Holding

The insurer is not liable due to breach of utmost good faith and lack of insurable interest, and the carrier's liability is limited to 666.67 Special Drawing Rights per the Indian Carriage of Goods by Sea Act, 1925.

Summary

The exporter D.K. Lall shipped goods on an FOB basis but obtained marine cargo insurance by misrepresenting the transaction as CIF, thereby breaching the duty of utmost good faith and lacking insurable interest under the Marine Insurance Act, 1963. The National Consumer Disputes Redressal Commission held the insurer not liable and found the carrier liable for misdelivery, but limited compensation to the amount prescribed by the Indian Carriage of Goods by Sea Act, 1925. The Supreme Court affirmed that under an FOB contract the seller’s title and risk pass to the buyer upon delivery to the carrier, extinguishing any insurable interest for the seller. It also clarified that liability of the carrier is governed by the Bill of Lading, which in this case listed a single package, limiting compensation to 666.67 Special Drawing Rights per the Act’s schedule. Consequently, the Court reduced the carrier’s compensation award to the rupee equivalent of 666.67 SDR and dismissed the appeal seeking higher damages.

Issues considered

The insurer's liability when the insured misrepresented the contract as CIF while the shipment was on FOB terms.
Whether the exporter retained an insurable interest in the goods after delivery to the carrier under an FOB contract.
The carrier's liability for misdelivery and the quantum of compensation under the Indian Carriage of Goods by Sea Act, 1925.
The proper basis (Bill of Lading vs packing list) for determining the number of packages for limitation of liability.
The applicability of the Consumer Protection Act, 1986 to the dispute.

Legislation cited

Consumer Protection Act
Indian Carriage of Goods by Sea Acts. 2, s. 4, s. Rule 5 of Article IV
Marine Insurance Acts. 19, s. 7
Sale of Goods Acts. 19, s. 23, s. 26, s. 39, s. 46, s. 47, s. 49

Subjects

marine insuranceinsurable interestutmost good faithFOB contractCIF contractcarrier liabilityIndian Carriage of Goods by Sea ActSpecial Drawing RightsBill of LadingConsumer Protection ActSale of Goods Act

Judgment

[2010] 3 S.C.R. 460

A CONTSHIP CONTAINER LINES LTD.
v.
D.K. LALL AND ORS.
(Civil Appeal No. 3245 of 2005)
' .
MARCH 16, 2010
B
[MARKANDEY KATJU AND T.S. THAKUR, JJ.}i

Consumer Protection Act, 1986:

c Claim for compensation by shipper for non-delivery of
consignment - Liability of insurance company and carrier of
goods - On facts, held: Insurance company not liable as the
insured obtained insurance policy on misrepresentation and
thus failed to maintain utmost good faith - However, service
D provided by carrier was deficient - Liability of carrier for
payment of compensation to the consignee is limited by the
provisions of the 1925 Act - Bill of Lading is the document
on the basis of which compensation is determinable against
the carrier in terms of provisions of 1925 Act - Bill of Lading
did not mention either the nature or the value of the goods -
E That being so, carrier is liable to pay compensation of rupee
equivalent of 666. 67 - Special Drawing Rights - Indian
Carriers of Goods by Sea Act, 1925 - ss.2, 4 - Export-Import
- Bill of Lading.

F Insurance:

Marine insurance - Export of goods - FOB contract -
Right of seller of goods upon delivery of goods to carrier -
Held: In case of FOB contracts, goods are delivered free on
G board the ship - Once seller places the goods safely on board
at his cost and thereby hand over possession of goods to the
ship responsibility of seller would cease and delivery of goods
to buyer is complete - Goods from that stage onwards would
be at the risk of buyer - On facts, since consignment was sent

H 460
CONTSHIP CONTAINER LINES LTD. v. D.K. LALL 461
AND ORS.
on FOB basis, seller reserved no right or lien qua the goods A
in question - Goods were from that stage onwards held by the
carrier at the risk of the buyer and the property in the goods
stood vested in the buyer - National Commission was right
in holding that seller had no insurable interest in the goods -
Sale of Goods Act, 1930 - ss.46 and 47 - Marine Insurance B
Act, 1963 - s. 7 - Contract - Consumer Protection Act, 1986
- Export-Import.

Misrepresentation by exporter wnile obtaining insurance
cover that the goods were despatched on CIF ba.sis whereas C
the goods were, in fact, sent on FOB basis - Material
departure breached the duty of utmost good faith cast upon
the exporter towards insurance company - Liability of
insurance company in case of mis-delivery of goods - Held:
Since the exporter had not observed utmost good faith,
insurance company stood absolved of its liability under the D
contract to reimburse loss to him. '

Contract:

CIF contract and FOB contract - Distinction between - E
Discussed.

Words and phrases:

Expression 'insurable interest' - Meaning of, in the
context of marine insurance. F

Responr:fent-exporter received two orders for export,
one for the export of steel furniture from Mis Natural
Selection International and the other from M/s Pindikas
for export of miniature paintings. According to the G
respondent, all the items meant for export in terms of the
orders were packed in 122 different cartons. The
mipiature paintings were packed in one carton meant for
export to Mis Pindikas and the iron furniture items were
pa~ked in 121 other cartons. The case of exporter was
that while 121 cartons were duly delivered, one carton H
462 SUPREME COURT REPORTS (2010) 3 S.C.R.

