Union of India Vs. Sri Sarada Mills
Ltd.  INSC 238 (28 September 1972)
MATHEW, KUTTYIL KURIEN
CITATION: 1973 AIR 281 1973 SCR (2) 484 1972
SCC (2) 877
Transfer of Property Act (4 of 1882), ss. 6
(e) and 135A and Marine Insurance Act (11 of 1963), ss. 52 and 79--Consignor of
goods to Railway suing Railway Administration for loss of goods--Suit filed
after recovering from insurance company and assigning to insurance company,
assignor's rights against Railway Administration--Maintainability.
The respondent consigned certain goods to the
Railway for dispatch. The goods were insured. They were damaged during transit,
and the Insurance company paid the total loss. The respondent assigned all its
rights, including the right to sue, to the Insurance Company. Thereafter the
respondent sued the appellant for damages. The appellant contended inter alia
that the respondent, having received the total loss from the Insurance Company,
was not entitled to institute the suit.
The High Court in appeal, held the suit was
maintainable because the assignment was of a mere right to sue which is not
valid under s. 6(e) of the Transfer of Property Act, 1882, and that even if the
assignment was valid, the right to action of the respondent had not ceased and
decreed the suit.
In appeal to this Court,
HELD : (per A. N. Ray and 1. D. Dua, JJ.) The
appeal should be dismissed. [471B] Section 6(e) of the Transfer of Property is
not applicable to the facts of the case. Under s. 52 of the Marine Insurance
Act, 1963, an insurance company can sue in its own name where the policy has
been transferred by assignment, but that is not the case here. In the present
case, the insurance company is entitled to subrogation in accordance with the
provisions of s. 79 of the Marine Insurance Act.
The insurance company and the respondent
proceeded on the basis that the insurance company was only subrogated to the rights
of the assured, and the letter of subrogation contains intrinsic evidence that
the respondent would give the insurance company facilities for enforcing
rights. But the letter of subrogation did not divest the respondent of its
cause of action against the appellant for loss and damages. The insurance
company has chosen to allow the respondent to sue and the appellant did not
take the plea that there was an assignment. If such a plea had been taken, the
insurance company could have been impleaded and rights of all the parties could
have been decided. [468H;
469A-B; 47OC-D, E-H; 471A] The respondent
will however give a valid discharge to the appellant and be answerable and
accountable to the insurance company for the money recovered, and the decree
would be a bar to the institution of any suit by the insurance company.
[470D] 465 King v. Victoria Insurance Company
Limited  A.C. 250 Compania Colombiana De Seguros v. Pacific Steam
Navigation Co.  1 Q.B. 101, Torkington v. Magee  2 K.B. 427 and
Ertet Bieber & Co. v. Rio Tinto Co.  A.C. 260, referred to.
Per K. K. Mathew, J. (dissenting). The real
reason why a mere right to sue cannot be assigned is that such an assignment
would offend the rule of champerty and maintenance. But where an insurance
company has been subrogated to all the rights, and the remedies of the assured
by virtue of s. 135-A of the Transfer of Property Act, 1882, (now incorporated
in the Marine Insurance Act, 1963), the reason for the rule against assignment
of a mere right to sue does not obtain, because, the insurance company is
clothed with all the rights and remedies of the assured and the only thing
lacking is the capacity to sue in its own name. Subrogation is concerned solely
with the mutual rights and liabilities of the parties to the contract of
insurance; it confers no rights and imposes no liabilities upon third parties
who are strangers to that contract and, the insurer, who has paid a loss gets
no direct rights or remedies against anyone other than the assured, nor can sue
such parties in his own name.
[472F-H; 475H; 476A; 480G-H] King v. Victoria
insurance Co. Ltd,  A.C. 250, 255-6 and Simpson v., Thomson,  3
App. Cas. 279 H.L. applied.
Indian Trade and General Insurance Co. Ltd.
v. Union of India, A.I.R. 1957 Calcutta 190 and Vasudevan Mudaliar v. Caledonian
Insurance Co. and another, A.I.R. 1965 Madras 159, approved.
Yorkshire insurance Co. Ltd. v. Nisbet
Shipping Co. Ltd.,  2 Q.B. 330,Castellain v. Preston, 11 Q.B.D. 380, 395,
Burnard v. Rodocanachi, Sons & Co. 7 App Cas. 333, 939, Glen Line v.
Attorney General,  46 T.L.R. 451, Textiles and Yarn (P) Ltd. v. Indian
National Steamship Co. Ltd. A.I.R.
1964 Calcutta 362 and Asiatic Governments
Security Fire and General Assurance Co. Ltd. v. The Scindia Steam Navigation
Co. Ltd., A.I.R. 1965 Kerala 214, referred to.
