# M/S. RAHEE INDUSTRIES LTD v. EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD. . AND ANR

- **Citation:** [2008] 14 S.C.R. 556
- **Court:** Supreme Court of India
- **Decided:** 2008
- **Case number:** Civil Appeal No.6145 of 2008
- **Bench:** S.H. Kapadia ·, B .. Sudersh~N Reddy
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-rahee-industries-ltd-v-export-credit-guarantee-corpn-of-india-ltd-and-anr-23797
- **Pages:** 18

## Headnote

Insurance:
· · C
.Specjfic Shipments (Political Risks) Policy No: 144991
1987 - Export of goods - Balance consideration amount for
.. the consignment insured to the extent of 90% under the Policy·
-
~xporter not. receiving the balance consideration amount
within time. due to political embargo - Export Credit GuaranD tee Corporationpaying the insured money to the exporter -
After lifting of embargo balance consideration amount trans.:. .·
· ferred to Bank in India. in foreign currency -:- Appreciation of .
the currency due to fluctuation in exchange rate, resulting in
increased.recovery - Policy providing ratio of apportionment
E. of recovery as f}O: 10 between the Corporation and exporter·
respectively - Exporter cf aiming increased recovery - Held:
In view of language of Clause 16 of the Policy; all the sums
recovered has to be apportioned in the ratio of 90: 1 O between
the Corporation and the exporter respectively - Exporter hot
F entitled to the increased recovery.
·
Policy of insurance...,.. Interpretation of- Held: Words in a
policy are to be understood in their ordinary meaning except
where a word has a technical or legal meaning or where the
context requires otherwise - Principles of Subrogation to be
G invoked only in case of doubt and ambiguity in the construe-
. tion of Policy
Doctrines/Principles:
H
556
·.~
'·L
. r --=
M/S. RAHEE INDTS. LTD. v. EXPORT C. G CORPN.
557
OF INDIA LTD. & ANR.
Principle of Subrogation - Applicability of
A
Predecessor of the appellant entered into contract
for export of certain goods with a foreign buyer. As pe.r
contract, the exporter got 20% of the invoice value as
advance. The balance price of 80%, was covered to the
B
extent of 90% by specific Shipments (Political Risks)
Policy No.14499/1987. The balance amount was not received by the exporter within time because of political
embargo. The exporters,, therefore, applied to the Export
Credit Guarantee Corporation under the Policy, seeking
payment for the risk covered to the extent of 90% of the c
balance price. Corporation paid the same. Thereafter, the
embargo was lifted and the balance amount was transferred to the Bank in India. The amount was received by
the Bank in US Dollar. By the time it reached India, it got
a·ppreciated and thus resulted in increased recovery . .
D
~
The exporter filed a suit contending that exporter was
entitled to the full i.ncreased recovery and the Corporation was entitled'to only the sum which it had-paid to the
exporter. Stand of the Corporation was that the increased
E
. recovery was to be apportioned in the ratio of 90:10 in
terms of Clause 16 of the Policy. During pendency of the
suit, the Bank disbursed the recovered sum in the ratio of
90:10 between the Corporation and the exporter respectively. Single Judge of High Court decreed the Suit. In
~,J
appeal, Division Bench of High Court reversed the order F.
of Single Judge holding that the Corporation was entitled
to 9()% of the increased recovery. Hence the present appeal.
Dismissing the appeal, the Court
G
"'}.
HELD: 1.1 It is well-settled rule of construction that
words in a contract (Policy herein) are to be understood
in their ordinary meaning. However, this ordinary meaning will not prevail in two cases, namely, where a word
has techniGal or legal meaning and secondly where the H
558
SUPREME COURT REPORTS
[2008] 14 S.C.R.
A context requires otherwise. In a contract of insurance, parties may,; introduce express terms which are at variance
from or :in conflict with the ordinary principles of subrogation. Hence, the correct approach is to consider the
l .
.
policy of insurance by reference to its terms. If, however,
B there is some doubt or ambiguity in· the construction of
the policy only then it would be correct to invoke the prin-
. ciples of subrogation as a guide or a controlling authority. [Para 1 O] [508-A to D]
1.2 If a debt in a foreign currency is sued for, the judge ment must be in terms of Rupee and the rate of exchange
(subject to expr

## Text

·A
[2008] 14 S.C.R. 556
M/S. RAHEE INDUSTRIES LTD.
v.
. EXPORT CREDIT GUARANTEE CORPN. OF INDIA LTD.
.
AND ANR.
.
·. .
. .
.
(Civil Appeal No.6145 of 2008) ·
oc1qBER 17, 2008.