A comprising of miniature paintings was not delivered to M/
s Pindikas. The respondent filed a claim for
compensation of Rs.34.23 lacs representing the value of
llliniature paintings. The National Commission held that
the insurance policy was obtained on the representation
B that the transactions between the exporter and the
purchasers were on C.l.F. basis whereas the consignment
had in fact been sent on FOB basis, thus, there was
failure of the insured to maintain utmost good faith
easential for a. marine insurance policy. The Commission
. c also noted that in the declaration of the consignment sent
to the insured, no details of the conditions of shipment
were mentioned and on that basis held that there was no
deficiency of service on the part of the Insurance
Company. Regarding the claim against the carrier, the
Commission recorded a finding that the service provided
0
by them was deficient but held that the liability of the
carrier for payment·of compensation to the consignee
was limited by the provisions of the Indian Carriers of
Goods by Sea Act, 1925. The Commission noted that
since no value .of goods was given in the Bill of Lading,
E the only amount which the exporter was entitled to was
a sum equivalent to 1800$ in Indian rupee as per the then
prevailing rate of exchange. The complaint against agent
of carrier was dismissed. Review against the decision of
':National Commission was dismissed. Hence these cross
F appeals.

Disposing of the appeals, the Court

HELD: 1.1. The contract of insurance proceeded on
the basis that the fransactions between the seller and the
G
purchaser and meant to be covered by the policy would
be on CIF basis. The distinction between CIF (Cost
Insurance and Freight) and· FOB (Free on Board)
contracts is well recognized in the commercial world.
While in the case of CIF contract, the seller in the absence
H
CONTSHIP CONTAINER LINES LTD. v. D.K. LALL _463
AND ORS .
.of any special contract is bound to do certain things like A
making !'In invoice of the goods sold, shipping the goods
at the port of shipment, procuring a contract of insurance
under which the goods would be delivered at the
destination etc., in the case of FOB contracts, the goods
are delivered free on board the ship. Once the seller has · B
placed the goods safely on board at his cost and thereby
handed over the possession of the goods to the ship in
terms of the Bill of Lading or other 'documents, the
responsibility of the seller ceases and the delivery of the
goods to the buyer is complete. The goods are from that c
stage 'onwards at the risk of the buyer. [Para 21][477-G-
H; A-C]
1.2. The seller, in the case at hand, reserved no right
or lien qua the goods in question. In the absence of any
contractual stipulation between the parties, the unpaid D
seller's lien over the goods recognised in terms of
Sections 46 and 47 of the Sale of Goods Act, 1930 stood
terminated· upon delivery of the goods to the carrier. The
goods were from that stage onwards held by the carrier
at the risk of the buyer and the prpperty in the goods E
stood yested in the buyer. The National Commission was,
therefore, right,in holding that the seller had no insurable
interest in the goods thereby absolving the insurance
company of the lia~ity to reimburse the loss, if any,
arising from the mis-delivery of such goods. [Para 22] . F
[478-D-E-G]
B.K. Wadeyar v. Daulatram Rameshwarlal AIR 1961 SC
311, relied on.
'
Lucena v. Craufurd (1806) 2 Bos & PNR 269; Carter v. G
Boehm (1766) 3 Burr 1905, referred to. ·

Halsbury's Laws of England, Fourth Edition; Macgillivray
on Insurance Law, referred to.
H

(
,
464 SUPREME COURT REPORTS [2010] 3 S.C.R.

A 1.3. The National Commission recorded a clear
finding that the insurance cover obtained by the exporter
envisaged goods being despatched on CIF.·basis
whereas the goods were, in fact, sent on FOB basis.
This was a materiai departure which breached the duty
B of utmost good faith cast upon the exporter towards the
insurance company. If the proposal for insurance had
disclosed that the goods will be sent on FOB basis, the
qu~stion whether the supplier had any insurable interest
in the goods and if he had what premium the company
c would charge for the same may have assumed
impo.rtance. Be that as it may, the duty to make a
complete disclosure not having been pbserved by the
; · exporter, the National Commission was justified in
holding that the shipper had not observed utmost good
faith and insurance company stood absolved of its
0
. liability .under the contract and in dismissing the petition
1
qua the said company. [Paras 27) [480-G-H; 481-A]

2.1. The National Commission came to the
conclusion that the c6nsignment meant to be delivered
E to Pindikas was misdelivered and what was offered to
Pindikcils did not actually contain miniature paintings
meant for the said ·consignee. That firding is justified on
the material on record from which it is evident that out of
122 cartons 121 cartons were delivered to M/s Natural
F Selection International while the only remaining carton
when checked in the presence of the General Counsulate
,of India was found to contain steel furniture items. The
National Commission rightly rejected the contention that
the carton was not properly marked, making it difficult for
G the shipping company to separate the same from other
cartons which were meant for Mis Natural Selection
International. There is no reason to interfere with the
findings of the National Commission. However, the
National Commission was not justified in awarding rupee
H equivalent of US$ 1800 to the shipper by way of
CONTSHIP CONTAINER LINES LTD. v. D.K. LALL 465
AND ORS.
compensation. The National Commission instead of A
going by the number of packages entered in the Bill of
Lading had gone by the packages mentioned in the
packing list. The Bill of Lading was the only document
on the basis of which compensation could be determined
against the carrier in terms of the provisions of Indian B
Carriage of Goods by Sea Act, 1925 and the Schedule
thereto. A careful reading of Sections 2, 4 and Rule 5 of
.Article IV would show that in cases where a container,
pallet or similar article of transport is used to consolidate
gooC:., the number of packages or units enumerated in c
the Bill of Lading and as packed in such article of
transport shall be deemed to be the number of packages
or units for purposes of Rule 5 as far as these packages
or units are concerned. [Paras 28 and 29] [481-C-H; 482-
A; 483-B] D
United India Insurance Company Ltd. v. M.K.J.
Corporation ·(1996) 6 SCC 428; Modern Insulators Ltd. v.
Oriental Insurance Co. Ltd. (2000) 2 SCC 734, referred to.

