Economic
Transport Organisation Delhi Vs. M/S Charan Spinning Mills (P) Ltd.& ANR
[2010] INSC 133 (17 February 2010)
Judgment
IN THE
SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.5611 OF
1999 Economic Transport Organization ...
Appellant
M/s. Charan Spinning Mills (P) Ltd. & Anr. ...
Respondents
R.V.RAVEENDRAN,
J.
This
appeal was referred by a two-Judge Bench to a larger bench on 30.11.2000, being
of the view that the decision of this Court in Oberai Forwarding Agency v. New
India Assurance Co. Ltd. - 2002 (2) SCC 407, required reconsideration. In turn,
the three-Judge Bench has referred the matter to a Constitution Bench on
29.3.2005.
1.
Factual Background :
2.
The first respondent (also referred to as the `Assured' or the
`consignor') is a manufacturer of the cotton yarn. It took a policy of
insurance from the second 2 respondent (National Insurance Co. Ltd, referred
to as the `Insurer'), covering transit risks between the period 11.5.1995 and
10.5.1996 in respect of cotton yarn sent by it to various consignees through
rail or road against theft, pilferage, non-delivery and/or damage. The first
respondent entrusted a consignment of hosiery cotton yarn of the value of
Rs.7,70,948/- to the appellant (also referred to as the `carrier') on 6.10.1995
for transportation and delivery to a consignee at Calcutta. The goods vehicle
carrying the said consignment met with an accident and the consignment was
completely damaged. On the basis of a surveyor's certificate issued after
assessment of the damage, the second respondent settled the claim of the first
respondent for Rs.447,436/- on 9.2.1996. On receiving the payment, the first
respondent executed a Letter of Subrogation-cum-Special Power of Attorney in
favour of the second respondent on 15.2.1996. Thereafter, respondents 1 and 2
filed a complaint under the Consumer Protection Act, 1986 (`Act' for short)
against the appellant before the District Consumer Disputes Redressal
Commission, Dindigul, claiming compensation of Rs.447,436/- with interest at
12% per annum, for deficiency in service, as the damage to the consignment was
due to the negligence on the part of the appellant and its servants. It was averred
that the insurer as subrogee was the co-complainant in view of the statutory
subrogation in its favour on settlement of the claim and the letter of
subrogation-cum- special power of attorney executed by the Assured.
3.
The District Forum by its order dated 8.11.1996 allowed the
complaint and directed the appellant to pay Rs.447,436/- with interest at the
rate of 12% per annum from the date of accident (8.10.1995) till date of
payment to the Insurer, on the basis of the subrogation. The District Forum
held that the failure to deliver the consignment in sound condition was a
deficiency in service, in view of the unrebutted presumption of negligence
arising under sections 8 and 9 of the Carriers Act, 1865. The appeal filed by
the appellant before the State Consumer Disputes Redressal Commission, Madras,
challenging the said order was dismissed on 2.4.1998. The appellant thereafter
filed a revision before the National Consumer Disputes Redressal Commission in
the year 1999. The National Commission dismissed the appellant's revision
petition by a short non-speaking order dated 19.7.1999 which reads thus:
"We
do not find any illegality or jurisdictional error in the order passed by the
State Commission." The said order is challenged in this appeal by special
leave.
The Issue
4.
The appellant herein resisted the complaint on the following grounds:
(i) The
Assured (consignor) had insured the goods against transit risk with the
Insurer. The Insurer had already settled the claim of the Assured. As a
consequence, the Assured had no surviving claim that could be enforced against
the carrier. At all events, as the Assured had transferred all its interest in
the claim to the Insurer, it had no subsisting interest or enforceable right.
(ii) The
Insurer did not entrust the consignment to the carrier for transportation. The
appellant did not agree to provide any service to the Insurer. There was no
privity of contract between the Insurer and the appellant. As a result, the
Insurer was not a `consumer' as defined in the Act and a complaint under the
Act was not maintainable.
(iii) The
letter of subrogation was executed by the Assured (consignor), after the goods
were damaged. This amounted to a transfer of a mere right to sue by the Assured
in favour of the Insurer, which was invalid and enforceable.
(iv)
There was no negligence on the part of its driver and the accident occurred due
to circumstances beyond his control. The respondents did not place any evidence
to prove any negligence, in spite of appellant's denial of negligence. Having
regard to section 14(1)(d) of the Act, liability can be fastened on a carrier,
for payment of compensation, only by establishing that the consumer had
suffered loss or injury due to the negligence of the carrier as a service
provider. In view of the special provision in section 14(1)(d) of the Act, the
complainants under the Act were not entitled to rely upon the statutory
presumption of negligence available under section 9 of the Carriers Act, 1865
which is available in civil suits brought against carriers. In the absence of
proof of negligence, it was not liable to pay compensation for damage to the
goods.
5.
After leave was granted in this case on 27.9.1999, a three-Judge
Bench of this Court rendered its decision in Oberai Forwarding Agency on
1.2.2000, making a distinction between `assignment' and `subrogation'. This Court
held that where there is a subrogation simpliciter in favour of the insurer on
account of payment of the loss and settlement of the claim of the assured, the
insurer could maintain an action in the Consumer Forum in the name of the
assured, who as consignor was a consumer. This Court further held that when
there is an assignment of the rights of the assured in favour of the insurer,
the insurer as assignee cannot file a complaint under the Act, as it was not a
`consumer' under the Act. This Court held that even if the assured was a
co-complainant, it would not enable the insurer to maintain a complaint under
the Act, if it was an assignee of the claim. We extract below the relevant
portion of the said judgment:
"17.
