REPORTABLE  

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL  APPEAL NO. 1375 OF 2003

M/S SURAJ MAL RAM NIWAS OIL  MILLS (P.) LTD.

— APPELLANT (S)

VERSUS

UNITED INDIA INSURANCE CO.  LTD. & ANR.

— RESPONDENT (S)

J U D G M E N T

D.K. JAIN, J.:

1. This appeal, by special leave, is directed against the judgment and order  

dated  12th July  2002,  delivered  by  the  National  Consumer  Disputes  

Redressal  Commission  (for short  “the National  Commission”)  in  First  

Appeal No. 354 of 1996, whereby it set aside order dated 24th June, 1996  

passed by the Consumer Disputes Redressal Commission, Rajasthan (for  

short “the State Commission”) and held that the respondents – insurance  

1

company  was  justified  in  repudiating  the  insurance  claim  of  the  

appellant.

2. Both the respondents are the same insurance company, the first being the  

registered and head office and the second its local branch office.  

3. Shorn  of  unnecessary  details,  the  facts  material  for  the  purpose  of  

disposal of this appeal may be stated thus:  

The appellant company is engaged in the business of manufacture and  

sale of “Bhisham” brand mustard oil and cakes. They had obtained an open  

transit insurance policy from the respondents covering “all types of edible  

oils  in  tins…” transported  by  rail/road  (which  had  to  be  declared)  from  

Jaipur to anywhere in India. Initially, the liability of the respondents was  

limited to `10 lakhs but during the relevant period, the limit was enhanced to  

`1 crore. The insurance policy was subject to certain conditions attached as  

schedule  to  the  policy.   Additionally,  the  cover  note  also  contained  the  

following special condition and warranty:

“Each  &  every  consignment  must  be  declared  immediately before dispatch of goods.”

2

4. On 14th August 1992, the appellant dispatched 1194 tins of oil valued at `  

5,84,790/- from Jaipur to Dharamnagar by rail and from Dharamnagar to  

Agartala by road to one M/s Sree Sree Kaibalia Bhandar, Agartala.  

5. The railway wagon carrying the said goods met with an accident on 28th  

September 1992, resulting in extensive damage to the consignment.  

6. It is an admitted fact that the appellant did not inform either of the two  

respondents herein about the said accident till 30th September 1992 but  

claims to have informed their  Agartala office on 28th September 1992  

itself, who had also appointed a surveyor.  The consignment, in damaged  

condition, was forwarded to Agartala by road on 29th September 1992.  

The challans bearing Nos. 40336, 40337 and 40338 prepared by the road  

carrier  M/s  Paul  Brothers  clearly  mentioned  the  damaged state  of  the  

goods. The said goods were received by the consignee on the same day.  

7. On 30th September 1992,  the  consignee  informed the Agartala  branch  

office  of  respondent  No.  1  about  the  damage  to  the  goods.  The  road  

carrier, M/s Paul Brothers also reported the matter to the respondent No.  

2, herein. Subsequently, on 3rd October 1992, the road carrier issued a  

shortage/damage certificate  stating  that  153  tins  were  handed  over  in  

3

fully empty condition and in the remaining 1041 tins, there was  shortage  

of oil.  

8. It appears from the report of the surveyor, one Mr. Tapan Kumar Saha,  

that the Agartala branch of respondent No.1 had issued instructions for  

survey on 28th November 1992. On 10th November 1992, he submitted his  

report whereby he assessed the total loss at  `4,39,178/- payable by the  

respondents. The said report was also communicated to respondent No. 2.  

9. On 6th August 1993, another surveyor, Mr. S.K. Bakliwal, was appointed  

by respondent No. 2, who reported that during the period from 1st April  

1992 to  14th August  1992,  the  appellant  had only declared dispatches  

worth  `91,22,778/- whereas the total dispatches by the appellant during  

that period were to the tune of `1,43,59,303/-.  

10. Respondent  No.  2  thereafter  requested  Mr.  Tapan  Kumar  Saha  to  

segregate the damage caused to the goods at the place of accident, and  

the  subsequent  damage  that  occurred  during  the  transportation  of  the  

damaged consignment to Agartala. In his report dated 22nd March 1994,  

the surveyor observed that loss of oil due to the railway accident was  

2,048 kgs. and from Dharamnagar to Agartala, it was 10,676 kgs.