2.2. It is not in dispute that 122 cartons despatched E
by the shipper were consolidated in a container, nor is it
· disputed that there w.as only one package indicated in the
Bill of Lading concerning the consignment meant for
PindikaS. The National Commission could not go beyond
the Bill of Lading and award compensation on the basis F
of the packing list which may have mentioned several
packages cor1Solidated in one bigger package, delivery
whereof was acknowledged in the Bill of Ladir,g. The
Commission ought to have taken the number of
packages to be only one as mentioned in the Bill of G
Lading. The Commission also appears to have gone by
the unamended provisions of Rule 5 in which the amount
of compensation was stipulated to be US$ 100 per
package. After the amendment to the Schedule in the year
1992 by Act 28 of 1993 the amount of compensation was
H
466 SUPREME COURT REPORTS (2010] 3 S.C.R.

A to be paid in terms of Special Drawing Rights. The
shipper would be entitled to the compensation of 666.67
Special Drawing Rights per package or two Special
Drawing Rights per kilogram according to the gross
weight of the goods lost or damaged whichever is higher.
B The single package meant for Pindikas weighed 200 kgs.
The.amount of compensation payable by reference to the
weight of the package would come to 400 Special
Drawing Rights. The amount of compensation, actually
payable would, however, be 666.67 Special Drawing
C · Rights being higher of the two amounts. [Paras 30 and
31] [483-C-H]

2.3. The compensation by reference to the value of
the goods lost or damaged can be claimed only if the
nature or the value of such goods has been declared by
D the shipper before shipment and inserted in the Bill of
Lading. Even assuming that the nature and the valuation
of the goods had been declared by the shipper before
the shipment the requirement of 'insertion of the same Jn
the Bill of Lading' was not satisfied in the present case.
E The Bill of Lading did not mention either the nature or the
value of the goods. That being so, compensation of
rupee equivalent of 666.67 Special Drawing Rights was
the only amount that could be awarded by the
Commission to the shipper. In as much as the
F Commission awarded US$1800 it committed a mistake
that calls for correction. [Para 32] [484-B-D]
Case Law Reference:
(1806) 2 Bos & PNR 269 referred to Pa,ra 15
G
AIR 1961 SC 311 relied on. Para 22
(1766) 3 Burr 1905 referred to Para 23
(1996) 6 sec 428 referred to Para 25
H (2000) 2 sec 734 referred to Para 26
CONTSHIP CONTAINER LINES LTD. v. D.K. LALL 46?.
AND ORS.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. A
3245 of 2005.

From the Judgment & Order dated 29.10.2003 of the
National Consumer Disputes Redressal Commission in M.P.
No. 214 of 2003. B
WITH
C.A. Nos. 6232 of 2004 & 8276 of 2003.

Kailash Vasdev, N. Ganpathy, Chitranshul Sinha, Sanjeev C
Sachdeva, Meenakshi Midha, B.K. Satija for the appearing
parties.

The Judgment of the Court was delivered by

T.S. THAKUR, J. 1. These three cross appeals arise out D
of an order passed by the National Consumer Disputes
Redressal Commission, New Delhi (hereinafter referred to as
the 'National Commission') whereby it has dismissed the,
complaint filed by the respondent Shri D.K. Lall, proprietor of
M/s Lall Enterprises against respondent-National Insurance E
Company Ltd. while granting relief in part to the cor:nplainant
against Contship Container Lines Ltd., the shipping company
to whom the consignment in question was entrusted for delivery
to the consignee in Barcelona, Spain. The facts giving rise to
. the controversy may be summarised as under:
F
2. Mis D.K. Lall Enterprises, a sole proprietary concern,
claims to have received an order for export of iron ft •rniture and
iron handicraft items from M/s Natural Selection International,
a Spanish purchaser of those items. A similar order for export
of miniature paintings is also said to have been received by G
the said concern from M/s Pindikas another concern located
in Spain. The case of M/s D.K. Lall Enterprises (hereinafter to
as the 'Exporter') is that all the items meant for export in terms
of the above orders were packed in 122 different cartons for
shipment to the purchasers in Spain. According to the exporter H
468 SUPREME COURT REPORTS [2010] 3 S.C.R.

A while miniature paintings were packed in one carton meant for
export to M/s Pindikas, the iron furniture items meant for export
to Mis Natural Selection International were packed in 121 other
cartons. These packages were, according to the Exporter,
checked and cleared by the Customs Authority at Jodhpur anct
B finally stuffed in one simple container, for which purpose the
exporter hired the services of Mis Samrat Shipping & Transport
System Pvt. ltd. through its local agent who forwarded the
container to Bombay where it was put on board CMBT
Himalaya, a vessel belonging to M/s Contship Container Lines
c Ltd.-appellant in C.A. No.6232 of 2004. It is noteworthy that the
exporter had obtained a Marine Cargo/Inland transit insurance
policy to cover risks enumerated in the policy.