Alliance Insurance Company Ltd. v. Union of
 1 Calcutta 544, disapproved.
Clause (4) of s. 135-3 had not made any
departure and conferred a right of suit upon the subrogee against third
persons. An assignment of insurance after loss would sound in the realm of an
assignment of a mere right to sue and the legislature wanted, by Cl. (4), to
put it beyond doubt that s. 6(e) is no bar to such an assignment. Moreover, cl.
(4) may not have any operation upon cls. (2) and (3) of the section, because,
subrogation is effected by cls. (2) and (3), that is, by operation of law,
while s. 6(e) is concerned with a transfer of a mere right to sue by act of
parties. [476B-D] But, in the present case, it is not mere subrogation. The
assignment conveyed to the insurance company the entire rights in respect of
the subject-matter of the insurance, including the right of the assured to sue
in its own name, and therefore, after such assignment, the assured had no cause
of action to institute the suit against the appellant for recovery of damages.
[481F-G] Compania Colombiana de Seguros v. Pacific Steam Navigation Co. 
1 Q.B. 101, 121 applied.
466 Anson's Law of Contract, Twenty-third
edition edited by A.G.
Guest referred to
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 1045 of 1967.
Appeal by certificate from the _judgment and
decree dated January 4, 1966 of the Madras High Court in Appeal No. 129 of
G. L. Sanghi and S. P. Nayar, for the
R. K. Garg, S. C. Agarwala, V. J. Francis and
Narayana Nettar, for the respondent.
The Judgment of A. N. RAY and I. D. DUA, JJ.
was delivered by RAY, J. K. K. MATHEW, J. gave a dissenting Opinion.
RAY, J.-We have had the ad-vantage of reading
the judgment written by our learned brother Mathew.
The question which falls for determination in
this appeal is whether the respondent mill on recovering Rs. 32,254-6-9 from
the Indian Globe Insurance Co. Ltd. and assigning all rights against the
Railway Administration in favour of the insurance company as a subrogee was
competent to institute -and maintain the suit against the Railway
We agree with the reasoning and conclusion of
our learned brother Mathew that subrogation does not confer any independent
right on underwriters to maintain in their own name and without reference to
the persons assured an action for damage to the thing insured. The right of the
assured is not one of those rights which are incident to the property insured.
Counsel for the appellant contended that by
reason of the assignment to the insurance company of all rights against the
Railway Administration the respondent mill did not have any cause of action
against the Railway Administration. In aid of that contention the decisions in
King v. Victoria insurance Company Limited  A.C. 250 and Companies
Colombiana De Seguros v. Pacific Steam Navigation Co.,  1 Q.B. 101 were
In the Victoria Insurance Company case
(supra) the Bank of Australian effected an insurance with the insurance company
of certain goods to be shipped to London. Before the cargo left Australia it
was damaged or destroyed through the negligence of the defendant King, an
employee of the Queensland Government. The bank claimed a sum from the company
467 which was duly paid. The company took an assignment by deed of all the
rights of the bank against King subject to a stipulation that the bank's name
should not be used in legal proceedings. The questions raised on appeal in that
case were (1) the plaintiffs have no right of action at all; (2) they have no
right of action in their own name. The Supreme Court of Queens-land held that
mere payment by the insurance company did not subrogate them to the rights of
the bank to the, extent that they could sue in their own names. The Supreme
Court of Queens-land held that the assignment was covered by the Queens-land
Act which corresponded to the English Judicature Act of 1873. The Queens-land
Supreme Court construed the term 'legal chose in action' to include all rights
the assignment of which a Court of Law or Equity would before the Act have
considered lawful. On that ratio, the right covered by the assignment in
Victoria Insurance Company case (supra) was held to be a right of that kind.
The Judicial Committee upheld the decision
and said "They rested their judgment on the broader and simpler ground
that a payment honestly made by the insurers in consequence of a policy granted
by them and in satisfaction of a claim by the insured is a claim made under the
policy which entitles the insurers to the remedies available to the
insured". The Judicial Committee on this view said that "the highly
artificial defence of the Queens-land Government fails." It should be
noted here that the phrase 'legal chose in action' was said in the Victoria
Insurance Co. case (supra) to mean 'lawfully assignable' chose in action. A
legal chose, in action is something which is not possession, but which must be
sued for in order to recover possession of it.
A legal chose in action does not include a
right of action, such as, for instance, a right to recover damages for breach
of contract, or for a tort, for it that were so, such a right would be
assignable. They would materially affect the law of champerty and maintenance.