(S.H. KAPADIA ·AND B .. SUDERSH~N REDDY,• JJ]
Insurance:
· · C
.Specjfic Shipments (Political Risks) Policy No: 144991
1987 - Export of goods - Balance consideration amount for
.. the consignment insured to the extent of 90% under the Policy·
-
~xporter not. receiving the balance consideration amount
within time. due to political embargo - Export Credit GuaranD tee Corporationpaying the insured money to the exporter -
After lifting of embargo balance consideration amount trans.:. .·
· ferred to Bank in India. in foreign currency -:- Appreciation of .
the currency due to fluctuation in exchange rate, resulting in
increased.recovery - Policy providing ratio of apportionment
E. of recovery as f}O: 10 between the Corporation and exporter·
respectively - Exporter cf aiming increased recovery - Held:
In view of language of Clause 16 of the Policy; all the sums
recovered has to be apportioned in the ratio of 90: 1 O between
the Corporation and the exporter respectively - Exporter hot
F entitled to the increased recovery.
·
Policy of insurance...,.. Interpretation of- Held: Words in a
policy are to be understood in their ordinary meaning except
where a word has a technical or legal meaning or where the
context requires otherwise - Principles of Subrogation to be
G invoked only in case of doubt and ambiguity in the construe-
. tion of Policy
Doctrines/Principles:
H
556
·.~
'·L
. r --=
M/S. RAHEE INDTS. LTD. v. EXPORT C. G CORPN.
557
OF INDIA LTD. & ANR.
Principle of Subrogation - Applicability of
A
Predecessor of the appellant entered into contract
for export of certain goods with a foreign buyer. As pe.r
contract, the exporter got 20% of the invoice value as
advance. The balance price of 80%, was covered to the
B
extent of 90% by specific Shipments (Political Risks)
Policy No.14499/1987. The balance amount was not received by the exporter within time because of political
embargo. The exporters,, therefore, applied to the Export
Credit Guarantee Corporation under the Policy, seeking
payment for the risk covered to the extent of 90% of the c
balance price. Corporation paid the same. Thereafter, the
embargo was lifted and the balance amount was transferred to the Bank in India. The amount was received by
the Bank in US Dollar. By the time it reached India, it got
a·ppreciated and thus resulted in increased recovery . .
D
~
The exporter filed a suit contending that exporter was
entitled to the full i.ncreased recovery and the Corporation was entitled'to only the sum which it had-paid to the
exporter. Stand of the Corporation was that the increased
E
. recovery was to be apportioned in the ratio of 90:10 in
terms of Clause 16 of the Policy. During pendency of the
suit, the Bank disbursed the recovered sum in the ratio of
90:10 between the Corporation and the exporter respectively. Single Judge of High Court decreed the Suit. In
~,J
appeal, Division Bench of High Court reversed the order F.
of Single Judge holding that the Corporation was entitled
to 9()% of the increased recovery. Hence the present appeal.
Dismissing the appeal, the Court
G
"'}.
HELD: 1.1 It is well-settled rule of construction that
words in a contract (Policy herein) are to be understood
in their ordinary meaning. However, this ordinary meaning will not prevail in two cases, namely, where a word
has techniGal or legal meaning and secondly where the H
558
SUPREME COURT REPORTS
[2008] 14 S.C.R.
A context requires otherwise. In a contract of insurance, parties may,; introduce express terms which are at variance
from or :in conflict with the ordinary principles of subrogation. Hence, the correct approach is to consider the
l .
.
policy of insurance by reference to its terms. If, however,
B there is some doubt or ambiguity in· the construction of
the policy only then it would be correct to invoke the prin-
. ciples of subrogation as a guide or a controlling authority. [Para 1 O] [508-A to D]
1.2 If a debt in a foreign currency is sued for, the judge ment must be in terms of Rupee and the rate of exchange
(subject to express contractual provisions to the. contrary)
will be the rate of exchange between Rupee and the foreign currency prevailing at the date when the debt beD
comes payable. [Para 11] [568-E-F]
·
Forasol v. Oil and Natural Gas Commission, 1984
(Supp.) sec 263 - relied on.
1.3 On reading Specific Shipments (Political Risks)
Policy in its entirety, it is found that there is a dichotomy
E in it. The subject-Policy in this appeal is ' a contract. By
nature it is an indemnity. The contract is in two major parts.
