Claim not payable for questionable deals

The National Commission observed that the buyer had categorically denied placing an order or receiving the goods, so the recipient's identity remained unclear

Chandak Brothers was in the business of exporting brass and iron hardware items worldwide, especially to European countries. The firm obtained a comprehensive insurance policy from the Export Credit Guarantee Corporation of India (ECGC), which was valid from October 1, 2004, to September 30, 2006.
 

The policy included coverage against the risk of non-payment for any export shipment, loss due to delay caused by commercial or political risk, protection against other unpredictable losses, and insolvency or liquidation of the buyer. The terms of the policy required that the shipments made during each calendar month would have to be intimated through a declaration made by the 15th day of the following month.
 

Chandak Brothers (the insured) was sanctioned a limit of Rs 25 lakh, against which it made an export of goods to Famplan Ltd. in the United Kingdom. The latter acknowledged the receipt of the goods and issued a bill of exchange on September 6, 2006, promising to make payment. Subsequently, on September 28, 2006, the NatWest Bank of Birmingham failed to honour the bill of exchange. The insured then lodged an insurance claim.
 

ECGC repudiated the claim on the ground that the approval for business dealing with Famplan was obtained without disclosing the full and correct address and that the declaration of sale was not made within the stipulated period of 15 days. Further, the importer, Famplan, denied having placed any order or that any money was due and payable by it, just as its two sister concerns Sovereign Hardware and Wetherall Group PLC had previously defaulted in making payment. The insured was also blamed for neither having protested nor having initiated any action for non-payment of the bills of exchange.
 

Aggrieved by the repudiation of its claim, the insured filed a consumer complaint before the Delhi State Commission, against ECGC as well as the overseas importer. After considering the rival contentions, the State Commission held ECGC as well as Famplan jointly and severally liable to pay Rs 23,24,850. Additionally, interest at 9 per cent per annum was also awarded.
 

ECGC challenged the order in appeal. It pointed out that the insured had entered into an agreement with MAH International, a debt collection agency, which found that the importer’s address was not correct and some third party had its office at that address. The insured countered that proof of release of goods implied that the shipments had been properly delivered to the importer, so it was entitled to receive payment for the exported goods.
 

The National Commission observed that a contract of insurance is one of utmost good faith, and the terms of the contract have to be construed strictly. Hence it is not permissible for a court to add, delete, or substitute words. The court is required to merely interpret the terms used in the contract in a manner that best expresses the intention of the parties.
 

The Commission noted that the buyer had categorically denied having placed any order or having received the goods, so the identity of the party that received the goods was in question, especially when the address was incorrect.
 

Accordingly, by its order of February 16, 2024, delivered by Sadhna Shanker for the bench along with Subhash Chandra, the National Commission concluded that the claim had been rightly repudiated. It set aside the State Commission’s order and dismissed the complaint.

The writer is a consumer activist