In the Pacific Steam Navigation Co. case
(supra) the Pacific Steam Navigation Company by a bill of lading acknowledged
the shipment of 183 drums of electric cable at Liverpool for carriage to and
delivery at a port in Colombia to the Colombiana Telephone Company. The
insurance company paid the telephone company in respect of the particular
average loss. The telephone company on receipt of the payment handed to the
insurance company two documents. By the first document, the telephone company
ceded and endorsed to the, insurance company "all rights which we have or
which we may acquire in the future to claim reimbursement thereof from the
third parties who may be responsible for loss or damage." By the second
document the telephone company waived in favour of the insurance company 468
"any rights he may have or has against others possibly responsible for the
damages or losses indemnified by this payment, and we agree not to carry out
any act that might in any way hinder the carrying out of such rights by the
insurance company". The insurance company alleged that the documents went
further than a form of letter of subrogation and constituted a valid assignment
by the telephone company to the insurance company of the telephone company's
claim against the defendants. The Court found that the language of the
documents was that of assignment. The question was whether the Court would
permit the enforcement of the claim in the name of the assignee or whether the
assignment would be of a bare cause of action to defeat assignment and its
The decision in May v. Lane 64 L.J.Q.B. 236
was referred to in the Pacific Steam Navigation Co. case (supra) for the
proposition that a legal chose in action is something which is not in
possession, but which must be sued for in order to recover possession of it. A
legal chose in action does not include a right of action, such as, for
instance, a right to recover damages for breach of a contract, or a legal right
to recover damages arising out of an assault.
Again, in Torkington v. Magee  2 K. B.
427 it was said that the words "other legal chose in action" mean
right which the common law looks on as not assignable by reason of its being a
chose in action, but which a court of equity deals with as being assignable.
In the Pacific Steam Navigation Co. case
(supra) the insurance company was found entitled to sue upon the bill of
lading. A bill of lading confers title to sue because it is a form of property.
The reason for allowing the insurance company to sue in that case was that
equity before the Judicature Act allowed the enforcement of subrogation because
equity never regarded subrogation as the enforcement of a bare cause of action,
but as the enforcement of a cause of action legitimately supported by the
underwriter's interest in recouping himself in respect of the amount of the
loss which he had paid under the policy as a result of the acts, neglects or
defaults of the actual contract breaker or tortfeasor. The assignment in that
case was held to amount to assignment of the benefit of the contract with the
It is indisputable that an insurance company
can sue in its own name where the marine policy has been transferred by
assignment under section 52 of the Marine Insurance Act 1963. That is not the
469 It is equally indisputable that an
insurance company is entitled to subrogation in accordance with the provisions
of section 79 of the Marine Insurance Act, 1963. Subrogation does not allow the
subrogee or the underwriter to sue in its own name, In the present case, the
insurance company has not enforced its claim by virtue of subrogation.
Section 130 of the Transfer of Property Act
however speaks of transfer of actionable claim. Actionable claims under the
Indian law include claims recognised by the Court either as to, unsecured debts
or as to beneficial interests in moveable property not in possession. A debt is
an obligation to pay a liquidated or certain sum of money. A beneficial
interest in moveable property will include a right to recover insurance money
or a partner's right to sue for an account of a dissolved partnership or a
decretal debt or a right to recover the insurance money or the right to claim
the benefit of a contract not coupled with any liability.
Section 6(e) of the Transfer of Property Act
states that a mere right to sue cannot be transferred. A bare right of action
might be claims to damages for breach of contract or claims to damages for
tort. An assignment of a mere right of litigation is bad. An assignment of
property is valid even although that property may be incapable of being
recovered without litigation. The reason behind the rule is that a bare right
of action for damages is not assignable because the law will not recognise any
transaction which may savour of maintenance of champerty. It is only when there
is some interest in the subject matter that a,. transaction can be saved from the
imputation of maintenance.. That interest must exist apart from the assignment
and to) that extent must be independent of it.
A chose in action for breach of contract was
not assignable at law but was assignable at equity. A chose in action in tort
was assignable neither in law nor in equity. A bare right of' action is not
assignable. When however the right of action is one of the incidents attached
to the property or contract assigned it will not be treated as a bare fight of
In Ertel Bieber & Co. v. Rio Tino Co.,
 A.C. 260 Lord Summer treated a cause of action for damages for breach of
contract as chose in action, a form of property. The reason for holding a cause
of action for damages for breach of contract to be a form of property is that the
assignee is seeking to enforce a right which is incidental to property or a
right to a sum of money which theoretically is part of the property.
The common law was not inclined in favour of
assignments of contractual rights and liabilities, A person to whom rights 470
In equity both legal and equitable choses in action have been subject to
assignment. Contractual rights being legal choses in action could generally be
assigned. It is on these seasonings that the term 'thing in action' in the Law
of Property Act has been interpreted in the Victoria Insurance Co. and the
pacific Steam Navigation Co. cases (supra) to include any right which the
common law looked on as not assignable by reason of its being chose in action
but which a court of equity dealt with as assignable.
In the present case, the insurance company
has not sued to enforce any assignment. The document which is described as
-letter of subrogation also uses: the words of assigning rights against the
Railway Administration. It is not necessary to express ,-any opinion whether
the letter of subrogation amounted to an assignment in the present case,
because the insurance company not sought to enforce any assignment.
