# UNION OF INDIA v. SRI SARADA MILLS LTD. September 28, 1972

- **Citation:** [1973] 2 S.C.R. 464
- **Court:** Supreme Court of India
- **Decided:** 1972-09-28
- **Bench:** A. N. Ray, I. D. Dua, K. K. Mathew
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-v-sri-sarada-mills-ltd-september-28-1972-5866
- **Pages:** 18

## Headnote

Transfer of Property Act ( 4 of 1882), s~. 6 (e) ~nd 135A and
Marine Insurance Act ( 11 of 1963), ss. 52 and !9-Co11s1g11or of. goods
10 Railway suing Rai/1ray Administration for loss ?f .coods-~uit filecl
after recol'ering fro1n insurance. co1npa~y and ass_ig!ung. to insi!ran.ce
co111pany, assignor's rights agairlsr Railway
Adn11n1strauo11-Ma1ntauzability.
The respondent consigned certain goods to the R:Ulway for dispatch.
The goods were insured.
They were
damaged dunng tran.s1,t, and t~e
Insurance company paid the total loss.
The respondent assigned all its
rights, including the right to sue, to the Insurance Compc.ny.
Thereafter
the respondent sued the appellant for damages. The appellant contended
irtter a/ia that the
respondent, having received the total los~ from the
Insurance Company, was not entitled to institute the suit.
The High Court in appeal, held the suit was maintainable because the
assignment was of a mere right to sue which is not valid under s. 6( e)
of the Transfer of Property Act, 1882, and that even i'f the assignment
was valid, the right to action of the respondent had not ceased and decreed the suit.
Jn appeal to this Court,
HELD: (per A. N. Ray and I. D. Dua, JJ.) The appeal should be
dismissed. [471B]
Section 6(e) of the Transfer of Property is not applicable to
the
facts of the case.
Under s. 52 of the Marine In~urance Act, 1963, an
insurance company can sue in its own name where the policy has been
transferred by assignment, but that is not the case here. Jn the present
case, the insurance conpany is entitled to subrogation in
accordance
with the provisions of s. 79 of the Marine Insurance Act. The insurance
company and the respondent proceeded on the basis that the insurance
company was only subrogated to the rights of the assured, and the Jetter
of subrogation conIDins intrinsic evidence that ~he respondent wou1d give
the insurance company facilities for enforcing rights.
But the Jetter of
subrogation did not divest the respondent of its cause df action against
the appellant for loss and damages. The insurance companv has chosen
to allow the respondent to sue and the appellant did not take· the plea that
there was an assignment.
If such a plea had been taken, the insurnnce
company could have been impleaded and rights of all the parties could
have been decided. [468H; 469A-B; 470C-D, E-H; 471A]
The respondent will however give a valid discharge to the appellant
and be answerab1e and accountable to the insurance company for the
money recovered, and the decree would be a bar to the institution of any
suit by the insurance cornpaoy. [470D-E]
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
UNION V. SARADA MILLS
465
King v. Victc ·a Insurance Co1npany Liniited [1896] A.C. 250 Co111pania Colombiano De Segur,s v. Pacific Steam Navigation Co. [1965] I Q.B.
101, Torkington "Magee [1902] 2 K.B. 427 and Ertet Bieber & Co. v.
Rio Tinto Co. [ 918] A.C. 260, referred to.
Per K. K. Mal ""V, J. (dissenting). Th< real reason why a mere right
to sue cannot be assigned is that such an assignment would offend the
rule of cham.perty and maintenance. But where an insurance company
has been subngated to all the rights and the remedies of the assured by
virtue of s. 135-A of the Transfer of Property Act, 1882, (now incorporated in the Marine Insurance Act, 1963 J, the reason
for the
rnle
against assignment of a mere right to sue does not obtain, because, the
insurance company is clothed with all the rights and remedies of the
assured and the only thing lacking is the capacity to sue in its O\\'O name.
Subrogation is concerned solely with t'>e mutual rights and lib;lities of
the parties to the contract of insurance; it confers no rights and imposes
no liabilities upon third parties \!.·ho are strangers to that contract and_.
the insurer, who has pt.id a loss gets no direct rights or remedies against
anyone other than the assured, nor can sue such parties in his O\.Vn name.
[472F-H; 475H; 476A; 4800-H]
Kin11 v. Victoria 111s11re11ce Co. L

## Text

_Characters 0–39,711 of 47,365. This is a partial read: ask again with offset=39711 for what follows._

464
UNION OF INDIA
v.
SRI SARADA MILLS LTD.
September 28, 1972.
[A. N. RAY, I. D. DUA AND K. K. MATHEW, JJ.]
Transfer of Property Act ( 4 of 1882), s~. 6 (e) ~nd 135A and
Marine Insurance Act ( 11 of 1963), ss. 52 and !9-Co11s1g11or of. goods
10 Railway suing Rai/1ray Administration for loss ?f .coods-~uit filecl
after recol'ering fro1n insurance. co1npa~y and ass_ig!ung. to insi!ran.ce
co111pany, assignor's rights agairlsr Railway
Adn11n1strauo11-Ma1ntauzability.