The first part which commences from Clause 1 to Clause ·
0
•
13 contemplates an indemnity aga_inst a percentage of a ·
loss whereas the second part of the contract commenc-
. F ing from Clause 14 to Clause 16 conta_ins provisions enabling recoupment of that loss. [Para 13] [569-A-B]
1.4 Clause 16 of the Policy refers to sums recovered
from the buyer. That recovery can only be on the date when
the foreign currency entered India. The foreign currency
G entered India only after the loss stood ascertained in terms
of Clause 9 which refers to the "amount of loss". Therefore, the dollars paid belatedly would fall within the words
"any sums recovered" from the buyer after ascertainment
of the amount of loss under Clause 9. Clause 16, howH ever, refers to the words "any sums recovered in respect
\
~
..
MIS. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN.
559
OF INDIA LTD. & ANR.
'--:---i
of loss to which the Policy applies". Rule of conversion A
I
or exchange rate as contemplated under Clause 11, is not
made applicable in case of "Recoveries" under Clause
16. Clause 16 refers to "any sums recovered" which covered dollars paid belatedly. Under the Policy, there is a difference between currency of account, currency of payB
ment and currency of recovery. Clause 16 refers only to
- -i
"any sums recovered". That is how the dichotomy, comes
in. Further, the expressions "any sums recovered" and
"in respect of loss to which the Policy applies" if read
together meant that the sums recovered must be in respect of loss which arises from the subject-matter of the c
contract. If loss arises dehors such contract any sums recovered in that regard would not fall in Clause 16. In view
of the ordinary use of language used in Clause 16, the
US Dollars paid belatedly would certainly fall within the D
expression "any sums recovered in respect of loss to
\
which the Policy applies". [Para 16] [569-G-H; 570 A-D-F-
-G-H; 571-A]
1.5 Clause 16 provides for a formula of apportionment in the ratio of 90:10 between the Corporation and E
the Exporter. If one reads the Policy in its entirety and even
if one is to go by contextual interpretation of the Policy
one finds a reason for this ratio of division between the
Corporation and the Exporter. The extent of sharing the
amount recovered from the buyer has a direct nexus with F
-_....i
the ratio of loss agreed to be borne between the Corporation and the Exporter. This is one more reason for saying
that "any amount recovered from the buyer in respect of
loss to which the Policy applies". Hence, the words "any
sums-recovered" in Clause 16 would mean all sums reG
covered from the buyer to be divided in the proportion of
~J_
90:10 between the Corporation and the Exporter. [Para
17] [571 8-D]
L. Lucas Ltd. and Anr. v. Export Credits Guarantee Department, 197 4 (2) All ER 889 - referred to.
H
560
A
SUPREME COURT REPORTS
[2008] 14·S.C.R.
CASE LAW REFERENCE
:<.
1984 (Supp.) sec 263
Relied on.
(1974) 2 All ER 889
Referred to.
Para 11
Para 18
CIVILAPPELLATE-JURISDICTION: CivilAppeal No. 6145
B of 2008
From the Interim Order dated 17.8.2007 of the High Court
L
of Calcutta in A.P.D. No. 302 of 2003 in Suit No~ 340 of 1992 ·
1
Uday ·u. Lalit, C. Mukund, Pankaj Jain, Amit Kasera,
C Avneesh Garg and Bijoy Kumar Jain for the.Appellant.
D
Ghulam E. Vahanvati, SG., Bharat Sangal, Prasenjit Das,
lpsita Borthakur and Sanaya Dadachanji for the Respondents ...
The Judgment of the Court was delivered by
S. H. KAPADIA, J. 1. Leave granted.
2. This civil appeal by grant of special leave petition is
filed against judgment and order dated 17.8.07 passed by the·
Division Bench of the Calcutta High Court in APD No.302/2003
. E
in Suit No.340 of 1992 whereby the Division Bench allowed the
appeal preferred by respondent no.1 Corporation '(insurer) and
set aside the judgment and decree dated 4.4.03 passed by the
!earned Single judge of the High Court in Suit No.340 of 1992.
.
.
F
3. The short question which arises for determination in this
, civil appeal and which revolves around interpretation of clause
t---
16 of the Specific-Shipments (Political Risks) Policy dated
27 .1.87 is: where the las~. for which the Exporter (insured) has
been indemnified by the insurer, is quantified and a fixed sum
is set out in,the insurer's policy, being .the total liability of the
G insurance company to the insured, would the insurer be entitled
to receive anything more than what has' been paid by it to the
v·
insured or would it (insurer) b~ also entitled to share the increased recovery that the insured may, at the future date, make
H from t~e original contract, to which the insurer is not a party?
. ...
"'(
I
M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN.