4

11.  On 23rd August 1993, the appellant requested the respondents to honour  

their claim, followed by a reminder on 12th May 1994.  On 1st August  

1994,  the  respondents,  vide  letter  No.  UIIC:DOII:JPR:1994-95,  

repudiated the claim of the appellant on the following grounds:

“i)  As per  the  terms and conditions  of  the  policy,  you were  supposed to declare each and every dispatch. From 10-4-1992  to 14-8-1992, you have dispatches goods worth  `1,43,59,303/-  while you have only declared as per your record, goods worth  `91,22,778/-.  Out  of  these  declarations,  a  number  of  declarations  have  not  reached  the  company’s  office.  Even  considering  it  to  be correct  as  the  dispatched have exceeded  rupees  one  crore  long back,  the  policy  has  not  continued to  cover the dispatch in question, and thus your claim cannot be  entertained.

ii) You have further violated the terms and conditions of the  policy by removing goods from the rail accident site without  survey  of  the  loss  having  been  done  by  the  Insurance  Company’s  Surveyor  immediately  after  the  accident,  and  without the permission of the Insurance Company. You have  not  given  any  information  or  sought  any  permission  before  removing the goods from the rail accident site to Agartala.

iii) You have aided in increasing the losses knowingly that the  goods dispatched from the rail accident site to Agartala were  not properly packed, and carrying of the oil in damaged tins is  clear violation of the terms and conditions of the policy and the  normal conduct of behaviour. From the Surveyor’s Report, it is  evident that the losses which have been quantified on the basis  of the certificates while the rail  authorities are to the tune of  `71,130/- while the rest of the damages have occurred during  the  transshipment  from  the  rail  accident  site  to  Agartala  in  damaged tins by M/s Paul Brothers, the Road carriers. It is also  not disputed that during the carriage of the goods by road from  rail accident site to Agartala, there was no accident and these  losses are contributed to your own fault, negligences and want  

5

of proper care to carry the oil only after transferring the oil from  tins damaged as a result of the rail accident into new tins.”

12. Being aggrieved with the rejection of their claim, the appellant filed a  

complaint before the State Commission, preferring a claim of `5,50,798/-  

along with interest at the rate of 24% payable from 10th November 1992  

till its payment against the respondents.

13. The State Commission, vide its order dated 24th June 1996, allowed the  

complaint of the appellant and directed the respondents to pay `4,39,178/-  

with interest  at  the  rate of  12% per annum from 1st January 1993 till  

payment, and `2,000/- as costs. In relation to the grounds of repudiation  

pressed into service by the respondents, the State Commission, inter alia,  

observed that  firstly, the effect of non-declaration of the consignments  

could only be that they were not covered by the insurance policy, and the  

appellant company having not crossed the limit of `1 crore in relation to  

consignments  which  were  desired  to  be  covered  by  insurance,  the  

consignment in question would be covered by the insurance policy as  

declaration was duly made in regard to it;  secondly,  the liability of the  

respondents would not be affected by the reason that the assessment of  

loss  was  not  done  immediately  after  the  unloading  of  goods  at  

Dharamnagar; and thirdly, it did not matter that the loss or damage to the  

6

consignment was remotely caused by the negligence of the insured unless  

the loss was due to the wilful act of the insured.

14.Aggrieved by the said order of the State Commission, the respondents  

preferred an appeal before the National Commission.  As aforestated, the  

National Commission allowed the appeal of the respondents, observing  

thus:

“The insured’s failure to report the loss caused by Rail accident  and removal of consignment without giving Surveyor a chance  to assess the loss at first hand and on the contrary aggravating  the loss on account of improper care while transporting it by  Road after the initial damage as well violating the terms of the  policy by not reporting each and every dispatch as per terms of  the  policy prejudices  the interest  of  the appellant  and in  our  view repudiation by the appellant was in order.”

15.Being dissatisfied with the said order, the appellant is before us in this  

appeal.