The respondent mill will give a valid
discharge to the Railway Administration in respect of loss and damages. This
decree will be a bar to the institution of any suit by the insurance company in
respect of the subject matter of the suit. The respondent mill is answerable
and accountable to the insurance company for the moneys recovered in the suit
to the extent the insurance company paid the respondent mill.
The High Court expressed the view that even
if the assignment 'is valid the right of action residing in the assignor has
not ceased. The respondent mill sued the Railway Administration for breach of
contract of carriage and damages for negligence. The letter of subrogation did
not divest the mill of its cause of ;action against the Railway Administration
for loss and damages.
The defence of the Railway Administration was
that the mill realised from the insurance company the damages and "as such
the plaintiff (meaning thereby the respondent mill) has no right to claim any
sum in this action". If the specific plea of assignment had been taken in
the written statement the respondent mill would have impleaded the insurance
company. The Court could 'have in those circumstances been in a position to
afford full and complete relief to the parties.
In the present case the insurance company and
the mill proceeded on the basis that the, insurance company was only subrogated
to the rights of the assured. The letter of subrogation contains intrinsic
evidence that the respondent would give the insurance company facilities for
enforcing rights. The insurance 471 company has chosen to allow the mill to
sue. The cause of action of the mill against the Railway Administration did not
perish on giving the letter of subrogation.
For these reasons, we regret our inability to
agree with our learned brother Mathew that the respondent mill has no cause of
action. We agree with the decision of the High Court that the suit should be
decreed. The appeal is therefore dismissed,. with costs.
MATHEW, J. This is an appeal by certificate,
against the judgment of the High Court of Madras allowing an appeal preferred
by the plaintiff against the decree of the trial court dismissing the suit
instituted by it for recovery of damages.
The plaintiff, Sri Sarada Mills Ltd.,
instituted the suit against the Union of India as representing the Central and
Southern Railways for damages to 100 bales of F. P. cotton consigned through
their agents from Nagpur to Podhanur under a railway receipt issued by the
Central Railway. The goods had to pass through, several stations along the two
railways, namely, the Central and the Southern, before it arrived at Podhanur.
When the goods arrived at Podhanur, it was found that 87 bales out of the 100
were burnt and charred and that 13 bales were loose and short in weight.
When the plaintiff applied for open delivery,
the railway authorities at Podhanur got the damage surveyed, and issued a
certificate of damage and shortage. The plaintiff claimed damages against the
Railway Administration. But the Chief Commercial Superintendent, Southern
Railway, informed the plaintiff that the consignment was involved in a fire
accident at Sirpur Kagaznagar on the Central Railway, that the cause of the
fire was unknown and that the Railways were not liable for the damage caused to
the goods as there was no negligence or misconduct. The plaintiff, therefore,
instituted the suit for damages alleging that the Railway Administration was
The defendants contended that the plaintiff
was not entitled to institute the suit as it had insured the goods with the
Indian Globe Insurance Co. and had received the total loss from the Company,
that the damage to the goods was caused by fire, which was beyond the control
of the Railways and, therefore, the defendants were not liable. for damages.
The trial court found that the fire which
caused the damage, to the goods was not due to any cause beyond the control of
the Railways that the damage was due to their negligence.
It, however, held that the suit was not
maintainable as the Indian Globe Insurance Co., with whom the goods were
insured under a marine.
472 insurance policy, had paid the plaintiff
an amount of Rs. 32,254-6 for total loss of the goods and was subrogated to all
the rights ,and remedies of the assured in respect of the subject matter and so
the plaintiff was not competent to institute the suit and hence dismissed the
The plaintiff appealed to the High Court of
Madras. The Court reversed the decree holding that the plaintiff was entitled
to maintain the suit and that, damage to the goods was on account of the
negligence of the Railways.
In this appeal, two submissions were made on
behalf of the -appellants: (1) that there was no evidence to show that the
Railway Administration was negligent in dealing with the goods and (2) that the
suit was not maintainable.
As regards the first contention, the finding of
the trial court as well as of the High Court is that the Railway Administration
was negligent. The liability of a Railway is that of a bailee and it is not for
the plaintiff, in the first instance, to prove, when the goods consigned were
destroyed or damaged, as to how the loss ,or damage occurred. It has, no doubt,
to satisfy the court that the Railway Administration was negligent but, the
duty of showing how the consignment was dealt with during the transit lay on
the Railway Administration as it was a matter within their conclusive
knowledge. The trial court found that the fire which caused damage to the goods
was due to the negligence of the Railway Administration and the High Court was
not persuaded to come to a contrary conclusion.
The burden was on the Railway Administration
to show how the goods consigned were dealt with during transit and, when that
has not been done to the satisfaction of the Court, the Court was entitled to
presume negligence on the part of the Railway Administration. I see no grounds
to interfere -with the concurrent findings on this point.