In its literal sense, subrogation is the substitution of one person for
another. The doctrine of subrogation confers upon the insurer the right to
receive the benefit of such rights and remedies as the assured has against
third parties in regard to the loss to the extent that the insurer has
indemnified the loss and made it good. The insurer is, therefore, entitled to
exercise whatever rights the assured possesses to recover to that extent
compensation for the loss, but it must do so in the name of the assured.
x x x x x
19. With
the distinction between subrogation and assignment in view, let us examine the
letter of subrogation executed by the second respondent in favour of the first
respondent. Its operative portion may be broken up into two, namely, (i)
"we hereby assign, transfer and abandon to you all our rights against the
Railway Administration, road transport carriers 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 claim for the said damage or loss";
and (ii) `we hereby subrogate to you the same rights as we have on consequence
of or arising from the said loss or damage".
20. By
the first clause the second respondent assigned and transferred to the first
respondent all its rights arising by reason of the loss of the consignment. It
granted the first respondent full power to take lawful means to recover the
claim for the loss, and to do so in its own name. If it were a mere
subrogation,
first,
the word "assigned" would not be used. Secondly, there would not be a
transfer of all the second respondent's rights in respect of the loss but the
transfer would be limited to the recovery of the amount paid by the first respondent
to the second respondent. Thirdly, the first respondent would not be entitled
to take steps to recover the loss in its own name; the steps for recovery would
have to be taken in the name of the second respondent. Thus, by the first
clause there was an assignment in favour of the first respondent.
21. The
second clause, undoubtedly, used the word "subrogate", but it
conferred upon the first respondent "the same rights" that the second
respondent had "in consequence of or arising from the said loss or
damage", which meant that the transfer was not limited to the quantum paid
by the first respondent to the second respondent but encompassed all the
compensation for the loss. Even by the second clause, therefore, there was an
assignment in favour of the first respondent.
22.
Learned counsel for the first respondent submitted that the letter of
subrogation and the special power of attorney should be read together and, so
read, it would be seen that the first respondent was not an assignee of the
second respondent's rights but was merely subrogated to them. The terms of the
letter of subrogation are clear. They cannot be read differently in the light
of another, though contemporaneous, document.
23. Now,
as is clear, the loss of the consignment had already occurred. All that was
assigned and transferred by the second respondent to the first respondent was
the right to recover compensation for the loss. There was no question of the
first respondent being a beneficiary of the service that the second respondent
had hired from the appellant. That service, namely, the transportation of the
consignment, had already been availed of by the second respondent, and in the
course of it the consignment had been lost.
8 The
first respondent, therefore, was not a "consumer" within the meaning
of the Consumer Protection Act and was, therefore, not entitled to maintain the
complaint.
24. By
reason of the transfer and assignment of all the rights of the second
respondent in the first respondent's favour, the second respondent retained no
right to recover compensation for the loss of the consignment. The addition of
the second respondent to the complaint as a co-complainant did not, therefore,
make the complaint maintainable."
6.
The referring Bench which heard this appeal considered the
decision in Oberai. It was of the view that Oberai required reconsideration by
a larger Bench, for the following reasons (vide order dated 30.11.2000) :
"In
the case of simple subrogation in favour of an insurance company, there is no
difficulty in accepting that the insurance company gets subrogated to the
rights of the consumer wherein the insurance company has paid compensation to
the consumer pursuant to the contract entered into between the consumer and the
insurance company. As per the principle referred to in the judgment in Oberai
Forwarding Agency's case (supra), if there was simple subrogation, then the
insurance company could maintain an action in the consumer court but it had to
do so in the name of the consumer. It could not sue in its own name. Certainly
that was the law laid down earlier by this Court and this is also a part of the
common law. That was the position before the National Commission in Transport
Corporation of India Ltd vs. Devangara Cotton Mills Ltd., reported in 1998 (2)
CPJ 16 (NC), which is referred to in paragraph 16 of the judgment in Oberai
Forwarding Agency (supra). But in the earlier judgment in Green Transport Co.
vs. New India Assurance Co. Ltd., (1992) 2 CPJ 349 (NC) wherein the insurer had
claimed a right of subrogation or transfer of the right of action which the
insured had as against the transporter.
There it
was held that the complaint in the consumer court was not maintainable. In
Transport Corporation of India Ltd's case, the National Commission distinguished
the judgment in Green Transport Co., wherein the complaint was held not to be
maintainable. In other words, this Court in Oberai Forwarding Agency's case
(supra) felt that where there was an assignment in addition to subrogation, the
complaint was not maintainable even though the original consumer as well as the
Insurance Company to whom the rights stood subrogated and assigned were the
complainants.
The
crucial reasoning is set out in paragraphs 23 and 24 of the judgment in Oberai
Forwarding Agency (supra) which we have already set out above.
So far as
paragraph 23 of the said judgment is concerned, it states that in case the
right to recover the compensation is assigned to the Insurance Company, there
is no question of the Insurance Company being a `beneficiary' of the services
which the consumer had hired through the transport company. Hence, section 2(b)
of the Consumer Protection Act, 1988 would not apply.
This
Court also observed that `service' namely, the transportation of the
consignment had already availed of by the consumer. The Insurance Company
therefore, was not a consumer within the meaning of the provisions of the
Consumer Protection Act, 1986 and therefore, not entitled to maintain the
complaint.
