Paragraph numbers below are the court’s original numbering, recovered from the source text.
8. According to Shri G.E. Vahanvati, Solicitor General of India, appearing on behalf of the Corporation, the words "in re- spect of loss" mentioned in Clause 16 are descriptive. Accord- ing to learned counsel the said expression "in respect of loss" B identifies the amounts recoverable under the Policy. According -i to learned counsel, Clause 14 refers to Exporter's taking steps to effect recoveries from the buyer whereas Clause 14(b) talks about the Corporation taking steps as assignee to recover moneys payable under the contract. According to learned coun- sel, in this case Clauses 14(a) and 14(b) do not apply because c in this case Clause 16 alone applies. According to learned coun- sel, Clause 16 refers to recoveries made by the Exporter or the Corporation. According to learned counsel, Clause 14 refers to steps to be taken by the Corporation or the Exporter for en- forcement of rights under the contract against the foreign buyer D whereas Clause 16 comes in only in cases where the sum y stands recovered. In other words, according to learned coun- sel, once a recovery is made Clause 16 comes into play. That clause provides for a formula of apportionment/ratio of division of any sum being recovered between the Corporation and the Exporter in the ratio of 90: 10.
9. Shri Uday U. Lalit, learned senior counsel, appearing on behalf of the Exporter, on the other hand, contended that every word in Clause 16 must be given its due ·weightage. According to learned counsel, Clause 16 specifically stands confined to . – r-1 sums recovered "in respect of loss to which the Policy applies" and consequently it cannot be said that the said 'words "in re- spect of loss to which the Policy applies" should be read as de- scriptive. According to learned counsel, the words "any sums re- covered" in Clause 16 should be read in juxtaposition with the G words "any sums recovered in respect of a loss to which the Policy 'J · applies" and if so read the word "loss" in Clause 16 would stand restricted to the words "any sums recovered". In support of his above contention learned counsel placed his reliance on the judg- ment of the House of Lords in the case of L. Lucas Ltd. (supra). Rules of Interpretation as applicable to Policy of ~~ Insurance
10. In this case the entire controversy revolves around in- terpretation of Clause 16 of the Policy. It is well-settled rule of construction that words in a contract (Policy herein) are to be B understood in their ordinary meaning. However, this ordinary meaning will not prevail in two cases, namely, where a Word has technical or legal meaning and secondly where the context 'r— requires otherwise. It is not disputed that in a contract of insur- ande, parties may introduce expres~ terms which are at vari- · . c ance from or in conflict with the ordinary principles of subroga- tion. Hence, the. correct approach is to consider the policy of insurance by reference to its terms. If, however, there is some doubt or ambiguity in the construction of the policy only then it would be correct to invoke the pr,inciples of subrogation·as·a D guide or a controlling authority. Therefore, at the outset, what · we propose to do is to consider whether the Policy, in this case on its own express terms, provides fotthe allocation of the mon- 'r, eys between the Exporter and the Corporation.
11. One more principle is required to be kept in.mind in a E matter of this type in which we are concerned with the value of Rupee in terms of US Dollar. If a debt in a foreign currency is sued for, the judgment must be in terms of Rupee. and the rate Of exchange (subject to express CO[l:tractual provisions to the contrary} will b~the.rate of exchange between Rupeenmd the F foreign currency prevailing at-the date· when fhe debt becomes · ""—~ payable [See: Forasol v. Oil and Natural Gas Commission – 1984 (Supp.) SCC 263] i.e. immediately on the US Dollar hav- ing been received in India. INTERPRETATION OF CLAUSE 16
12. Keeping in mind ~he above two principles we are now required to interpret Clause 16 of the said Policy.
13. As stated above, Clause 16 of the Policy begins with H a head ·note titled "Recoveries". Three words/expressions are M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. OF INDIA LTD. & ANR. [S. H. KAPADIA, J.] ~~~required to be interpreted, namely, "any sums recovered", "loss" A and the expression "amount of loss" which finds place in Clause 9 of the Policy. On reading the Policy in its entirety, we find that there is a dichotomy in it The subject-Policy in this civil appeal is a contract. By nature it is an indemnity. The contract is in two major parts. The first part which commences from Clause 1 to Clause 13 contemplates an indemnity against a percentage of • · -i a loss whereas. the second part of the contract commencing from Clause 14 to Clause 16 contains provisions enabling re- coupment of that loss.