16. Mr. A.K.  Ganguli,  learned senior counsel  appearing for the appellant,  

strenuously urged that admittedly the respondents were informed of the  

accident on 28th September 1992 by the consignee through their Agartala  

office  and this  fact  has been overlooked by the National  Commission  

while recording the finding that the surveyor was not given a chance to  

assess the real loss.  To buttress the contention that intimation of loss of  

7

subject  matter  of  insurance  even by the  consignee  was sufficient  and  

appellant’s claim could not be rejected for want of intimation about the  

accident by the insured themselves, learned counsel commended us to the  

decision  of  the  Court  of  Appeal  in  Barratt  Bros.  (Taxis),  Ltd.  Vs.  

Davies1, wherein it was held that if the insurance company receives all  

material knowledge from another source so that they are not prejudiced at  

all by the failure of the insured himself to inform them, then they cannot  

rely on such a condition in the insurance contract to defeat the claim. It  

was pleaded that in the present case the surveyor had also surveyed the  

consignment  as  soon  as  the  goods  reached  their  destination  and  had  

assessed the loss at  `4,39,178/-.  It  was contended that  since insurance  

contracts  are  a  different  species  of  contract,  their  interpretation  is  

governed by different principles and in the event of any ambiguity in any  

clause or where two interpretations are possible, an interpretation which  

favours the policy holders should be given. In support of the proposition,  

learned  counsel  relied  on  the  decisions  of  this  Court  in  General   

Assurance Society Ltd.  Vs. Chandumull Jain & Anr.2, Polymat India  

(P) Ltd. & Anr. Vs. National Insurance Co. Ltd. & Ors.3, Shashi Gupta  

1 [1966] 2 Lloyd’s  Rep.1 2 (1966) 3 SCR 500 3 (2005) 9 SCC 174

8

Vs. Life Insurance Corporation of India & Anr.4 and  Life Insurance  

Corporation of India Vs. Raj Kumar Rajgarhia & Anr.5.  

17. As regards the objection of the respondents about the non-disclosure of  

dispatch  of  each  and  every  consignment,  as  pointed  by  the  second  

surveyor,  learned  counsel  submitted  that  the  said  condition  has  to  be  

understood in the context of the fundamental condition that the insurance  

cover was intended to secure only the “insurable interest” of the appellant  

in the dispatches.  It was urged that the appellant had declared only those  

consignments in which they had an “insurable interest” as in relation to  

dispatches which had not been declared, the consignees had desired that  

their consignments should be dispatched without an insurance cover. In  

all such cases, the purchasers took the risk of loss to their goods, and  

hence the appellant  had no “insurable  interest”  in them, unlike in the  

consignment in question for which due declaration was made.  Reference  

was made to the decisions of this Court in New India Assurance Co. Ltd.   

Vs. G.N. Sainani6 and New India Assurance Company Limited Vs. Hira  

Lal Ramesh Chand & Ors.7, wherein it was held that “insurable interest”  

4 1995 Supp (1) SCC 754 5 (1999) 3 SCC 465 6 (1997) 6 SCC 383 7 (2008) 10 SCC 626

9

over a property is “such interest as shall make the loss of the property to  

cause pecuniary damage to the assured.”

18.  It was then contended by learned counsel for the appellant that in the  

instant  case  the  insurance  policy  covered  all  risks  from the  point  of  

loading at Jaipur till the final delivery and the appellant was only under a  

duty to ensure that goods were in a properly packed condition when they  

were handed over at Jaipur for transport by train.  It was asserted that the  

appellant had done everything possible to ensure that the goods reached  

their  destination in proper  condition as the event  that  had occurred at  

Dharamnagar station was beyond their control. In order to buttress the  

contention  that  the  goods  were  in  transit  till  they  reached  their  

destination, viz. Agartala, learned counsel relied on  Kilroy Thompson,  

Ltd.  Vs. Perkins & Homer, Ltd.8 and United India Insurance Co. Ltd.   

Vs. Great Eastern Shipping Co. Ltd.9 It was argued that in the instant  

case the respondents have not led any evidence to prove negligence on  

the part of the appellant.  