The respondent consigned certain goods to the R:Ulway for dispatch.
The goods were insured.
They were
damaged dunng tran.s1,t, and t~e
Insurance company paid the total loss.
The respondent assigned all its
rights, including the right to sue, to the Insurance Compc.ny.
Thereafter
the respondent sued the appellant for damages. The appellant contended
irtter a/ia that the
respondent, having received the total los~ from the
Insurance Company, was not entitled to institute the suit.
The High Court in appeal, held the suit was maintainable because the
assignment was of a mere right to sue which is not valid under s. 6( e)
of the Transfer of Property Act, 1882, and that even i'f the assignment
was valid, the right to action of the respondent had not ceased and decreed the suit.
Jn appeal to this Court,
HELD: (per A. N. Ray and I. D. Dua, JJ.) The appeal should be
dismissed. [471B]
Section 6(e) of the Transfer of Property is not applicable to
the
facts of the case.
Under s. 52 of the Marine In~urance Act, 1963, an
insurance company can sue in its own name where the policy has been
transferred by assignment, but that is not the case here. Jn the present
case, the insurance conpany is entitled to subrogation in
accordance
with the provisions of s. 79 of the Marine Insurance Act. The insurance
company and the respondent proceeded on the basis that the insurance
company was only subrogated to the rights of the assured, and the Jetter
of subrogation conIDins intrinsic evidence that ~he respondent wou1d give
the insurance company facilities for enforcing rights.
But the Jetter of
subrogation did not divest the respondent of its cause df action against
the appellant for loss and damages. The insurance companv has chosen
to allow the respondent to sue and the appellant did not take· the plea that
there was an assignment.
If such a plea had been taken, the insurnnce
company could have been impleaded and rights of all the parties could
have been decided. [468H; 469A-B; 470C-D, E-H; 471A]
The respondent will however give a valid discharge to the appellant
and be answerab1e and accountable to the insurance company for the
money recovered, and the decree would be a bar to the institution of any
suit by the insurance cornpaoy. [470D-E]
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
UNION V. SARADA MILLS
465
King v. Victc ·a Insurance Co1npany Liniited [1896] A.C. 250 Co111pania Colombiano De Segur,s v. Pacific Steam Navigation Co. [1965] I Q.B.
101, Torkington "Magee [1902] 2 K.B. 427 and Ertet Bieber & Co. v.
Rio Tinto Co. [ 918] A.C. 260, referred to.
Per K. K. Mal ""V, J. (dissenting). Th< real reason why a mere right
to sue cannot be assigned is that such an assignment would offend the
rule of cham.perty and maintenance. But where an insurance company
has been subngated to all the rights and the remedies of the assured by
virtue of s. 135-A of the Transfer of Property Act, 1882, (now incorporated in the Marine Insurance Act, 1963 J, the reason
for the
rnle
against assignment of a mere right to sue does not obtain, because, the
insurance company is clothed with all the rights and remedies of the
assured and the only thing lacking is the capacity to sue in its O\\'O name.
Subrogation is concerned solely with t'>e mutual rights and lib;lities of
the parties to the contract of insurance; it confers no rights and imposes
no liabilities upon third parties \!.·ho are strangers to that contract and_.
the insurer, who has pt.id a loss gets no direct rights or remedies against
anyone other than the assured, nor can sue such parties in his O\.Vn name.
[472F-H; 475H; 476A; 4800-H]
Kin11 v. Victoria 111s11re11ce Co. Ltd, [1896] A.C. 250, 255-6
and
Simpson v. Thomson, [1877] 3 App. Cas. 279 H.L. applied.
Indian Trade and
General Insurance
Co. Ltd. v.
Union of India,
A.LR. 1957 Cr.lcutta 190 and Vasudevan Mudaliar v. Caledonian lnSllrance Co. and a11otl1er, A.LR. 1965 Madras 159, approved.
Yorkshire /11s11ra11ce Co. Ltd. v. Nisbet Shipping Co. Ltd., [1962]
2 Q.B. 330,Castellain v. Preston, I 1 Q.B.D. 380, 395, Burnard v. Rodocanachi, Sons & Co. 7 App Cas. 333, 939, Glen Line v. Attorney General.
11930] 46 T.L.R. 451, Textiles and Yarn (P) Ltd. v. Indian National
Steamship Co. Lid. A.LR. 1964 Calcutta 362 i:.nd Asiatic Governments
Security Fire and General Assurance Co. Ltd. v. The Scindia
S:eani
Narif!ation Co. Ltd., A.LR. 1965 Kerala 214, referred to.
Alliance Insurance
Con1pany Ltd. v.
Union of India. I.T.R.
[1950]
I Calcutta 544, disapproved.
Clause ( 4) of s. 135-3 had not made any departure anJ conferred a
right of suit upon the subrogee against third persons.
An assignment of
insurance after loss would sound in the realm of an assignment of a
mere right to sue r.nd the legislature wanted, by Cl: (4), to put it beyond
doubt that s. 6(e) is no bar to such i:.r. assignment.