3. The case of the exporter is that the consignment
reached Barcelona, Spain on 1st March, 1997 and that while
D 121 cartons had been duly received by M/s Natural Selection
International, one carton marked for M/s Pindikas comprising
miniature paintings was not so delivered to the consignee. The
claim for payment of compensation on account of the alleged
deficiency of service having been denied by the Shipping
E Company as also by the Insurance Company the exporter filed
O.P. No.272 of 1997 before the National Consumer Disputes
Redressal Commission, New Delhi, claiming compensation to
the tune of Rs.39,23,225/- representing the value of the
miniature paintings with interest pendente lite and till realization.
F The respondents contested the claim made against them, inter
alia, on the ground that the petitioner was not a consumer anq
that the case involved complicated questions of fact and law,
which cm.i:::! not be determined in summary proceedings before
the Consumer Commission. It was also alleged that the exporter
G had never stuffed/exported the carton containing miniature
paintings and that the claim made by the exporter to that effect
was false. Reference was made to the Bill of Lading according
to which the particulars declared by the shipper/exporter had
not been checked by the carrier. It was also alleged that under
~~ clause 17 of the Bill of Lading and Article IV Rule 5 of The Indian
CONTSHIP CONTAINER LINES LTD. v. D.K. L,ALL 469
AND ORS. [T.S. THAKUR, J.]
Carriage of Goods by Sea Act, 1925 the liability of the carrier A
was limited to 2 SDRs per kg of weight, which came to 400
SDRs for the loss of the undelivered package weighing 200
kgs. equivalent to Rs.21,428/- only. The respondents further
alleged that the cartons had not been properly marked with the
result that the same could not be segregated before being B
delivered to the consignee concerned.

4. The Insurance Company also filed a separate reply,
alleging that the exporter was in collusion with the buyers trying
to perpetrate' a fraud on them with a view to making an C
undeserved & unjust financial gain. The company alleged that
the valuation indicated in the policy was C.l.F. + 10% whereas
the invoice FOB .(Free on Board) and the Bill of Lading was
clean. The company asserted that the liability of the seller came
to an end no sooner the consignment was loaded on to the ship
leaving the exporter with no insurable interest in the D/
consignment.

5. The Commission received three affidavits as evidence
cine filed by the exporter, the second by Carrier while the third
was filed by Mr. Ramesh Goyal, Senior Branch Manager of the E
Insurance Company. By its order dated 14th July, 2003 the
Commission held that the Insurance Policy had been obtained
on the representation that the transactions between the exporter
and the purchasers were on C.l.F. basis whereas the
consignment had in fact been sent on FOB basis which F
absolved the Insurance Company of any liability for the failure
of the insured to maintain utmost good faith essential for a
marine insurance policy. The Commission noted that in the
declaration of the consignment sent to the insured no details
of the conditions of shipment were mentioned. There was thus, G
in the opinion of the Commission, absence of good faith on that
account also. The Commission further held that the policy
covered risks only at sea and "that ware house to ware house"
coverage was limited to risk arising from inland transit alone.
The terms of the policy did not according to the Commission H

··->'·~··,.
, ' ... -..:_ ~. "·· .· ·~ - '
.· . . · ·r~
470 SUPREME COURT REPORTS [2010] 3 S.C.R.

A cover the risk till delivery was made to the consignee. The
Commission on that basis held that there was no deficiency of
service on the part of the Insurance Company.

6. In so far as the claim against the carrier was concerned,
B the Commission recorded a finding that the service provided
by them was deficient but held that the liability of the carrier for
payment of compensation to the consignee was limited by the
provisions of the Indian Carriers of Goods by Sea Act, 1925.
The Commission noted that since no value of goods was given
in the Bill of Lading the only amount which the exporter was
C entitled to was a sum equivalent to 1800$ in Indian rupee as
per the then prevailing rate of exchange with interest @ 9% from
1.7.1998 till the date of payment with costs of Rs.10,000/-. The
complaint, so far as Mis Samrat Shipping & Transport System
Pvt. Ltd. was concerned, was dismissed on the ground that it
D was acting only as an agent of the carrier. A review petition filed
against the said order by Mr. D.K. Lall having been dismissed
by the Commission by its order dated 29th October, 2003, the
appellants have filed the present appeals to assail the
correctness ofthe orders passed by the Commission.
E
7. Two distinct issues fall for our consideration, one
touching the liability of the Insurance Company and the other
concerning the liability of the carrier. On behalf of the insurance
company a two-fold submission was advanced before us.
F Firstly, it was contended that since the transaction between the
exporter and the purchaser in Spain was on FOB basis, the
exporter had no insurable interest in the goods once the same
wer-e delivered to the carrier. It was argued that in a FOB
transaction the property in goods stands transferred to the
purchaser no sooner the goods are entrusted to the carrier or
G at least when the same cross the customs barrier for shipment.
This implies that all the risks relating to such goods are.that of
the purchaser who alone could sue the carrier or insurance
company if there was an insurance cover obtained by him for
such goods. The terms of the transaction between the shipper
H
--
CONTSHIP CONTAINER LINES LTD. v. D.K. LALL 47f
AND ORS. [T.S. THAKUR, J.]
and the purchaser did not in the instant case reserve in favour A
of the shipper any right or interest in the goods so as to
constitute an insurable interest within the meaning of Section
7 of the Marine Insurance Act, 1963.

8. Secondly, it was contended that a contract of insurance
8.
was based on utmost good faith not only by reason of the
general principles governing such contracts but also by reason
of Section 19 of the Marine Insurance Act, 1963. The shipper
had not, however, observed utmost good faith while obtaining
the insurance cover-from the respondent-insurance company C
inasmuch as the shipper had taken out an insurance policy from
the company on the representation that the goods were being
dispatched on CIF (cost insurance and freight basis) while in
reality the goods had been sent by the shipper on FOB basis
which constituted a material non-disclosure hence failure of
utmost good faith by him within the meaning of Section 19 of D
the Act aforementioned.