It is
contended for the appellant, relying on the above passages (para 23 in Oberai)
that once the goods are handed over to a transporter for the purpose of
transport, the services have already been rendered and that therefore, the
consignor ceases to be a consumer. But it is pointed out for the respondent
that the contract between the consumer and the transport company is to safely
transport the goods through he entire distance and hand them over for delivery
to the consignee at the opposite end. If the goods have been lost during
transport, services are not fully rendered and a cause of action has arisen to
the consignor (consumer) to recover the same, the consignor continues to be a
consumer after the services are rendered and will be a consumer entitled to
compensation (rather than goods) against the transport company. He does not, it
is contended for the respondent, cease to be consumer. There is a breach of
contract and the right of the consignor is to recover compensation. If,
therefore, at such a stage the consignor is still a consumer entitled to sue
for compensation, he is certainly entitled in that capacity to move the
consumer court as a complainant. That is how it is contended for the
respondents that the consignor is in the position of a co-complainant.
So far as
assignment of the rights in favour of the insurance company is concerned, it is
contended for the respondents that one has to keep in mind that a simple
assignment of a right to recover may, in law be bad, on the ground of
`champerty/maintenance' and that is why, in these formats, it is coupled with
subrogation. Once there is subrogation the insurance company is suing in the
consignor's right as `consumer' because the consignor has not got the full
services rendered in his favour, the goods not having reached their destination.
An assignment coupled with rights of subrogation would be valid in law because
then it will not be a case of a mere assignment of a right to sue.
In other
words, on the date when the assignment is made, the consignor namely the
consumer is still a consumer who has lost his goods and he is entitled to
compensation for the loss of the goods by the transport company. Once the
consignor receives the money from the Insurance company, the insurance company
becomes subrogated as an indemnifier to all the rights of the consumer
including the right to sue as a consumer. But the complaint must then be in the
name of the consignor. In fact, that is the precise position on Transport
Corporation of (2) CPJ 16. It was held that the consignor could still sue notwithstanding
the fact that compensation was paid by the insurance company.
The only
extra thing that happens in the event of the assignment in favour of the
insurance company is that the insurance company becomes entitled to file the
complaint in its own name by virtue of the assignment. The insurance company
may not be a consumer to start with but it is subrogated to the rights of the
consumer (consignor) to whom services were not fully rendered.
When we
came to paragraph 24 of the judgment in Oberai Forwarding Agency (supra), it is
stated that upon the transfer by assignment of all the rights of the consumer
in favour of the insurance company, the consumer retained no right to recover
compensation for the loss of consignment and therefore, the addition of the
consignee as a co-complainant does not make the complaint maintainable. It is
contended for the respondents that the law is well settled that there cannot be
a bare assignment of a right to sue. But if such a right is coupled with the
right of subrogation the action is maintainable by the assignee, who is suing
for those rights and who need no longer implead the consignor. In fact, the
principle in Transport Corporation of India Ltd., which has been accepted by
the three Judge Bench itself says that if there is subrogation, the insurance
company could sue in the name of consignor. The effect of the assignment is not
to destroy the character of the insurance company as a person entitled to the
rights of the consumer (because of subrogation) but also to provide an
independent right to sue in its own name. Merely, because there is an
assignment it does not follow that the complainant - insurer was not also
clothed with the rights of the consignor as a consumer, if on the date of
assignment the consignor was still entitled to compensation as consignor. The
reasoning in paragraph 24 of the judgment appears to be closely intertwined
with the reasoning in paragraph 23. As long as the goods had not been
delivered, the consignor does not lose the right to claim compensation as a
consumer and he still remains the consignor and to that rights, the Insurance
company becomes subrogated. It is contended for the respondent that thus the
insurance company is having the rights of the consignor as consumer by virtue
of the rights subrogated to it and is also entitled to maintain the complaint
as an assignee in its own right.
It is
pointed out for the respondents that, in fact, the result of the judgment of
the three judge bench has been that a large number of cases which have been
decreed in favour of the consignees in various consumer fora in this country
have been rendered infructuous. The insurance company and the consignors became
compelled to move the civil court once again after several years and to seek
the benefit of section 14 of the Limitation Act. There was no other benefit
accruing to the transporter. It is contended that a purposeful interpretation
is to be given to the provisions of the Consumer Protection Act and one of the
purpose is that consumers might get expeditious relief outside the civil
courts.
It is
contended alternatively that looking at the matter from another angle, the
insurance company as a third party - indemnifier pays compensation to the
consumer and redresses an immediate grievance and makes the insured to go back
into this business. In such a situation, merely because a third party
indemnifier pays money to the insured, the latter does not cease to be a
consumer and the status of the consignor as a consumer still continues. Because
there is a breach of contract the consumer can sue for compensation along with
the insurance company and does not lose his right to sue for compensation. The
right to sue before the consumer court is available either with the consignor
or with the consignee and does not vanish into thin air, in spite of the
assignor and assignee being co-complainants. In this connection, the decision
in Compania Colombia De Sequros vs. Pacific Steam Navigation Co. etc., reported
in 1964 (1) ALL ER 216 is also relied upon for the respondent. It contains an
extensive discussion of the point involved. There the assignment was obtained
after the accident and after the Insurance Company paid the money to the
consignor.
In our
view, the above contention of the respondent are substantial and a case is made
out for reconsideration of Oberai Forwarding Agency.
7.