14. In this case the invoice value as on 8.10.85 was US$ C 6, 15,200/-. Out of which 20% was paid by the Egyptian buyer upfront. Therefore, amount due from the Egyptian buyer was US$ 5,59,696.14 (80% of US$ 6, 15,200). The equivalent of US$ 5,59,696.14 was Rs.71,20,940/- which got increased within 5 years to Rs.1,57,82,876/-. This was on account of the fall in the D external value of the Indian Rupee as agains! US Dollar.
15. The question before us is : whether Clause 16 of the Policy entitles the Corporation to retain 90% of the Recover- ies.
16. On a bare reading of Clause 16 on its own terms, we find that the said clause falls under a separate chapter of "Re- coveries". That chapter deals with recoupment of the loss. Clause 16 unequivocally states that any sums recovered from the buyer after the date on which the loss is ascertained shall be divided – —' between the Corporation and the Exporter in the proportion of 90: 10. As stated above, the outstanding receivable was US$ 5,59,696.14 equivalent to Rs.71,20,940/-. However, on account of belated payment and fall in the value of Rupee against US Dollar the value of US$ 5,59,696.14 stood increased to G Rs.1,57,82,876/- resulting in increased recovery. Clause 16, in 'i our view, refers to sums recovered from the buyer. That recov- ery can only be on the date when the foreign currency entered India. The foreign currency entered India only after the loss stood ascertained in terms of Clause 9 which refers to the "amount of H loss". Therefore, in our view, the dollars paid belatedly would fall within the words "any sums recovered" from the buyer after ascertainment of the amount of loss under Clause 9. Clause 16, however, refers to the words "any sums recovered in re- spect of loss to which the Policy applies". According to the Ex- B porter, the words "in respect of loss" restrict the first three words of Clause 16, namely, "any sums recovered". According to the Exporter, if so read, the words "any sums recovered" would cover an amount of only Rs.64,08,846/- and not Rs.1,57,82,876/-. We do not find any merit in this argument advanced on behalf of the c Exporter. As stated above, the policy is in two distinct parts. The first part deals with indemnification against a percentage of loss. In that part we have Clause 11 which refers to "rate of exchange". It states that all payments shall be made in Rupee terms at the head office of the Corporation and for the purpose of payment of premium and losses the gross inyoice value of shipments invoiced in ~foreign currency shall be converted into Rupee at the bank's buying rate of exchange. However, such rule of conversion or exchange rate is not made applicable in case of "Recoveries" under Clause 16. Clause 16 refers to "any sums recovered" which covered dollars paid belatedly. It is im- E portant to note that under the Policy there is a difference be- tween currency of account and currency of payment. The cur- rency of account is !n US Dollar wher-eas t~e currency of pay- ment of loss and premium is in Indian currency applying the conversion formula in Clause 11 of the Policy: Such conversion rate is not there in Clause 16 which refers to "Recoveries". Therefore, there is a difference between currency of account, currency of payment and currency of recovery. Clause 16 refers only to "arw sums recovered"r. That is how the dichotomy, as stated above, comes in. Further, the expressions "any sums G recovered" and "in respect of loss to which the Policy applies" if read together meant that the sums recovered must be in re- spect of loss which arises from the subject-matter of the con- tra~t. If loss arises dehors such contract any sums recovered in that regard would notfall in Clause 16. In our view, in view of the H ordinary use of language used in Clause 16 the US dollars paid M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. OF INDIA LTD. & ANR. [S. H. KAPADIA, J.] belatedly would certainly fall within the expression "any sums A recoverec' in respect of loss to which the Policy applies".