Moreover, cl. (4)
may net have any operation upon els. (2) and (3) of the section, because,
subrogation is effected by els. (2) and (3), that is, by operation of law,
while s. 6(e) is concerned with a transfer cli a mere right to Slie by act
nf parties. f476B-D]
But, in the present case, it is not mere subrogation. The assignment
conveyed to the insurance company the entire rights in respect of the
;,,ubjcctMmatter of the insurance, including the right of the assured to sue
in its own name, and therefore, after such c.assignment, the assured had
no cause of action to institutt: the suit against the appellant for rccoverv
01 damages. f481F-GJ
-
Con1pania Co/0111hiana de S<•guros v. Pacific Stean1 Navigation
Co.
11965j I Q.B. 101. 121 applied.
.j 6 6
SUPREME COURT REPORTS
[1973] 2 S.C.R.
Anson's Law of Co111ract,
T\\·~nty-third cdi1ion edited hy A.G. Guest
referred to
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1045 of
J 967.
A
Appeal by certificate from the judgment and decree dated
January 4, 1966 of the Madras High Court in Appeal No. 129 of
B
1961.
G. L. San!ihi and S. P. Nayar, for the appellant.
R. K. Gar.g, S. C. Agarwa/a, V. J. Francis and
Neuar, for the respondent.
Narayana
The Judgment of A. N. RAY and I. D. DUA, JJ. was delivered
by RAY, J. K. K. MATHEW, J. gave a dissenting Opinion.
RAY, J.-We have had the advantage of reading the judgment written by our -learned brother Ma1hew.
The question which falls for determination in this appeal is
whether the respondent mill on recovering Rs. 32,254-6-9 from
the Indian Globe Insurance Co. Ltd. and assigning ail rights
against the Railway Administration in favour of the
insurance
company as a subrogee was compe1ent to institute and maintain
the suit against the Railway Administration.
We agree with the reasoning and conclusion of our learned
brother Ma1hew that subrogation does not confer any independent right on underwriters to maintain in their own name and
withou1 reference to the persons assured an action for damage
to the thing insured. The right of the assured is not one of those
righ1s which are incident to the property insured.
Counsel for the appellant contended that by reason of
the
assignment to the insurance company of all rights against the
Railway Administration the respondent mill did not have any
cause of action against 1he Railway Administration.
In aid of
that contention the decisions in
King v.
Victoria
Insurance
Company Limited [1896] A.C. 250 and Compania Colombiana
De Seguros v. Pacific Steam Navigation Co., [1965) 1 Q.B. 101
were relied on.
In the Vicioria
Insurance Company case
(supra)
the
Bank of Australiasia effected an insurance with the insurance
company of certain goods to be shipped to London. Be.fore the
cargo left Australia it was damaged or destroyed through the
negligence of the defendant King, an employee of the Queensland Government.
The bank claimed a sum from the company
c
D
E
F
G
H
A
B
D
E
F
G
-H
UNION V. SARADA MILLS (Ray, J.)
467
which was duly paid.
The company took an
assignment
by
deed of all the rights of the b:ank against King subject to a stipulation that the bank's name should not be used in legal proceedings. The questions raised on appeal in tha1 case were. ( 1) . the
plaintiffs have no right of action at all; (2) they have no nght
of action in their own name. The Supreme Court oi. Queensland
held that mere payment by the insμrance company did not subrogate them to the rights of the bank to the extent th.at they
couid sue in their own naines.
The Supreme Court of Qμeensland held that the assignment was covered by the Queensland
Act which corresponded to the English Judicature Act of 1873.
The Queensland Supreme Court construed the term 'legal chose
in action' to include all rights the assignment of which a Court
of Law or Equity would before the Act have considered lawful.
On that ratio, the right covered by the assignment in Victon'a
Insurance Company case (supra) was held to be a right of
that kind.
The Judicial Committee upheld the decision and said
"They rested their judgmeμt on the broader and simpler ground
that a payment honestly made by the insurers in consequence of a
policy granted by them and in satisfaction of a claim by the
insured is a claim made under th; policy which entitles the insurers
to the remedies available to the insured". The Judicial Committee
on 1his view said that "the highly artificial defence of the Queensland Government fails."
H should be noted here that the phrase 'legal chose in action'
was said in the Victoria Insurance Co. case (supra) to mean
'lawfully assignab~e· chose in action.
A legal chose in action is
something which is not possession. but which must be sued for
in order. to recover possession of it. A legal chose in action does
not include a right of action, such as, for instance, a right to
rrcover damages for breach of contract, or for a to~t. for it that
were so, such a right would be assignable. They would materially affect the Jaw of champerty and maintenance.
In the Pacific Steam Navigation Co. case (supra) the Pacific
Steam Navigation Company .by a bill of lading acknowledged the
shipment of 183 drums of electric cable at Liverpool for carriage
to and delivery at a port in Colombia to the Colombiana Telephone Co. The electric cable was insured on behalf of the Telephone Company.
The insura~ce company paid the · telephone
company in respect of the particular average loss. The telephone
company on receipt. of the pay.neat handed to
the
insurance
company 1wo documents.