The appellant contends that Oberai lays down the law correctly. It
is submitted that what is executed in favour of the Insurer, though termed a
`subrogation' is an assignment, and therefore, the Insurer was not entitled to
maintain the complaint. Relying on the observations in para 23 of Oberai
Forwarding Agency, it was contended that once the goods entrusted to the
appellant for transportation were lost/damaged, no `service' remained to be
rendered or performed by the appellant as carrier; that what was assigned and
transferred by the Assured to the Insurer was only the right to recover
compensation for the loss and there was no question of Insurer being the
beneficiary of any service, for which the Assured had hired the appellant;
and
therefore such post-loss assignment of the right to recover compensation, did
not result in the Insurer becoming a `consumer' under the Act. The Respondents,
on the other hand, contended that the decision in Oberai required
reconsideration on several grounds, set out in the reference order.
8.
On the contentions urged, the following questions arise for
consideration:
(a) Where
the letter of subrogation executed by an assured in favour of the insurer
contains, in addition to words referring to subrogation, terms which may amount
to an assignment, whether the document ceases to be a subrogation and becomes
an assignment? (b) Where the insurer pays the amount of loss to the assured,
whether the insurer as subrogee, can lodge a complaint under the Act, either in
the name of the assured, or in the joint names of the insurer and assured as
co- complainants? (c) Where the rights of the assured in regard to the claim
against the carrier/service provider are assigned in favour of the insurer
under a letter of subrogation-cum- assignment, whether the insurer as the
assignee can file a complaint either in its own name, or in the name of the
assured, or by joining the assured as a co-complainant.
(d)
Whether relief could be granted in a complaint against the carrier/service
provider, in the absence of any proof of negligence? Re : Questions (a) to (c)
and the correctness of Oberai
9.
A `complaint', in the context of this case, refers to an
allegation in writing made by a `consumer' that the services availed of or
hired (or agreed to be availed of or hired) suffer from `deficiency' in any
respect (vide section 2(c) of the Act). A `consumer' is defined under section
2(d) of the Act, relevant portion of which is extracted below :
"Consumer"
means any person who - x x x x x (ii) hires or avails of any services for a
consideration which has been paid or promised or partly paid any partly
promised, or under any system of deferred payment and includes and beneficiary of
such services other than the person who hires or avails of the services for
consideration paid or promised or partly paid and partly promised, or under any
system of deferred payment, when such services are availed of with the approval
of the first mentioned person ......."
"Deficiency"
means any fault, imperfection, short-coming, or inadequacy in the quality,
nature and manner of performance which is required to be maintained by or under
any law for the time being in force or has been undertaken to be performed by a
person in pursuance of a contract or otherwise in relation to any service (vide
section 2(g) of the Act).
10.
The assured entrusted the consignment for transportation to the
carrier. The consignment was insured by the assured with the insurer. When the
goods were damaged in an accident, the assured, as the consignor- consumer,
could certainly maintain a complaint under the Act, seeking compensation for
the loss, alleging negligence and deficiency in service. The fact that in
pursuance of a contract of insurance, the assured had received from the
insurer, the value of the goods lost, either fully or in part, does not erase
or reduce the liability of the wrongdoer responsible for the loss. Therefore,
the assured as a consumer, could file a complaint under the Act, even after the
insurer had settled its claim in regard to the loss.
11.
A contract of insurance is a contract of indemnity.
The
loss/damage to the goods covered by a policy of insurance, may be caused either
due to an act for which the owner (assured) may not have a remedy against any
third party (as for example when the loss is on account of an act of God) or
due to a wrongful act of a third party, for which he may have a remedy against
such third party (as for example where the loss is on account of negligence of
the third party). In both cases, the assured can obtain reimbursement of the
loss, from the insurer. In the first case, neither the assured, nor the insurer
can make any claim against any third party. But where the damage is on account
of negligence of a third party, the assured will have the right to sue the
wrongdoer for damages; and where the assured has obtained the value of the
goods lost from the insurer in pursuance of the contract of insurance, the law
of insurance recognizes as an equitable corollary of the principle of indemnity
that the rights and remedies of the assured against the wrong-doer stand transferred
to and vested in the insurer. The equitable assignment of the rights and
remedies of the assured in favour of the insurer, implied in a contract of
indemnity, known as `subrogation', is based on two basic principles of equity :
(a) No
tort-feasor should escape liability for his wrong;
(b) No
unjust enrichment for the injured, by recovery of compensation for the same
loss, from more than one source.
The
doctrine of subrogation will thus enable the insurer, to step into the shoes of
the assured, and enforce the rights and remedies available to the assured.
12.
The term `subrogation' in the context of insurance, has been
defined in Black's Law Dictionary thus :
"The
principle under which an insurer that has paid a loss under an insurance policy
is entitled to all the rights and remedies belonging to the insured against a
third party with respect to any loss covered by the policy."
Black's
Law Dictionary also extracts two general definitions of `subrogation'. The
first is from Dan B.Dobb's Law of Contract (2nd Edn. - # 4.3 at 404) which
reads thus :
"Subrogation
simply means substitution of one person for another; that is, one person is
allowed to stand in the shoes of another and assert that person's rights
against the defendant. Factually, the case arises because, for some justifiable
reason, the subrogation plaintiff has paid a debt owed by the defendant."
The
second is from Laurence P. Simpson's Handbook on Law of Suretyship (1950 Edn.
Page 205) which reads thus :
"Subrogation
is equitable assignment. The right comes into existence when the surety becomes
obligated, and this is important as affecting priorities, but such right of
subrogation does not become a cause of action until the debt is duly paid.