561
OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
FACTS
4. On 8.10.85 M/s. Ramchander Heeralal (predecessor
of the present appellant) entered into an agreement with the
Egyptian National Railways (foreign buyer) for supply of 20 lakhs
A
clips bolts for a total value of US$.6, 15,200, FOB Calcutta. Under the said contract 20% of the total value of the contract was
8
payable as advance against presentation of a letter of guarantee covering the same amount and 80% of the total contract
value had to be financed for 3 years, to be paid in six equal
semi-annual consecutive instalments with fixed interest at 9%
p.a., the first instalment to be paid after six months from the C
date of each shipment. Initially the Exporter got 20% of the in~
voice value as advance. The goods were exported on credit for
the balance price of 80% which was covered to the extent of
90% by Specific Shipments Policy No.14499/1987 ('Policy', for
short). The consignee duly received the goods and paid the D
entire consideration price by depositing the same with its
banker(s) at Egypt who was supposed to transfer the same to
respondent no.2-HSBC Bank in India. However, because of
embargo imposed by the Egyptian Government the banker(s)
of the consignee could not transfer the moneys to HSBC Bank.
E
· Since the Exporter did not get. the balance price within time
from its consignee they applied to the Export Credit Guarantee
Corporation ("Corporation", for short) under the said Policy to
pay for the risk (cause) covered being 90% of the balance price
which was duly paid by the Corporation. Subsequently, after~he F
embargo came to be lifted, the Egyptian Bank transferred the
money to HSBC ·in India. Disputes then-started as to who would
be entitled to the said sum and to what extent. Disputes arose
because of fluctuation in the exchange value. The price was
received in US Dollar by HSBC. By the time-it reached India the G
same got appreciated. The exchange rate of US Dollar resulted
in increased recovery. The Exporter filed the suit. During the
pendency of the suit HSBC disbursed whatever sum recovered
·
after converting the same in Indian Rupee to the concerned
parties in the ratio of 90: 10 between Corporation and Exporter. H-
562
SUPREME COURT REPORTS
[2008] 14 S.C.R.
A The Exporter contended that the Corporation should pay the full
increased recovery to it whereas Corporation contended that
the same should be apportioned in the ratio of 90: 10 in terms of
Clause 16 of the said policy. The learned Single Judge decreed
the suit in favour of the Exporter against which the Corporation
B went in appeal by filing APO No.302 of 2003. By the impugned
judgment dated 17.8.07, the Division Bench held that the Corporation was entitled to 90% of the increased recovery against
which this civil appeal is filed by the Exporter.
c
D
E
G·
ISSUE
5. The short question which arises for determination in this
civil appeal is : whether the insurer (Corporation) was entitled
to 90% of the increased recovery as claimed under the said
1987 Pol.icy?
· Relevant clauses of the Policy
6. To answer the above question we quote he.reinbelow
relevant clauses of the Policy dated 27 .1.87 which are as fol-
. lows:
"Form No.91A
Sp'ecific Shipments
(Political Risks) Policy
, Export Credit & _
Guarantee Corpn.Ltd"·
" AND WHEREAS the Exporter has made a proposal-dated
the 23rd day of December, 1985 (hereinafter called the
"proposal') requesting the Corporation to insure the
Exporter against a percentage of loss which he may sustain
by reason of certain ri$kS involved in the shipment of goods·
to Egypt under the said contract. ·
NOW, THEREFORE, in consideration .of the premium of
Rs.81,891/- (Rupees eighty one thousand eight hundred
ninety one only) paid by the Exporter to the Corporation
(receipt, of which is hereby acknowledge), the corporation
herby insures the Exporter in accordance with the terms
~ ~ •
v'
•• ·,_ ...... ~...:- •• • • ....._,' ..._
r
-
'
M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN.
563
OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
---7--'
and subject to the conditions hereto against a percentage A
of the amount of any loss as hereinafter defined which may
be sustained by the Exporter in respect of shipment of
goods from India made under the above contract due to the
following causes (hereinafter called the 'Risks insured').
· 7. Percentage of loss payable: The percentage of the
B
amount of any loss which the Corporation hereby agrees
- 1
to pay shall be 90.
8. Amount of loss : The amount of loss shall be
(B) in all other cases
c
(a) in regards goods delivered to and accepted by the
buyer, be the gross invoice value of those goods less
"
"
(i) the amount which on the date at which the loss is
ascertained the buyer would have been entitled to take D
into account by way of payment, credit, set off or counter
I
'"(
claim or which the exporter is entitled to appropriate in
whole or in part payment of the price of the goods; and
(ii) any expenses saved by the non-payment of agent's
commission or otheiwise; . .and
E
(b) as regards goods not delivered to the buyer, the gross
invoice value thereof, less
(i) any expenses saved by the non-fulfilment of the contract
for the sale of those goods.
