REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICITION

CIVIL APPEAL NO. 3245 OF 2005

Contship Container Lines Ltd. …Appellant

Versus

D.K. Lall & Ors.  …Respondents

(With C.A. No.6232 of 2004 and C.A. No.8276 of 2003)

J U D G M E N T

T.S. THAKUR, J.

1. These three cross appeals arise out of an order passed  

by the National Consumer Disputes Redressal Commission,  

New  Delhi  (hereinafter  referred  to  as  the  ‘National  

Commission’) whereby it has dismissed the complaint filed

by  the  respondent  Shri  D.K.  Lall,  proprietor  of  M/s  Lall  

Enterprises against respondent-National Insurance Company  

Ltd. while granting relief in part to the complainant against  

Contship  Container  Lines  Ltd.,  the  shipping  company  to  

whom  the   consignment  in  question  was  entrusted  for  

delivery  to  the  consignee  in  Barcelona,  Spain.  The  facts  

giving rise to the controversy may be summarised as under:

2. M/s D.K. Lall  Enterprises,  a sole 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  

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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.-appellant in C.A. No.6232 of  

2004.  It  is  noteworthy  that  the  exporter  had  obtained  a  

Marine Cargo/Inland transit insurance policy to cover risks  

enumerated in the policy.   

3. The  case  of  the  exporter  is  that  the  consignment  

reached Barcelona, Spain on 1st March, 1997 and that while  

121 cartons had been duly received by M/s Natural Selection  

International,  one  carton  marked  for  M/s  Pindikas  

comprising miniature paintings was not so delivered to the  

consignee.  The  claim  for  payment  of  compensation  on  

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account  of  the  alleged  deficiency  of  service  having  been  

denied by the Shipping Company as also by the Insurance  

Company the exporter filed O.P. No.272 of 1997 before the  

National  Consumer  Disputes  Redressal  Commission,  New  

Delhi, claiming compensation to the tune of Rs.39,23,225/-  

representing  the  value  of  the  miniature  paintings  with  

interest  pendente lite and till  realization.  The respondents  

contested the claim made against them, inter alia, on the  

ground that the petitioner was not a consumer and that the  

case involved complicated questions of fact and law, which  

could not be determined in summary proceedings  before  

the  Consumer  Commission.  It  was  also  alleged  that  the  

exporter had never stuffed/exported the carton containing  

miniature paintings and that the claim made by the exporter  

to that effect was false.  Reference was made to the Bill of  

Lading according to which the particulars  declared by the  

shipper/exporter had not been checked by the carrier.  It  

was also alleged that under clause 17 of the Bill of Lading  

and Article IV Rule 5 of The Indian Carriage of Goods by Sea  

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Act, 1925 the liability of the carrier was limited to 2 SDRs  

per kg of weight, which came to 400 SDRs for the loss of the  

undelivered  package  weighing  200  kgs.  equivalent  to  

Rs.21,428/- only. The respondents further alleged that the  

cartons had not been properly marked with the result that  

the same could not be segregated before being delivered to  

the consignee concerned.   

4. The  Insurance  Company  also  filed  a  separate  reply,  

alleging that the exporter was in collusion with the buyers  

trying to perpetrate a fraud on them with a view to making  

an undeserved & unjust financial gain. The company alleged  

that the valuation indicated in the policy was C.I.F. + 10%  

whereas  the invoice  FOB (Free  on Board)  and  the Bill  of  

Lading was clean. The company asserted that the liability of  

the seller came to an end no sooner the consignment was  

loaded on to the ship leaving the exporter with no insurable  

interest in the consignment.   

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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 according to the Commission cover the  

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risk till delivery was made to the consignee. The Commission  

on that basis held that there was no deficiency of service on  

the part of the Insurance Company.   

6. In  so  far  as  the  claim  against  the  carrier  was  

concerned,  the  Commission  recorded  a  finding  that  the  

service  provided by them was deficient  but  held  that  the  

liability of the carrier for payment of compensation to the  

consignee  was  limited  by  the  provisions  of  the  Indian  

Carriers of Goods by Sea Act, 1925. The Commission noted  

that since no value of goods was given in the Bill of Lading  

the only amount which the exporter was entitled to was a  

sum equivalent to 1800$ in Indian rupee as per the then  

prevailing  rate  of  exchange  with  interest  @  9%  from  

1.7.1998 till the date of payment with costs of Rs.10,000/-.  