9. Section 3 of the Marine Insurance Act, 1963 defines
marine insurance to mean an agreement whereby insurer
undertakes to indemnify the assured, in the manner and to the . E
extent thereby agreed, against marine losses, that is to say,
. losses incidental to a marine adventure. Section 4 of the Act
provides that a contract of marine insurance may, by its express
terms, or by usage of trade, be extended so as to protect the
assured against losses on inland waters or on any land risk F
which may be incidental to any sea voyage. Section 5 permits
every lawful "marine adventure" to be the subject matter of a
contract of marine insurance. The expression "marine
adventure" is defined by Section 2(d) in the following words:

"2(d): "marine adventure: includes any adventure where - G

(i) any insurable property is exposed to maritime
perils;

(ii) the earnings or acquisition of any freight, passage H
472 SUPREME COURT REPORTS [2010] 3 S.C.R.

A money, commission, profit or other pecuniary
benefit, or the security for any advances, loans, or
disbursements is endangered by the exposure of
insurable property to maritime perils; ,

(iii) any liability to a third party may be incurred by the
B
owner of, or other person interested in or
responsible for, insurable property by reason of
maritime perils".

10. The expression "maritime perils" referred to in Section.
C 2(d) supra is defined in Section 2(e) as under:

"2(e) : "maritime perils" means the perils consequent on,
or incidental to, the navigation of the sea, that is to say,
perils of the seas, fire, war perils, pirates, rovers, thieves,
D captures, seizures, restraints and detainments of princes
and people, jettisons, barratry and any other perils which
are either of the like kind or may be designated by the
policy". ·

11. Section 7 of the Act stipulates that subject to the
E provisions of the Act every person interested in a marine
adventure has an insurable interest. It reads:

"Section 7: Insurable interest defined - (1) Subject to the
provisions of.this Act, every person has an insurable interest
F who is interested in a marine adventure.

(2) In particular a person is interested in a marine
adventure where he stands in any legal or equitable relation
to the adventure or to any insurable property at risk therein,
in consequence of which he may benefit by the safety or
G due arrival of insurable property, or may be prejudiced by
its loss, or by damage thereto, or by the detention thereof,
or may incur liability in respect thereof.

12. What is noteworthy is the use of the words "interested
H in a marine adventure" appearing in Section 7 of the Act. The
CONTSHIP CONTAINER LINES L;TD. v. D.K. LALL 473
AND ORS. [T.S. THAKUR, J.]

expression "interested" has not beeri defined in the Act although A
sub-section (2) to Section 7 gives an indication of what would
constitute 'interest' in a marir:ie adventure. The question is
whether a seller of goods on FOB basis like the complainant
in the present case can be said to be 'interested in marine
adventure' within the meci'hing of Section 7. If the answer be · B
in the affirmative, the complainant wquld have an insurable
interest but not otherwise.

13. The provisions of Marine Insurance Act, 1906 enacted
by the British Parliament are in pari materia with those C
contained in the Indian Act. The former is in fact a precursor to
the latter. The definition of 'insurable interest' given in the
English legislation is the same as the one given in Section 7
of our enactment. Judicial pronouncements by English Courts .
would, therefore, be both relevant and helpful in understanding
the true purport of the expression 'insurable interest'. D

14. Halsbury's Laws of England, Fourlh Edition has, while
dealing with the expression "insutable interest" under the.Marine
Insurance Act, 1906 prevalent in that country, explained the
purport of the expression "interest" in a marine adventure in the E.
· · following words:

"A person may be said to be. interested in an event when,
if the event happens, he will gain an advantage, and, if it
is frustrated, he will suffer a loss, and it may be stated as
F
a general principle that to constitute an insurable interest
it must be an interest such that the peril would b,Y" its
proximate effect cause damage to the assured, th~t is to
say cause him to lose a benefit or incur a liability.

15. Halsbury's refers to the decision of House of Lords in G
Lucena· V. Craufurd (1806) 2 Bos & PNR 269 as to the
meaning of the expression "insurable interest":

"A man is interested in a thing to whom advantage may
r . ; arise or prejudice happen from the circumstances which H ·:
474 SUPREME COURT REPORTS [2010] 3 S.CR.

A may attend it; ... and whom it importeth that its condition as
to safety or other quality should continue. Interest does not
necessarily imply a right to the whole or part of the thing,
nor necessarily and exclusively that which may be the
subject of privation, but the having some relation to, or
8 concerning the subject of the insurance; which relation or
concern by the happening of the perils insured against,
may be so effected as to produce a damage, determent
or prejudice to the person insuring. And where a man is
so circumstanced with respect to matters exposed to
c certain risks and dangers as to have a moral certainty of
advantage or benefit but for those risks and dangers, he
may be said to be interested·ln the safety of the· thing. To
be interested in the preservation of a thing is to be so
circumstanced with respect to it as to have benefit from
its existence, prejudice from its destruction."
D
16. Dealing with the question whether the seller of goods
retains any insurable interest, Halsbury explains:

"When, however, the property which is the subject matter
E of the contract of sale has completely passed from the
seller to the buyer or when it has under the contract of
sale become completely at the buyers' risk, the seller·
ceases to have any insurable interest, and the buyer
acquires one. Thus, a contract fcir the sale of goods to be
F supplied on board, a particular vessel may be' so framed
that the property in them and the risk of their loss do not
pass to the buyer until a complete cargo has be~n loaded,
in which case the buyer has no insurable interest until the
complete cargo has been loaded; or the contract may be
so framed that the property in and the risk as to any part
G
of the goods passed to the buyer on shipment, in which
case the buyer acquires an insutable interest on any part ·
of the goods then shipped." · '

(emphasis supplied)
H
CONTSHIP CONTAINER LINES LTD. v. D.K. LALL 475
AND ORS. [TS. THAKUR, J.]
17. Reference may also be made by us to Macgillivray on A
Insurance Law. While dealing with insurable interest under
contracts for the Sale of Goods, the author has the following to
say:

"The unpaid seller of goods who has parted with property
8
in them has no insurable interest in them unless either
they remain at his risk or he has a lien, charge or other
security interest over them for the price. So long as the
risk remains with him, he has an interest whether the
property has passed or not, and the measure of his interesf C
is the purchase price or the actual value of the goods,
whichever is the greater.