Subrogation entitles the surety to use any remedy against the principal which
the creditor could have used, and in general to enjoy the benefit of any
advantage that the creditor had, such as a mortgage, lien, power to confess
judgment, to follow trust funds, to proceed against a third person who has promised
either the principal or the creditor to pay the debt."
`Right of
Subrogation' is statutorily recognized and described in section 79 of the Marine Insurance Act,
1963 as follows:
(1) 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, the thereupon
becomes entitled to take over the interest of the assured in whatever may
remain of the subject-matter so paid for, and he is thereby subrogated to all
the rights and remedies of the assured in and in respect of that subject-matter
as from the time of the casualty causing the loss.
(2)
Subject to the foregoing provisions, where the insurer pays for a partial loss,
he acquires no title to the subject matter insured, or such part of it as may
remain, but he is thereupon subrogated to all rights and remedies of the
assured and in respect of the subject matter insured as from the time of the
casualty causing the loss, in so far as the assured has been indemnified,
according to this Act, by such payment for the loss".
Section
140 of Contract Act, 1872, deals with the principle of subrogation with
reference to rights of a Surety/Guarantor. It reads :
"140.
Rights of surety on payment or performance : Where a guaranteed debt has become
due, or default of the principal - debtor to perform a guaranteed duty has been
taken place, the surety, upon payment or performance of all that is liable for,
is invested with all the rights which the creditor had against the principal -
debtor."
The
concept of subrogation was explained in the following manner by Chancellor Boyd
in National Fire Insurance Co.vs. McLaren - 1886 (12) OR 682 :
"The
doctrine of subrogation is a creature of equity not founded on contract, but
arising out of the relations of the parties. In cases of insurance where a
third party is liable to make good the loss, the right of subrogation depends
upon and is regulated by the broad underlying principle of securing full
indemnity to the insured, on the one hand, and on the other of holding him
accountable as trustee for any advantage he may obtain over and above
compensation for his loss. Being an equitable rights, it partakes of all the
ordinary incidents of such rights, one of which is that in administering relief
the Court will regard not so much the form as the substance of the transaction.
The primary consideration is to see that the insured gets full compensation for
the property destroyed and the expenses incurred in making good his loss. The
next thing is to see that he holds any surplus for the benefit of the insurance
company."
In Banque
Financiere de la Cite vs. Parc (Battersea) Ltd.[1999 (1) A.C.221], the House of
Lords explained the difference between subrogations arising from express or
implied agreement of the parties:
"....there
was no dispute that the doctrine of subrogation in insurance rests upon the
common intention of the parties and gives effect to the principle of indemnity
embodied in the contract.
Furthermore,
your Lordships drew attention to the fact that it is customary for the assured,
on payment of the loss, to provide the insurer with a letter of subrogation,
being no more nor less than an express assignment of his rights of recovery
against any third party. Subrogation in this sense is a contractual arrangement
for the transfer of rights against third parties and is founded upon the common
intention of the parties.
But the
term is also used to describe an equitable remedy to reverse or prevent unjust
enrichment which is not based upon any agreement or common intention of the
party enriched and the party deprived. The fact that contractual subrogation
and subrogation to prevent unjust enrichment both involve transfers of rights
or something resembling transfers of rights should not be allowed to obscure
the fact that one is dealing with radically different institutions.
One is
part of the law of contract and the other part of the law of restitution."
13.
An `assignment' on the other hand, refers to a transfer of a right
by an instrument for consideration.
When
there is an absolute assignment, the assignor is left with no title or interest
in the property or right, which is the subject matter of the assignment. The
difference between `subrogation' and `assignment' was stated in Insurance Law
by MacGillivray & Parkington (7th Edn.) thus :
"Both
subrogation and assignment permit one party to enjoy the rights of another, but
it is well established that subrogation is not a species of assignment. Rights
of subrogation vest by operation of law rather than as the product of express
agreement. Whereas rights of subrogation can be enjoyed by the insurer as soon
as payment is made, as assignment requires an agreement that the rights of the
assured be assigned to the insurer. The insurer cannot require the assured to
assign to him his rights against third parties as a condition of payment unless
there is a special clause in the policy obliging the assured to do so. This
distinction is of some importance, since in certain circumstances an insurer
might prefer to take an assignment of an assured's rights rather than rely upon
his rights of subrogation. If, for example, there was any prospect of the
insured being able to recover more than his actual loss from a third party, an
insurer, who had taken an assignment of the assured's rights, would be able to
recover the extra money for himself whereas an insurer who was confined to
rights of subrogation would have to allow the assured to retain the excess.
Another
distinction lies in the procedure of enforcing the rights acquired by virtue of
the two doctrines. An insurer exercising rights of subrogation against third
parties must do so in the name of the assured. An insurer who has taken a legal
assignment of his assured's rights under statue should proceed in his own name
..."
The
difference between subrogation and assignment was highlighted by the Court of
Appeals thus in James Nelson &(2) KB 217 :
"The
way in which the underwriters come in is only by way of subrogation to the
rights of the assured. Their right is not that of assignees of the cause of
action; ..... Therefore, they could only be entitled by way of subrogation to
the plaintiffs' rights. What is the nature of their right by way of
subrogation? It is the right to stand in the shoes of the persons whom they
have indemnified, and to put in force the right of action of those persons; but
it remains the plaintiffs' right of action, although the underwriters are
entitled to deduct from any sum recovered the amount to which they have
indemnified the plaintiffs, and although they may have provided the means of
conducting the action to a termination. It is not a case in which one person is
using the name of another merely as a nominal plaintiff for the purpose of
bringing an action in which he alone is really interested;
for the
plaintiffs here have real and substantial interest of their own in the
action."