By the first document, the telephone
company ceded and endorsed to the insurance company "all
righ1s which we have or which we may acquire in the future to
claim reimbursement thereof from the third parties who may b~
responsible for loss or damage."
By the second document the
telephone company waived in favour of the insurance company
. I\
•.
-168
SUPREME COURT REPORTS
[1973] 2 S.C.R.
"any rights he may have or has against others possibly respon·
sible for the damages or losses indemnified by this payment, and
we agree not to carry out any act that might in any way hinder
the carrying out of such rights by the insurance company". The
insurance company alleged that the documents went further than
a form of letter of subrogation and constituted a valid assignment by the elephone company to the. insurance company oi. the
.telephone company's claim against the defendants.
The Court
found that the language of the documents was that of assignment.
The question was whether the Court would permit the enforcement of the claim in the name of the assignee or whether the
assignment would be of a bare cause of action to defeat assignment and its enforcement.
The decision in May v. Lane 64 L.J.Q.B. 236 was refer·
red to in the Pacific Steam Navigation Co.
case
(suprn)
for
the \lroposition that a legal chose in action is something which is
not Ill possession, but which must be sued fo,· in order to recover
possession of it. A legal chose in action does not include a right
of action, such as, for instance, a right to recover damages for
breach of a contract, or a legal r~ht to recover damages arising·
out of an assault.
Again, in Torkington v. Magee [1902] 2 K. B. 427 it was
said that the words "other legal chose in action" mean right
which the common law looks on as not assignable by reason of
its being a chose in action, but which a court of equity deals
with as being assignable.
In
the
Pacific Steam Navigation Co.
case
(supra)
the
insurance company was found entitled to sue upon the bill of
lading, A bill of lading confers title to sue because it is a form
of property. The reason for allowing the insurance company to
sue in that case was that equity
before the
Judicature Act
allowed the enforcement of subrogation because equity never
regarded subrogation as the enforcement of a bare cause of
action, but as 1he enforceri\ent of a cause of action legitimately
supported by the underwriter's interest in recouping himself in
respect of the amount of the loss which he had paid under the
policy as a result of the acts, neglects or defaults. of the .actual
contract breaker or tortfeasor. The assignment in that case was
held to amount to assignment of the benefit of the contract with
the ship-owners.
It is indisputable that an insurance company can sue in its
own name where the marine policy has been transferred by assignment under section 52 of the Marine Insurance Act 1963. That
is not the present case.
·
A
B
c
D
E
F
G
K
' •
A
B
c
D
E
F
G
H
UNION v. SARADA MILLS (Ray, /,)
469
It is equally indisputable that an insurance company is entitled to subrogation in accordance with the provisions of section
79 of the Marine Insurance Act, 1963.
Subrogation does not
allow the subrogee or the underwriter to sue in its own name,
In the present case, the insurance company has not enforced its.
claim by virtue of subrogation.
Section 130 of the Transfer of Property Act however speaks.
of transfer of actionable claim.
Actionable claims
under the
Indian law include claims recognised by the Court either as to·
unsecured debts or as to beneficial interests in moveable property
not in possession. A debt is an obligation to pay a liquidated or
certain sum of money.
A beneficial interest in moveilble pro-·
perty will include a right to recQver insurance money or
a.
partner's right to sue for an account of a dissolved partnership
or a decretal debt or a right to recover the insurance money or the
right to claim the benefit of ·a contract not coupled with any
liability.
Section 6 ( e) of the Transfer of Property Ac~ states that. i.
mere right to sue cannot be transferred. A bare right of -action
might be claims to damages for breach of contract or claims to
damages for tort. An assignment of a mere right of litigation is
bad.
An assignment of property is valid even although that
property may be incapable of being recovered without litigation.
The reason behind the rule is that a bare right of action for
damages is not assignable because the law will not recognise any
transaction which may savour of maintenance of champerty. It
is only when there is some interest in the subject matter that a:.
transaction can ble saved from the imputation of .Jll.aintenance.
That interest must exist apart from the
assignment
and
to-
. that exent must be independent of it.
A chose in action for breach of contract was not assignable·
at law but was assignable at equity.
A chose in action in tort
was assignable neither in law nor in equity.
A bare right of
action is not assignable.
When however the right of action
is.
one of the incidents attached to the property or contract assigned
it will not be treated as a bare right of action.
In Ertel Bieber & Co. v. Rio Tino Co.,
[1918'] A .C. 260
Lord Summer treated a cause of action for damages for breach
of contract as chose in action, a form of property. The reason
for holding a cause of action for damages for breach of contract
to r,e a form of property is that the assignee is seeking to enforce
a right which is incidental to property or a right to p.
sum of
money which theoretically is part of the property.
The common law was; not inclined in fgyour of assignments
of contractual righ\s an<!' liabilities.
A person to whom rights
SUPREME COURT REPORTS
[1973] .2 S.C.R.
-were assigned could not sue in his own name at common law.
In equity both legal and equitable choses in action have been
subject to assignment.
Contractual rights being legal choses in
action could generally be assigned.