Even when risk and property have both passed, the
seller retains an insurable interest in the goods while he
still possesses them because, if he is unpaid in whole or D
part on account of the buyer's insolvency or for other
reasons, he has an interest in respect of his lien for the
purchase money. His possession of the goods would also
permit him to insure on the buyer's behalf if his intention
is clear ar.id the policy does not forbid it." E

(emphasis supplied)

18. We may now refer to the provisions of the Sales of
Goods Act, 1930 relevant to the transfer of the property in
goods to the purchaser specially in a FOB-transaction like the F
one in the instant case. Section 19 of the said Act provides
that in a contract for the sale of specific or ascertained goods,
the property in them is transferred to the buyer at such time as
the parties to the contract intend it to be transferred and that
for the purpose of ascertaining the intention of the parties G
regard shall be had to the terms of the contract, the conduct of
the parties and the circumstances of the case. Sections 20 to
24 of the said Act prescribe rules for ascertaining the intention
of the parties as to the time at which the property is to pass to
the buyer. One of the said rules is that in unconditional contracts H

,J
476 SUPREME COURT REPORTS [2010) 3 S.G.R.

A for the sale of specific goods in a deliverable state, the property
in the goods passes to the buyer when the contract is made
irrespective of the fact that the time of payment of the price or
the time for the delivery of the goods or both are postponed.
Yet another rule contained in Section 23 of the Act is that where
B contract for the sale of uncertained or future goods by.
description are unconditionally appropriated to the contract
either by the seller with the assent of the buyer or by the buyer
with the assent of the seller, the property in the goods passes
to the buyer. So also where the seller delivers the goods to the
c buyer or to a carrier or other bailee for the purpose of
transmission to the buyer and does not reserve the right of
disposal, he is deemed to have unconditionally appropriated
the goods to the contract. Section 23(2) which stipulates that
rule reads:

D "Delivery to carrier. - Where, in pursuance of the contract,
the seller delivers the goods to the buyer or to a carrier or
other bailee (whether named by the buyer or not) for the
purpose of transmission to the buyer, and does not reserve
the right of disposal, he is deemed to have unconditionally
E appropriated the goods to the contract."

19. Section 25 provides that where there is a contract for
the sale of specific goods or where goods are subsequently
appropriated to the contract, the seller may, by the terms of the·
F contract or appropriation, reserve the right of disposal of the
good.s until certain conditions are fulfilled. In such a case,
notwithstanding the delivery of the go~ds to a buyer or to a
carrier or other bailee for the purpose of transmission to the
buyer, the property in the goods does not pass to the buyer until
G the conditions imposed by the seller are fulfilled. Section 26
of the Act provides that unless otherwise agreed, the goods
remain at the seller's risk until the property therein is transferred
to the buyer but when the property therein is transferred to the
buyer, the goods are at the buyer's risk whether delivery has
been made oc not. Section 26 may at this stage be extracted:
H

,
'
CONTSHIP CONTAINER LINES LTD. v. D.K. LALL 477.
AND ORS. [T.S. THAKUR, J.]
"Section 26: Risk prima facie passes with property - . A
Unless otherwise agreed, the goods remain at the seller's
crisk until the property therein is transferred to the buyer, but,
when the property therein is transferred to the buyer, the
goods are at the buyer's risk whether delivery has been
made or not: B.

ProvJded that, where delivery has been delayed through
the fault of either buyer or seller, the goods are· at the risk
of the party in fault as regards any loss which might not
have occurred but for such fault:
c
Provided also that nothing in this section shall affect the
duties or liabilities of either buyer or seller as a bailee of
the goods of the other party."

20. Section 39, inter alia, provides that delivery of the D
goods to a carrier whether named by the buyer or not, is prima
facie deemed to be delivery of the goods to the buyer.
Sections 46 and 47 deal with unpaid seller's rights and lien and,
inter alia, provide that unpaid seller shall, subject to the
provisions of the Act and of any law for the time being in force, E
have a lien on the goods for the price while he is in possession
of them and that the seller can retain the possession of the
goods until payment or tender of the price in situations where
the buyer has become insolvent or goods have been sold on
credit, but the term of credit has expired.· The lien, however,
F
stands terminated in terms of Section 49 of the Act when the
goods are delivered to a carrier for the purpose of transmission
to the buyer without reserving the right of disposal of the goods.

21. Coming to the case at hand, the contract of sale was
on FOB basis even.when the contract of insurance proceeded G
on the basis that the transactions between the seller and the
purchaser and meant to be covered by the policy would be on
CIF basis. The distinction between CIF (Cost Insurance and
Freight) and FOB (Free on Board) contracts is well recognized
in the commercial world. While in the case of CIF contract the H
478 SUPREME COURT REPORTS [2010] 3 S.C.R,.