The
difference between assignment and subrogation was also explained by the Madras
High Court in Vasudeva Mudaliar vs.Caledonian Insurance Co. - [AIR 1965 Mad.
159] thus :
"In
other words arising out of the nature of a contract of indemnity, the insurer,
when he has indemnified the assured, is subrogated to his rights and remedies
against third parties who have occasioned the loss. The right of the insurer to
subrogation or to get into the shoes of the assured as it were, need not
necessarily flow from the terms of the motor insurance policy, but is inherent
in and springs from the principles of indemnity.
Where,
therefore, an insurer is subrogated to the rights and remedies of the assured,
the former is to be more or less in the same position as the assured in respect
of third parties and his claims against them founded on tortuous liability in
cases of motor accidents. But it should be noted that the fact that an insurer
is subrogated to the rights and remedies of the assured of the assured 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.
By
subrogation, the insurer gets no better rights or no different remedies than
the assured himself. Subrogation and its effect are therefore, not to be mixed
up with those of a transfer or any assignment by the assured of his rights and
remedies to the insurer. 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 or assignment in
his favour, will be in a position to maintain a suit in his own name against
third parties."
14.
Subrogation, as an equitable assignment, is inherent, incidental
and collateral to a contract of indemnity, which occurs automatically, when the
insurer settles the claim under the policy, by reimbursing the entire loss
suffered by the assured. It need not be evidenced by any writing.
But where
the insurer does not settle the claim of the assured fully, by reimbursing the
entire loss, there will be no equitable assignment of the claim enabling the
insurer to stand in the shoes of the assured, but only a right to recover from
the assured, any amount remaining out of the compensation recovered by the
assured from the 2 wrongdoer, after the assured fully recovers his loss. To
avoid any dispute with the assured as to the right of subrogation and extent of
its rights, the insurers usually reduce the terms of subrogation into writing
in the form of a Letter of Subrogation which enables and authorizes the insurer
to recover the amount settled and paid by the insurer, from the third party
wrong-doer as a Subrogee-cum- Attorney. When the insurer obtains an instrument
from the assured on settlement of the claim, whether it will be a deed of
subrogation, or subrogation-cum-assignment, would depend upon the intention of
parties as evidenced by the wording of the document. The title or caption of
the document, by itself, may not be conclusive. It is possible that the
document may be styled as `subrogation' but may contain in addition an
assignment in regard to the balance of the claim, in which event it will be a
deed of subrogation-cum-assignment. It may be a pure and simple subrogation but
may inadvertently or by way of excessive caution use words more appropriate to
an assignment. If the terms clearly show that the intention was to have only a
subrogation, use of the words "assign, transfer and abandon in favour
of" would in the context be construed as referring to subrogation and
nothing more.
15.
We may, therefore, classify subrogations under three broad
categories: (i) subrogation by equitable assignment;
(ii)
subrogation by contract; and (iii) subrogation-cum- assignment.
15.1) In
the first category, the subrogation is not evidenced by any document, but is
based on the insurance policy and the receipt issued by the assured
acknowledging the full settlement of the claim relating to the loss.
Where the
insurer has reimbursed the entire loss incurred by the assured, it can sue in
the name of the assured for the amount paid by it to the assured. But where the
insurer has reimbursed only a part of the loss, in settling the insurance
claim, the insurer has to wait for the assured to sue and recover compensation
from the wrongdoer; and when the assured recovers compensation, the assured is
entitled to first appropriate the same towards the balance of his loss (which
was not received from the insurer) so that he gets full reimbursement of his
loss and the cost, if any, incurred by him for such recovery. The insurer will
be entitled only to whatever balance remaining, for reimbursement of what it
paid to the assured.
15.2) In
the second category, the subrogation is evidenced by an instrument. To avoid
any dispute about the right to claim reimbursement, or to settle the priority
of inter-se claims or to confirm the quantum of reimbursement in pursuance of
the subrogation, and to ensure co-operation by the assured in suing the
wrongdoer, the insurer usually obtains a letter of subrogation in writing,
specifying its rights vis-`-vis the assured. The letter of subrogation is a
contractual arrangement which crystallizes the rights of the insurer vis-`-vis
the assignee. On execution of a letter of subrogation, the insurer becomes
entitled to recover in terms of it, a sum not exceeding what was paid by it
under the contract of insurance by suing in the name of the assured. Even where
the insurer had settled only a part of the loss incurred by the assured, on
recovery of the claim from the wrongdoer, the insurer may, if the letter of
subrogation so authorizes, first appropriate what it had paid to the assured
and pay only the balance, if any, to the assured.
15.3) The
third category is where the assured executes a letter of
subrogation-cum-assignment enabling the insurer retain the entire amount
recovered (even if it is more than what was paid to the assured) and giving an
option to sue in the name of the assured or to sue in its own name.
In all
three types of subrogation, the insurer can sue the wrongdoer in the name of
the assured. This means that the insurer requests the assured to file the
suit/complaint and has the option of joining as co-plaintiff. Alternatively the
insurer can obtain a special power of Attorney from the assured and then to sue
the wrongdoer in the name of the assured as his attorney.
The
assured has no right to deny the equitable right of subrogation of the insurer
in accordance with law, even whether there is no writing to support it. But the
assured whose claim is settled by the insurer, only in respect of a part of the
loss may insist that when compensation is recovered from the wrongdoer he will
first appropriate the same, to recover the balance of his loss. The assured can
also refuse to execute a subrogation-cum-assignment which has the effect of
taking away his right to receive the balance of the loss. But once a
subrogation is reduced to writing, the rights inter-se between the assured and
insurer will be regulated by the terms agreed, which is a matter of negotiation
between the assured and insurer.