The complaint, so far as M/s Samrat Shipping & Transport  

System  Pvt.  Ltd.  was  concerned,  was  dismissed  on  the  

ground that it was acting only as an agent of the carrier. A  

review petition filed against the said order by Mr. D.K. Lall  

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having been dismissed by the Commission by its order dated  

29th October,  2003,  the  appellants  have  filed  the  present  

appeals to assail the correctness of the orders passed by the  

Commission.  

7. Two  distinct  issues  fall  for  our  consideration,  one  

touching  the  liability  of  the  Insurance  Company  and  the  

other concerning the liability of the carrier.   On behalf of the  

insurance  company  a  two-fold  submission  was  advanced  

before  us.  Firstly,  it  was  contended  that  since  the  

transaction between the exporter and the purchaser in Spain  

was on FOB basis, the exporter had no insurable interest in  

the goods once the same were delivered to the carrier. It  

was argued that in a FOB transaction the property in goods  

stands transferred to the purchaser no sooner the goods are  

entrusted to the carrier or at least when the same cross the  

customs barrier for shipment. This implies that all the risks  

relating to such goods are that of the purchaser who alone  

could sue the carrier or insurance company if there was an  

insurance cover obtained by him for such goods.  The terms  

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of  the  transaction  between  the  shipper  and  the  

purchaser did not in the instant case reserve in favour of the  

shipper any right or  interest in the goods so as to constitute  

an insurable interest within the meaning of Section 7 of the  

Marine Insurance Act, 1963.   

8.      Secondly,  it  was  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.   

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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 on  

any land risk which may be incidental to any sea voyage.   

Section 5 permits every lawful “marine adventure” to be the  

subject  matter  of  a  contract  of  marine  insurance.  The  

expression “marine adventure” is defined by Section 2(d) in  

the following words:

“2(d):  “marine  adventure:  includes  any  adventure where –

(i) any  insurable  property  is  exposed  to  maritime perils;

(ii) the  earnings  or  acquisition  of  any  freight,  passage  money,  commission,  profit or other pecuniary benefit, or the  security  for  any  advances,  loans,  or  disbursements  is  endangered  by  the  

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exposure  of  insurable  property  to  maritime perils;

(iii) any  liability  to  a  third  party  may  be  incurred  by  the  owner  of,  or  other  person interested in or responsible for,  insurable  property  by  reason  of  maritime perils”.

10. The expression “maritime perils” referred to in Section  

2(d) supra is defined in Section 2(e) as under:

“2(e)  :  “maritime perils”  means the perils  consequent  on,  or  incidental  to,  the  navigation of the sea, that is to say, perils of  the  seas,  fire,  war  perils,  pirates,  rovers,  thieves,  captures,  seizures,  restraints  and  detainments of princes and people, jettisons,  barratry and any other perils which are either  of the like kind or may be designated by the  policy”.  

11. Section  7  of  the  Act  stipulates  that  subject  to  the  

provisions of  the Act every person interested in a marine  

adventure has an insurable interest.  It reads:

“Section 7:  Insurable interest defined –  (1)  Subject  to  the  provisions  of  this  Act,  every person has an insurable interest who is  interested in a marine adventure.

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(2) In particular a person is interested in a  marine  adventure where  he  stands  in  any  legal or equitable relation to the adventure or  to any insurable property at risk therein, in  consequence of which he may benefit by the  safety or due arrival of insurable property, or  may be prejudiced by its loss, or by damage  thereto, or by the detention thereof, or may  incur liability in respect thereof”.

12. What is noteworthy is the use of the words “interested  

in a marine adventure” appearing in Section 7 of the Act.  

The expression “interested” has not been defined in the Act  

although sub-section (2) to Section 7 gives an indication of  

what would constitute ‘interest’ in a marine adventure.  The  

question is 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.  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  

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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  principle  that  to  constitute  an  insurable interest it must be an interest such  that the peril  would by its proximate effect  cause damage to the assured, that is to say  cause him to lose a benefit or incur a liability.