F
-
-t
(ii) any sums which, at the date at which the loss is ,
ascertained, the Exporter has recovered from any sources
including realization of any security, resale of any goods
or materials and any· sums of credits in his possession
which the Exporter is entitled to appropriaie as or towards G
payment of the purchase price, or any part thereof provided
+
that the sums so recovered or realized by any security or
resale of any goods or materials shall be the sum less all
expenses of recovery, realization or resale, the godown
charges and brokerages and commissions if any.
H
564
SUPREME COURT REPORTS
[2008] 14 S.C.R.
A
9: Time for Ascertainment of Joss: Subject to the
·~
submission by the Exporter of a claim supported by
f
· evidence which in the opinion of the Corporation, is
sufficient and by a verification of the cause of loss, the
Corporation will pay to the Exporter at Bombay the amount
B
of loss hereby insured immediately _after the loss has been
ascertained and such loss shall be ascertained.
'
~
(a) where the loss is due to the prevention of or delay in
~ - -
'
the transfer of payment$ frbm the buyer's country to India ·
r
in circumstances outside the coritrol bf both th.e Exporter
c
and for the buyer, four months aft~r the due date of payment
by the buyer provid~d an irrevqcable deposit is made by
the buyer within 30 days from· the ;due date:
-
10. Payment of Joss: The Exporter shall, as a condition
precedent to the payment of the amount of a percentage
.
-
·o
· of any los.s as herein defined procure and deliver to the
corporation a writing from the Bank which holds the
Documents pertaining to the shipment concerned
r
- acknowledging and agreeing (i) that the b~nk holds thesame in trust for the corporation (ii) that the Bank shall,
E
upon demand by the corporation, deliver them upto the
Corporation and (iii) that if the Bank shall receive' any
payments against·such documents the Bank shall make
~
payments thereo~ according to the directions of the
Corporation in writing.
~ F
11. Rate ofExchange: All payments under this policy shall
~
. be made in Indian Rupee at the Head Office of the
Corporation and for the purpose of payment of premiums
and losses, the gross invoice value of shipments invoiced
in-a foreign currency shall be converted into Indian Rupees
G
at _the Ba_nk buying rate of exchange at Bombay on the
date of the relative shipment.
PROVIDED. THAT, if devaluation of the currency in which
¥
the.buyer tias to paytakes place before the claim is paid,
the amount claimed in Indian currency shall be based on
H
the devalued rate.
,_ ·~ .
MIS. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN.
565
OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
-.-r-~
13. The t0tal liability of the Corporation under this policy
A
shall be limited to Rs.64,08,846/-
RECOVERIES
14. Action afler payment of claim: Upon payment by the
Corporation of the amount due hereunder to the Exporter,
B
the Exporter shall:
~--;
(a) take all steps which may be necessary or expedient or
which the Corporation may at any time require to effect
':>
recoveries whether from the buyer or any other source
from Whom such recoveries may be made.
c
(b) upon request assign and transfer to the Corporation
. his rights under the contract in respect of which such
payment has been made including his right to receive any
monies payable under such contract or his right to D
damages from any breach thereof;
\"
(c) upon- request deliver up to the Corporation any goods
in respect of which such payrpent has been made and any
documents relating thereto and assign and transfer to the
Corporation his right and interest in any ~uch goods and
E
documents;
(d) upon request assign, deliver up or otherwise trapsfer
to the Corporation any negotiable instruments, guarantees
or other securities relating to such goods or contracts.
F
~-.A
16. Recoveries: Any sums recovered by the Exporter or the
Corporation in respect of loss to which this policy applies
after the date on which the loss is ascertained from the buyer
or ariy other source shall be divided between the Corporation
and the Exporter in the proportion of 90 and 10.
G
The exporter ·shall pay all sums so recovered to the
~
Corporation forthwith upon their being received by him or
any person on his behalf, the Exporter hereby
acknowledging and declaring that until such payment is
made to the Corporation he receives and holds such sums H
566
SUPREME COURT REPORTS.
[2008] 14 S.C.R.
A
in trust for the Corporation."