16.
If a letter of subrogation containing terms of assignment is to be
treated only as an assignment by ignoring the subrogation, there may be the
danger of document itself becoming invalid and unenforceable, having regard to
the bar contained in section 6 of the Transfer of Property Act, 1882 (`TP Act'
for short). Section 6 of Transport of Property Act, 1882, provides that
property of any kind may be transferred except as otherwise provided by that
Act or by any other law for the time being in force.
Clause
(e) of the said section provides that mere right to sue cannot be transferred.
Section 130 provides the manner of transfer of actionable claims. Section 3
defines an `actionable claim' as : (i) any debt (other than a debt secured by
mortgage of immovable property or by hypothecation or pledge of movable
property) or (ii) any beneficial interest is movable property not in the
possession, either actual or constructive of the claimant, which the civil
courts recognizes as affording grounds for relief. A `debt' refers to an
ascertained sum due from one person to another, as contrasted from unliquidated
damages and claims for compensation which requires ascertainment/assessment by
a Court or Tribunal before it becomes due and payable. A transfer or assignment
of a mere right to sue for compensation will be invalid having regard to
section 6(e) of the TP Act. But when a letter of subrogation-cum-assignment is
executed, the assignment is interlinked with subrogation, and not being an
assignment of a mere right to sue, will be valid and enforceable.
17.
The principles relating to subrogation can therefore be summarized
thus :
(i)
Equitable right of subrogation arises when the insurer settles the claim of the
assured, for the entire loss. When there is an equitable subrogation in favour
of the insurer, the insurer is allowed to stand in the shoes of the assured and
enforce the rights of the assured against the wrong- doer.
(ii)
Subrogation does not terminate nor puts an end to the right of the assured to
sue the wrong-doer and recover the damages for the loss. Subrogation only
entitles the insurer to receive back the amount paid to the assured, in terms
of the principles of subrogation.
(iii)
Where the assured executes a Letter of Subrogation, reducing the terms of
subrogation, the rights of the insurer vis-`-vis the assured will be governed
by the terms of the Letter of Subrogation.
(iv) A
subrogation enables the insurer to exercise the rights of the assured against
third parties in the name of the assured. Consequently, any plaint, complaint
or petition for recovery of compensation can be filed in the name of the
assured, or by the assured represented by the insurer as subrogee-cum-attorney,
or by the assured and the insurer as co-plaintiffs or co-complainants.
(v) Where
the assured executed a subrogation-cum- assignment in favour of the insurer (as
contrasted from a subrogation), the assured is left with no right or interest.
Consequently, the assured will no longer be entitled to sue the wrongdoer on
its own account and for its own benefit. But as the instrument is a
subrogation- cum-assignment, and not a mere assignment, the insurer has the
choice of suing in its own name, or in the name of the assured, if the
instrument so provides. The insured becomes entitled to the entire amount
recovered from the wrong- doer, that is, not only the amount that the insured
had paid to the assured, but also any amount received in excess of what was
paid by it to the assured, if the instrument so provides.
18.
We may clarify the position with reference to the following
illustration: The loss to the assured is Rs.1,00,000/-. The insurer settles the
claim of the assured for Rs.75,000/-. The wrong-doer is sued for recovery of
Rs.1,00,000/-.
Where
there is no letter of subrogation and insurer relies on the equaitable doctrine
of subrogation (The suit is filed by the assured) (i) If the suit filed for
recovery of Rs.100,000/- is decreed as prayed, and the said sum of
Rs.1,00,000/- is recovered, the assured would appropriate Rs. 25,000/- to
recover the entire loss of Rs. 100,000/- and the doctrine of subrogation would
enable the insurer to claim and receive the balance of Rs.75,000 (ii) If the
suit filed for recovery of Rs.100,000/- is decreed as prayed for, but the
assured is able to recover only Rs.50,000/- from the Judgment-Debtor
(wrong-doer), the assured will be entitled to appropriate Rs.25,000/- (which is
the shortfall to make up Rs.100,000/- being the loss) and the insurer will be
entitled to receive only the balance of Rs. 25,000/- even though it had paid
Rs.75,000/- to the assured.
(iii)
Where, the suit is filed for recovery of Rs.100,000/- but the court assesses
the loss actually suffered by the assured as only Rs.75,000/- (as against the
claim of the assured that the value of goods lost is Rs.100,000/-) and then
awards Rs.75,000/- plus costs, the insurer will be entitled to claim and
receive the entire amount of Rs.75,000/- in view of the doctrine of
subrogation.
Where the
assured executes a letter of subrogation entitling the insurer to recover Rs.
75,000/- (The suit is filed in the name of the assured or jointly by the
assured and insurer).
(iv) If
the suit is filed for recovery of Rs.1,00,000/-, and if the court grants
Rs.1,00,000/-, the insurer will take Rs.75,000/- and the assured will take
Rs.25,000/-.
(v) If
the insurer sues in the name of the assured for Rs.75,000/- and recovers
Rs.75,000/-, the insurer will retain the entire sum of Rs.75,000/- in pursuance
of the Letter of Subrogation, even if the assured has not recovered the entire
loss of Rs.1,00,000/-. If the assured wants to recover the balance of the loss
of Rs.25,000/- as he had received only Rs. 75,000/- from the insurer, the
assured should ensure that the claim is made against the wrongdoer for the
entire sum of Rs.100,000/- by bearing the proportionate expense. Otherwise the
insurer will sue in the name of the assured for only for Rs. 75,000/-.