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15. Halsbury’s refers to the decision of House of Lords in  

Lucena V. Craufurd (1806) 2 Bos & PNR 269 as to the  

meaning of the expression “insurable interest”:

“A  man  is  interested  in  a  thing  to  whom  advantage  may  arise  or  prejudice  happen  from  the  circumstances  which  may  attend  it;…and whom it importeth that its condition  as to safety or other quality should continue.  Interest does not necessarily imply a right to  the  whole  or  part  of  the  thing,  nor  necessarily  and  exclusively  that  which  may  be the  subject  of  privation,  but  the  having  some relation to, or concerning the subject of  the insurance; which relation or concern by  the happening of the perils insured against,  may be so effected as to produce a damage,  determent  or  prejudice  to  the  person  insuring.   And  where  a  man  is  so  circumstanced  with  respect  to  matters  exposed to certain risks and dangers  as to  have  a  moral  certainty  of  advantage  or  benefit  but for those risks and dangers, he  may be said to be interested in the safety of  the  thing.  To  be  interested  in  the  preservation  of  a  thing  is  to  be  so  circumstanced with respect to it as to have  benefit from its existence, prejudice from its  destruction.”

16. Dealing with the question whether the seller of goods  

retains any insurable interest, Halsbury explains:

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“When, however,  the property which is  the  subject  matter  of  the  contract  of  sale  has  completely  passed  from  the  seller  to  the  buyer or when it has under the contract of  sale become completely at the buyers’ risk,  the  seller  ceases  to  have  any  insurable  interest, and the buyer acquires one.  Thus, a  contract for the sale of goods to be supplied  on  board,  a  particular  vessel  may  be  so  framed that the property in them and the risk  of their loss do not pass to the buyer until a  complete  cargo  has  been  loaded,  in  which  case the buyer has no insurable interest until  the complete cargo has been loaded; or the  contract may be so framed that the property  in and the risk as to any part of the goods  passed to the buyer on shipment,  in which  case the buyer acquires an insurable interest  on any part of the goods then shipped.”

(emphasis supplied)

17. Reference may also be made 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  

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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 purchaser specially in a FOB-transaction like  

the  one  in  the  instant  case.  Section  19  of  the  said  Act  

provides  that  in  a  contract  for  the  sale  of  specific  or  

ascertained goods, the property in them is transferred to the  

buyer at such time as the parties to the contract intend it to  

be transferred and that for the purpose of ascertaining the  

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intention of the parties regard shall be had to the terms of  

the  contract,  the  conduct  of  the  parties  and  the  

circumstances of the case. Sections 20 to 24 of the said Act  

prescribe rules for ascertaining the intention of the parties  

as to the time at which the property is to pass to the buyer.  

One of the said rules is that in unconditional contracts for  

the sale of specific goods in a deliverable state, the property  

in the goods passes to the buyer when the contract is made  

irrespective of the fact that the time of payment of the price  

or  the  time  for  the  delivery  of  the  goods  or  both  are  

postponed.  Yet another rule contained in Section 23 of the  

Act  is  that  where  contract  for  the  sale  of  uncertained  or  

future goods by description are unconditionally appropriated  

to the contract either by the seller with the assent of the  

buyer  or  by  the  buyer  with  the  assent  of  the  seller,  the  

property in the goods passes to the buyer. So also where  

the seller delivers the goods to the buyer or to a carrier or  

other bailee for  the purpose of  transmission to the buyer  

and does not reserve the right of disposal, he is deemed to  

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have  unconditionally  appropriated  the  goods  to  the  

contract. Section 23(2) which stipulates that rule reads:

“Delivery to carrier. - Where, in pursuance  of the contract, the seller delivers the goods  to the buyer or to a carrier or other bailee  (whether named by the buyer or not) for the  purpose  of  transmission  to  the  buyer,  and  does not reserve the right of disposal, he is  deemed to have unconditionally appropriated  the goods to the contract.”