B
7. Apart from the relevant clauses, a Schedule giving particulars of shipment covered was also annexed to the said Policy
which reads as under:
To
''THE EXPORT CREDIT GUARANTEE
CORPORATION OF INDIA LTD. BOMBAY
Schedule attached to the Specific ship.ments/Political Risks) ·
C Policy No.14499/87 issued to M/s. Ramchander Heeralall, 138, ,
Biplabi Rash Behari Basu Road, Calcutta - 700 001
PARTICULARS OF SHIPMENT COVERED
1. Name and address
Egyptian national Railways,
D
of the Buyer
Over Shoubra Subway,
Shoubra, Cairo, Egypt
2. Oescription of the contract Supply of clip bolts to Egypt
3. Date of contract
8.10.1985
4. Gross invoice value
Rs. 76,90,000/-
E
5. Arriout covered
Rs. 71,20,940/-
6. Shipment period
Upto July, 1987 Extended
ypto 31.10.1987
7. Terms of payment
20% advance payment
F
80% Deferred payment in
6 half yearly instalments
8. Security
Guarantee from National
Bank of Egypt
9. Maximum liability
Rs. 64,08,846/-
G
10.Premium
Rs. 81,891/-
Dated this 27th day of January, 1987
Sd/-
H
For Chairman cum Managing Director"
M/S. RAHEE INDTS. LTD. V. EXPORT C. G. CORPN.
567
OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
r
~
CONTENTIONS
A
8. According to Shri G.E. Vahanvati, Solicitor General of
India, appearing on behalf of the Corporation, the words "in respect of loss" mentioned in Clause 16 are descriptive. According to learned counsel the said expression "in respect of loss" B
identifies the amounts recoverable under the Policy. According
-i
to learned counsel, Clause 14 refers to Exporter's taking steps
-
to effect recoveries from the buyer whereas Clause 14(b) talks
about the Corporation taking steps as assignee to recover
moneys payable under the contract. According to learned counsel, in this case Clauses 14(a) and 14(b) do not apply because c
in this case Clause 16 alone applies. According to learned counsel, Clause 16 refers to recoveries made by the Exporter or the
Corporation. According to learned counsel, Clause 14 refers to
steps to be taken by the Corporation or the Exporter for enforcement of rights under the contract against the foreign buyer D
whereas Clause 16 comes in only in cases where the sum
y
stands recovered. In other words, according to learned counsel, once a recovery is made Clause 16 comes into play. That
clause provides for a formula of apportionment/ratio of division
of any sum being recovered between the Corporation and the
E
Exporter in the ratio of 90: 10.
9. Shri Uday U. Lalit, learned senior counsel, appearing on
behalf of the Exporter, on the other hand, contended that every
word in Clause 16 must be given its due ·weightage. According
F
to learned counsel, Clause 16 specifically stands confined to
. - r-1
sums recovered "in respect of loss to which the Policy applies"
and consequently it cannot be said that the said 'words "in respect of loss to which the Policy applies" should be read as descriptive. According to learned counsel, the words "any sums recovered" in Clause 16 should be read in juxtaposition with the G
words "any sums recovered in respect of a loss to which the Policy
'J · applies" and if so read the word "loss" in Clause 16 would stand
restricted to the words "any sums recovered". In support of his
above contention learned counsel placed his reliance on the judgment of the House of Lords in the case of L. Lucas Ltd. (supra).
H
568
SUPREME COURT REPORTS
[2008] 14 S.C.R.
A
Rules of Interpretation as applicable to Policy of ~~
Insurance
.
10. In this case the entire controversy revolves around interpretation of Clause 16 of the Policy. It is well-settled rule of
construction that words in a contract (Policy herein) are to be
B understood in their ordinary meaning. However, this ordinary
meaning will not prevail in two cases, namely, where a Word
has technical or legal meaning and secondly where the context 'r---
requires otherwise. It is not disputed that in a contract of insurande, parties may introduce expres~ terms which are at vari- · .
c ance from or in conflict with the ordinary principles of subrogation. Hence, the. correct approach is to consider the policy of
insurance by reference to its terms. If, however, there is some
doubt or ambiguity in the construction of the policy only then it
would be correct to invoke the pr,inciples of subrogation·as·a
D guide or a controlling authority. Therefore, at the outset, what
· we propose to do is to consider whether the Policy, in this case
on its own express terms, provides fotthe allocation of the mon-
'r,
eys between the Exporter and the Corporation.
·
11. One more principle is required to be kept in.mind in a
E matter of this type in which we are concerned with the value of
Rupee in terms of US Dollar. If a debt in a foreign currency is
sued for, the judgment must be in terms of Rupee. and the rate
Of exchange (subject to express CO[l:tractual provisions to the
contrary} will b~the.rate of exchange between Rupeenmd the
F foreign currency prevailing at-the date· when fhe debt becomes ·
G
""---~
payable [See: Forasol v. Oil and Natural Gas Commission -
1984 (Supp.) SCC 263] i.e. immediately on the US Dollar having been received in India.
INTERPRETATION OF CLAUSE 16
12. Keeping in mind ~he above two principles we are now
required to interpret Clause 16 of the said Policy.