It is on these reasonings
.that the term 'thing in action' in the Law of Property Act has
been interpreted in the Victoria Insurance Co. and the Pacific
Steam Navigation Co. cases (supra) w include any right which
the common law looked on. as not assignable by reason
of. its
being chose in action but which a court of equity dealt with as
.assignable.
In the present case, the insurance company has not sued to
enforce any assignment.
The document which is d!!scribed as
'letter of subrogation also uses ilie words ol assigning
rights
against the Railway Administration. It is not necessary to express
:any opinion whether the Jetter of subrogation amounted to an
assignment in the present case, because the insurance company
bas not soi;ght to enforce any assignment.
The respondent mill will give a valid discharge to the Railway Administration in respect of loss and damages. This decree
will be a bar to the institution of any suit bv the insurance company in respect of the subject matter of the suit.· The respondent
mill is answerable and accountable to the insurance company
for the_ moneys recovered in the suit to the extent the insurance
company· paid the respondent mill.
A
B
c
D
E
The High Court expressed the view that even if the ~ssignment
is valid the right of action residing in the
assignor
has not
ceased. . The respondent mill sued the Railway Administration
for preach of contract of carriage and damages for negligence.
The letter of subrogation did not divest the mill of its cause
1of
F
action against the Railway Administration for loss and damages.
·The defence of the Railway Administration was that the niill
realised from the .insurance company the damages and "as such
:the plaintiff (meaning thereby the respondent mill) has no right
to claim any sum in this action". If the specific plea of assignG
ment had been tabn in the written statement the· respondent mill
would have impleaded the insurance company. The Court could
have in those circumstances been in a position to afford full and
•complete relief to the parties.
In the present case the insurance company and the mill pro-
·ceeded on the blasis that the insurance company was only subroH
:g_ated to the rights of the assured. The letter of subrogation contains intrinsic evidence that the respondent
would
give
the
insurance company facilities for enforcing rights.
The insurance
A
B
c
E
F
G
UNION v. SARADA MILLS (Mathew, J.)
471
company has chosen to allow the mill to sue.
The cause of
action of the mill against the Railway Administration '.iid not
perish on giving the letter of subrogation.
,
For these reasons, we regret our inability to agree with our
karned brother Mathew that the respondent mill has no cause·
of action.
We agree with the decision of the High Court that
the suit should be decreed.
The appeal is therefore dismissed
with costs.
MATHEW, J. This is an appeal by certificate, against the·
judgment of the Hi,gh Court of Madras allowing an appeal preferred by the plainuff against the decree of the trial court dismissing the suit instituted by it for recovery of damages.
The plaintiff, Sri Sarada Mills Ltd., instituted the suit against
the Union of India as representing the Central and Southern Railways for damages to 100 bales of F. P. cotton consigned through.
their agents from Nagpur to Podhanur under a railway receipt
issued by the Central Railway. The goods had to pass thrOugh.
several stations along the two railways, namely, the Central and
the Southern, before it arrived at Podhanur.
When the goo·ds.
arrived at Podhanur, it was found that 87 bales out of the 100
were burnt and charred and that 13 bales -were loose and ~hort
in weight .. When the plaintiff applied for open delivery, the railway authorities at Podhanur got the damage surveyed, and issued
a certificak of damage and
shortage.
The plaintiff claimed
damages ag.iinst the Railway Administration. But the Chief Commercial Superintendent, Southern Railway, informed the plaintiff"
that the consignment was involved "in a fire accident at Sirpur
Kagaznagar on 1he Central Railway, that the cause of the fire was
unknowr. and that the Railways were not liable for the 'damage
caused to the goods as there was no negligence or mis-conduct.
The plaintiff, therefore, instituted the suit for damages alleging that
the Railway Administration was negligent.
The defendants contended that the plaintiff was not entitled
to institute the suit as. it had insured the goods with the Indian
Globe Insurance Co. and had received the total less. from the
Company, that the damage to the goods was caused by fire, which
was beyond the control of the Railways and, therefore, the defendants were not liable for damages.
The trial court found that the· fire which caused the damage· ·
to the goods was n9t due to any cause beyond the control of the
Railways that the damage was due to their negligence. It, however. held that the suit was not maintainable .as the Indian Globelnsu.rance Co., with whom the goods were insured under a marine·
472
SUPREME COURT REPORTS
(1973] 2 S.C.R.
insurance policy, had paid the plaintiff an amount of Rs. 32,254-6-9
for total loss of the goods and was subrogated to all the rights
and remedies of the assured in respect of the subject matter and
so the plaintiff was not competent to fostitute the suit and hence
.dismissed the suit.
The plaintiff appealed to the High Court of Madras.
The
Court reversed the decree holding that the plaintiff was entitled
to maintain the suit and that, damage to the goods was on account
of the negligence of the Railways.
In this appeal, two submissions were made on behalf of the
appellants : ( 1) that there was no evidence to show that the
Railway Administration was negligent in dealing with the goods,
and (2) that the suit was not maintainable.-
As regards the fir;t contention, the finding of the trial court
as well as of the High Court is that the Railway Administration
was negligent. The liability of a Railway is that of a bailee and
it is not for the plaintiff, fo the first instance, to prove, when the
goods consigned were destroyed or damaged, .as to how the loss
or damage occurred. It has, no doubt, to satisfy the court that
the Railway Administration was negligent but, the duty of showing
how the consignment was !:lealt with during the transit lay on the
Railway Administration as it was a matter within their conclusive
knowledge.
