Export Credit Guarantee Corpn.Of India Ltd. & Anr. vs M.S. Creations & Anr.

6 lakhs to PNB – First respondent submitted two claims of Rs.22.87 lakhs to ECGC against the overdue amounts from SICOREP – ECGC called upon the first respondent to submit various documents together with its claim forms – First respondent invoked the intervention of the Indian Embassy in the Ivory Coast in order to produce the necessary documents – Indian Embassy informed that according to BHCI it did not have SICOREP as client at all and that the possibility of the documents being forged could not be excluded – ECGC rejected the claim of the first respondent inter alia invoking exclusionary provision – First respondent’s complaint allowed by the State Commission – National Commission confirmed the order – On appeal, held: First respondent was unable to produce the relevant documents as required by ECGC – Further, ECGC raised the exclusion contained in the insurance policy, in terms whereof the insurer was not to be held liable for any loss from any act or default on the part of the collecting bank – Evidently, BHCI handed over the original documents to a person representing SICOREP without acceptance – There was clear default on the part of BHCI – State Commission and the National Commission held against ECGC inter alia on the ground that by honoring its commitment to PNB under WTPSG Policy, ECGC had in turn admitted its liability to the first respondent – Guarantee which ECGC furnished to PNB, similar to those it furnishes to other bankers, was to secure their exposure against the risks involved in the advances which the bank had made in respect of export contracts to its constituent – This guarantee would not conclude the issue as to whether the claim made by the first respondent under a distinct insurance policy was sustainable – Basis on which the State Commission and National Commission held against ECGC was erroneous– However, order passed by the State Commission was duly executed and in compliance, the amount due and payable has been paid over by ECGC to the first respondent – There is no allegation that the first respondent was in any way connected with or colluded with SICOREP – First respondent was itself a victim of SICOREP having retired the documents without making payment for the export consignments – No recoveries be made from the first respondent – Judgment of the National Commission set aside – Constitution of India – Art.142.

The First Respondent obtained Shipments (Comprehensive Risk) Policy from the appellant-ECGC. ECGC also issues policy called ‘Whole Turn Over Post Shipment Export Credit Guarantee’ (WTPSG Policy) to various banks. First respondent obtained purchase order for handloom goods, worth about Rs 64 lakhs, from a buyer named Society Ivoirienne De Commerce ET DE Representation (SICOREP) situated in the Ivory Coast. First respondent entered into sales contract with SICOREP and made shipments to SICOREP. SICOREP sought change in the name of its bank under the contract from Credit Lyonnais to Banqyue De ‘L’ Habitat De Cote D’Ivoire (BHCI). BHCI allegedly released the documents without receiving any acceptance from SICOREP. First respondent was unable to make payment to its own banker, Punjab National Bank (PNB)-second respondent. PNB made application for provisional payment of its claim under its own WTPSG Policy. ECGC paid Rs. 6 lakhs to PNB as provisional payment. First respondent submitted two claims of Rs.22.87 lakhs to ECGC against the overdue amounts from SICOREP. ECGC rejected the claim of the first respondent. Complaint filed by the first respondent before the State Commission, which was allowed. National Commission confirmed the said order. Hence, the present appeal.

Allowing the appeal, the Court

HELD: 1.1 The first respondent was unable to produce the relevant documents or to indicate that there was an acceptance of the documents, in terms as required under the approval of the sales contract by ECGC. It was in this background that ECGC rejected the claim of the first respondent on 3 October 2002. [Para 22, 23] [492-E-F]

1.2 In terms of the exclusion contained in the insurance policy, the insurer was not to be held liable for any loss from any act or default on the part of the collecting bank. Evidently, the collecting bank, as its communication dated 22 November 2002 indicates, handed over the original documents, but then sought to justify its action by contending that the bank was in the housing sector and could not accept the shipment for payment. If this was the position, there was no reason or justification on the part of the collecting bank to hand over the original documents to a person representing SICOREP without acceptance. There was, therefore, clearly a default on the part of the collecting bank. The State Commission and the National Commission held against ECGC inter alia on the ground that by honoring its commitment to PNB under WTPSG Policy, ECGC had in turn admitted its liability to the first respondent. There is a fallacy in this hypothesis. The guarantee which ECGC furnished to PNB, similar to those it furnishes to other bankers, was to secure their exposure against the risks involved in the advances which the bank had made in respect of export contracts to its constituent. This guarantee which ECGC issued to PNB would not conclude the issue as to whether the claim made by the first respondent under a distinct insurance policy was sustainable. Consequently, the basis on which the State Commission and National Commission held against the appellant is erroneous. [Paras 25-26] [493-A-E]

1.3 The order passed by the State Commission was duly executed and in compliance, the amount due and payable has been paid over by ECGC to the first respondent. There is no allegation that the first respondent was in any way connected with or colluded with SICOREP. From the record, it appears that the first respondent was itself a victim of SICOREP having retired the documents without making payment f or the export consignments. No submission has been urged on behalf of ECGC to indicate the complicity of the first respondent. In the exercise of our jurisdiction under Article 142 of the Constitution, it is directed that no recoveries should be made from the first respondent. [Para 27] [493-F-H]