Holding

The suit is within limitation, the policy is an all-risk policy covering constructive total loss, and the exclusionary clauses are not attracted, so the insured is entitled to claim.

Summary

The appellant company insured logs against non-delivery with the respondent insurance company. The ship carrying the logs became stranded at Singapore and offloaded cargo, leading to a claim for constructive total loss. The insurer repudiated the claim, and the appellant filed suit. The Single Judge decreed the suit, but the Division Bench reversed, holding the suit barred by limitation and the policy not covering constructive total loss. The Supreme Court held that the suit was within limitation as repudiation was on 1.4.1991 and suit filed on 7.8.1992. The policy covered the risk of stranding and non-delivery, and the exclusion clauses were not applicable. The Court restored the Single Judge's decree.

Issues considered

Whether the suit was barred by limitation?
Whether the policy of insurance was an all-risk policy?
Whether the policy covered constructive total loss?
Whether the exclusion clauses in the policy are applicable in the facts of this case so as to repudiate the claim of the appellant?

Legislation cited

Limitation Act, 1963s. 44
Marine Insurance Act, 1963s. 60

Subjects

marine insuranceconstructive total losslimitationexclusion clauseall-risk policynon-deliverystranding

Judgment

A· MIS. PEACOCK PLYWOOD PVT. LTD.
·,I v.
THE ORIENTAL INSURANCE CO. LTD.

DECEMBER 5, 2006

B [S.B. SINHA AND DALVEER BHANDARI,JJ.]

· Marine Insurance Act, 1963: Section 60.

Constructive total loss-Marine insurance-Policy-Exclusion clauses-
C Applicability of-,-A company agreed to purchase logs from a foreign firm and
the said logs were loaded on a vessel-The logs were insured by the company
with an insurance company against the peril ans/or risk of non-delivery of
the said goods-However, the ship was immobilized on reaching the high seas
but eventually returned back to the originating port-While at the originating
D port, the ship was arrested at the instance of one of the owners of the cargo
and was detained there-The foreign court discharged the order of arrest and
the ship eventually proceeded again to the second port-At the second port,
the ship became stranded and , therefore, it offloaded its cargo and did not
resume its journey-The company, however, with a view to minimising its
losses due to non-delivery, received a certain sum out of the sale proceeds-
£ The claim raised by the company by way of constructive total loss was
repudiated by the insurance company on 1.4.1991-The company filed suit
against the insurance company on 7.8.1992-The High Court dismissed the
suit holding that the sui( was barred by limitation, that the policy of insurance
was not an all-risk policy and that the policy did not cover constructive total
F loss-Correctness of-Held: The suit is within limitation in terms of Art. 44
of the Limitation Act-An insurance policy is to be construed in its entiretly-
A marine insurance policy does not come to an end only because the ship
became stranded at a port-The insurance policy included the risk of the
vessel or craft being stranded or grounded-It also included the risk of institute
theft, pilferage and non-delivery-Hence, exclusionary clauses contained in
G the insurance policy are not attracted-The policy was an all-risk policy and
also covered constructive total loss-Limitation Act, 1963, Art. 44.

Words & Phrases:

"Constructive total /oss"-Meaning of_ In the context of S. 60 of the
H 140
PEACOCK PLYWOOD PVf. LTD. v. THE ORIENTAL INSURANCE CO.LTD. 141

Marine Insurance Act, 1963. A
The appellant agreed to purchase logs from a foreign firm and the said
logs were loaded on a vessel. The logs were insured by the appellant with the
'I
respondent - Insurance Company against the peril and/or risk of non-delivery
of the said goods. The ship left the foreign port and developed engine troubles
soon thereafter and was held up at another port It sailed for the Indian port B
thereafter. It was, however, immobilised on reaching the high seas but
eventually returned back to the originating port. While at the originating
port, the ship was arrested at the instance of one of the owners of the cargo
and was detained there.

The foreign court discharged the order of arrest and the ship C
eventually proceeded again to the second port. At the second port, the ship
became stranded and therefore, it offloaded its cargo and did not resume
its journey. The appellant, however, with a view to minimising its losses
due to non-delivery, received a certain sum out of the sale proceeds.
D
A claim by way of constructive total loss was raised by the appellant
with the respondent-Insurance company on 12.8.1989 which was repudiated
by the respondent on 1.4.1991. The appellant filed a suit before the High Court
on 7.8.1992 praying for a decree for a certain sum with interest. A Single
Judge of the High Court decreed the suit.
E
Aggrieved thereby, the respondent filed an intra-court appeal before

• the Division Bench of the High Court. The High Court allowed the appeal
holding that the suit was barred by limitation, that the policy of insurance
was not an all-risk policy and that the policy did not cover constructive
total loss. Hence the appeal.
F
The following questions arose before the Court:-

1. Whether the suit was barred by limitation?

2. Whether the policy of insurance was an all-risk policy?
G
3. Whether the policy covered constructive total loss?

4. Whether exclusion clauses in the policy are applicable in the facts
of this case so as to repudiate the claim of the appellant?

.Allowing the appeal, the Court H
142 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A HELD: 1.1. The actual repudiation was made on 1.4.1991 and, thus, the
suit having been filed on 7.8.1992 was within the period oflimitation in terms
of Article 44 of the Schedule appended to the Limitation Act, 1963.
(157-D, EJ
1.2. When the termination of the contract of insurance has actually
B taken place is essentially a question of fact. An insurance policy is to be
const.rued in its entirety. A marine insurance policy does not come to an end
only because the ship became stranded at a port. (157-G, 158-Al

2. Undoubtedly, the' contract of insurance was covered under
Institute Cargo Clause (C). However, it included expressly the risk of non-
C delivery of even a single piece of log. It included the risk of the vessel or
craft being stranded or grounded. It also included the risk of institute theft,
pilferage and non-delivery. (158-F, G)

3. If the ship was stranded at a foreign port and goods were offloaded
from there, the appellant must be held to have discharged its burden.
D Findings of fact were arrived at by the Single Judge on the basis of the
pleadings of the parties. If a clause of Marine Insurance policy covers a
broad fact, it would be inequitable to deny the insured to raise a plea
particularly when the insurer being a State within the meaning of Article
12 of the Constitution of India is expected to act fairly and reasonably.
E The purport and object for which the goods are insured must be given
full effect to. In a case of ambiguity, the construction of an insurance policy
should be made in favour of the insured and not the insurer. (160-A, B)

United Insurance Co. Ltd v. Pushpalaya Printers, (2004) 3 SCC 694,
relied on.
F
Middows v. Robertson, (1940) 67 Lloyd's Law Report 484, Cutts v.
Head, (1984) 2 WLR 349 and Rush & Tompkins Ltd v. Greater London
Council, (1988] l All ER, referred to.