The trial court found that the fire which caused
damage to the goods was due to the negligence of the Railway
Administration and the High Court was not persuaded to come
to a contrary conclusion. The burden was on the Railway Administration to show how the goods consigned were dealt with during
transit and, when that has not been done to the satisfaction of the
Court, the Court was entitled to presume negligence on the part
of the Railway Administration.
I see no grounds to interfere
with the concurrent findings on this point.
The second question which was argued at considerable length
relates to the maintainability of the suit. It may be noted at this
stage that the Gl0be Insurance Co. paid the total Joss to the plaintiff on August 3, 1956; the assured assigned all its rights, including
the right to sue to the Insurance company on July 31, 1956; and
the present suit was filed on June 14, 1957. It was submitted on
behalf of the appellant that the view of the High Court that the
suit was maintainable overlooked the clear provisions of section
135-A of the Transfer of Property Act. as that section was a bar
A
B
c
D
E
F
G
to the suit by the assured.
Section 135-A was as follows (this
section has since· been deleted from the T .P. Act and incorporated
in the Marine Insurance Act, 1963) :
H
"135-A(l) Where a policy of marine insurance has
been assigned so as to pass the beneficial interest therein,
A
B
c
D
E
F
G
H
UNION v. SARADA MILLS (Mathew, I.)
the assignee of the policy is entitled to sue thereon in
his own name; and the defendant is entitled to make
any defence arising out of the contract which he would
have been entitled to make if the action had
been -
brought in the name of the person by or on behalf of
wjlom the policy was effected.
" ( 2) Where the insurer pays for, a total loss, either
of the whole, or, in the case of goods, of any apportionable part, of the subject matter insured, he thereupon
becomes entitled to take over the interest of the insured
person in whatever may remain of the subject-matter so
paid for, and he is thereby subrogated to all the rights
and remedies of the insured person in and in respect
'of that subject-matter as from the time of the casualty
causing the loss.
·
" ( 3) Where the insurer pays for a partial loss, he
acquires no title to the subject-matter insured, or such
part of' it as may remain but he is thereupon subrogated
to all rights and remedies of the insured person as from
the time indemnified by such payment for the loss.
" ( 4) Nothing in clause ( 6) of section 6 shall affect
the provisions of this section."
'
'473
This section was inserted in the Transfer of Property Act, 1882,
by the Transfer of Property (Amendmer;t) Act, 1944.
Before
the amendment, the assignment of rights under both marine and
fire insurance policies was governed by s. 135, What the amendment did was to take marine insurance policies out of s. 135 and
provide for them in the new section 135-A. The Bill that become
the Transfer of Property (Amendment) Act, 1944, stated the
~jects and reasons as follows :
''The rules and principles governing a marine insurance policy being materially different from those governing a fire insurance policy,_ it is very unsatisfactory to
accord the same treatment in the matter of assignment
oflmth categories of policies. To take but one instance
a fire insurance policy is not assignablv after Joss, but
the nature of a marine insurance contract is such as to
require that marine insurance policies should be assignable even after Joss.
In the United Kingdom, assi_gnability of marine insurance policies after Joss is placed
beyond doubt by s. 50 of the Marine Insurance Act.
But in the absence of a similar provision here, it is
doubtful if Courts in British India would hold that they
are so assignable."
It was the contention of the appellant that when the Globe Insurance Co. paid the assured the total loss, it became subrogated to
'
474
SUPREME COURT REPORTS
[1973] 2 S.C.R.
all the rights and remedies of the assured in respect of the subject
matter and that thereafter the Insurance Company alone could file
a suit for recovery of damages against the Railway Administration.
The application of the doctrine of subrogation to policies of
marine insurance is based upon the fundamental principle that
the contract of insurance contained in a marine policy is a contract of indemnity, and of indemnity only.
The expression "subrogation", in relation to a contract of
marine insurance is no more than a convenient way of referrinJL
to those terms which are to be implied in .the contract betWeen
the assured and the insurer to give business efficacy to an agreement whereby the assured, in the case of loss against which the
policy has been issued, shall be fully indemnified, and never more
than fully indemnified.
.
The right of the insurer against the person' responsible for
the toss, does not rest upon any relation of contract or of privity
between them.
It arises out of the nature of the contract of
marine insurance as a contract of indemnity, and is derived from
the assured alone, and can be enforced in his right only.
Sub-section (I) of s. 135-A correspond, to s. 50 ( 2 J of the
«English) Marine Insurance Act, 1906 and sub-sections ( 2) and
(3) of s. 135-A to sub-sections (1) and (2) respectively of
s. 79 of that Act.
In Yorkshire Insurance Co. Ltd v.