17. One more aspect needs to be mentioned. Clause 16 provides for a formula of apportionment in the ratio of 90: 10 between the Corporation and the Exporter. If one reads the Policy in its entirety and even if one is to go by contextual interpreta- tion of the Policy one finds a reason for this ratio of division … 1 between the Corporation and the Exporter. The extent of shar-. ing the amount recovered from the buyer has a direct nexus with the ratio of loss agreed to be borne between the Corpora- tion and the Exporter. In other words, the ratio of division of c Recoveries contemplated in Clause 16 has a direct nexus with the ratio of division of losses agreed to be shared between the .J. Corporation and the Exporter under Clause 7 of the Policy. This is one more reason for saying that "any amount recovered from the buyer in respect of loss to which the Policy applies". In our D view, the words "ariy sums recovered" in Clause 16 would mean '1' all sums recovered from the buyer to be divided in the propor- tion of 90:10 between the Corporation and the Exporter. Judgments of English Courts 18 .. In L. Lucas Ltd. and another v. Export Credits Guar- antee Department – .(197 4) 2 All ER 889, an exporter entered into a contract of guarantee under which the guarantor indemni- tied the exporter upto 90% of the loss arising out of failed pay- ments for export shipments. The contract also provided that any _ , ,A sums recovered by the exporter/guarantor "in respect of a loss to which the guarantee applies" would be divided between the parties in the ratio 90: 10. A loss occurred. The guarantor in- demnified the exporter. The exporter later on succeeded in re- couping the payment but in the mean time almost two years G elapsed and during those two years changes in the exchange · ~.\ rates resulted in the payment in terms of pound sterling became significantly larger on conversion. The guarantor contended that it was entitled to 90% of the increased recovery while the ex- porter contended that the guarantor was only entitled .to what it H 572' A had paid out as indemnified. The Court of Appeal recognized the contract as one of indemnity and treated it like a policy of insurance. Before the Court of Appeal, the exporter contended th~t if there is recovery in a subrogated claim higher than the amount of the !oss, the excess goes to the insured and, there- B fore, the guarantor is not entitled to recover out of the proceeds more than it had paid out. The Court of Appeal ruled that the correct approach was to consider the contract by reference to its terms and, only if some real doubt or ambiguity in its con- struction was evident only then it would be proper to invoke the c general principles of Subrogation as a guide or controlling au- thority. Going by the contract and the words used in Clause 17 the Court of Appeal .held that the guarantor was entitled to 90% · of the' increased recovery as Clause 17 of that contract so pro- vided. This decision of the Court of Appeal was reversed by Hotjse of Lords in the same case. It may be noted that the Court. D of Appeal's anafysis of the interplay between Subrogation P'riri,. ciples arid contractual provisions was, however, not disturbed by the House of Lords in its judgment in the same case. In that m·auer the ground for overruling the decision of the Court of Appeal by House of Lords was quite different. The Court was E concerned with the contract of guarantee. One of the arguments advanced was regarding the nature of the contract. According to House of Lords, in the ~ontract of guarantee in that' case there was no provision made entitling the guarantor to 90% of the '. increased · recovery which was· described as fortuitous · profit. It · was held in that case by Ho_use of Lords that the subject-policy ~ was a contract of guarantee which never intended that the guar- antor would be entitled to 90% of fortuitous profit. According to House of Lords; if the contract intended to give this benefit to the guarantor it would have explicitly said so. According to the G said judgment, if the contract would have provided for 90% of the fortuitous profits to be given to the guarantor then the nature of the contract of guarantee in that case would have ceased to be one of indemnity against a percentage of loss and in that event it would become a profit sharing contract. This observa- H . tion has been made by Viscount Dilhorne at page 898 of the 't- )_' M/S. RAHEE INDTS. LTD. v. EXPORT C. G. CORPN. OF INDIA LTD. & ANR. [S. H. KAPADIA, J.] _.__… report. However, as stated above, the analysis, made by the Court of Appeal in the said case, of the interplay between sub- rogation principles and contractual provisions with which we are concerned, has not been disturbed by the judgment of House of Lords in the said case of L. LucasLtd. (supra). In our present case we are not concerned with the contract of guarantee. In the present case we are concerned with the Policy of insurance .._I dated 27 .1.87. By its very nature it was a contract of indemnity .. In the present case, the nature of the contract is not in issue. It was in issue in the case of L. Lucas Ltd. (supra). In the circum- stances, we do not wish to express .any opinion on the correct- c ness of the judgment of the House of-Lords in L. Lucas Ltd. (supra). 19. For the aforestated reasons, this civil appeal filed by the Exporter stands accordingly dismissed with no order as to costs. K.K.T. Appeal dismissed. "f