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of <h1>Exporter's insurance fraud and misdeclared shipping terms limit compensation to 666.67 Special Drawing Rights</h1> The SC addressed a dispute involving export of iron furniture where goods were shipped FOB but insured on CIF basis. The exporter failed to disclose the ... Export of iron furniture and iron handicraft - claim for payment of compensation on account of the alleged deficiency of service having been denied by the Shipping Company as also by the Insurance Company - shipper not observed utmost good faith while obtaining the insurance cover - distinction between CIF (Cost Insurance and Freight) and FOB (Free on Board) contracts - expression “insurable interest” - Whether a seller of goods on FOB basis like the complainant in the present case can be said to be ‘interested in marine adventure’ within the meaning of Section 7? Whether the National Commission was justified in holding that the service rendered by the carrier was deficient, and if so, whether it was right in awarding rupee equivalent of US$ 1800 by way of compensation? Held that:- The National Commission has, in the instant case, recorded a clear finding the correctness whereof has not been disputed before us that the insurance cover obtained by the exporter envisaged goods being despatched on CIF basis whereas the goods were, in fact, sent on FOB basis. This was a material departure which breached the duty of utmost good faith cast upon the exporter towards the insurance company. If the proposal for insurance had disclosed that the goods will be sent on FOB basis, the question whether the supplier had any insurable interest in the goods and if he had what premium the company would charge for the same may have assumed importance. Be that as it may, the duty to make a complete disclosure not having been observed by the exporter, the National Commission was justified in holding that the insurance company stood absolved of its liability under the contract and in dismissing the petition qua the said company. It is not in dispute that 122 cartons despatched by the shipper were consolidated in a container, nor is it disputed that there was only one package indicated in the Bill of Lading concerning the consignment meant for Pindikas. The National Commission could not go beyond the Bill of Lading and award compensation on the basis of the packing list which may have mentioned several packages consolidated in one bigger package, delivery whereof was acknowledged in the Bill of Lading. The Commission ought to have taken the number of packages to be only one as mentioned in the Bill of Lading. The shipper would be entitled to the value of the goods misdelivered which according to the shipper was not less than Rs.39,23,225/-. There is no merit in that submission. We say so because compensation by reference to the value of the goods lost or damaged can be claimed only if the nature or the value of such goods has been declared by the shipper before shipment and inserted in the Bill of Lading. Even assuming that the nature and the valuation of the goods had been declared by the shipper before the shipment the requirement of ‘insertion of the same in the Bill of Lading’ was not satisfied in the present case. The Bill of Lading does not mention either the nature or the value of the goods. That being so, compensation of rupee equivalent of 666.67 Special Drawing Rights was the only amount that could be awarded by the Commission to the shipper. In as much as the Commission awarded US$1800 it committed a mistake that calls for correction. In the result we dismiss C.A. No.8276 of 2003 but partly allow C.A. Nos.3245 of 2005 and 6232 of 2004 to the extent that the amount of compensation payable to the shipper shall stand reduced to the rupee equivalent of 666.67 Special Drawing Rights only. The order passed by the National Commission shall stand modified to the above extent leaving the parties to bear their own costs. 1. ISSUES PRESENTED and CONSIDEREDThe core legal questions considered by the Court are:(a) Whether the exporter, having sold goods on FOB (Free on Board) terms, retained any insurable interest in the goods after delivery to the carrier, thereby entitling it to claim under the marine insurance policy obtained from the insurance company.(b) Whether the exporter observed the duty of utmost good faith in obtaining the marine insurance policy, particularly regarding the misrepresentation of the terms of sale as CIF (Cost, Insurance and Freight) instead of FOB.(c) Whether the National Consumer Disputes Redressal Commission was justified in holding the insurance company not liable for the loss of goods due to the above factors.(d) Whether the carrier was liable for the loss or misdelivery of one carton of goods and whether the compensation awarded by the National Commission was appropriate and in accordance with the provisions of the Indian Carriage of Goods by Sea Act, 1925 and the Bill of Lading.(e) The proper quantum of compensation payable by the carrier for the loss of the consignment, considering the limitations of liability under the Carriage of Goods by Sea Act and the terms of the Bill of Lading.2. ISSUE-WISE DETAILED ANALYSISIssue (a) and (b): Insurable Interest and Utmost Good Faith in Marine InsuranceThe legal framework governing marine insurance is primarily the Marine Insurance Act, 1963, which defines marine insurance, marine adventure, maritime perils, and insurable interest. Section 7 of the Act stipulates that every person interested in a marine adventure has an insurable interest, which is a legal or equitable relation to the adventure or insurable property that may result in benefit or prejudice depending on the safety or loss of the property.Precedents and legal principles from English law, particularly under the Marine Insurance Act, 1906, were considered relevant due to their similarity with the Indian Act. Halsbury's Laws of England and judicial pronouncements such as Lucena v. Craufurd elucidate that insurable interest exists where a person stands to gain advantage or suffer loss from the safety or destruction of the insured property.In the context of contracts of sale, Macgillivray on Insurance Law clarifies that an unpaid seller who has parted with property in goods has no insurable interest unless the goods