Holding

ECGC is not liable under the Shipments policy as the exclusion for loss due to the collecting bank’s default applies, and the guarantee to PNB does not admit liability to the exporter.

Summary

The Export Credit Guarantee Corporation of India (ECGC) issued a Shipments (Comprehensive Risk) Policy to M.S. Creations for export of handloom goods to SICOREP in Ivory Coast. After a change in the collecting bank to Banqyue De ‘L’ Habitat (BHCI), the bank released shipping documents without acceptance, causing the exporter to miss payment from its banker, Punjab National Bank (PNB). ECGC paid a provisional amount to PNB under a separate Whole Turn Over Post Shipment Export Credit Guarantee (WTPSG) policy and later rejected the exporter’s claim under the Shipments policy, invoking an exclusion clause for losses arising from the act or default of the collecting bank. The State Consumer Disputes Redressal Commission and the National Commission allowed the claim, but the Supreme Court held that ECGC was correct to rely on the exclusion, that the guarantee to PNB did not constitute an admission of liability under the Shipments policy, and that the exporter’s failure to produce required documents barred the claim. Consequently, the appeal was allowed, the National Commission’s order set aside, and no recovery was ordered against the exporter.

Issues considered

The applicability of the exclusion clause in the Shipments policy to losses caused by the default of the collecting bank.
Whether ECGC's payment to PNB under the WTPSG policy amounts to an admission of liability to the exporter under a separate insurance policy.
Whether the exporter’s failure to produce documents evidencing acceptance of shipping documents bars its claim.
Whether the orders of the State and National Consumer Disputes Redressal Commissions can be set aside under Article 142 of the Constitution.

Subjects

insuranceexport credit guaranteeexclusion clausecollecting bank defaultconsumer dispute redressalArticle 142provisional paymentshipments policy

Judgment

484 [2019]REPORTS
SUPREME COURT 5 S.C.R. 484 [2019] 5 S.C.R.

A EXPORT CREDIT GUARANTEE CORPN.OF INDIA
LTD. & ANR.
v.
M.S. CREATIONS & ANR.
B (Civil Appeal No.2987of 2019)
MARCH 13, 2019
[DR DHANANJAYA Y CHANDRACHUD AND
HEMANT GUPTA, JJ.]

C Insurance– Shipments Policy– First Respondent obtained
Shipments (Comprehensive Risk) Policy from the appellant-ECGC
– First respondent obtained purchase order for handloom goods,
worth about Rs 64 lakhs, from one Society Ivoirienne De Commerce
ET DE Representation (SICOREP) situated in the Ivory Coast – First
respondent made shipments to SICOREP – SICOREP sought change
D in the name of its bank under the contract from Credit Lyonnais to
Banqyue De ‘L’ Habitat De Cote D’Ivoire (BHCI)– BHCI allegedly
released the documents without receiving any acceptance from
SICOREP – First respondent was unable to make payment to its
own banker, Punjab National Bank (PNB)-second respondent – PNB
E made application for provisional payment of its claim under the
policy called ‘Whole Turn Over Post Shipment Export Credit
Guarantee’ (WTPSG Policy) issued to it by ECGC – ECGC paid Rs.
6 lakhs to PNB – First respondent submitted two claims of Rs.22.87
lakhs to ECGC against the overdue amounts from SICOREP – ECGC
called upon the first respondent to submit various documents
F together with its claim forms – First respondent invoked the
intervention of the Indian Embassy in the Ivory Coast in order to
produce the necessary documents – Indian Embassy informed that
according to BHCI it did not have SICOREP as client at all and that
the possibility of the documents being forged could not be excluded
G – ECGC rejected the claim of the first respondent inter alia invoking
exclusionary provision – First respondent’s complaint allowed by
the State Commission – National Commission confirmed the order –
On appeal, held: First respondent was unable to produce the
relevant documents as required by ECGC – Further, ECGC raised
the exclusion contained in the insurance policy, in terms whereof
H
484
EXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. v. 485
M.S. CREATIONS