The second question which was argued at
considerable length relates to the maintainability of the suit. It may be noted
at this stage that the Globe Insurance Co. paid the total loss to the plain,tiff
on August 3, 1956; the assured assigned all its rights, including the right to
sue to the Insurance company on July 31, 1956; and the present suit was filed
on June 14, 1957. It was submitted on behalf of the appellant that the view of
the High Court that the suit was maintainable overlooked the clear provisions
of section 135A of the Transfer of Property Act, as that section was a bar to
the suit by the assured. Section 135-A was as follows (this section has since
been deleted from the T.P. Act and incorporated in the Marine Insurance Act,
1963) "135-A(1) Where a policy of marine insurance has been assigned so as
to pass the beneficial interest therein, 473 the assignee of the policy is
entitled to sue thereon in his own name; and the defendant is entitled to make
any defence arising out of the contract which he would have been entitled to
make if the, action had been brought in the name of the person by or on behalf
of whom the policy was effected.
"(2) Where the insurer pays for a total
loss, either of the whole, or, in the case of goods, of any apportion able
part, of the subject matter insured, he thereupon becomes entitled to take over
the interest of the insured person in whatever may remain of the subjectmatter
so paid for, and he is thereby subrogated to all the rights and remedies of the
insured person in and in respect of that subject-matter as from the time of the
casualty causing the loss.
"(3) Where the insurer pays for a
partial loss, he acquires no title to the subjectmatter insured, or such part
of it as may remain but he is thereupon subrogated to all rights and remedies
of the insured person as from the time indemnified by such payment for the
"(4) Nothing in clause (6) of section 6
shall affect the provisions of this section." The section was inserted in
the Transfer of property Act, 1882 by the Transfer of Property (Amendment) Act,
Before the amendment, the assignment of
rights under both marine and fire insurance policies was governed by s. 135.
What the amendment did was to take marine
insurance policies out of s. 135 and provide for them in the new section 135-A.
The Bill that become the Transfer of Property
(Amendment) Act, 1944, stated the objects and reasons as follows :
"The rules and principles governing a
marine insurance policy being materially different from those governing a fire
insurance policy,_ it is very unsatisfactory to accord the same treatment in
the matter of assignment of both categories of policies. To take but one
instance a fire insurance policy is not assignable after loss, but the nature
of a marine insurance contract is such as to require that marine insurance
policies should be assignable even after loss. In the United Kingdom, assign
ability of marine insurance policies after loss is placed beyond doubt by s. 50
of the Marine Insurance Act. But in the absence of a similar provision here, it
is doubtful if Courts in British India would hold that they are so
assignable." It was the contention of the appellant that when the Globe
Insurance Co. paid the assured the total loss, it became subrogated to 474 .
all the rights and remedies of the assured in
respect of the subject matter and that thereafter the Insurance Company alone
could file a suit for recovery of damages against the Railway Administration.
The application of the doctrine of
subrogation to policies of marine insurance is based upon the fundamental
principle that the contract of insurance contained in a marine policy is a
contract of indemnity, and of indemnity only.
The expression "subrogation", in
relation to a contract of marine insurance is no more than a convenient way of
referring to those terms which are to be implied in the contract between the
assured and the insurer to give business efficacy to an agreement whereby the
assured, in the case of loss against which the policy has been issued, shall be
fully indemnified, and never more than fully indemnified.
The right of the insurer against the person
responsible for the Doss, does not rest upon any relation of contract or of
privity between them. It arises out of the nature of the contract of marine
insurance as a contract of indemnity, and is derived from' the assured alone,
and can be enforced in his right only.
Sub-section (1) of s. 135-A corresponds to s.
50(2) of the (English) Marine, Insurance Act, 1906 and sub-sections (2) and s.
79 of that Act. In Yorkshire Insurance Co. Ltd v. Misbet Shipping Co.
Ltd.("), Diplock, J. as he then was had to deal with the question of
subrogation. He said that the doctrine of subrogation in insurance law requires
one to imply in contracts of marine insurance only such terms as are necessary
to ensure that, notwithstanding that the insurer has made a payment under the
policy, the assured shall not be entitled to retain, as against the insurer, a
greater sum than what is ultimately shown to be his actual loss. As Cotton, L.
J. said in Castellain v. Preston (2) " ... if there is a money or any
other benefit received which Ought to be taken into account in diminishing the
loss or in ascertaining what the real loss is against which the contract of
indemnity is given, the indemnifier ought to be allowed to take advantage of it
in order to circulate what the real loss is.
So the only term to be, implied to give
business efficacy to the contract between the parties is that necessary to
secure that the assured shall not recover from the insurer an amount greater
than the loss which he has actually sustained. The insurer has contracted to
pay to the assured the amount of his actual loss and (1)  2. Q.B. 380.
(2) It Q.B.D. 380, 395.