19. Relying  on  the  decisions  rendered  by  the  National  Commission  in  

Divisional Manager, LIC of India Vs. Shri Bhavanam Srinivas Reddy10,  

8 [1956] 2 Lloyd’s Rep. 49 9 (2007) 7 SCC 101 10 (1991) CPJ 189

10

Divisional Manager, LIC India of India Vs.  Smt. Uma Devi11 and M/s  

Raj Kamal & Co. Vs. M/s United Insurance Company12, learned counsel  

contended that the jurisdiction of a consumer forum has to be construed  

liberally  and it  covers  unilateral  repudiation  of  a  claim arising  out  of  

insurance. It was also submitted that apart from the fact that the present  

case  does  not  involve  any  complicated  issues  of  fact  for  which  very  

detailed evidence would have to be led, which the State or the National  

Commission would not be able to do, mere complication either of facts or  

of law cannot be a ground for shutting the doors of those fora to the  

person aggrieved.  To buttress the submission, reliance was placed on the  

decisions  of  this  Court  in  Dr.  J.J.  Merchant  &  Ors.  Vs. Shrinath  

Chaturvedi13 and  CCI  Chambers  Coop.  Hsg.  Society  Ltd.  Vs.  

Development Credit Bank Ltd.14

20. Per  contra,  Mr.  Vineet  Malhotra,  learned  counsel  appearing  for  the  

respondents, while supporting the judgment of the National Commission,  

urged  that  the  claim of  the  appellant  could  not  be  considered  as  the  

appellant  had  violated  the  special  condition  of  the  policy  by  not  

disclosing  each  and  every  consignment  before  it  had  left  the  factory  

11 (1991) CPJ 516 12 (1992) CPJ 121 13 (2002) 6 SCC 635 14 (2003) 7 SCC 233

11

premises.  It was asserted that the said condition was the basic condition  

of  the  policy  and  on its  breach  the  liability  of  the  respondents  stood  

repudiated.  It was also pleaded that the moment goods worth Rs.1 crore  

had been dispatched from the factory of the appellant, the policy ceased  

to exist.  It was argued that prior to the dispatch of the goods in question,  

goods  worth  `1,43,59,303/-  had  already  been  dispatched,  whereas  the  

appellant had declared dispatches of goods only worth `91,22,778/- and,  

therefore,  liability  of  the respondents  under  the  policy ceased to exist  

both on account of non-declaration of material facts, as also due to the  

fact that the value of dispatches had exceeded the policy limit.  In support  

of his plea that it  was not open to the insured to pick and choose the  

consignments for the purpose of declaration, learned counsel relied on  

the decision of the Kings Bench in  Dunlop Brothers & Company  Vs.  

Townend15. Learned counsel contended that appellant had also violated  

the terms of policy by not informing the respondents immediately about  

the accident as well as not taking adequate steps to minimise the losses,  

in as much as the goods dispatched from Dharamnagar to Agartala were  

not  properly packed.   According to the learned counsel,  the insurance  

policy casts an obligation on the insured and its agents to take steps for  

15 1919 (2) 127 (KB)

12

minimizing losses, and the fact that the appellant permitted the carriage  

of oil in broken tins clearly establishes that the appellant had violated the  

terms of the policy and, therefore, the respondents cannot be made liable  

for the losses.

21.  Lastly, learned counsel urged that there must be strict compliance with  

the terms and conditions of an insurance policy, and the appellant having  

breached a fundamental  condition of  the policy,  the respondent  is  not  

liable to pay any amount to them.  In support of the contention that in a  

contract of insurance, rights and obligations are strictly governed by the  

terms of the policy and no exception or relaxation can be given on the  

ground of equity, learned counsel relied on the judgments of this Court in  

Deokar Exports Private  Limited  Vs. New India Assurance Company  

Limited16, United India Insurance Co. Ltd. Vs. Harchand Rai Chandan  

Lal17 and  Vikram  Greentech  India  Limited  &  Anr.  Vs. New  India  

Assurance Company Limited18.

22. Before  embarking  on an examination of the correctness of the grounds  

of  repudiation of  the policy, it would be  apposite to examine the  nature  

of a contract of insurance. It is trite that in a contract  of  insurance, the  

16 (2008) 14 SCC 598 17 (2004) 8 SCC 644  18 (2009) 5 SCC 599

13

rights and obligations are governed by the terms of  the  said  contract.  