the insurer was not to be held liable for any loss from any act or A
default on the part of the collecting bank – Evidently, BHCI handed
over the original documents to a person representing SICOREP
without acceptance – There was clear default on the part of BHCI
– State Commission and the National Commission held against ECGC
inter alia on the ground that by honoring its commitment to PNB
B
under WTPSG Policy, ECGC had in turn admitted its liability to the
first respondent – Guarantee which ECGC furnished to PNB, similar
to those it furnishes to other bankers, was to secure their exposure
against the risks involved in the advances which the bank had made
in respect of export contracts to its constituent – This guarantee
would not conclude the issue as to whether the claim made by the C
first respondent under a distinct insurance policy was sustainable
– Basis on which the State Commission and National Commission
held against ECGC was erroneous– However, order passed by the
State Commission was duly executed and in compliance, the amount
due and payable has been paid over by ECGC to the first respondent
D
– There is no allegation that the first respondent was in any way
connected with or colluded with SICOREP – First respondent was
itself a victim of SICOREP having retired the documents without
making payment for the export consignments – No recoveries be
made from the first respondent – Judgment of the National
Commission set aside – Constitution of India – Art.142. E
The First Respondent obtained Shipments (Comprehensive
Risk) Policy from the appellant-ECGC. ECGC also issues policy
called ‘Whole Turn Over Post Shipment Export Credit Guarantee’
(WTPSG Policy) to various banks. First respondent obtained
purchase order for handloom goods, worth about Rs 64 lakhs, F
from a buyer named Society Ivoirienne De Commerce ET DE
Representation (SICOREP) situated in the Ivory Coast. First
respondent entered into sales contract with SICOREP and made
shipments to SICOREP. SICOREP sought change in the name
of its bank under the contract from Credit Lyonnais to Banqyue
De ‘L’ Habitat De Cote D’Ivoire (BHCI). BHCI allegedly G
released the documents without receiving any acceptance from
SICOREP. First respondent was unable to make payment to its
own banker, Punjab National Bank (PNB)-second respondent.
PNB made application for provisional payment of its claim under
H
486 SUPREME COURT REPORTS [2019] 5 S.C.R.

A its own WTPSG Policy. ECGC paid Rs. 6 lakhs to PNB as
provisional payment. First respondent submitted two claims of
Rs.22.87 lakhs to ECGC against the overdue amounts from
SICOREP. ECGC rejected the claim of the first respondent.
Complaint filed by the first respondent before the State
Commission, which was allowed. National Commission confirmed
B
the said order. Hence, the present appeal.
Allowing the appeal, the Court
HELD: 1.1 The first respondent was unable to produce
the relevant documents or to indicate that there was an
C acceptance of the documents, in terms as required under the
approval of the sales contract by ECGC. It was in this background
that ECGC rejected the claim of the first respondent on 3 October
2002. [Para 22, 23] [492-E-F]
1.2 In terms of the exclusion contained in the insurance
D policy, the insurer was not to be held liable for any loss from any
act or default on the part of the collecting bank. Evidently, the
collecting bank, as its communication dated 22 November 2002
indicates, handed over the original documents, but then sought
to justify its action by contending that the bank was in the housing
sector and could not accept the shipment for payment. If this was
E the position, there was no reason or justification on the part of
the collecting bank to hand over the original documents to a
person representing SICOREP without acceptance. There was,
therefore, clearly a default on the part of the collecting bank.
The State Commission and the National Commission held against
F ECGC inter alia on the ground that by honoring its commitment
to PNB under WTPSG Policy, ECGC had in turn admitted its
liability to the first respondent. There is a fallacy in this hypothesis.
The guarantee which ECGC furnished to PNB, similar to those it
furnishes to other bankers, was to secure their exposure against
the risks involved in the advances which the bank had made in
G respect of export contracts to its constituent. This guarantee
which ECGC issued to PNB would not conclude the issue as to
whether the claim made by the first respondent under a distinct
insurance policy was sustainable. Consequently, the basis on
which the State Commission and National Commission held
H against the appellant is erroneous. [Paras 25-26] [493-A-E]
EXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. v. 487
M.S. CREATIONS

1.3 The order passed by the State Commission was duly A
executed and in compliance, the amount due and payable has
been paid over by ECGC to the first respondent. There is no
allegation that the first respondent was in any way connected with
or colluded with SICOREP. From the record, it appears that the
first respondent was itself a victim of SICOREP having retired
B
the documents without making payment f or the export
consignments. No submission has been urged on behalf of ECGC
to indicate the complicity of the first respondent. In the exercise
of our jurisdiction under Article 142 of the Constitution, it is
directed that no recoveries should be made from the first
respondent. [Para 27] [493-F-H] C
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2987
of 2019
From the Judgment and Order dated 13.12.2013 of the National
Consumers Disputes Redressal Commission, New Delhi in FA No. 282
of 2008. D