Phipson on Evidence, 16th Edn., pp. 655-657, Stroud's Judicial
G Dictionary of Words and Pharses, 5th Edn., Vol. 5, The New Lexicon Wehstar's
Dictionary of the English Language, Vol. 2, P. Ramanatha Aiyar's Advanced
Law Lexicon, 3rd Edn., p. 4494 and Black's Law Dictionary, 5th Edn.,
referred to.

4. Interpretation of "constructive loss" contained in Section 60 of the
H
PEACOCK PLYWOOD PVf. LTD. v. THE ORIENTALINSURANCE CO.LTD. J43

Marine Insurance Act, 1963 is subject to any express provision in the policy. A
The definition of constructive total loss, therefore, as contained therein would
be subject to any other clause which may be in the policy. The policy contained
a clause which was not commensurate with the said provision. In a case of
this nature, effect has to be given to the terms of insurance. (162-D, E)

Mis. Pandey & Co. Builders Pvt. Ltd v. State ofBihar, 12006) 11 SCALE B
665, relied on.

Mukesh K. Tripathi v. Senior Division Manager, L/C 12004) 8 SCC 387,
Middows v. Robertson, (1940) 67 Lloyd's Law Report 484 and Rickards v.
Foresta/ Land Timber and Railways Co., 1194113 All ER 62, referred to. C
Halsbury's laws of England, 4th Edn., Vol. 25, Reissue 2003, p. 257,
referred to.

5. The likelihood of recovery must be judged in the light of the
probabilities as they would have appeared to a reasonable assured at the D
moment when he knew of his loss and could have given notice of abandonment
The former rule of law that a frustration of the venture by an insured peril
gives rise to a constructive total loss under a voyage policy on goods, although
'{ the goods themselves are not damaged, has not been altered. (163-C, DJ

Rickards v. Foresta/ land Timber and Raf/ways Co. Ltd, [1941) 3 All E
ER 62, referred to.

6. It is again undisputed that after the ship became unseaworthy, the
appellant took steps to recover the value of the cargo with a view to minimising
its losses due to non-delivery. It, therefore, fulfilled its contractual obligation F
in that behalf. Sale of cargo was allowed by the foreign High Court. It was
only at that stage, the appellant could come to the conclusion that the cost of
recovering and getting the cargo back to the Indian port would cost more than
if the sale was effected at the foreign port. The cause of action arose then.
(163-D, EJ
G
6. Non-delivery of goods may be on any account. It need not always be a
'case of reasonably abandoned'. The meaning of the expression 'peril insured
against' would depend upon the terms of the policy. The policy was extended
to a case where the costs of transportation would be more than the value oC
the goods. Marine Insurance Act, 1963 is subject to the terms of the insurance H
144 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A policy. Where the insurer takes additional premium and insure a higher risk,
no restrictive meaning thereto need be given. A term of the policy must be
given its effect. While construing a contract of insurance, the reason for
entering there into and the risks sought to be covered must be considered on
its own terms. (165-D, E]

B . Bihar Supply Syndicate v. Asiatic Navigation, (1993] 2 SCC 639, held
inapplicable.

7. Where the entire case is based on a construction of an insurance
policy, the question of adduction of any oral evidence would be irrelevant
particularly when the Single Judge gave due credit of the amount received on
C auction of the goods under the orders of the Foreign Court. The value of the
cargo was known. It is not a disputed amount. Thus, whatever has been
recovered by way of sale of the said logs, the same has to be credited for and
the appellant should be held entitled only to the balance amount.
[165-F, GI
D ·8. The burden to prove the applicability of exclusionary clauses was on
the respondent. Neither any issue has been raised, nor has any evidence been
adduced in this behalf. It is also not a case that the servants of the assured
were privy to the unseaworthines as provided for i,n Clauses 5.5.1 of the
insurance policy. There has been no evidence to that effect. Even the said
E provision has not been applied by the Single Judge. (166-B, C)

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5608 of2006.

From the final Judgment and Order dated 16.12.2004 of the High Court
of Calcutta in A.P.D. No. 363/2000; APOT No. 11 of 2000 and C.S. No. 480/
F 1992.
Prasenjit Keswani and Prashant Kumar for the Appellants.

Vishnu Mehra, Sakshi Mittal and B.K. Satija for the Respondents.

G The Judgment of the Court was delivered by

S.B. SINHA, J: Leave granted.

Interpretation of a policy of marine insurance entered into by and
between the parties herein covering goods in transit is in question in this
H appeal which arises out of a judgment and order dated 16th December, 2004
PEACOCK PLYWOOD PVT.LTD. v. THE ORIENTALINSURANCE CO.LTD. [S.B. SINHA, J.J } 45

passed by the High Court of Calcutta in APO No. 363 of 2000 whereby and A
whereunder the appeal preferred by Respondent-Insurance Company herein
from a judgment and order dated 3rd December, 1999 passed in C.S. No. 480
of 1992 passed by a learned Single Judge of the said Court was allowed.

Appellant herein agreed to purchase 4000 cu. mt. of 'Sabha Log' (logs)
at a total price of US $6,00,000/- from a Malaysian firm. 474 pieces of logs B
were loaded on a vessel known as 'Indera Pertama' (vessel) at the port of
Western Sabah, Malaysia for their delivery at Calcutta. The ship left the
Malaysian Port with cargo on 16th February, 1988. The logs were insured
by Appellant with Respondent- Insurance Company for a sum of Rs. 39,90,122/
against the peril and/or risk of non-delivery of said goods. The policy C
contained Institute Cargo Clause (C). It also expressly included the risk of
non-delivery of even single piece of log.

The relevant clauses of the said contract are as under:

"Institute Cargo Clause (C)
D
Risks covered:

I. This insurance covers, except as provided in Clauses 4, 5, 6 and
7 below,

I. I. *** E
I.I.I.***
1.1.2. vessel or craft being stranded grounded, sunk or capsized ... "

*** *** *** *** *** ***
F
The insurance contract contained exclusion clauses, some of which are
as under:

"4. In no case shall this insurance cover

*** *** *** *** *** *** G
4.6 loss, damage or expense arising from insolvency or financial
default of the owners, managers, chaterers or operators of the vessel.

*** *** *** *** *** ***
H
146 SUPREME COURT REPORTS (2006] SUPP, 10 S.C.R.

A 5.1. In no case shall this insurance cover loss damage or expense
arising from unseaworthiness of vessel or craft;

Unfitness of vessel craft conveyance container or lift-van for the sale
carriage of the subject-matter insured.