~:
13. As stated above, Clause 16 of the Policy begins with
H a head ·note titled "Recoveries". Three words/expressions are
M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN.
569
OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
~~~required to be interpreted, namely, "any sums recovered", "loss" A
and the expression "amount of loss" which finds place in Clause
9 of the Policy. On reading the Policy in its entirety, we find that
there is a dichotomy in it The subject-Policy in this civil appeal
is a contract. By nature it is an indemnity. The contract is in two
major parts. The first part which commences from Clause 1 to
B
Clause 13 contemplates an indemnity against a percentage of
• · -i a loss whereas. the second part of the contract commencing
from Clause 14 to Clause 16 contains provisions enabling recoupment of that loss.
14. In this case the invoice value as on 8.10.85 was US$ C
6, 15,200/-. Out of which 20% was paid by the Egyptian buyer
upfront. Therefore, amount due from the Egyptian buyer was
US$ 5,59,696.14 (80% of US$ 6, 15,200). The equivalent of US$
5,59,696.14 was Rs.71,20,940/- which got increased within 5
years to Rs.1,57,82,876/-. This was on account of the fall in the D
.,.
external value of the Indian Rupee as agains! US Dollar.
15. The question before us is : whether Clause 16 of the
Policy entitles the Corporation to retain 90% of the Recoveries.
16. On a bare reading of Clause 16 on its own terms, we
find that the said clause falls under a separate chapter of "Recoveries". That chapter deals with recoupment of the loss. Clause
E
16 unequivocally states that any sums recovered from the buyer
after the date on which the loss is ascertained shall be divided
F
- ---' between the Corporation and the Exporter in the proportion of
90: 10. As stated above, the outstanding receivable was US$
5,59,696.14 equivalent to Rs.71,20,940/-. However, on account
of belated payment and fall in the value of Rupee against US
Dollar the value of US$ 5,59,696.14 stood increased to G
Rs.1,57,82,876/- resulting in increased recovery. Clause 16, in
'i our view, refers to sums recovered from the buyer. That recovery can only be on the date when the foreign currency entered
India. The foreign currency entered India only after the loss stood
ascertained in terms of Clause 9 which refers to the "amount of H
570
SUPREME COURT REPORTS
[2008] 14 S.C.R.
A
loss". Therefore, in our view, the dollars paid belatedly would
fall within the words "any sums recovered" from the buyer after
ascertainment of the amount of loss under Clause 9. Clause
16, however, refers to the words "any sums recovered in respect of loss to which the Policy applies". According to the ExB porter, the words "in respect of loss" restrict the first three words
of Clause 16, namely, "any sums recovered". According to the
Exporter, if so read, the words "any sums recovered" would cover
an amount of only Rs.64,08,846/- and not Rs.1,57,82,876/-. We
do not find any merit in this argument advanced on behalf of the
c Exporter. As stated above, the policy is in two distinct parts.
The first part deals with indemnification against a percentage
of loss. In that part we have Clause 11 which refers to "rate of
exchange". It states that all payments shall be made in Rupee
terms at the head office of the Corporation and for the purpose
0
of payment of premium and losses the gross inyoice value of
shipments invoiced in ~foreign currency shall be converted into
Rupee at the bank's buying rate of exchange. However, such
rule of conversion or exchange rate is not made applicable in
case of "Recoveries" under Clause 16. Clause 16 refers to "any
sums recovered" which covered dollars paid belatedly. It is imE portant to note that under the Policy there is a difference between currency of account and currency of payment. The currency of account is !n US Dollar wher-eas t~e currency of payment of loss and premium is in Indian currency applying the
conversion formula in Clause 11 of the Policy: Such conversion
F
rate is not there in Clause 16 which refers to "Recoveries".
Therefore, there is a difference between currency of account,
currency of payment and currency of recovery. Clause 16 refers
only to "arw sums recovered"r. That is how the dichotomy, as
stated above, comes in. Further, the expressions "any sums
G recovered" and "in respect of loss to which the Policy applies" if
read together meant that the sums recovered must be in respect of loss which arises from the subject-matter of the con-
~
tra~t. If loss arises dehors such contract any sums recovered in
that regard would notfall in Clause 16. In our view, in view of the
H ordinary use of language used in Clause 16 the US dollars paid
·,
M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN.
571
OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
belatedly would certainly fall within the expression "any sums A
recoverec' in respect of loss to which the Policy applies".
