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2024 Supreme(Mad) 883
IN THE HIGH COURT OF JUDICATURE AT MADRAS
THE HONOURABLE MR. JUSTICE R. SUBRAMANIAN, THE HONOURABLE MR. JUSTICE R. SAKTHIVEL, JJ.
Renaissance RTW Asia Private Limited - Appellant
Versus
ECGC Limited - Respondent
A.S.(CAD) No. 11 of 2023 and C.M.P.No.13727 of 2023
Decided On : 31-01-2024
For the Appellant : Mr. T. Gowthaman, Senior Counsel for Mr. Muthuchharan Sundresh.
For the Respondent: Mr. P.V.S. Giridhar, Senior Counsel, for M/s. P.V.S. Giridhar & Sai.
IMPORTANT POINT
An undertaking given in the context of an insurance policy is binding, and failure to fulfill the conditions of that undertaking, such as pursuing legal action, can result in liability for repayment.
Headnote:
UNDERTAKING - COMMERCIAL INSURANCE RECOVERY - Commercial Court Act, Section 13(1)(A) - The court discussed the validity of the undertaking given by the defendant to repay the insured amount if the recovery action failed. It interpreted the insurance policy's conditions, emphasizing the obligation of the defendant to pursue legal action against the buyer and the implications of failing to do so. The court concluded that the defendant was bound by the undertaking, which influenced its decision to uphold the trial court's decree for repayment.
Fact of the Case:
The plaintiff, Export Credit Guarantee Corporation Limited, sued the defendant for recovery of Rs.5,57,41,861/- based on an undertaking given by the defendant to repay a sum of Rs.2,70,75,000/- if it failed to recover from its buyer in the United States. The defendant had initially sought insurance coverage for non-payment by the buyer and later failed to pursue legal action as required by the policy.
Finding of the Court:
The court found that the defendant was obliged to act according to the undertaking and could not deny its binding nature. It ruled that the suit was not barred by limitation as the cause of action arose from the defendant's refusal to pay after the undertaking was given.
Issues: 1. Whether the suit filed in 2021 based on the undertaking given by the defendant in 2015 is in time? 2. Whether the undertaking given by the defendant Company is valid? 3. Whether the plaintiff is entitled to the suit claim?
Ratio Decidendi: The court held that the defendant's undertaking to repay the sum insured if it failed in the recovery action was valid and binding. The obligation to pursue the legal action was a condition of the insurance policy, and the defendant's failure to do so justified the plaintiff's claim for repayment.
Final Decision: The appeal was dismissed, upholding the trial court's decree for the defendant to repay the sum insured along with interest.
JUDGMENT :
R. Subramanian, J.
[PRAYER : Appeal filed under Section 13(1)(A) of the Commercial Court Act praying to set aside the judgment and decree of the Principal District Judge, Tiruppur dated 06.02.2023 made in C.O.S.No.22 of 2021.]
The defendant in C.O.S.No.22 of 2021, a commercial suit for recovery of a sum of Rs.5,57,41,861/- being the principal of Rs.2,70,75,000/- with interest at 18% per annum from 20.03.2015 till date of recovery is the appellant.
2. The plaintiff, the Export Credit Guarantee Corporation Limited had sued for recovery of the said sum of Rs.5,57,41,861/- claiming that it is entitled to the said sum as per the undertaking executed by the defendant on 27.04.2015 undertaking to repay a sum of Rs.2,70,75,000/- along with interest in the event of its failure in recovery action instituted by it in the United States.
3. The brief facts as set out in the plaint are as follows:-
The plaintiff is a Public Sector Undertaking owned by the Central Government established to provide for export credit insurance and trade related services. The object of the plaintiff is to support and protect Indian Exporters by providing cost effective insurance schemes and other trade related services.
4. The defendant, who is a manufacturer and exporter of knitted ready-made garments approached the plaintiff seeking a Single Buyer Exposure Policy to cover the risk of non-payment by its buyer M/s. Academy Limited, United States of America. The policy was renewed upto 31.03.2013 based on the renewal proposal dated 09.04.2012. Another proposal was submitted seeking Multi Buyer Exposure Policy for a period of twelve months from 01.04.2011 to 31.03.2013 and the risk covered was about Rs.3,50,00,000/- per buyer. The premium for the Multi Buyer Exposure Policy was remitted till 01.01.2013.
5. On 12.12.2012, the defendant submitted a Report of Default by the buyer M/s. Academy Limited, United States of America against 24 shipments that were made between 26.09.2012 to 16.11.2012. The premium for the third quarter of the Multi Buyer Exposure Policy was paid with a delay of 17 days. The two claims that were launched for a sum of Rs.46,70,051/- under the Single Buyer Exposure Policy and for a sum of Rs.4,05,55,914/- for the Multiple Buyer Exposure Policy. Since the defendant did not submit the necessary documents, the plaintiff had required the defendant to submit necessary documents. In the meanwhile, one Janet Militello representing the buyer M/s. Academy Limited, by the letter dated 26.09.2013 disputed the liability by attributing corrupt practices to the defendant.
6. The plaintiff would claim that as per Clause 13(e)(ii) of the policy, the buyer viz., the defendant herein has to initiate recovery proceedings in the United States and if they are able to recover the monies from the purchaser the same should be reimbursed. It is also claimed that the plaintiff's liabilities are not attracted unless the defendant receives a favourable judgment in the action taken for recovery.
7. On 04.06.2013, the defendant sought for payment of the insured amount to enable them to initiate recovery action. Since initiation of recovery action is the pre-condition for processing the claims under the policies, the plaintiff, on 08.07.2014 repudiated the claim of the defendant. Thereafter, the defendant entered into an agreement with M/s.MAH International Corporation, a Debt Collection Agency on 09.07.2014 and forwarded the same for consideration along with the representation dated 12.07.2014. The plaintiff was also informed by the Debt Collection Agency that the fact that the buyer disputed its liability as early as on 26.11.2012 was suppressed by the defendant during the policy period and while preferring the claim with the plaintiff. The Debt Collection Agency informed the plaintiff that amicable settlement was not possible and a law suit would only be a remedy.
8. The representation of the defendant dated 19.09.2014 seeking payment of the sum insured was rejected by t