A seller in the absence of any special contract is bound to po
certain things like making an invoice of the goods sdld,
shipping the goods at the port of shipment, procuring a contract
_9f insurance under which the goods will be delivered at the
destination etc., in the case of FOB contracts the goods are
B delivered free on board the ship. Once the seller has placed
the goods safely on board at his cost and thereby handed over
the possession of the goods to the ship in terms of the Bill -Of
Lading or other documents, the responsibility of the seller
ceases and the delivery of the goods to the buyer is complete.
C The goods are from' that stage onwards at the risk of the buyer.
22. It is common ground that the seller had, in the case at
hand, reserved no right or lien qua the goods in question. In
the absence of any contractual stipulation between the parties
the__unpaid seller's lien over the goods recognised in terms of
D Sections 46 and 47 of the Sale of Goods Act, 1930 _stood
terminated upon delivery of the goods to the carrier. The goods
were from that stage onwards held by the carrier at the risk of
the buyer and the property in the goods stood vested in the
buyer. The principle underlying transfer of title in goods in FOB
E · contracts was stated by a Constitution Bench of this Court in
BOK. Wadeyar v. Daulatram Rameshwarlal (Al R 1961 SC 311)
The- question as to the transfer of title in the goods arose in that
case in the context of a fiscal provision but the principle relating
to the transfer of title· in goods in terms of FOB contract was
F unequivocally recognised. This Court held that in FOB contracts
for sale of goods, the property is intended to pass and does ·
pass on the shipment of the goods. The National Commission
was, therefore, right in holding that the seller had no insurable
interest in the goods thereby.absolving the insurance company
· G of the liability to reimburse the loss, if ariy. arising from the mis.-
delivery of such goods. "' . ' .

23. We consider it unnecessary to delve any further on this
aspect of the matter for in our opinion the claim made by the
shipper against the insurance company has been rightly
H

.'
CONTSHIP CONTAINER LINES LTD. v. D:K. LALL 479
AND ORS. [T.S. THAKUR, J.]
rejected by the National Commission on the ground that the A
shipper had not observed utmost good faith while obtaining the
insurance cover. The principle that insurance is a contract
founded on good faith is of vintage value. In Carter V. Boehm
(1766) 3 Burr 1905 one of the earliest cases on the subject the
principle was stated by Lord Mansfield in the following words: B

"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 assured only; the .
underwriters trusts to his representation and proceedS" C
upon confidence that he does not keep back any
circumstance in his knowledge to mislead the underwriter
into a belief that the circumstance does not exist. The
keeping back such circumstance is a fraud, and therefore
the policy is void. Although the suppression should happen
through mistake; without any fraudulent intention; yet still D
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 E
concealing what he privately knows, to draw the other into
a bargain from his ignorance of the fact, and his believing
the contrary."

24. Section 19 of the Marine Insurance Act, .1963 grant.s F
statutory recognition to the above principle. It reads:

"19. Insurance is uberrimae fidei. - A contract of marine
insurance is a contract based upon the utmost good faith,
and if the utmost good faith be not observed by either
party, the contract may be avoided by the other party." G

25. In United India Insurance Company Ltd. V. M.~.J.
Corporation (1996 (6) SCC 428) this Court declared good faith
as the very essence of a contract of insurance in the following
words: ·H
480 '• SUPREME COURT REPORTS [2010] 3 S.C.R.

A a
"ft is funtj_amental principle of Insurance law that utmost
good faith must be observed by the contracting parties.
_.Good. faith. forbids either party from concealing (non-
~isclos,ure) what he privately knows, to draw the other into·
a bargain, from hrs ignorance of that fact and his believing
the contrary. Just as the insured has a duty to disclose,
1
similarly, it is the duty of the insurers and their agents to
disclose all material facts within their knowledge, since
obligation of good faith applies to them equally with the
assured. The duty of good faith is of a continuing nature.
c After the completion of the contract, no material alteration
can be made in its terms except by mutual consent. The
materiality of a fact is judged·by the circumstances existing
at the time when the contract is concluded."

26. To the same effect is the decision of this Court in
D Modem Insulators Ltd. V. Oriental Insurance Co. Ltd. (2000
(2) SCC 734) where this Court observed:

"It is the fundamental principle of insurance law that
utmost good faith must be observed by the contracting
E parties and good faith forbids either party from non-
disclosure of the facts which the parties know. The insured
has a duty to disclose and similarly it is the duty of the
insurance company and its agents to disclose all material
facts in their knowledge since the obligation of good faith
F applies to both equally."

27. The National Commission has, in the instant case,
recorded a clear finding the correctness whereof has not been
· disputed before us that the insurance cover obtained by the
exporter envisaged goods being despatched on CIF basis
G whereas the goods were, in fact, sent on FOB basis. This was
a material departure which breached the duty of utmost good
faith cast upon the exporter towards the insurance company.
If the proposal for insurance had disclosed that the goods will
be sent on FOB basis, the question whether the supplier had
'. H any insurable interest in the goods and if he had what premiu111
. CONTSHIP CONTAINER LINES LTD. v. D.K. LALL 481
AND ORS. [T.S. THAKUR, J.]

the company would charge for the same may have assumed A
importance. Be that as it may, the duty to make a complete
disclosure not having been observed by the exporter, the
National Commission was justified in holding that the insurance
company stood absolved of its liability under the contract and
in dismissing the petition qua the said company. B