Misbet
Shipping Co. Ltd. ( 1'), Diplock, J. as he then was had to deal with
the question of subrogation. He said that the doctrine of subrogation in insurance law requires one to imply in contracts of marine
insurance only such terms as are necessary to ensure that. I)Otwithsianding that the insurer has made a payment
under the
policy, the assured shall not be entitled to retain, as against the
illsurer, a greater sum than what is,ultimately shown to be his
actual loss. ·As Cotton, L. J. said in Caste/lain v. Preston(')
'' ...... if there is a money or any other benefit received which
ought to be taken into account in diminishing the loss or in ascertaining what the real los.~ is against which the contract of indemnity is given, the indemnifier ou~ht to b~ allowed to take advantage
of it in order to circulate what the real loss is."
A
B.
c
E
F
G
So the only term to be implied to give bminess efficacy to the
contract between the parties is that necessarv to secure that the
assured shall not recover from the imurer an amount greater
than the loss which h·~ has nctuallv sustained.
The insurer has
contracted to pay to the assured the. amount of his actual loss and
H.
--------------·-
(I) [196~] ~. Q.B. 380.
(2) II Q.R.D . .'~O. 39.'.
A
B
c
D
E
F
G
H
UNION v. SARADA MILLS (Maihew, !.)
47.5.
if, before the insurer has paid uneler the policy, th.e assured recovers from some third party a sum in excess of the actual amount
of the Joss, he can recover nothing from the insurer because he
has sustained no loss, but it has never been suggested that the
insurer can recover from the assured the amount of the e~cess.
Lord Blackburn in his speech in Burnard v. BodocaMchi, Sons &
Co. (1) said :
"The general rule of law (and it is obvious justice)
is that where there is a contract of indemnity (it matters
not whether it is a marine policy, or a policy against
fire on land, or any other contract of indemnity) and
a loss happens, anything which reduces or diminishes that
loss reduces or diminishes the amount which the indemnifier is bound to pay; and if the indemnifier has already
paid it, than, if anything which diminishes the loss comes
into the hands of the person to whom he has paid it, it
becomes an 'equity that the person who has already paid
the full indemnity is entitled to be recouped by having
that amount back."
That the insurer is entitled to recoupment only for the Joss
for which he has paid and to the extent of his payment is clear
from what Lord Atkin said in Gien Line v. Attorney-General(').
"Subrogation will only give the insurer rights upto
20 s. in the £ on what he has paid''.
In King v. Victoria Insurance Co. Ltd.("), Lord Hobhouse,
made it quite clear that, under the doctrine of subrogation an
insurer was entitled to recover from the assured only "to the extent
of the payment" made to the assured by the insurer under the
policy.
As between the insurer and the assured, the insurer is entitled
to the advantage of every right of the assured whether such right
consists in contract, fulfilled or unfulfilled, or in remedy for tort
capable of being insisted on or already insisted.
But as stated
by the Privy Council in King v. Victoria Insurance Co. Ltd.(8 )
"Subrogation by act of law would not give
the
insurer a right to sue in a Court of Law in his own
nan1e."
Subrogation is concerned solely with the
mutual
rights
and
liabilities of the parties to the contract of insurance: it confers no
rights and. imooses no liabilities uoon third parties who
are
strangers to that contract and, the iJisurer who has paid a loss
-------
(!) 7 App. Cas. 333, 339.
(2) 11930] 46 T.L.R. 451.
(3) (18961 A.C. 250, 255-6.
13-L498SupCl/73
476
SUP&BME COUllT llBPOllTS
[1973) 2 11.c.1..
gets no direct rights or remedies against anyone other than the
A
assured nor can sue such parties in his own name [see SimPson v.
Thomson(l.)J.
It was argued on behalf of the appellant that clause ( 4) of
section 135-A would indicate that the legislature intended to make
a departure from the common law of Eng1and and to confer a
right of suit upon the subrogee against third persons. I do not
think that clause ( 4) has any such eltect. It only says that nothing in s. 6 ( c) of the Transfer of Property Act will affect the
provisions of that section.
An assignment of marine insurance
after loss would sound in the realm of an assignment of a mere
light to sue and the legislature wanted to put it beyond doubt that
s. 6(c) is no bar to su~h an assignment. It is doubtful whether
clause ( 4) has any operation upon clauses (2) and ( 3) of sec~ion
135-A. Though the payment by the insurer C'f the total or partial
loss is an act of party, subrogation is effected by the operation of
clauses (2) and (3) of the section viz., by operation of law.
Section 6 ( c) i:; concerned with a transfer cf a mere right to sue
by act of parties. If this is so, it would be incongruous to say
that clause ( 4) will have any effect on the operation of clauses
(2 l and ( 3) of the section.
In Indian Trade and General Insurance Co. Ltd. v. Union of
India('). Mitter, J. had occasion to consider the question in detail
amL after referring to the English law, he come to the conclusion
that, although by sub-section (2) and (3) of s. 135-A, an insurer
is subrogated to all the rights and remedies of the assured in
respect of the subject matter, it has no independent right of action
in its own name, but can only sue in the name of the insured.
The learned judge referred to the decision in M. V. P. Marnkkyayar & Sons v. Banians & Co.(') and said that the rule of English
law which never permitted a subrogee to institute a suit in its
own name has been followed in India and is a sound rule.