B Where the assured or their servants are privy to such unseaworthiness
or unfitness, at the time the subject-matter insured is loaded therein.

*** *** *** *** *** ***
6. In no case shall this insurance cover loss, damage or expenses
caused by
c
*** *** *** *** *** ***
6.2. capture, seizure, arrest, restraint or detainment and the
consequences thereof or any attempt thereat;"
...
D *** *** *** *** *** ***
8.3. This insurance shall remain in force (subject to termination as
provided for above and to the provisions for clause 9 below) during
delay beyond the control of the Assured, any deviation, forced
discharge, re-shipment or trans-~hipment and during any variation of
E the adventure arising from the exercise of a liberty granted to
shipowners or charterers under the contract of affreightment.

9. If owing to circumstances-beyond the control of the Assured either
the contract of carriage is terminated at a port or place other than the
destination named therein or the transit is otherwise terminated before
F delivery of the goods as provided for in clause 8 above, then this
insurance shall also terminate unless prompt notice is given to the
Underwriters and continuation of cover is requested when the insurance
shall remain in force, subject to an additional premium if required by
the Underwriters, either

G *** *** *** *** *** ***
9.2. if the goods are forwarded within the said period of 60 days (or
any agreed extension therein) to the destination named herein or to
any other destination, until terminated in accordance with the
provisions of clause 8 above.
H

v
...
PEACOCK PLYWOOD PVf. LTD. v. THE ORIENTAL INSURANCE CO. LTD. [S.B. SINHA, J .] 14 7

*** *** *** *** *** *** A
13. No claim for Constructive Total Loss shall be recoverable
hereunder unless the subject-matter insured is reasonably abandoned
either on account of its actual total Joss appearing to be unavoidable
or because the cost of recovering, reconditioning and forwarding the
subject-matter to the destination to which it is insured would exceed B
its value on arrival."

An extended warranty clause was endorsed in the policy wherefor
additional premium was paid in the following terms:

"Notwithstanding anything contained herein to the contrary, it is hereby C
declared and agreed that the coverage granted under the within
mentioned policy be extended to include the risks of "Theft, Pilferage
and Non-Delivery" as well as "War and S.R.C.C." as per attached
clause 6 & 11. In consequence above extension of risks, an additional
premium of Rs. 1,496/- is hereby charged to the insured."
D
The ship developed engine troubles and was held up at Singapore Port
till 13th March, 1988. It sailed for Port of Calcutta thereafter. It was,
however, immobilised on reaching high sea at Anadamans. It underwent
repairs but eventually returned back to Malaysia. Indisputably, Appellant
kept Respondent-Insurance Company informed all through. While at E
Malaysian Port, the ship was arrested at the instance of one Gobsobs, one
of the owners of the.cargo in May, 1988. Appellant filed a caveat in the said
proceedings with a view to take appropriate steps to have the Jogs belonging
to it released.

The Malaysian Court discharged-the order of arrest on 30th December, p
1988 and the ship eventually proceeded again towards Singapore. At
Singapore, the ship became stranded. On 3rd January,. 1989, it offloaded its
cargo and did not resume its journey. Appellant, however, with a view to
minimise its loss due to non-delivery, took steps to recover the cargo or its
value and on an application filed by it, the High Court of the Republic of
Singapore in suit No. 711 of 1989 passed an order on 9th June, 1989 allowing G
the sale of the cargo. Admittedly, Appellant had received a sum of Rs.
20,01,743.53 out of the sale proceeds.

A claim by way of constructive total loss was raised by Appellant with
the Insurer in terms of its Jetter dated 12th August, 1989 which was repudiated H
148 SUPREME COURT REPORTS (2006] SUPP. 10 S.C.R.

A by Respondent in terms of its letter dated 1st April, 1991. The said stand was
reiterated by it in terms of a letter dated 22nd October, 1991.

Appellant filed a suit before the original side of the Calcutta High Court
which was marked as CS No. 480 of 1992 praying for a decree for a sum of
Rs. 49,48,407/- with interest.
B
The Singapore Court, however, during pendency of the said suit on or
about 19th May, 1995 released the money in favour of Appellant. The said
sum being 20,01,740.53 was received by it at the then prevailing exchange
rate on 22nd June, 1995.

c The learned Single Judge in the suit inter alia framed the following
issues:

"l. Is the plaintiff the owner of the subject.goods?

*** *** ***
D
2(b) Was there any constructive total loss as alleged in paragraph 8
of the plaint?

3. Is the suit barred by the laws of limitation?

4. To what relief, if any, is the plaintiff entitled?"
E •.
In regard to Issue No. I, the learned Judge opined:
'
"It follows therefore that the said Clause 6 cannot be set up by the
defendant against the plaintiffs claim on account of non-delivery i.e.
the peril insured against. Further in any event I am satisfied on the
F evidence adduced at the trial that the plaintiff had given prompt notice
of the termination of the voyage at the Singapore Port but the defendant
did not ask for payment of additions, premium for continuation of the
said policy. The defendant therefore must be considered to have
acquiesced in the continuation of the said policy at any rate it must
be taken to have waived the condition prescribed in the said clause.
G I, therefore, answer this issue in the affirmative."

So far as Issue No. 2(b) is concerned, the learned Judge noticed the
definition of 'constructive total loss' as contained in Section 60 of the Marine
Insurance Act, 1963 and opined:
H
- PEACOCK PLYWOOD PVT. LTD. v. THE ORIENTALINSURANCE CO.LTD. [S.B. SINHA, J.J 149

"There is no "express provisions" to the contrary in the said policy A
and as such it cannot be disputed that there has been constructive
total loss of the said consignment. There is evidence on record to
show that the cost of bringing down the said consignment to the
Calcutta Port from the Singapore Port would be more than it is actual
cost (see exhibit 'S' supra). I, therefore, here (sic) that this issue B
should be answered in the affirmative."

As regards, Issue No. 3, the learned Judge noticed the Respondent's
contention which is in the following terms:

" .... Plaintiffs claim was wrongful and not maintaining and the same C
was repudiated by this defendant's letter dated April 1, 1991 and
October 22, 1991."

In regard to the said contention, it opined that the said repudiation was
made on !st April, 1991 and 22nd October, 1991.