Therefore, the  terms of  a contract of  insurance have to  be  strictly  

construed, and  no exception  can be made  on  the ground of equity.   In  

General                 Assurance Society Ltd. (supra), a Constitution Bench  

of this Court had observed that:

“In interpreting documents relating to a contract of insurance,  the  duty  of  the  court  is  to  interpret  the  words  in  which  the  contract  is expressed by the parties,  because it  is not for the  court to make a new contract, however reasonable, if the parties  have not made it themselves.” (See also:  Oriental Insurance  Co.  Ltd.  Vs.  Sony  Cheriyan19; Vikram  Greentech  (supra);  Sikka  Papers  Limited  Vs. National  Insurance  Company  Limited & Ors.20; New India Assurance Company Limited Vs.  Zuari Industries Limited & Ors.21;  Amravati District Central   Cooperative Bank Limited Vs. United India Fire and General   Insurance Company Limited.22)

23. Similarly, in Harchand Rai Chandan Lal’s case (supra), this Court held  

that:

“The terms of the policy have to be construed as it is and we  cannot add or subtract something. Howsoever liberally we may  construe the policy but we cannot take liberalism to the extent  of substituting the words which are not intended.”

19 (1999) 6 SCC 451 20 (2009) 7 SCC 777 21 (2009) 9  SCC 70 22 (2010) 5 SCC 294

14

24.Thus, it needs little emphasis that in construing the terms of a contract of  

insurance, the words used therein must be given paramount importance,  

and it is not open for the Court to add, delete or substitute any words. It is  

also  well  settled  that  since  upon issuance  of  an  insurance  policy,  the  

insurer  undertakes  to  indemnify  the  loss  suffered  by  the  insured  on  

account  of  risks  covered  by  the  policy,  its  terms  have  to  be  strictly  

construed to determine the extent of liability of the insurer.  Therefore,  

the endeavour of the court  should always be to interpret  the words in  

which the contract is expressed by the parties.   

25.Having considered the instant case on the touchstone of the aforenoted  

broad principles to be borne in mind while examining the claim of an  

insured, we are of the opinion that the claim of the appellant must fail on  

the short ground that there was a breach of the afore-extracted special  

condition  incorporated  in  the  cover  note.   The  special  condition  viz.  

“each and every consignment” must be declared before dispatch of goods  

is clear and admits of no ambiguity.  The appellant was obliged to declare  

“each  and  every  consignment”  before  it  left  the  appellant’s  factory  

premises and there is nothing in the policy to suggest that the insured had  

the  liberty  to  pick  and  choose  the  dispatches  which  they  wanted  to  

15

declare to the insurer,  not  even at  the instance of  the consignee,  who  

otherwise  is  a  stranger  to  the  contract  between  the  insurer  and  the  

insured.  We have no hesitation in rejecting the plea of the appellant that  

they were required to declare only those dispatches in which they had an  

insurable interest.  It bears repetition that notwithstanding any request by  

the consignee, the policy of insurance postulated declaration in respect of  

each  and  every  dispatch  by  the  appellant.   Therefore,  the  fact  that  

purchasers did not want an insurance cover on certain dispatches had no  

bearing  on  the  obligation  of  the  appellant  to  declare  each  and  every  

dispatch under the policy.  It is a settled proposition of law that a stranger  

cannot alter the legal obligations of parties to the contract.

26. We are in complete agreement with the National Commission that there  

was a breach of the special condition in the cover note for the insurance  

policy on the part of the appellant and, therefore, the repudiation of the  

claim of the appellant by the respondents was justified.  

27.Having come to the conclusion that the repudiation of the claim preferred  

by  the  appellant  on  the  aforestated  ground  was  valid,  we  deem  it  

unnecessary to evaluate  the  correctness  of  the  other  rival  submissions  

made before us by the learned counsel.

16

28. Resultantly,  the  appeal  being  devoid  of  any  merit  deserves  to  be  

dismissed.  It is dismissed accordingly, leaving the parties to bear their  

own costs.

….........................................J. [ D.K. JAIN ]

….........................................J. [ T.S. THAKUR ]

NEW DELHI, OCTOBER 8, 2010.

17