In Alliance Insurance Company Ltd; v. Union of India('), it
wa:s held that an insurance company which has paid to the ·consignee the total loss, was entitled to maintain a suit in its own
name against the carrier for reimbursement of the amount paid to
the insured ·for the loss.
The Court pointed out that although
clause ( e) of s. 6 of the Transfer of Property Act provides that
a mere right to sue cannot be transferred, subsection ( 4) of s.
135-A has removed the bar and made a deliberate departure from
the English rule of procedure which lays down that an insurer
who pays for a total Joss cannot sue independently in his own
name. The <;:ourt did not, however, refer to the judgment of
(1) [1877] 3 App. Cas. 279 H.L.
(3) T.L.R. 49 Madras 156.
(2) A. l.'R. 1957 Calcutta 190.
(4) T. L. R. [1950] 1 Calcptta, 544.
B
c
D
E
F
G
H
i ,
'
•'
A
B
c
D
F
G
H
UNION v. SAlW>A MILLS (Mathew, 1.)
477
Mitter, J. In llldian Trade and General lnsura11ce Co. Ltd. v.
Union of India("). For the rea5ons already given, I do not think
I can agree with the reasoning of this case.
In Textiles and Yarn (P) Ltd. v. Indian National Steamship
Co. Ltd.('), which was a suit filed by the insurer on payment of
total loss for recovery of damages for loss of goods iu the course
of transit from Madras· to Calcutta by a steamship, Mitra, J.
held that the insurer cannot maintain an action in its own name
unless there was an assignment of the claim by the ;issured in
favour of the insurer, lrt the Asiatic Government Security Fire am/
General Assurance Co. Ltd. v. The Scindia Steam Naviga1io11 Co.
Ltd.('), M. S. Mennon, C. J. in a well reasoned judgment sad that
the insurer, on subrogation, is not entitled to sue in its own name.
In Vas11deva M11daliar v. Ca/adonion /nsurancl' Co. and ,foNher('), the Madras High Court said:
"But subrogation does not ivso jure enable him to
sue third parties in his own name.
It will 011ly entitle
the insurer to sue in the name of the assured, it being an
obligation of the assured to lend his name and assistance to such an action."
I think the High Court was right in its conclusion on this point.
The second contention as regards the maintainability of the
suit was that there was an assignment by the assured of all the
rights, including the right to sue the Railway Administration, by
virtue of which the Globe Insurance Co. could Jle a suit and that
precluded the assured from suing.
The assignment, as already
~lated, was before the institution of the suit, and is in the following
terms :
"In consideration of your paying to us the sum of
Rs. 32,254-6-9 only in full settlement of our claim for
damage by fire under Policy No. 49757 issued by you
on the undermentioned goods, we hereby assign transfer
and abandon to you all our rights against the Railway
Company or other persons whatsoever caused or arising
by reason of the said damage or loss and grant you full
power to take and use all lawful ways and means in
your own name and otherwise H your risk and expense
to recover the said damage or loss and we hereby subrogate to you the same rights as we have in consequence
of or arising from the said loss or damage.
(t) A. I. R.1957 Cal. 190.
(3) A. I. R-1965 Kerala 214.
(2) A. I. R. 1964 Calcutta 362.
(4).A. T. R. 1965Madra<1S9.
478
SUPREME COURT REPORTS
[1973] 2 S.C.k.
"And we hereby undertake and agree to make and
execute at your expense all such further deeds, assign.
ments and documents and to render you such assistance
as you may reasonably require for the purpose of carrying out this agreement."
The High Court held that the assignment was of a mere right
to sue and it was not, therefore, valid under s. 6 ( e) of the Trans·
fer of Property Act. The question is, whether what was assigned
was a mere right to sue or something which the law of insurance
recognises as assignable.
In King v. Victoria Insurance Company Ltd.('), a consignment of wool was insured by the Bank of Australasia during its
transportation by a ship from Townsvtllc to London. The wool
was damaged in transit. The bank claimed against the insurance
company under the policy for a loss of 920£. The insurance company paid that amount and took a formal assignment from the
bank of all its rights and causes of action against the Government,
the bank stipulating that the assignment would not authorize the
use of its name in legal proceedings. The insurance company sued
the Government for the negligence of their officers and servants
in not properly mooring and watching their punts which had caused
the collision of the ship carrying wool resulting in damage to the
consignment. The Government conter.ded that the assignmc:nt of
a mere right to recover damages was illegal. Lord Hobhouse, after
stating that subrogation would not give the insurer a right to sue
in its own name, said :
"But that difficulty is got over by force of the express
assignment of the bank's claim, and of the Judicature
Act, as the parties must have intended that it should be
when they stipulated that nothing in the assignment
should authorize the use of the bank's name.
"Their Lordships do not express any dissent from
the views taken in the Court below of the construction
of the Judicature Act with reference to the term 'legal
chose in action'. They prefer to avoid discussing · a
question not free from difficulty, and to express no
opinion what limitation, if any, should be n'aced on
the literal meaning cf that term.