As regards Issue No. 4, it was held that the suit was within limitation.~ D

Keeping in view the fact that Appellant had received a sum of Rs.
20,01,740.53, it was opined that it was entitled only to a sum of Rs. 8,48,259.47
and the suit was decreed therefor together with simple interest at the rate of
18% per annum. E
Aggrieved thereby, Respondent filed an intra-court appeal before a
Division Bench of the said High Court which was marked as APO No. 363
of 2000. The High Court held that the repudiation of claim having been
made on 8th July, 1988, subsequent correspondences having been marked as
'without prejudice', the same would not amount to extension of period of F
limitation as the suit was filed on 7th August, 1992. In regard to the
correspondences passed between the parties, it was opined:

" ... The conduct of the defendant/appellant in this regard clearly
indicates that in order to help tracing out the situation, the defendant
had extended its good office and that too without prejudice. Such a G
gesture does not seem to extend the period of limitation by admission
or otherwise when on the face of Exhibit 5 (8th July, 1988), the
defendant had already declined/denied its liability ... "

It was furthermore held that having regard to Clause 9 of the policy, the H
contract of carriage stood termi.Qated. On merit of the matter, the court, on
150 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A the question as to whether the claim was established, held that the same had
-
not been quantified in the absence. of any definite proof with regard to the
amount to be ascertained as claimable.

In regard to the question as to whether the policy was an all risk policy,
the Division Bench opined that the policy was not an all risk policy and the
B exclusion clause contained in Clause 4.6 would operate.

In regard to the question of constructive total Joss, keeping in view the
fact that the goods were in existence, the court purported to have relied upon
Middows v. Robertson (1940) 67 Lloyd's Law Report 484 opining:

C "... The unseaworthiness would not come within the peril of the insured
against as was held in Wadsworth Lighterage Co. Ltd. (supra). The
unseaworthiness of the vessel is a ground excluded in the policy as
referred to hereinbefore. There is no pleading or any attempt to prove
that the plaintiff or its servant was not privy to the unseaworthiness
D of the vessel at the time of loading."

It was held:

"6.15 If in a situation, loss occurs due to combination of more than
one factors then if one factor is excluded the claim of the plaintiff
E cannot succeed. In the instant case, the proximate cause was delay
and defaults committed by the plaintiff as mentioned aforesaid. Hence,
the plaintiffs claim must fail."

In regard to the issue of loss caused by measures .taken by Appellant
to avert or minimize the effect of an insured period, it was opined that as the
F ship was detained due to unseaworthiness which is exclusionary clause the
plaintiff cannot succeed in its claim. It was further opined that the insurance
was hit by 'sue and labour clause' and Appellant has not been able to discharge
its burden.

In regard to warehouse to warehouse loss, it was held that the policy
G did not include the risk of loading the goods in vessel which were
unseaworthiness. It being a maritime industry peril, the enforcement would
be against the exclusion clause contained in Clause 5.1.

It was concluded:

H "10. For all these reasons, we are of the view (I) that because of the
...... PEACOCK PLYWOOD PVf. LTD. v. THE ORIENTAL INSURANCE CO.LTD. [S.B. SINHA, J.J 151

fact of denial by the insurer by its letter dated 8th July, 1988 (Ext. 5) A
coupled with the termination of the policy and its non-extension after
the Cargo Safety Construction Certificate and Load Line Certificate
expired on 15th July, 1988 and on account of plaintiffs failure to
discharge its obligation either to obtain re-shipment of the goods
soon thereafter and the failure to take a decision to sell the goods
locally immediately and filing of the suit after 7th August, 1992 clearly B
indicates that the claim of the plaintiff was barred by limitation and
the suit ought to have been dismissed; (2) the plaintiff has not been
able to prove that he had taken all steps to avoid the delay; (3) the
policy was not an all risk policy but was circumscribed and restricted
by reason of the Institute Cargo Clause (c) containing the restrictive C
clauses enumerated in paragraph 5 hereinbefore; (4) the plaintiff has
not been able to establish its claim by discharging the burden lay
upon it to sustain the claim on merit and that the goods were not lost
when the claim was lodged; (5) the plaintiff has not been able to prove
constructive loss by reason of abandonment; (6) that by reason of
Sections 20 and 32 of the Evidence Act, it was proved that the goods D
were still in existence and were in good condition; and (7) that the
loss cannot be ascribed to any peril insured as discussed hereinbefore." '>
Mr. Prasenjit Keswani, learned counsel appearing on behalf of Appellant,
would submit that the Division Bench of the High Court committed a serious E
error in arriving at its conclusions insofar as it failed to take into consideration
that once the goods were stranded, it was covered by the terms of extended
insurance policy which would include non-delivery for any reason whatsoever.
Non-delivery of goods, the learned counsel urged, would bring within its fold
constructive total loss as there is no serious dispute in regard to the fact that
cost of transportation of goods from Singapore to Calcutta was much higher F
than the actual costs of the goods. The burden of proof to show that the
exclusionary clauses are attracted being on the insurer and such burden having
not been discharged the decision of the Division Bench should not be upheld.

It was furthermore pointed out that neither any case of applicability of
the exclusion clauses was made in the written statement nor any issue was G
raised. In any event, in case of an ambiguity, a contract of insurance should
be construed in favour of the insured. Reliance in this behalf has been placed
on United India Insurance Co. Ltd v. Pushpalaya Printers, [2004} 3 SCC
694.
H
A
152 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

Mr. Vishnu Mehra, learned counsel appearing on behalf of Respondent,
-
on the other hand, would submit that Institute Cargo Clause (C) contained
restrictive clauses. Drawing our attention to Section 78 of the Marine Insurance
Act, he would submit that the Division Bench of the High Court has rightly
construed the words 'any peril'. It was submitted that having regard to Sub-
B section (4) of Section 78 of the Marine Insurance Act, the insured had a duty
to minimize the loss and only in that view of the matter, Respondent extended
its assistance which cannot be said to be an admission of its liability. It was
urged that the insurance policy would cover only the perils mentioned therein
and no case has been made out that the vessel was stranded.

C Having regard to Clause No. 9 of the policy, it was contended that the
contract became terminated and there being no request for continuation of
the contract, it came to an end in December, 1988 when it was stranded at
Singapore.

In regard to claim of Appellant on constructive total loss, it was submitted
D that the contract came to an end in December, 1988 and, thus, the case would
come within the purview of Section 60 of the Marine Insurance Act.
Construc.ivt: total loss, it was urged, must be commensurate with actual total
loss, but, no case has been made out that it was a case of actual total loss as
goods were existing and they were sold and the insured, therefore, have
never been deprived of possession of the entire goods.
E
It was further submitted that even if the broad meaning is given to the
term 'stranded', the insured having not been deprived of the possession of
the goods, no loss occurred.

The questions which arise for consideration before us are:
F
(i) Whether the suit was barred by limitation.
(ii) Whether the policy of insurance was an all risk policy.
(iii) Whether the policy covered constructive total loss.
G (iv) Whether the exclusion clauses in the policy are applicable in the
facts of this case so as to repudiate the claim of Appellant.