475 if, before the insurer has paid under the
policy, the assured recovers from some third party a sum in excess of the
actual amount of the loss, he can recover nothing from the insurer because he
has sustained no loss, but it has never been suggested that the insurer can
recover from the assured the amount of the excess. Lord Blackburn in his speech
in Burnard v. Bodocanachi, Sons & Co. (1) said:
"The general rule of law (and it is
obvious justice) is that where there is a contract of indemnity (it matters not
whether it is a marine policy, or a policy against fire on land, or any other
contract of indemnity) and a loss happens, anything which reduces or diminishes
that loss reduces or diminishes the amount which the indemnifier is bound to
and if the indemnifier has already paid it,
than, if anything which diminishes the loss comes into the hands of the person
to whom he has paid it, it becomes an equity that the person who has already
paid the full indemnity is entitled to be recouped by having that amount back."
That the insurer is entitled to recoupment only for the loss for which he has
paid and to the extent of his payment is clear from what Lord Atkin said in
Gien Line v. Attorney General (2) "Subrogation will only give the insurer
rights upto 20 s. in the pound on what he has paid".
In King v. Victoria Insurance Co. Ltd.(3),
Lord Hobhouse, made it quite clear that, under the doctrine of subrogation an
insurer was entitled to recover from the assured only "to the extent of
the payment' made to the assured by the insurer under the policy.
As between the insurer and the assured, the
insurer is entitled to the advantage of every right of the assured whether such
right consists in contract, fulfilled or unfulfilled, or in remedy for tort
capable of being insisted on or already insisted. But as stated 'by the Privy
Council in King v.
Victoria Insurance Co. Ltd.(3)
"Subrogation by act of law would not give the insurer a right to sue in a
Court of Law in, his own name. " Subrogation is concerned solely with the
mutual rights and liabilities of the parties to the contract of insurance; it
confers no rights and imposes no liabilities upon third parties who are
strangers to that contract and, the insurer who has paid a loss (1) 7 App. Cas.
333, 339. (2)  46 I.L.R. 451.
(3)  A.C. 250, 255-6.
LA98SuPCI/73 476 gets no direct rights or
remedies against anyone other than the assured nor can sue such parties in his
own name (see Simpson v. Thomson(1)].
It was argued on behalf of the appellant that
clause (4) of section 135-A would indicate that the legislature intended to
make a departure from the common law of England and to confer a right of suit
upon the subrogee against third persons. I do not think that clause (4) has any
such effect. It only says that nothing in s. 6 (c) of the Transfer of Property
Act will affect the provisions of that section. An assignment of marine
insurance after loss would sound in the realm of an assignment of a mere right
to sue and the legislature wanted to put it beyond doubt that s. 6 (c) is no
bar to such an assignment. It is doubtful whether clause (4) has any operation
upon clauses (2) and (3) of section 135-A. Though the payment by the insurer of
the total or partial loss is an act of party, subrogation is effected by the
operation of clauses (2) and (3) of the section viz., by operation of law.
Section 6 (c) is concerned with a transfer of a mere right to sue by act of
parties. If this is so, it would be incongruous to say that clause (4) will
have any effect on the operation of clauses (2) and (3) of the section.
In Indian Trade and General Insurance Co.
Ltd. v. Union of India ( 2 ). Mitter, J. had occasion to consider the question
in detail and, after referring to the English law, he come to the conclusion
that, although by sub-section (2) and (3) of s. 135-A, an insurer is subrogated
to all the rights and remedies of the assured in respect of the subject matter,
it has no independent right of action in its own name, but can only sue in the
name of the insured. The learned judge referred to the decision in M. V. F.
Marakkyayar & Sons v. Banians & Co.(1) and said that the rule of
English law which never permitted a subrogee to institute a suit in its own
name has been followed in India and is a sound rule.
In Alliance Insurance Company Ltd. v. Union
of India (4) it was held that an insurance company which has paid to the
consignee the total loss, was entitled to maintain a suit in its own name
against the carrier for reimbursement of the amount paid to the insured for the
loss. The Court pointed out that although clause (e) of S. 6 of the Transfer of
Property Act provides that a mere right to sue cannot be transferred,
subsection (4) of s. 135-A has removed the bar and made a deliberate departure
from the English rule of procedure which lays down that an insurer who pays for
a total loss cannot sue independently in his own name. The Court did not,
however, refer to the judgment of (1)  3 App. Cas. 279 H.L.
(3) I.L.R. 49 Madras 156.
(2) A. I. R. 1957 Calcutta 190.
(4) I. L. R.  1 Calcutta, 544.
477 Mitter, J. In Indian Trade and General
Insurance Co. Ltd. v. Union of India(1). For the reasons already given, I do
not think I can agree with the reasoning of this case.
