TaxTMI 
TaxTMI 
2010 (3) TMI 992
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....proprietary concern, claims to have received an order for export of iron furniture and iron handicraft items from M/s Natural Selection International, a Spanish purchaser of those items. A similar order for export of miniature paintings is also said to have been received by the said concern from M/s Pindikas another concern located in Spain. The case of M/s D.K. Lall Enterprises (hereinafter to as the 'Exporter') is that all the items meant for export in terms of the above orders were packed in 122 different cartons for shipment to the purchasers in Spain. According to the exporter while miniature paintings were packed in one carton meant for export to M/s Pindikas, the iron furniture items meant for export to M/s Natural Selection International were packed in 121 other cartons. These packages were, according to the Exporter, checked and cleared by the Customs Authority at Jodhpur and finally stuffed in one simple container, for which purpose the exporter hired the services of M/s Samrat Shipping & Transport System Pvt. Ltd. through its local agent who forwarded the container to Bombay where it was put on board CMBT Himalaya, a vessel belonging to M/s Contship Container Lines Ltd.-....
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.... came to an end no sooner the consignment was loaded on to the ship leaving the exporter with no insurable interest in the consignment. 5. The Commission received three affidavits as evidence one filed by the exporter, the second by Carrier while the third was filed by Mr. Ramesh Goyal, Senior Branch Manager of the Insurance Company. By its order dated 14th July, 2003 the Commission held that the Insurance Policy had been obtained on the representation that the transactions between the exporter and the purchasers were on C.I.F. basis whereas the consignment had in fact been sent on FOB basis which absolved the Insurance Company of any liability for the failure of the insured to maintain utmost good faith essential for a marine insurance policy. The Commission noted that in the declaration of the consignment sent to the insured no details of the conditions of shipment were mentioned. There was thus, in the opinion of the Commission, absence of good faith on that account also. The Commission further held that the policy covered risks only at sea and "that ware house to ware house" coverage was limited to risk arising from inland transit alone. The terms of the policy did not accor....
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.... contended that a contract of insurance was based on utmost good faith not only by reason of the general principles governing such contracts but also by reason of Section 19 of the Marine Insurance Act, 1963. The shipper had not, however, observed utmost good faith while obtaining the insurance cover from the respondent-insurance company inasmuch as the shipper had taken out an insurance policy from the company on the representation that the goods were being dispatched on CIF (cost insurance and freight basis) while in reality the goods had been sent by the shipper on FOB basis which constituted a material non-disclosure hence failure of utmost good faith by him within the meaning of Section 19 of the Act aforementioned. 9. Section 3 of the Marine Insurance Act, 1963 defines marine insurance to mean an agreement whereby insurer undertakes to indemnify the assured, in the manner and to the extent thereby agreed, against marine losses, that is to say, losses incidental to a marine adventure. Section 4 of the Act provides that a contract of marine insurance may, by its express terms, or by usage of trade, be extended so as to protect the assured against losses on inland waters or o....
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....asis like the complainant in the present case can be said to be 'interested in marine adventure' within the meaning of Section 7. If the answer be in the affirmative, the complainant would have an insurable interest but not otherwise. 13. The provisions of Marine Insurance Act, 1906 enacted by the British Parliament are in pari materia with those contained in the Indian Act. The former is in fact a precursor to the latter. The definition of 'insurable interest' given in the English legislation is the same as the one given in Section 7 of our enactment. Judicial pronouncements by English Courts would, therefore, be both relevant and helpful in understanding the true purport of the expression 'insurable interest'. 14. Halsbury's Laws of England, Fourth Edition has, while dealing with the expression "insurable interest" under the Marine Insurance Act, 1906 prevalent in that country, explained the purport of the expression "interest" in a marine adventure in the following words: "A person may be said to be interested in an event when, if the event happens, he will gain an advantage, and, if it is frustrated, he will suffer a loss, and it may be stated as a general princi....