Bharat Sangal, Ms. Laiman R. Bano, Ms. Babita Kushwaha, Advs.
for the Appellants.
Anil Kumar Tandale, M. T George, Subhash Chandra, Ms. Kavitha
K.T., A. N. Arora, Himanshu Gupta, Advs. for the Respondents. E
The Judgment of the Court was delivered by
DR DHANANJAYA Y CHANDRACHUD, J.
1. Leave granted.
2. A claim based on a policy of insurance issued by the Export F
Credit Guarantee Corporation of India Ltd. 1 was allowed by the Haryana
State Consumer Disputes Redressal Commission2. The appellant was
directed to pay 90 per cent of the claim amounting to Rs. 9.25 lakhs and
Rs. 13.61 lakhs after deducting an amount of Rs. 6 lakhs already received
by the respondent along with interest at 9 per cent per annum.
G
3. This order has been affirmed in appeal by the National
Consumer Disputes Redressal Commission3 on 13 December 2013. The
ECGC is in appeal.
1
“ECGC”
2
“State Commission”
3
“National Commission” H
488 SUPREME COURT REPORTS [2019] 5 S.C.R.

A 4. On 27 July 2000, the respondent obtained a Shipments
(Comprehensive Risk) Policy4 which was valid upto 31 July 2002. On
31 July 2000, the ECGC forwarded the policy to the first respondent
with a cover note highlighting important terms and conditions of the policy.
Apart from the Shipments Policy which was issued to the first respondent,
the appellant also issues another policy, amongst others, called the ‘Whole
B
Turn Over Post Shipment Export Credit Guarantee’5 to various banks
which make advances to exporters. The policy is designed to protect
banks against the risks towards the exposure undertaken by them.
5. On 6 October 2001, the first respondent obtained a purchase
order for handloom goods from a buyer situated in the Ivory Coast by
C the name of Society Ivoirienne De Commerce ET DE Representation6
worth about Rs 64 lakhs.
6. In pursuance of the purchase order, the first respondent entered
into a sales contract with SICOREP on 18 October 2001. In pursuance
of the Shipments Policy, the first respondent applied for the approval of
D ECGC for covering the shipments to SICOREP under the above purchase
order. ECGC granted a specific approval on 7 November 2001 to the
extent of Rs 64.86 lakhs, subject to the term of payment being DA7 90
days.
7. The first respondent made its first shipment to SICOREP on 16
E November 2001, in pursuance of which it filed a declaration under Clause
8(a) of the policy to ECGC on 19 December 2001. On 21 November
2001, SICOREP issued a second contract to the first respondent. On 7
January 2002, the first respondent made its second shipment to SICOREP,
which was also declared to ECGC on 18 January 2002.
F 8. Under the sales contract, SICOREP’s bank, as originally notified,
was Credit Lyonnais Agency 9658, Agence International Boulevaard Des
Italiens, 75 Paris Zeme France. On 18 January 2002, SICOREP sought
a change in the name of the bank to Banqyue De ‘L’ Habitat De Cote
D’Ivoire9, Seige Social 22, Avenue Joseph Anoma 01 BP 2325 Abidjan
4
G “Shipments Policy”
5
“WTPSG Policy”
6
“SICOREP”
7
Documents against Acceptance (DA) is an arrangement in which someone has the
right to collect imported goods only after they have signed an agreement at a bank to
pay for the goods and have shown proof of having signed it.
8
“Credit Lyonnais”
H 9
“BHCI”
EXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. v. 489
M.S. CREATIONS [DR DHANANJAYA Y CHANDRACHUD, J.]

01 Ivory Coast. In view of the request by SICOREP, the first respondent A
by its letter dated 21 January 2002 sought the permission of ECGC for a
change in the name of the bank and in terms of the payment.
9. BHCI, the newly notified bank in the Ivory Coast, is alleged to
have released the documents without receiving any acceptance from
the consignee. Since no payment was forthcoming, the first respondent B
was unable to make payment to its own banker, Punjab National Bank10.
Consequently, PNB, the second respondent to these proceedings, made
an application for provisional payment of its claim under its own WTPSG
Policy on 12 February 2002. On 14 March 2002, the appellant made a
payment of Rs. 6 lakhs to PNB, as and by way of a provisional payment.
C
10. On 16 March 2002, ECGC sought further information from
the first respondent in regard to its overdue payment from SICOREP.
Subsequently, on 28 May 2002, the first respondent submitted two claims
in the aggregate value of Rs. 22.87 lakhs to ECGC against the overdue
amounts from two shipments. Thereafter, on 25 June 2002, ECGC
called upon the first respondent to submit necessary documents together D
with its claim forms.
11. In order to produce the necessary documents, the first
respondent invoked the intervention of the Indian Embassy in the Ivory
Coast in July 2002. However, on 2 July 2002, the first respondent expressed
its inability to ECGC to produce the documents which were sought by E
them. The Indian Embassy, which had attempted to intervene on behalf
of the first respondent, informed the latter on 19 August 2002 that
according to BHCI it did not have SICOREP as a client at all. The
Indian Embassy also opined that the possibility of the documents being
forged could not be excluded. By its letter dated 3 October 2002, ECGC F
informed the first respondent that it was not accepting its claim in view
of its failure to produce the requisite documents.
12. It appears that PNB also addressed a communication to BHCI
to inform it about the shipments and the documents. BHCI, by a facsimile
message on 22 November 2002, informed PNB that the original G
documents had been made over to a person by the name M. Reda Ali.
BHCI indicated that it had refused to accept the documents for payment
for the shipments since it did not conduct such transactions, being a
bank in the housing sector.
10
“PNB”
H
490 SUPREME COURT REPORTS [2019] 5 S.C.R.