remain at his risk or he has a lien or charge over them. The insurable interest depends on whether the risk and property have passed to the buyer.The Sale of Goods Act, 1930, particularly Sections 19 to 26, governs the transfer of property and risk in goods. Section 23(2) provides that delivery to a carrier for transmission to the buyer, without reserving the right of disposal, constitutes unconditional appropriation of goods to the contract, transferring property to the buyer. Section 26 states that risk passes with property unless otherwise agreed.In the present case, the contract was on FOB terms, meaning the seller's responsibility ceases once the goods are placed on board the ship. The seller did not reserve any right or lien over the goods after delivery to the carrier. Therefore, the property and risk passed to the buyer at that point. The Supreme Court, following the principle established in B.K. Wadeyar v. Daulatram Rameshwarlal, held that the seller had no insurable interest after shipment under FOB terms.Regarding utmost good faith, the contract of marine insurance is based on this principle, codified in Section 19 of the Marine Insurance Act, 1963. The exporter misrepresented the nature of the transaction as CIF to the insurance company, while the actual contract was FOB. This material non-disclosure or misrepresentation breached the duty of utmost good faith, rendering the insurance contract voidable at the insurer's option.The Court relied on landmark cases such as Carter v. Boehm and United India Insurance Co. Ltd. v. M.K.J. Corporation, emphasizing that any suppression or misrepresentation of material facts by the assured voids the policy. The National Commission's finding that the insurance company was absolved of liability due to the breach of utmost good faith was upheld.Issue (c): Liability of the Insurance CompanyApplying the above principles, the Court concluded that the insurance company was rightly discharged from liability. The absence of insurable interest and the breach of utmost good faith were decisive factors. The insurance policy covered risks on a CIF basis, but the goods were shipped on FOB terms, and the exporter failed to disclose this material fact. Therefore, the insurance company had no obligation to indemnify the exporter for the loss.Issue (d) and (e): Liability of the Carrier and Quantum of CompensationThe National Commission found that the carrier's service was deficient as the carton containing miniature paintings meant for M/s Pindikas was not delivered to the consignee but was misdelivered. The evidence included the packing list, the Bill of Lading, and inspection by the Indian Consulate, which confirmed the misdelivery of steel furniture items instead of miniature paintings.The carrier contended that the liability was limited under the Indian Carriage of Goods by Sea Act, 1925, and the Bill of Lading, which limited compensation to 2 Special Drawing Rights (SDRs) per kilogram or 666.67 SDRs per package, unless the nature and value of the goods were declared and inserted in the Bill of Lading.The National Commission awarded compensation equivalent to US$1800, relying on the packing list rather than the Bill of Lading. The Court found two errors in this approach:(i) The Bill of Lading is the sole document determining the carrier's liability, and it indicated only one package for the goods meant for Pindikas, despite the packing list mentioning multiple cartons consolidated in one container. The Court held that the number of packages for compensation purposes must be as per the Bill of Lading, not the packing list.(ii) The National Commission erred in applying outdated compensation limits (US$100 per package) instead of the amended provisions under the Carriage of Goods by Sea Act, which provide for compensation up to 666.67 SDRs per package or 2 SDRs per kilogram, whichever is higher. The single package weighed 200 kg, so the compensation limit was 666.67 SDRs.The Court rejected the shipper's claim for compensation based on the value of the goods (Rs. 39,23,225/-) because the value and nature of the goods were neither declared nor inserted in the Bill of Lading, a prerequisite for claiming compensation beyond the statutory limits.Thus, the Court modified the compensation awarded to the rupee equivalent of 666.67 SDRs, holding that the National Commission's award of US$1800 was excessive and not supported by the applicable legal provisions.3. SIGNIFICANT HOLDINGS'The seller had no insurable interest in the goods thereby absolving the insurance company of the liability to reimburse the loss, if any, arising from the mis-delivery of such goods.''A contract of marine insurance is a contract based upon the utmost good faith, and if the utmost good faith be not observed by either party, the contract may be avoided by the other party.' (Section 19, Marine Insurance Act, 1963)'Insurance is a contract of speculation... The keeping back such circumstance is a fraud, and therefore the policy is void. Although the suppression should happen through mistake, without any fraudulent intention, yet still the underwriter is deceived and the policy is void.' (Lord Mansfield in Carter v. Boehm)'Where a container, pallet or similar article of transport is used to consolidate goods, the number of packages or units enumerated in the bill of lading and as packed in such article of transport shall be deemed to be the number of packages or units for the purposes of compensation.' (Rule 5, Article IV, Indian Carriage of Goods by Sea Act, 1925)'Compensation by reference to the value of the goods lost or damaged can be claimed only if the nature or the value of such goods have been declared by the shipper before shipment and inserted in the bill of lading.'Final determinations:- The insurance company was rightly absolved of liability due to absence of insurable interest and breach of utmost good faith by the exporter.- The carrier was liable for the misdelivery of the carton, constituting deficiency of service.- The compensation payable by the carrier was limited to the rupee equivalent of 666.67 Special Drawing Rights for one package weighing 200 kg, as per the Bill of Lading and the Carriage of Goods by Sea Act, 1925.- The National Commission's award of US$1800 was reduced accordingly.
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