17. One more aspect needs to be mentioned. Clause 16
provides for a formula of apportionment in the ratio of 90: 10
between the Corporation and the Exporter. If one reads the Policy
B
in its entirety and even if one is to go by contextual interpretation of the Policy one finds a reason for this ratio of division
... 1
between the Corporation and the Exporter. The extent of shar-.
ing the amount recovered from the buyer has a direct nexus
with the ratio of loss agreed to be borne between the Corporation and the Exporter. In other words, the ratio of division of c
Recoveries contemplated in Clause 16 has a direct nexus with
the ratio of division of losses agreed to be shared between the
.J.
Corporation and the Exporter under Clause 7 of the Policy. This
is one more reason for saying that "any amount recovered from
the buyer in respect of loss to which the Policy applies". In our D
view, the words "ariy sums recovered" in Clause 16 would mean
'1'
all sums recovered from the buyer to be divided in the proportion of 90:10 between the Corporation and the Exporter.
Judgments of English Courts
E
18 .. In L. Lucas Ltd. and another v. Export Credits Guarantee Department - .(197 4) 2 All ER 889, an exporter entered
into a contract of guarantee under which the guarantor indemnitied the exporter upto 90% of the loss arising out of failed payments for export shipments. The contract also provided that any
F
_ , ,A
sums recovered by the exporter/guarantor "in respect of a loss
to which the guarantee applies" would be divided between the
parties in the ratio 90: 10. A loss occurred. The guarantor indemnified the exporter. The exporter later on succeeded in recouping the payment but in the mean time almost two years G
elapsed and during those two years changes in the exchange
· ~.\
rates resulted in the payment in terms of pound sterling became
significantly larger on conversion. The guarantor contended that
it was entitled to 90% of the increased recovery while the exporter contended that the guarantor was only entitled .to what it H
572'
SUPREME COURT REPORTS
[2008] 14 S.C.R.
A had paid out as indemnified. The Court of Appeal recognized
the contract as one of indemnity and treated it like a policy of
insurance. Before the Court of Appeal, the exporter contended
th~t if there is recovery in a subrogated claim higher than the
amount of the !oss, the excess goes to the insured and, thereB fore, the guarantor is not entitled to recover out of the proceeds
more than it had paid out. The Court of Appeal ruled that the
correct approach was to consider the contract by reference to
its terms and, only if some real doubt or ambiguity in its construction was evident only then it would be proper to invoke the
c general principles of Subrogation as a guide or controlling authority. Going by the contract and the words used in Clause 17
the Court of Appeal .held that the guarantor was entitled to 90% ·
of the' increased recovery as Clause 17 of that contract so provided. This decision of the Court of Appeal was reversed by
Hotjse of Lords in the same case. It may be noted that the Court.
D of Appeal's anafysis of the interplay between Subrogation P'riri,.
ciples arid contractual provisions was, however, not disturbed
by the House of Lords in its judgment in the same case. In that
m·auer the ground for overruling the decision of the Court of
Appeal by House of Lords was quite different. The Court was
E concerned with the contract of guarantee. One of the arguments
advanced was regarding the nature of the contract. According
to House of Lords, in the ~ontract of guarantee in that' case there
was no provision made entitling the guarantor to 90% of the '.
increased · recovery which was· described as fortuitous · profit. It ·
F
was held in that case by Ho_use of Lords that the subject-policy
~ was a contract of guarantee which never intended that the guarantor would be entitled to 90% of fortuitous profit. According to
House of Lords; if the contract intended to give this benefit to
the guarantor it would have explicitly said so. According to the
G said judgment, if the contract would have provided for 90% of
the fortuitous profits to be given to the guarantor then the nature
of the contract of guarantee in that case would have ceased to
be one of indemnity against a percentage of loss and in that
event it would become a profit sharing contract. This observaH . tion has been made by Viscount Dilhorne at page 898 of the
,
't-
)_'
M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN.
573
OF INDIA LTD. & ANR. [S. H. KAPADIA, J.]
_.__...
report. However, as stated above, the analysis, made by the
A
Court of Appeal in the said case, of the interplay between subrogation principles and contractual provisions with which we are
concerned, has not been disturbed by the judgment of House of
Lords in the said case of L. LucasLtd. (supra). In our present
case we are not concerned with the contract of guarantee. In
8
the present case we are concerned with the Policy of insurance
.._I
dated 27 .1.87. By its very nature it was a contract of indemnity ..
In the present case, the nature of the contract is not in issue. It
--:
was in issue in the case of L. Lucas Ltd. (supra). In the circumstances, we do not wish to express .any opinion on the correct- c
ness of the judgment of the House of-Lords in L. Lucas Ltd.
(supra).
19. For the aforestated reasons, this civil appeal filed by
the Exporter stands accordingly dismissed with no order as to
costs.
D
K.K.T.
·-
Appeal dismissed.
~
"f