19. Section 25 provides that where there is a contract for  

the sale of specific goods or where goods are subsequently  

appropriated to the contract, the seller may, by the terms of  

the contract or appropriation, reserve the right of disposal of  

the  goods  until  certain  conditions  are  fulfilled.  In  such  a  

case, notwithstanding the delivery of the goods to a buyer or  

to a carrier or other bailee for the purpose of transmission to  

the buyer, the property in the goods does 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  

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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 by the buyer or not, is  

prima  facie  deemed  to  be  delivery  of  the  goods  to  the  

buyer.  Sections 46 and 47 deal with unpaid seller’s rights  

and  lien  and,  inter  alia,  provide  that  unpaid  seller  shall,  

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subject to the provisions of the Act and of any law for the  

time being in force, have a lien on the goods for the price  

while he is  in possession of them and that the seller  can  

retain the possession of  the goods until payment or tender  

of  the  price  in  situations  where  the  buyer  has  become  

insolvent or goods have been sold on credit, but the term of  

credit has expired.  The lien, however, stands terminated in  

terms of Section 49 of the Act when the goods are delivered  

to a carrier  for  the  purpose of  transmission  to the  buyer  

without reserving the right of disposal of the goods.

21. Coming to the case at hand, the contract of sale was on  

FOB basis even when the contract of insurance proceeded on  

the basis that the transactions between the seller and the  

purchaser and meant to be covered by the policy would be  

on CIF basis.  The distinction between CIF (Cost Insurance  

and  Freight)  and  FOB  (Free  on  Board)  contracts  is  well  

recognized in the commercial world.   While in the case of  

CIF contract the seller in the absence of any special contract  

is bound to do certain things like making an invoice of the  

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goods  sold,  shipping  the  goods  at  the  port  of  shipment,  

procuring a contract of insurance under which the goods will  

be  delivered  at  the  destination  etc.,  in  the  case  of  FOB  

contracts the goods are delivered free on board the ship.  

Once the seller has placed the goods safely on board at his  

cost and thereby handed over the possession of the goods to  

the ship in terms of the Bill of Lading or other documents,  

the responsibility of the seller ceases and the delivery of the  

goods to the buyer is complete.  The goods are from that  

stage onwards at the risk of the buyer.

22. It is common ground that the seller had, in the case at  

hand, reserved no right or lien qua the goods in question.   

In the absence of any contractual  stipulation between the  

parties the unpaid seller’s lien over the goods recognised in  

terms of Sections 46 and 47 of the Sale of Goods Act, 1930  

stood terminated upon delivery of the goods to the carrier.  

The goods were from that stage onwards held by the carrier  

at the risk of the buyer and the property in the goods stood  

vested in the buyer.  The principle underlying transfer of title  

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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  

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contract founded on good faith is of vintage value. In Carter  

V. Boehm (1766) 3 Burr 1905 one of the earliest cases on  

the subject the principle was stated by Lord Mansfield in the  

following words:

    “Insurance  is  a  contract  of  speculation.  The special facts upon which the contingent  chance is to be computed lie most commonly  in  the  knowledge  of  assured  only;  the  underwriters trusts to his representation and  proceeds upon confidence that he does not  keep back any circumstance in his knowledge  to mislead the underwriter into a belief that  the  circumstance  does  not  exist.   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;  because  the  risqué  run  is  really  different  from  the  risqué  understood  and  intended  to  be  run  at  the  time  of  the  agreement….The policy would be equally void  against  the  underwriter  if  he  concealed…… Good Faith forbids either party, by concealing  what he privately knows, to draw the other  into a bargain from his ignorance of the fact,  and his believing the contrary.”   

24. Section 19 of the Marine Insurance Act,  1963 grants  

statutory recognition to the above principle.  It reads:

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“19. Insurance is  uberrimae fidei.  – 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.”