A 13. The first respondent, being aggrieved by the rejection of its
claim, instituted a consumer complaint before the State Commission.
The complaint was allowed on 23 April 2008.
14. ECGC contested the matter before the National Commission
in appeal which has resulted in the confirmation of the order of the State
B Commission allowing the complaint.
15. On behalf of the appellant, it has been submitted by Mr Bharat
Sangal, learned counsel that the Shipments Policy which was obtained
by the first respondent was a comprehensive policy covering shipment
risks. However, there was a specific exclusion in the policy of a situation
C involving an act or default on the part of the collecting bank. In the
present case, it was submitted that ECGC agreed to the change in the
nomination of the buyer’s bank from Credit Lyonnais to BHCI in good
faith, with a view to facilitate the export transaction. The sales contract
envisaged that the payment terms were to be, through the bank, 60 days
DA from the date of the Bill of Lading. Learned counsel submitted that
D in breach of these conditions, BHCI informed PNB by its communication
dated 22 November 2002 that the original documents of the two shipments
had been handed over to the foreign party. At the same time, BHCI
stated that it could not accept the shipment for payment and that it had
not conducted any transaction with or made any payment to PNB. On
E this basis, it was sought to be urged that there was a clear default on the
part of the collecting bank which would result in the applicability of the
exclusionary provision.
16. The next submission which was urged on behalf of the appellant
is that the State Commission and National Commission were in error in
F coming to the conclusion that because the appellant had made a payment
to PNB against the WTPSG Policy, it amounted to an admission of liability
to the first respondent. It was also urged that the guarantee which was
issued to the bank was to protect the risk of its exposure to a client in
respect of a foreign transaction. The Shipments Policy which was issued
to the first respondent was separate from the WTPSG Policy which
G was issued to the bank. Hence, it was submitted that the mere fact that
ECGC honoured the guarantee to PNB would not lead to the conclusion
that there was an admission of liability to the first respondent.
17. On the other hand, the learned counsel appearing on behalf of
the first respondent submits that the claim fell within the terms of the
H
EXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. v. 491
M.S. CREATIONS [DR DHANANJAYA Y CHANDRACHUD, J.]

Shipments Policy. Learned counsel submitted that this was a case where A
there was a failure on the part of the buyer to pay for the goods within
the stipulated period. The first respondent having sustained the loss, was
entitled to seek an indemnification from the insurer under the terms of
the Shipments Policy. Moreover, it was urged that the change in the
nomination of the bank from Credit Lyonnais to BHCI had been effected
B
with the consent and approval of ECGC. Consequently, the failure, if
any on the part of SICOREP, to retire the documents and to perform its
obligation to pay for the goods would not exclude the liability of ECGC
under the terms of the insurance policy.
18. The policy document dated 27 July 2000 executed by ECGC
in favour of the first respondent defines the risks which were insured. C
Among them, Clauses (ii), (iii) and (iv) provide as follows:
“(ii) failure of the buyer to pay to the insured, within four months
after the due date of payment the gross invoice value of the goods
delivered to and accepted by the buyer; or
D
(iii) the failure of the buyer to pay to the Exporter within four
months after the date of payment the gross invoice value of goods
delivered to and accepted by the buyer, or
(iv) failure or refusal on the part of the buyer to accept goods
which have already been exported from India, where any such E
failure or refusal is not excused by and does not arise from or in
connection with any breach of condition or warranty on the part
of the Exporter or from any other cause within his control; and
provided also that the Corporation is satisfied that no good purpose
would be served by the institution of legal proceedings against the
buyer in respect of his said failure or refusal,” F
The relevant exclusion, proviso (b) to Clause (xii) of the policy,
upon which the controversy in the present case has turned, provides as
follows:
“PROVIDED ALWAYS that the Corporation shall not be liable
G
for loss:
(a) …
(b) which arises from the insolvency of any agent of the Exporter
or the insolvency of a co1lecting bank or from any act or default
on the part of such agent or collecting bank;” H
492 SUPREME COURT REPORTS [2019] 5 S.C.R.