28. That brings us to the question whether the National
Commission was justified in holding that the service rendered
by the carrier was deficient, and if so, whether it was right in
awarding rupee equivalent of US$ 1800 by way of C
compensation. The National Commission has on appreciation
of the material on record come to the conclusion that the
consignment meant to be delivered to Pindikas was
misdelivered and what was offered to Pindikas did not actually
contain miniature paintings meant for the said consignee. That .
finding is, in our opinion, justified on the material on record from. D
which it is evident that out of 122 cartons 121 cartons were
delivered to Mis Natural Selection International while the only
remaining carton when checked in the presence of the General
Counsulate of India was found to contain steel furniture items.
The inference, therefore, is that the carton containing miniature E
paintings had been misdelivered by the carrier who ought to
have taken care! to deliver the same to the consignee
· concerned. The National Commission has rightly rejected the
contention that the carton was not properly marked making it
difficult for the shipping company to separate the same from F
other cartons which were meant for Mis Natural Selection
International. There is indeed, no room for us to interfere with
the finding$ of the National Commission. Tr.e question,
· however, is whether the National Commission was justified in
awarding rupee equivalent of US$ 1800 to the shipper by way G
of compensation. There are two errors which are evident in the
order by the National Commission in that regard. Firstly, the
National Commission has instead of going by the number of
packages entered in the Bill of Lading gone by the packages
- mentioned in the packing list. The Bill of Ladihg was the only H
482 SUPREME COURT REPORTS [2010] 3 S.C.R.

A document on the basis of which compensation could be
determined against the carrier in terms of the provisions of The
Indian Carriage of Goods by Sea Act, 1925 and the Schedule
thereto. Section 2 of the said Act provides that the rules set
out in the Schedule shall have effect in connection witti the
B carriage of goods by sea in ships carrying foods from any port
in India to any other port whether in cir outside India. Section 4
requires that every Bill of Lading or similar document of title
issued in India to which Rules apply shall contain an express
statement that it is to have effect subject to the provisions of
c the said Rules as applied by the Act. In terms of Rule 5 ofArticle
IV neither the carrier nor the ship shall be liable for any loss or
damage to or in connection with goods in excess of the .·
·-amounts stipulated therein. Rule 5 of Article IV to the extent the
same is relevant for our purposes may be extracted at this
stage:
0
"5. Neither the carrier nor the ship shall in any event be or
become liable for any loss or damage to or in connection
with goods in an amount exceeding 666.67 Special
Drawing Rights per package or unit or two Special
E Drawing Rights per kilogram of gross weight of the goods
lost or damaged, whichever is higher, or the equivalent of
that sum in other currency, unless the nature and value of
such goods have been declared by the shipper before
shipment and inserted in the bill of lading.
F
Where a container, pallet or similar article of
transport is used to consolidate goods, the number of
packages or units enumerated in the bill of lading and as
packed in such article of transport shall be deemed to be
the number of packages or units for the purposes of this
G
paragraph as far as these packages or units are
concerned.

Neither the carrier nor the ship shall be entitled to the
benefit of limitation of liability provided for in this paragraph ,
H if it is proved that the damage resulted from an act or
CONTSHIP CONTAINER LINES LTD. v. D.K. LALL 483
AND ORS. [T.S. THAKUR, J.]
omission of the carrier done with intent to cause damage, A
or recklessly and with knowledge that damage would
probably result".

29. A careful reading of the above would show that in cases
where a container, pallet or similar article of transport is used B
to consolidate goods, the number of packages or units
enumerated in the Bill of Lading and as packed in such article
of transport shall be deemed to be the number of packages or
units for purposes of Rule 5 as far as these packages or units
are concerned.
c
30. It is not in dispute that 122 cartons despatched by the
shipper were consolidated in a container, nor is it disputed that
there was only one package indicated in the Bill of Lading
concerning the consignment meant for Pindikas. The National
Commission could not go beyond the Bill of Lading and award D
compensation on the basis of the packing list whieh may have
mentioned several packages cons.olidated in one bigger
package, delivery whereof was acknowledged in the Bill of
Lading. The Commission ought to have taken the number of
packages to be only one as mentioned in the Bill of Lading. E

31. The second error committed by the National
Commission is equally manifest. The Commission appears to
have gone by the unamended provisions of Rule 5 in which the ·
amount of compensation was stipulated to be US$ 100 per
package. After the amendment to the Schedule in the year 1992 F
by Act 28 of 1993 the· amount of compensation was to be paid
in terms of Special Drawing Rights. As noticed above the
shipper would be entitled to the compensation of 666.67
Special Drawing Rights per package or two Special Drawing
Rights per kilogram according to the gross weight of the goods G
lost or damaged whichever is higher. The single package
meant for Pindikas weighed 200 kgs. The amount of
compensation payable by reference to the weight of the
package would come to 400 Special Drawing Rights. The
amount of compensation, actually payable would, however, be H
484 SUPREME COURT REPORTS [2010] 3 S.C.R.

A 666.67 Special Drawing Rights being higher of the two
amounts.

32. It was next argued that the shipper would be entitled
to the value of the goods misdelivered which according to the
B shipper was not less than Rs.39,23,225/-. There is no merit in
that submission. We say so because compensation by
reference to the value of the goods lost or damaged can be
claimed only if the nature or the value of such goods has been .
declared by the shipper before shipment and inserted in the
Bill of Lading. Even assuming that the nature and the valuation
C of the goods had been declared by the shipper before the
shipment the requirement of 'insertion of the same in the Bill
of L'ading' was not satisfied in the present case. The Bill of
Lading does not mention either the nature or the value of the
goods. That being so, compensation of rupee equivalent of
D 666.67 Special Drawing Rights was the only amount that could
be awarded by the Commission to the shipper. In as much as
the Commission awarded US$1800 it committed a mistake that
calls for correction.

E 33. In the result we dismiss C.A. No.8276 of 2003 but partly
allow C.A. Nos.3245 of 2005 and 6232 of 2004 to the extent
that the amount of compensation payable to the shipper shall
stand reduced to the rupee equivalent of 666.67 Special
Drawing Rights only. The order passed by the National
F Commission shall stand modified to the above extent leaving
the parties to bear their own costs.

D.G. Appeals disposed of.