25. In United India Insurance Company Ltd. V. M.K.J.  

Corporation (1996 (6) SCC 428) this Court declared good  

faith as the very essence of a contract of insurance in the  

following words:  

“It  is  a  fundamental  principle  of  Insurance  law that utmost good faith must be observed  by the contracting parties. Good faith forbids  either party from concealing (non-disclosure)  what he privately knows, to draw the other  into a bargain, from his ignorance of that fact  and  his  believing  the  contrary.  Just  as  the  insured has a duty to disclose, similarly, it is  the duty of the insurers and their agents to  disclose  all  material  facts  within  their  knowledge,  since  obligation  of  good  faith  applies to them equally with the assured. The  duty of good faith is of a continuing nature.  After  the  completion  of  the  contract,  no  material alteration can be made in its terms  except by mutual consent. The materiality of  a fact is judged by the circumstances existing  at the time when the contract is concluded.”

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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  

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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.        

28. That  brings  us  to  the question  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.  The  National  Commission  has  on  

appreciation  of  the  material  on  record  come  to  the  

conclusion that the consignment meant to be delivered to  

Pindikas was misdelivered and what was offered to Pindikas  

did not actually contain miniature paintings meant for the  

said consignee. That finding is, in our opinion, justified on  

the material on record from which it is evident that out of  

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122  cartons  121  cartons  were  delivered  to  M/s  Natural  

Selection International while the only remaining carton when  

checked in the presence of the General Counsulate of India  

was found to contain steel furniture items.  The inference,  

therefore, is that the carton containing miniature paintings  

had  been misdelivered  by the  carrier  who ought  to  have  

taken care to deliver the same to the consignee concerned.  

The National Commission has rightly rejected the contention  

that the carton was not properly marked making it difficult  

for the shipping company to separate the same from other  

cartons  which  were  meant  for  M/s  Natural  Selection  

International. There is indeed, no room for us to interfere  

with the findings of the National Commission.  The question,  

however, is whether the National Commission was justified  

in awarding rupee equivalent of US$ 1800 to the shipper by  

way  of  compensation.  There  are  two  errors  which  are  

evident  in  the  order  by  the  National  Commission  in  that  

regard.   Firstly,  the  National  Commission  has  instead  of  

going  by  the  number  of  packages  entered  in  the  Bill  of  

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Lading gone by the packages mentioned in the packing list.  

The Bill  of  Lading was the only document on the basis of  

which compensation could be determined against the carrier  

in terms of the provisions of The Indian Carriage of Goods  

by Sea Act, 1925 and 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:              

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“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  been  declared  by  the  shipper  before  shipment  and  inserted  in  the  bill  of  lading.

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 this  paragraph as  far as these packages or units are concerned.

Neither the carrier nor the ship shall be  entitled to the benefit of limitation of liability  provided for in this paragraph if it is proved  that  the  damage  resulted  from  an  act  or  omission  of  the  carrier  done with  intent  to  cause  damage,  or  recklessly  and  with  knowledge  that  damage  would  probably  result”.           

29. A careful reading of the above would show that in cases  

where a container,  pallet  or  similar  article  of  transport  is  

used to consolidate goods, the number of packages or units  

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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  purposes of  Rule 5 as far  as these  

packages or units are concerned.   

30. 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.

31. The  second  error  committed  by  the  National  

Commission is equally manifest.  The Commission appears  

to  have  gone  by  the  unamended  provisions  of  Rule  5  in  

which the amount of compensation was stipulated to be US$  

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100 per package.  After the amendment to the Schedule in  

the  year  1992  by  Act  28  of  1993  the  amount  of  

compensation was to be paid in terms of Special  Drawing  

Rights. As noticed above the shipper would be entitled to the  

compensation of 666.67 Special Drawing Rights per package  

or two Special Drawing Rights per kilogram according to the  

gross  weight  of  the  goods  lost  or  damaged  whichever  is  

higher. The single package meant for Pindikas weighed 200  

kgs.  The amount of compensation payable by reference to  

the  weight  of  the  package  would  come  to  400  Special  

Drawing  Rights.  The  amount  of  compensation,  actually  

payable would, however, be 666.67 Special Drawing Rights  

being higher of the two amounts.

32. It was next argued that 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  

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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.

33. 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.  

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…………..……………………J. (MARKANDEY KATJU)

………..………………………J. (T.S. THAKUR)

New Delhi: March 16, 2010

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