In the plaint it was stated:

"13. By letters dated April 1, 1991 and October 22, 1991 the defendant
wrongfully rejected the claim of the plaintiff."
H
PEACOCK PLYWOOD PVT. LTD. v. THE ORIENTAL INSURANCE CO. LTD. [S.B. SINHA, J. J15 3

In response to the said contentions, Respondent averred: A
"15. With reference to paragraph 13 of the plaint this defendant denies
that this defendant has wrongfully rejected the claim of the plaintiff.
Plaintiffs claim was wrongfully and not maintainable and the same
was repudiated by this defendant's letters dated April 1, 1991 and
October 22, 1991. This defendant states that the contents of the said B
two letters are true and correct."

Appellant lodged its claim on 24th June, 1988. On or about 8th July,
1988, the Insurance Company purported to have repudiated the claim stating:

"We acknowledge receipt of your letter of 24th ultimo and note what C
you write. We would like to invite your attention to our letter dated
3.6.88, wherein requested you to take sincere and serious efforts to
get the cargo landed at Calcutta Port before l l.7.88 even if necessary,
by taking appropriate action that may be deemed fit. We also advised
you to utilize the assistance of our Singapore Office, as and when D
necessary.

It is not clear from your letter under reference what steps have been
taken to compel the ship owners to deliver the cargo at Calcutta Port
as lading issued by them.

Please note that as the vessel loaded with full cargo has been located E
the question of 'Non-delivery' does not arise and no claim will be
admissible by the underwriters where the existence of the goods is
there. As per the terms and conditions of Marine Insurance Policy
"Delay" is the excluded peril which note."

From a perusal of the said letter, it is evident that the only ground on F
which the claim of Appellant was not accepted was that the question of any
'Non-delivery" did not arise as the cargo had been in existence. Other
contentions of Appellant in the said letter had not been repudiated.

On or about 11th August, 1988, Appellant herein served a notice of G
abandonment inter alia stating:

"In the circumstances of the case, we are to give you this Notice of
abandonment of the consignments to you and you are at liberty to
take possession of the subject matters insured.
H
154 SUPRF;ME COURT REPORTS [2006] SUPP. 10 S.C.R. ~

In this connection, we may state that in a similar case in British &
Foreign Marine Insurance Company Limited vs. Sanday & Another
it was held that "Consequent on the adventure being frustrated by an
insured peril the assured may abandon it and rever for a constructive
total loss on the ground that the actual loss of the subject matter
insured appears to be unavoidable, even though the goods themselves
B are uninjured."

It was stated:

"We lodged our formal claim with the shipowners at Kuala Lumpur
as required under the Policy and copy of the same was endorsed to
c you. The shipowners have not acknowledged our claim notice and
they have purposely kept silent. However, on any recovery
proceedings we would render our full assistance even by signing the
plaint etc."

Respondent admittedly got a survey conducted in March, 1989. Even
D in December, 1988, the ship had proceeded towards Singapore but only upon
reaching the port of Singapore in January, 1989, the cargo was offloaded. A
finding of fact has been arrived at by the learned Single Judge that the ship
did not proceed due to its unseaworthiness. It is not in question.

We have noticed hereinbefore that indisputably Appellant on its own as
E
also at the behest of Respondent took steps for realisation of cargo to the
extent possible. It moved the Singapore High Court for sale of the cargo. It
had also opposed the prayer of arrest of ship before a Malaysian Court.
Respondent itself contended that Appellant m(!.de a pre-mature claim of
constructive total loss. Having said so, it could not have raised a plea of
F limitation.

Our attention has been drawn to correspondences between the parties.
In response to the Appellant's letter dated I Ith August, 1988, Respondent in
its letter dated 2nd September, 1988 stated that the settlement of claim would
be considered strictly in terms of the policy. It was, however, stated:
G
" ... So that the goods are not sold at the interest of the one consignee
alone who has already taken action in Kuala Lumpur Court, we would
without prejudice strongly recommend in your interest that action be
taken by you as consignees and owners of the goods in proper Court
at Kuala Lumpur to compel the shipowners to complete the voyage
H
PEACOCK PLYWOOD PVT.LTD. v. THE ORIENTAL INSURANCE CO.LTD. [S.B. SINHA, J.Jl 55
A
and meantime, 'restraint order' should also be secured to protect your
interest as well alongwith the other interested Consignee so that no
single or arbitrary action is taken by the Court jeopardizing your
other consignee's interest.

We may here draw your attention that in tenns of the Loss Minimisation B
Clause in the Policy, you are in duty bound to see that all protective
measures are taken adequately against Carriers.

However, settlement of the claim under the policy would be considered
only strictly in tenns and conditions of the policy of insurance. This
is without prejudice." c
There had been no repudiation even at that stage. It was only when the
ship could not leave the Singapore Port due to unseaworthiness, a claim of
constructive total loss was made. Tenns of the policy would indisputably
have to be invoked for determining the rival clauses. But, it is one thing to
say that the claim was barred by limitation or the exclusionary clauses would D
apply; but it is another thing to say that the question of invoking the said
clause did not arise in terms of the contract of insurance.

Only because the expression "without prejudice" was mentioned, the
same, in our opinion, by itself was not sufficient and would not curtail the
right of the insured to which it was otherwise entitled to. The expression E ·
"without prejudice" may have to be construed in the context in which it is
used. If the purpose for which it is used is accomplished, no legitimate claim
can be allowed to be defeated thereby. [See Cutts v. Head and Anr., (1984)
2 WLR 349 and Rush & Tompkins Ltd v. Greater London Council and Anr.,
(1988] I All ER 549] F
In Phipson on Evidence, Sixteenth Edition, pages 655-657, it is stated:

"Without prejudice privilege is seen as a fonn of privilege and usually
treated as such. It does not, however, have the same attributes as the
law of privilege. Privilege can be waived at the behest of the party G
entitled to the privilege. Without prejudice privilege can only normally
be waived with the consent of both parties to the correspondence.
Whilst the rule in privilege is "once privileged, always privileged",
the rule for without prejudice is less straightforward, and at lt:ast in
three party cases, this will not always be the position. A third
distinction is that in the three party situation, which is not governed H
156 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A by contract, without prejudice documents are only protected in
circumstances where a public policy justification can be provided,
namely where the issue is whether admissions were made. That is
not a principle applicable in the law of privilege. Fourthly, whereas
legal professional privilege is a substantive right, without prejudice
privilege is generally a rule of admissibility, either based on a
B contractual, or implied contractual right, or on public policy. This
may have consequences relevant to proper law issues. Finally, if a
party comes into possession of a privileged document, subject to
equitable relief for breach of confidence, there is no reason why he
should not use it and it will be admissible in evidence. But, the mere
c fact that a party has a without prejudice document does not entitle
him to use it without the consent of the other party.