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....ade by us to Macgillivray on Insurance Law. While dealing with insurable interest under contracts for the Sale of Goods, the author has the following to say: "The unpaid seller of goods who has parted with property in them has no insurable interest in them unless either they remain at his risk or he has a lien, charge or other security interest over them for the price. So long as the risk remains with him, he has an interest whether the property has passed or not, and the measure of his interest is the purchase price or the actual value of the goods, whichever is the greater. Even when risk and property have both passed, the seller retains an insurable interest in the goods while he still possesses them because, if he is unpaid in whole or part on account of the buyer's insolvency or for other reasons, he has an interest in respect of his lien for the purchase money. His possession of the goods would also permit him to insure on the buyer's behalf if his intention is clear and the policy does not forbid it." (emphasis supplied) 18. We may now refer to the provisions of the Sales of Goods Act, 1930 relevant to the transfer of the property in goods to the purc....
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....not pass to the buyer until the conditions imposed by the seller are fulfilled. Section 26 of the Act provides that unless otherwise agreed, the goods remain at the seller's risk until the property therein is transferred to the buyer but when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not. Section 26 may at this stage be extracted: "Section 26: Risk prima facie passes with property - Unless otherwise agreed, the goods remain at the seller's risk until the property therein is transferred to the buyer, but, when the property therein is transferred to the buyer, the goods are at the buyer's risk whether delivery has been made or not: Provided that, where delivery has been delayed through the fault of either buyer or seller, the goods are at the risk of the party in fault as regards any loss which might not have occurred but for such fault: Provided also that nothing in this section shall affect the duties or liabilities of either buyer or seller as a bailee of the goods of the other party." 20. Section 39, inter alia, provides that delivery of the goods to a carrier whether named b....
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....nderlying transfer of title in goods in FOB contracts was stated by a Constitution Bench of this Court in B.K. Wadeyar V. Daulatram Rameshwarlal (AIR 1961 SC 311). The question as to the transfer of title in the goods arose in that case in the context of a fiscal provision but the principle relating to the transfer of title in goods in terms of FOB contract was unequivocally recognised. This Court held that in FOB contracts for sale of goods, the property is intended to pass and does pass on the shipment of the goods. The National Commission was, therefore, right in holding that 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. 23. We consider it unnecessary to delve any further on this aspect of the matter for in our opinion the claim made by the shipper against the insurance company has been rightly rejected by the National Commission on the ground that the shipper had not observed utmost good faith while obtaining the insurance cover. The principle that insurance is a contract founded on good faith is of vintage value. In Carter V. Boehm (1766) ....
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....s judged by the circumstances existing at the time when the contract is concluded." 26. To the same effect is the decision of this Court in Modern Insulators Ltd. V. Oriental Insurance Co. Ltd. (2000 (2) SCC 734) where this Court observed: "It is the fundamental principle of insurance law that utmost good faith must be observed by the contracting parties and good faith forbids either party from non-disclosure of the facts which the parties know. The insured has a duty to disclose and similarly it is the duty of the insurance company and its agents to disclose all material facts in their knowledge since the obligation of good faith applies to both equally." 27. 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 t....
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....the Schedule thereto. Section 2 of the said Act provides that the rules set out in the Schedule shall have effect in connection with the carriage of goods by sea in ships carrying foods from any port in India to any other port whether in or outside India. Section 4 requires that every Bill of Lading or similar document of title issued in India to which Rules apply shall contain an express statement that it is to have effect subject to the provisions of the said Rules as applied by the Act. In terms of Rule 5 of Article IV neither the carrier nor the ship shall be liable for any loss or damage to or in connection with goods in excess of the amounts stipulated therein. Rule 5 of Article IV to the extent the same is relevant for our purposes may be extracted at this stage: "5. Neither the carrier nor the ship shall in any event be or become liable for any loss or damage to or in connection with goods in an amount exceeding 666.67 Special Drawing Rights per package or unit or two Special Drawing Rights per kilogram of gross weight of the goods lost or damaged, whichever is higher, or the equivalent of that sum in other currency, unless the nature and value of such goods have b....