A 19. The sales contract between the first respondent and SICOREP
envisaged that the payment terms, through the bank, would be 60 days’
DA from the date of the Bill of Lading. The first respondent by its
communication dated 1 November 2001 to ECGC, declared that it would
conduct business on 60 days’ DA basis from the date of the Bill of
Lading and only with the acceptance of Credit Lyonnais. It was to this
B
document that the specific approval of the ECGC was obtained on 7
November 2001 with reference to the export contract with SICOREP.
20. When SICOREP indicated to the first respondent that it was
suggesting a change in the nomination of the foreign bank to BHCI, the
first respondent in turn applied for and obtained the approval of ECGC
C on 7 February 2002, subject to the terms and conditions set out in the
earlier approval.
21. After the first respondent submitted a claim to ECGC, a
communication was addressed on 25 June 2002 requiring the first
respondent to arrange for: (i) the originals of the unpaid bills of exchange;
D (ii) Advices of non-payment by the foreign correspondent bank; (iii)
Advice of the acceptance of documents by the foreign bank, among
other documents.
22. ECGC indicated that unless those documents were produced,
it would be unable to proceed further in the matter. As the correspondence
E on the record indicates, the first respondent was unable to produce the
relevant documents or to indicate that there was an acceptance of the
documents, in terms as required under the approval of the sales contract
by ECGC.
23. It was in this background that ECGC rejected the claim of the
F first respondent on 3 October 2002. The facsimile message dated 22
November 2002 of BHCI to PNB indicates that the original documents
of the two shipments had been handed over to M Reda Ali. The
communication, however, indicates that the bank could not accept the
shipment for payment and that it had not either made any transaction
G with or effected any payment to PNB.
24. ECGC took up the matter with PNB which in turn corresponded
with BHCI. The correspondence was evidently fruitless since there was
nothing to indicate that the documents had been duly accepted in terms
of the conditions governing the sales contract.
H
EXPORT CREDIT GUARANTEE CORPN.OF INDIA LTD. v. 493
M.S. CREATIONS [DR DHANANJAYA Y CHANDRACHUD, J.]

25. Now, it is in this background that ECGC had sought to raise A
the exclusion contained in the insurance policy. In terms of the proviso
(b) extracted above, the insurer was not to be held liable for any loss
from any act or default on the part of the collecting bank. Evidently, the
collecting bank, as its communication dated 22 November 2002 indicates,
handed over the original documents, but then sought to justify its action
B
by contending that the bank was in the housing sector and could not
accept the shipment for payment. If this was the position, there was no
reason or justification on the part of the collecting bank to hand over the
original documents to a person representing SICOREP without
acceptance. There was, therefore, clearly a default on the part of the
collecting bank. C
26. The State Commission and the National Commission held
against ECGC inter alia on the ground that by honoring its commitment
to PNB under WTPSG Policy, ECGC had in turn admitted its liability to
the first respondent. There is a fallacy in this hypothesis. The guarantee
which ECGC furnished to PNB, similar to those it furnishes to other D
bankers, was to secure their exposure against the risks involved in the
advances which the bank had made in respect of export contracts to its
constituent. This guarantee which ECGC issued to PNB would not
conclude the issue as to whether the claim made by the first respondent
under a distinct insurance policy was sustainable. Consequently, the basis
on which the State Commission and National Commission held against E
the appellant is erroneous.
27. During the course of the hearing of these proceedings, the
Court has been apprised of the fact that the order which was passed by
the State Commission was duly executed and in compliance, the amount
due and payable has been paid over by ECGC to the first respondent. F
There is no allegation that the first respondent was in any way connected
with or colluded with SICOREP. From the record, it appears that the
first respondent was itself a victim of SICOREP having retired the
documents without making payment for the export consignments. No
submission has been urged on behalf of ECGC to indicate the complicity G
of the first respondent. In the circumstances, we are of the view that the
loss must, in the present case, lie where it falls. In the exercise of our
jurisdiction under Article 142 of the Constitution, we direct that no
recoveries should be made from the first respondent.

H
494 SUPREME COURT REPORTS [2019] 5 S.C.R.

A 28. However, since the appellant has been concerned with the
position of law as set down in the judgments of the State Commission
and National Commission, we have clarified the position in terms of the
present judgment.
29. Subject to the directions under Article 142 issued above, we
B allow the appeal and set aside the impugned judgment and order of the
National Commission. There shall be no order as to costs.

Divya Pandey Appeal allowed.

C

D

E

F

G

H