(c) When is correspondence treated as within the rule?

The first question is to determine what communications attract without
prejudice privilege. The second stage is to consider when the court
D
will, nevertheless, admit such communications.

Correspondence will only be protected by without prejudice
privilege if it is written for the purpose of a genuine attempt to
compromise a dispute between the parties. It is not a precondition
that the correspondence bears the heading without prejudice. If it is
E
clear from the surrounding circumstances that the parties were seeking
to compromise the action, evidence of the content of those negotiations
will, as a general rule, not be admissible. The converse is that there
are some circumstances in which the words are used but where the
documents do not attract without prejudice privilege. ·This may be
F because although the words without prejudice were used, the
negotiations were not for the purpose of a genuine attempt to settle
the dispute. The most obvious cases are first, where the party writing
was not involved in genuine settlement negotiations, and secondly,
where although the words were used, they were used in circumstances
which had nothing to do with negotiations. Surveyors reports, for
G
example, are sometimes headed,.yvithout prejudice, although they have
nothing to do with negotiations. The third case is, where the words
are used in a completely different sense. Thus, in Council of
Peterborough v. Mancetter Developments, the documentation was
admissible because in context the words meant "without prejudice to
H
•
PEACOCK PLYWOOD PVf. LTD. v. THE ORIENTAL INSURANCE CO. LTD. [S.B. SINHA, J.J 157

an alternative right and without concession to the other application" A
and had nothing to do with settlement.

There are circumstances in which the correspondence is initiated
with a view to settlement but the parties do not intend that the
correspondence should be without prejudice. It may be that the
parties positively want any subsequent court to see the correspondence B
and always had in mind that it should be open correspondence. It
may be a nice point whether negotiations at which no one mentioned
the words "without prejudice" should be admitted in evidence: for
example at an early meeting between the parties when the dispute first
developed. There is no easy rule here. On the other hand, even when C
a letter is sent as the "opening shot" in negotiations, and is not preceded
by any previous correspondence, it may be without prejudice. There
are authorities in both directions on this and it will depend on the
facts.

It has been said that if one is seeking to change the basis of the D
correspondence from without prejudice to open it is incumbent on
that person to make the change clear, l!lthough that may be more a
pointer than a rule. There is no reason why every letter for which
without prejudice is claimed should contain an offer or consideration
of an offer, so long as the without prejudice correspondence is part
of a body of negotiation correspondence." E
The actual repudiatio"1 was made on 1st April, 1991 and, thus, the suit
having been filed on 7th August, 1992 was within the period of limitation in
terms of Article 44 of the Schedule appended to the Limitation Act, 1963,
the reievant portion whereof is as under:
F
"Description of suit Period of Time from which period
limitation beings to run

44 (a) ***
(b) On a policy of Three years The date of the
insurance when the
G
occurrence causing the
sum insured is payable loss, or where the claim
after proof of the loss on the policy is denied,
has been given to or either partly or wholly,
received by the insurers. the date of such denial."
H
158 SUPREME COURT REPORTS [2006] SUPP. IO S.C.R.

A When the tennination of the contract of insurance has actually taken
place is essentially a question of fact. An insurance policy is to be construed
in its entirety. A marine insurance policy does not come to an end only
because the ship became stranded at a port.

Tennination of the transit before delivery of goods is subject to Clause
B 8 of the contract. The duration of contract is mentioned in Clause 8 of the
contract of insurance. It commences from the time the goods leave the
warehouse or other contingencies mentioned therein. It tenninates:

(i) on delivery to the Consignees or other final warehouse;
C (ii) on delivery to any other warehouse or place of storage;

(iii) for storage other than in the ordinary course of transit; or

(iv) for allocation or distribution or on the expiry of 60 days after
completion of discharge overside of the goods insured from the
oversea vessel at any final port of discharge.
D
None of the aforementioned clauses are attracted in the facts and
circumstances of the present ~ase.

Clause 8.3, subject of course to the operation of other provisions
contained in Clause 8 as also the provisions contained in Clause 9, remains
E in force during delay beyond the control of the assured, any deviation, forced
discharge, reshipment or transshipment and during variation of the adventure
arising from the exercise of a liberty granted to ship owners or charterers
under the contract of affreightment.

The Division Bench of the High Court committed an error in holding
F that the insurance policy stood tenninated after June/ July, 1988 in tenns of
clause 9 of the policy when the contract of carriage had tenninated on account
of the unseaworthiness of the ship. Even Respondent had not made out any
case to the said effect in the pleadings. If the contract of insurance did not
tenninate on its own, as was wrongly opined by the Division Bench of the
G High Court, the question of any request for its extension did not arise.

Undoubtedly, the contract of insurance was covered under Institute
Cargo Clause (C). However, it included expressly the risk of non-delivery
of even single piece of log. It included the risk of the vessel or craft being
stranded or grounded. It also included the risk of institute theft pilferage and
H non-delivery.
PEACOCK PLYWOOD PVf. LTD. v. THE ORIENTAL INSURANCE CO.LTD. [S.B. SIJllHA,J.Jl 59

Yet again on 2nd March, 1988 and 1 lth March, 1988, evidently, the A
sc~pe of aforesaid policy was enlarged pursuant whereto or in furtherance
whereof further endorsements were made by paying additional premium, in
terms whereof the risk of non-delivery was specifically covered. It will bear
repetition to state that the vessel could not proceed from Singapore owing to
its unseaworthiness. It was, thus, covered by the terms of the extended terms
of insurance policy. The Division Bench failed to consider this aspect of the B
matter.

Clause 1.1.2 included the risk of the vessel or craft being stranded or
grounded. The word 'stranded' is not a term of art. The expression has also
been used in the Navy Act. C
In Stroud's Judicial Dictionary of Words and Phrases, Fifth Edition,
Volume 5, the word 'strand' has been defined as :

"'Strand' is a Saxon word, signifying a shore or bank of a sea or any
great river"
D
In The New Lexicon Wesbter's Dictionary of the English Language,
Volume 2, the word 'strand' has been defined as:

"strand: I. the shore of body of water (esp. of a sea or lake). 2 to
drive onto the shore/ to run (a boat) aground/ to cause (someone) to
find himself accidentally and unwillingly held up o.n a journey or left E
suddenly somewhere without resources, the fog stranded passengers
at the airport (esp. pass.) to leave ashore when the tide goes out or
water level sinks, the whale was stranded."

In P. Ramanatha Aiyar's Advanced Law Lexicon, 3rd edition, page F
4494, it is stated:

"Strand. The word "strand" means the verge of the sea, or of any
river.