In Textiles and Yarn (P) Ltd. v. Indian
National Steamship Co. Ltd. (2) which was a suit filed by the insurer on
payment of total loss for recovery of damages for loss of goods in the course
of transit from Madras to Calcutta by a steamship, Mitra, J. held that the
insurer cannot maintain an action in its own name unless there was an
assignment of the claim by the assured in favour of the insurer. In the Asiatic
Government Security Fire and General Assurance Co. Ltd. v. The Scindia Steam
Navigation Co. Ltd. (2), M. S. Mennon, C. J. in a well reasoned judgment sad
that the insurer, on subrogation, is not entitled to sue in its own name. In
Vasudeva Mudaliar v. Caladonion Insurance Co. and Another(4), the Madras High
"But subrogation does not ipso jure
enable him to sue third parties in his own name. It will only entitle the
insurer to sue in the name of the assured, it being an obligation of the
assured to lend his name and assistance to such an action." I think the
High Court was right in its conclusion on this point.
The second contention as regards the
maintainability of the suit was that there was an assignment by the assured of
all the rights, including the right to sue the Railway Administration, by
virtue of which the Globe Insurance Co. could file a suit and that precluded
the assured from suing. The assignment, as already stated, was before the
institution of the suit, and is in the following terms :
"In consideration of your paying to us
the sum of Rs. 32,254-6-9 only in full settlement of our claim for damage by
fire under Policy No. 49757 issued by you on the under mentioned goods, we hereby
assign transfer and abandon to you all our rights against the Railway Company
or other persons whatsoever caused or arising by reason of the said damage or
loss and grant you full power to take and use all lawful ways and means in your
own name and otherwise at your risk and expense to recover the said damage or
loss and we hereby subrogate to you the same rights-as we have in consequence
of or arising from the said loss or damage.
(1) A. 1. R. 1957 Cal. 190.
(2) A. 1. R. 1964 Calcutta 362.
(3) A. 1. R 1965 Kerala 214.
(4) A. T. R. 1965 Madras 159.
478 "And we hereby undertake and agree
to make and execute at your expense all such further deeds, assignments and
documents and to render you such assistance as you may reasonably require for
the purpose of carrying out this agreement." The High Court held that the
assignment was of a mere right to sue and it was not, therefore, valid under S.
6(e) of the Transfer of Property Act. The question is, whether what was
assigned was a mere right to sue or something which the law of insurance
recognises as assignable.
In King v. Victoria Insurance Company
Ltd.(1), a consignment of wool was insured by the Bank of Australasia during
its transportation by a ship from Townsville to London. The wool was damaged in
transit. The bank claimed against the insurance company tinder the policy for a
loss of 920pound. The insurance company paid that amount and took a formal
assignment from the bank of all its rights and causes of action against the
Government, the bank stipulating that the assignment would not authorize the
use of its name in legal proceedings. The insurance company sued the Government
for the negligence of their officers and servants in not properly mooring and
watching their punts which had caused the collision of the ship carrying wool
resulting in damage to the consignment. The Government contended that the
assignment of a mere right to recover damages was illegal. Lord Hob house,
after stating that subrogation would not give the insurer a right to sue in its
own name, said:
"But that difficulty is got over by
force of the "press assignment of the bank's claim, and of the Judicature
Act, as the parties must have intended that it should be when they stipulated
that nothing in the assignment should authorize the use of the bank's name.
"Their Lordships do not express any
dissent from the views taken in the Court below of the construction of the
Judicature Act with reference to the term 'legal chose in action'.
They prefer to avoid discussing a question
not free from difficulty, and to express no opinion what limitation, if any,
should be placed on the literal meaning of that term.
They rest their judgment on the breaded and
simpler ground that a payment honestly made by insurers in consequence of a
policy granted by them and in satisfaction of a claim by the insured, is a
claim made under the policy which entitles the insurers to the remedies
available to the insured.
(1)  A.C. 250.
479 On this view the highly artificial
defence of the Queens-land Government fails, and the appeal must be dismissed
with costs." (p.256).
The question whether there could be an
assignment of such a right was considered in Campania Colombiana de Seguros v.
Pacific Steam Navigation Co. (1). in that case, the assignment by the assured
in favour of the Insurance Company was in the following terms :
"For loss and/or damage to the goods
having received payment from the Compania Colombiana de Seguros for the
foregoing, we cede and endorse to the said insurance company all rights which
we have or which we may acquire in the future to claim reimbursement thereof
from the third parties who may be responsible for such loss or damage."
The insurance company alleged that the document went further than a form of
letter of subrogation and constituted a valid assignment by the assured to the
insurance company of the assured's claim against the defendants. For the
defendants it was argued ". . . . An assignment by the insured to the
insurance company of the right of action is ineffective. The reason is that a
bare right of litigation cannot be assigned... The only decision to the
contrary is that of the Privy Council in King v. Victoria Insurance Co. Ltd.
which should not be followed. (see the
argument at p. 108).
