 and 1557 of 2004
deserve to be allowed. The others are dis-allowed.

With these observations, all 17 appeals stand disposed B
of.

B.B.B. Appeals disposed of.