Strand (Sax.) is any shore or bank of a sea or river. Hence the street
in the west suburbs of London, which lay next the shore or bank of G
the Thames, is called the Strand."

In Black's Law Dictionary, Fifth Edition, the word 'strand' has been
defined as :

H
160 SUPREME COURT REPORTS (2006] SUPP. 10 S.C.R.

A "A shore or bank of the sea or a river."

If the ship was stranded at Singapore and goods were offloaded from
it, Appellant must be held to have discharged its burden. .Findings of fact
were arrived at by the learned Single Judge on the basis of the pleadings of
the parties. If a clause of Marine Insurance policy covers a broad fact, in our
B opinion, it would be inequitable to deny the insured to raise a plea particularly
when the insurer being a State within the meaning of Article 12 of the
Constitution of India is expected to act fairly and reasonably. The purport
and object for which goods are insured must be given full effect. In a case
of ambiguity, the construction of an insurance policy should be made in
C favour of the insured and not insurer.

In Pushpalaya Printers, this Court held:

" ... Where the words of a document are ambiguous, they shall be
construed against the party who prepared the document. This rule
applies to contracts of insurance and clause 5 of the insurance policy
D
even after reading the entire policy in the present case should be
construed against the insurer ... "

Section 60 of the Marine Insurance Act defines 'constructive total loss'
in the following terms:
E "60. Constructive total loss defined-

(1) Subject to any express provision in the policy, there is a
constructive total loss where the subject-matter insured is reasonably
abandoned on account of its actual total loss appearing to be
unavoidable, or because it could not be preserved from actual total
F loss without an expenditure which would exceed its value when the
expenditure had been incurred.

(2) In particular, there is a constructive total loss-

(i) where the assured is deprived of the possession of his ship or
G goods by a peril insured against, and

(a) it' is unlikely that he can recover the ship or goods, as the case
may be, or

(b) the cost of recovering the ship or goods, as the case may be,
H would exceed their value when recovered; or
PEACOCK PLYWOOD PVT.LTD. v. THE ORIENTAL INSURANCE CO.LTD. [S.B. SINHA, J.J 161

(ii) in the case of damage to a ship, where she is so damaged by a A
peril insured against that the cost of repairing the damage would
exceed the value of the ship when repaired.

In estimating the cost of repairs, no deduction is to be made in respect
of general average contributions to those repairs payable by other
interests, but account is to be taken of the expense of future salvage B
operations and of any future general average contributions to which
the ship would be liable if required; or

(iii) In the case of damage to goods, where the cost of repairing the
damage and forwarding the goods to their destination would exceed
their value on arrival." c
The definition of "constructive total loss" contained in Section 60 is
not exhaustive. The opening words of Section 60 of the Marine Insurance
Act are important.

In Mukesh K. Tripathi v. Senior Division Manager, LIC and Ors., D
[2004] 8 SCC 387, this Court observed:

"The interpretation clause contained in a statute although may deserve
a broader meaning having employed the word "includes" but therefor
also it is necessary to keep in view the scheme of the object and
purport of the statute which takes him out of the said definition. E
Furthermore, the interpretation section begins with the words "unless
the context otherwise requires".

40. In Ramesh Mehta v. Sanwal Chand Singhvi it was noticed: (SCC
p. 426, paras 27-28)
F
"27. A definition is not to be read in isolation. It must be read in the
context of the phrase which would define it. It should not be vague
or ambiguous. The definition of words must be given a meaningful
application; where the context makes the definition given in the
interpretation clause inapplicable, the same meaning cannot be
assigned. G
28. In State of Maharashtra v. Indian Medical Assn. one of us (V.N.
Khare, C.J.) stated that the definition given in the interpretation clause

- having regard to the contents would not be applicable. It was stated:
(SCC p. 598, para 8)
H
162 SUPREME COURT REPORTS [2006) SUPP. 10 S.C.R.

A '8. A bare perusal of Section 2 of the Act shows that it starts with
the words "in this Act, unless the context otherwise requires". Let us
find out whether in the context of the provisions of Section 64 of the
Act the defined meaning of the expression "management" can be
assigned to the word "management" in Section 64 of the Act. In para
3 of the Regulation, the Essentiality Certificate is required to be given
B by the State Government and permission to establish a new medical
college is to be given by the State Government under Section 64 of·
the Act. If we give the defined meaning to the expression
"management" occurring in Section 64 of the Act, it would mean the
State Government is required to apply to itself for grant of permission
c to set up a government medical college through the University. Similarly
it would also me.an the State Government applying to itself for grant
ofEssentiality Certificate under para 3 of the Regulation. We are afraid
the defined meaning of the expression "management" cannot be
assigned to the expression "management" occurring in Section 64 of
the Act. In the present case, the context does not permit or requires
D to apply the defined meaning to the word "management" occurring in
Section 64 of the Act."'

[See also Mis. Pandey & Co. Builders Pvt. ltd. v. State of Bihar &
Anr., (2006) I I SCALE 665)

E Interpretation of 'constructive loss' contained in Section 60 is subject
to any express provision in the policy. The definition of constructive total
loss, therefore, as contained therein would be subject to any other clause
which may be in the policy. The policy contained a clause which was not
in commensurate with the said provision'. We, in a case of this nature, have
F to give effect to the terms of insurance.

The Division Bench of the High Court has referred to Middows (supra),
which has expressly been reversed by the House of Lords in Rickards v.
Foresta! Land Timber and Railways Co., Ltd, [1941] 3 All ER 62 wherein
it was clearly held that the notice of abandonment can be given.
G
In Halsbury's laws of England, Fourth Edition Volume 25, Reissue
2003, page 257, 'constructive loss' has been defined as follows:

"Subject to any express provision in the policy, there is a constructive
total loss where the subject matter insured is reasonably abandoned
H on account of its actual total loss appearing to be unavoidable, or
- PEACOCK PLYWOOD PVT. LTD. v. THE ORIENTAL INSURANCE CO.LTD. [S.B. SINHA, J.Jl 63

because it could not be preserved from actual total loss without an A
expenditure which would exceed its value when the expenditure had
been incurred. Whether these conditions as to constructive total loss
are or are not satisfied is in each case a question of fact.