The Court overruled the argument and held
that the decision in King v. Victoria Insurance Co.
Ltd. (2 ) correctly lays down the law. After
reviewing the case law on the subject, Roskill, J. speaking for the Court
"So much, then for the authorities. What
is the principle to be adduced from them ? I think it can be stated in this
way. Where, before 1873, equity would have compelled the assignor to exercise
his rights against the contract breaker or tortfeasor for the benefit of the
assignee, those rights can, since 1873, be made the subject of a valid legal
assignment and, subject to due compliance with the requirements of the statute
as to notice, can be enforced at law. Equity always, before 1873, compelled an
assured to lend his name to enforce his underwriter's rights of subrogation
against a contract breaker or tortfeasor. It follows, therefore, that the only
possible objection to such rights being now enforceable at law is that such
enforcement would involve the (1)  1 Q. B. 101, 121.
(2)  A. C. 250.
480 enforcement of a bare cause of action in
contract or in tort. But as Mr. Littman urged upon me, if that is so, why did
equity act as equity did act before 1873 in relation lo the enforcement of
subrogation right ? I think the answer is because the enforcement of such
rights was never regarded as the enforcement of a bare cause of action, but as
the enforcement of a cause of action legitimately supported by the
underwriter's interest in recouping himself in respect of the amount of the
loss which he had paid under the policy as a result of the acts, neglects or
defaults of the actual contract breaker or tortfeasor." In Anson's Law of
Contract(1), it is stated that although an assignment of a bare right to
litigate has been held invalid, the principle is necessarily subject to
qualification. One such qualification is :
"Suppose an insurer, who has indemnified
his insured under a policy of insurance and in consequence been assigned the
insured's right of action in respect of a breach of contract, sues to enforce
this right of action against the contract-breaker. Could he be met by the plea
that he is the assignee of a bare right of action ? In Compania Columbiana de
seguros v. Pacific Steam Navigation Co., Reskill, J.
held that the enforcement of such a right is
not the, enforcement of a 'bare right of action', but of a right of action
legitimately supported by the insurer's interest in recouping the loss
sustained by paying out on the policy." In the Law of Contract by Cheshire
and Fifoot(2) the case of Compania Columbiana de Seguros v. Pacific Steam
Navigation Co. (supra) is quoted an authority for the proposition that if goods
shipped on a vessel are delivered in a damaged condition, the consignee, after
being indemnified for his loss by the insurers can assien to the latter his
right to recover damages from the owner of the vessel.
The real reason why a mere right to sue
cannot be assigned is that such an assignment would offend the rule of
champerty and maintenance. Now, as in this case where an insurance has been
subrogated to all the rights and the remedies of the assured by virtue of s.
135-A, the reason for the rule against assignment of a mere right to sue does
not obtain, because the insurance company is clothed with all the rights and
remedies of the assured and the only thing lacking is the capacity to sue in
its, own name. If the right is capable of being assigned, and is assigned, it
would (1) Twenty-third edition, edited by A.B. Guest, p. 417.
(2) Seventh edition, p. 472.
481 no longer be logical to say that the
assignor can still sue for, whatever right the assignor had in the subject
matter had passed to the assignee. It is impossible to understand, how, after
the assignment, the assignor can still maintain a suit.
This question was considered by the Madras
High Court in Vasudeva Mudaliar v. Caledonian Insurance Co. and Another(1) and
the Court said "However, an assignment or a transfer implies something
more than subrogation, and vests in the insurer the assured's interest, rights
and remedies in respect of the subject matter and substance of the insurance.
In such a case, therefore, the insurer, by virtue of the transfer of a mere
right to sue are permissible and are to maintain a suit in his own name against
third parties. (22 Halsbury's Laws of England, Simond Edn. paras 512-513 and
Shawcross on 'Motor Insurance').
"Normally, an assignment of a right of
action for a tort is not valid under s. 6(e). But cases of subrogation as
applied to insurance for indemnity are an exception to the rule and assignments
by the assured to the insurer of his rights and remedies being more than a
transfer of a mere right to sue are permissible and are valid. But express
assignment by the assured of all his rights is necessary and subrogation by
itself will not enable the insurer to sue in his own name (1896 A. C. 250;
(1883)-11 Q.B.D. 380)".
It is regrettable that the attention of the
High Court was not drawn to the above decision.
correct, that the assignment conveyed to the
insurance company, the entire right in respect of the subject matter of the
insurance, including the right of the assured to sue in its own name and that,
after the assignment, the assured had no cause of action to institute the suit
against the Railway Administration for recovery of damages.
I would allow the appeal and set aside the
judgment and decree of the High Court and restore the decree passed by the
Subordinate Judge, Coimbatore, dismissing the suit, without any order as to
ORDER In accordance with the opinion of
majority the appeal is dismissed with costs.
(1) A. I. R. 1965 Madras 159.