In particular, there is a constructive total loss-
B
(I) where the assured is deprived of the possession of his ship or
goods by a peril insured against, and:

(a) it is unlikely that he can recover the ship or goods, as the case
may be, or

(b) the cost of recovering the ship or goods, as the case may be, C
would exceed their value when recovered;"

The likelihood of recovery must be judged in the light of the probabilities
as they would have appeared to a reasonable assured at the moment when he
knew of his loss and could have given notice of abandonment. The former
rule of law that a frustration of the venture by an insured peril gives rise to D
a constructive total loss under a voyage policy on goods, although the goods
themselves are not damages, has not been altered. [See Rickards (supra)]

It is again undisputed that after the ship became unseaworthy, Appellant
took steps to recover the value of the cargo with a view to minimize its loss E
due to non-delivery. It, therefore, fulfilled its contractual obligation in that
behalf. Sale of cargo was allowed by the High Court of Singapore in suit No.
71 I of I 989. rt was only at that stage, Appellant could come to the conclusion
that the cost of recovering and getting the cargo back to Calcutta would cost
more than if the sale was effected at Singapore. the cause of action arose·
then. The learned Single Judge has taken specific note of the said fact stating F
that Appellant had sought for advice of Respondent as to whether the sale
would go through at Singapore or in Calcutta by its letter dated 12th August,
1989 which was marked as Ex. S, relevant portion whereof reads as under:

"Local Sale in Singapore"
G
On Solicitor's request the Court has given permission to dispose off
the cargo in order to minimize the loss in view of the deterioration
in quality of material. Accordingly, the Solicitors app~inted Mis.
Toplings, Recovery Agent, who advertised the sale in newspapers
and the best offer received for the cargo consisting of 2300 CBM H
164 SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.

A now lying over there is U.S. $ 85,000. Out of this our share cor:nes
as under:

Total value offered for 2300 CBM =US$ 85,000. Therefore, our shoare
85000 x 2057.73/ 2300 =US$ 76,046.54

B US$ 76,046.54 x Rs. 16.90 = Rs. 12,85,166.50

Whereas we have already paid Rs. 12,85, 166.50 towards the
consignment of296 logs measuring 1268.99 CBM .under the L/C and
US$ 1,18,416/- is still payable to the shipper against the documents
for 178 Logs measuring 789.74 CBM received under the D.A. Thus,
C there is a loss of around over 30 lakhs while disposing the entire
consignment in Singapore.

To bring the Cargo to Calcutta for Sale in India:

To bring the cargo from Singapore to Calcutta for sale in India, the
position will be as under:
D
(a) Expenditure to be borne by insurance co. towards freight and
other charges like loading into ship etc. at Singapore

i.e. US $75/- per CBM

E i.e. 2057.73 CBM x US$ 75

$1,54,329.75 x Rs. 16.90 =Rs. 26,08,172.77

(b) Expenditure to be borne by us towards Duty and clearing expenses
i.e. Rs. 721/- ~BM i.e. 2057.73 CBM x Rs. 721/- per CBM comes=
Rs. 14,83,623.30
F
Total = Rs. 40,91,796.07

The best price that we can get for the said Cargo in Calcutta is
Rs. 1942/- per CBM. Therefore, the total sale realization will be as
under:
G
2057.73 x Rs. 1942 =Per CBM Rs. 39,95,700/-"
;.

In that view of the matter, Respondent was held to be entitled to get
credit th_ereof. Clause 13 of the insurance policy was, thus, clearly attracted.
/
I
Reliance has strongly been placed on a decision of this Court in Bihar
H
- PEACOCK PLYWOOD PVT.LTD. v. THE ORIENTAL INSURANCE CO.LTD. [S.B. SINHA, J.J 165

Supply Syndicate v. Asiatic Navigation and Ors., [1993] 2 SCC 639: AIR A
(1993) SC 2054 wherein this Court was dealing with a different fact situation.
In that case, the vessel in question. was diverted to Vishakhapatnam along
with cargo where the repairs of the vessel were expected to be completed.
The vessel was, however, not repaired nor the wages of the crew members
were paid as a result whereof the ship was directed to be arrested. It was in B
the aforementioned fact situation opined:

" .. .It is thus clear, after knowing the fact, that we are dealing with a
Marine Insurance Policy with Institute Cargo Clauses (FPA) attached
against the Insurance Company, it is the duty of the plaintiff to prove
as a fact that the cargo was lost due to perils of the sea. Since the C
finding of the High Court is that no sea water entered in the engine
room and the fact that the cargo was intact even after the ship was
towed to Vishakhapatnam showed that no sea water entered the ship
and, therefore, the loss to the plaintiff was not on account of perils
of the sea and the suit of the plaintiff against the Insurance Company
i.e. defendant 4 was rightly dismissed by the High Court." D
The said decision cannot be said to have any application in this case in
view of the extended terms of policy. Non-delivery of goods may be on any
account. _It need not always be a 'case of reasonably abandoned'. The
meaning of the expression 'peril insured against' would depend upon the
terms of the policy. The policy was extended to a case where the costs of E
transportation would be more than the value of the goods. Marine Insurance
Act is subject to the terms of insurance policy. Where the insurer takes
additional premium and insure a higher risk, no restrictive meaning thereto
need be given. A term of the policy must be given its effect. While construing
a contract of insurance, the reason for entering thereinto and the risks sought F
to be covered must be considered on its own terms.

When the entire case is based on a construction of insurance policy, the
question of adduction of any oral evidence would be irrelevant particularly
when the learned Single Judge gave due credit of the amount received on
auction of the goods under the orders of the Singapore Court. The value of · G
the cargo was known. It is not a disputed amount. Thus, whatever has been
recovered by way of sale of the said Jogs, the same has to be credited for and
Appellant should be held entitled only to the balance amount.

What would, thus, be the meaning of the word 'possession' under Sub-
H
166 SUPREME COURT REPORTS (2006) SUPP. 10 S.C.R.

A section (2) of Section 60 of the Marine Insurance Act read with Clause I 3 of
the policy? It is not the case of any of the parties that Appellant was given
actual possession of the goods. Unseaworthiness of vessel due to which it
became stranded as a result whereof the goods could not be delivered to
Appellant, in our opinion, would come within the meaning of the expression
B "peril insured against".

This leaves us to the question as to whether the exclusionary clauses
contained in the insurance policy are attracted.

Respondent in its written statement did not raise such a contention. It
was required to be specifically pleaded and proved by Respondent. The
C burden to prove the applicability of exclusionary clauses was on Respondent.
Neither any issue has been raised, nor any evidence has been adduced in this
behalf. It is also not a case that the servants of the assured were privy to the
unseaworthiness as provided for in Clause 5.5.l of the insurance policy.
There has been no evidence to that effect. Even the said provision has not
D been applied by the learned Single Judge.

For the reasons aforementioned, the appeal is allowed and the impugned
judgment of the Division Bench is set aside and the judgment and order of
the learned Single Judge is restored. Appellant shall be entitled to costs
throughout. Counsel's fees in this appeal assessed at Rs. 10,000/-.
E
v.s.s. Appeal allowed.