(vi) If
the letter of subrogation executed by the assured when the insurer settles the
claim of the assured uses the words that the "assured assigns, transfers
and abandons unto the insurer, the right to get Rs.75,000/- from the
wrong-doer", the document will be a `subrogation' in spite of the use of
words `transfers, assigns and abandons'. This is because the insurer has
settled the claim for Rs.75,000/- and the instrument merely entitles the insurer
to receive the said sum of Rs.75,000/- which he had paid to the assured, and
nothing more.
Where the
assured executes a letter of subrogation-cum- assignment for Rs.100,000/- (vii)
If the document executed by the assured in favour of the insured provides that
in consideration of the settlement of the claim for Rs.75,000/-, the assured
has transferred and assigned by way of subrogation and assignment, the right to
recover the entire value of the goods lost and retain the entire amount without
being accountable to the assured for any excess recovered (over and above
Rs.75,000/-) and provides that the insurer may sue in the name of the assured
or sue in its own name without reference to the assured, the instrument is a
subrogation-cum-assignment and the insurer has the choice of either suing in
the name of the assured or in its own name.
Where the
assured executes a letter of assignment in favour of a third party to sue and
recover from the carrier, the value of the consignment (viii) If the assured,
having received Rs.75,000/- from the insurer, executes an instrument in favour
of a third party (not being the insurer) assigning the right to sue and recover
from the carrier, damages for loss of the consignment, such a document will be
an Assignment. The assignee cannot file a complaint before the consumer fora,
as he is not a `consumer'. Further, such a document being a transfer of a mere
right to sue, will be void and unenforceable, having regard to section 6(e) of
Transfer of Property Act, 1882. It is well settled that a right to sue for
unliquidated damages for breach of contract or for tort, not being a right
connected with the ownership of any property, nor being a right to sue for a
debt or actionable claim, is a mere right to sue and is incapable of being
transferred.
19.
Whether the document executed by the assured in favour of the
insurer is a subrogation simpliciter, or a subrogation-cum-assignment is
relevant only in a dispute between the assured and the insurer. It may not be
relevant for deciding the maintainability of a complaint under the Act. If the
complaint is filed by the assured (who is the consumer), or by the assured
represented by the insurer as its attorney holder, or by the assured and the
insurer jointly as complainants, the complaint will be maintainable, if the
presence of insurer is explained as being a subrogee. Whether the amount
claimed is the total loss or only the amount for which the claim was settled
would make no difference for the maintainability of the complaint, so long as
the consumer is the complainant (either personally or represented by its
attorney holder) or is a co-complainant along with his subrogee. On the other
hand, if the assured (who is the consumer) is not the complainant, and the
insurer alone files the complaint in its own name, the complaint will not be
maintainable, as the insurer is not a `consumer', nor a person who answers the
definition of `complainant' under the Act. The fact that it seeks to recover
from the wrongdoer (service provider) only the amount paid to the assured and
not any amount in excess of what was paid to the assured will also not make any
difference, if the assured - consignor is not the complainant or
co-complainant. The complaint will not be maintainable unless the requirements of
the Act are fulfilled. The remedy under the Act being summary in nature, once
the consumer is the complainant or is a co- complainant, it will not be
necessary for the Consumer Forum to probe the exact nature of relationship
between the consumer (assured) and the insurer, in a complaint against the
service provider.
20.
In this context, it is necessary to remember that the nature of
examination of a document may differ with reference to the context in which it
is examined. If a document is examined to find out whether adequate stamp duty
has been paid under the Stamp Act, it will not be necessary to examine whether
it is validly executed or whether it is fraudulent or forged. On the other
hand, if a document is being examined in a criminal case in the context of
whether an offence of forgery has been committed, the question for examination
will be whether it is forged or fraudulent, and the issue of stamp duty or
registration will be irrelevant. But if the document is sought to be produced
and relied upon in a civil suit, in addition to the question whether it is
genuine, or forged, the question whether it is compulsorily registrable or not,
and the question whether it bears the proper stamp duty, will become relevant.
If the document is examined in the context of a dispute between the parties to
the document, the nature of examination will be to find out that rights and
obligation of one party vis-`-vis the other party. If in a summary proceedings
by a consumer against a service provider, the insurer is added as a
co-complainant or if the insurer represents the consumer as a power of
attorney, there is no need to examine the nature of rights inter-se between the
consumer and his insurer. When the complaint is by the consignor - consumer,
with or without the insurer as a co-complainant, the service provider cannot
require the consumer forum to consider the nature of relationship between the
assured and the insurer or the nature and true purport of the document produced
as a letter of subrogation. A wrong-doer cannot sidetrack the issue before the
consumer forum. Once the `consumer', that is the assured, is the complainant,
the complaint will be maintainable subject to fulfillment of the requirements
of the Act.
21.
At this juncture we should also take note of the fact that
insurance companies, statutory corporations and banks use standardized forms to
cover all types of situations and circumstances and several of the clauses in
such forms may be wholly inapplicable to the transaction intended to be covered
by the document. Necessarily such redundant or inapplicable clauses should be
ignored while trying examining the document and make sense out of it. To
demonstrate this position, we extract below the letter of
subrogation-cum-special power of attorney dated 15.2.1996 executed by the
assured in this case, by highlighting the irrelevant clauses by bold letters:
"Letter
of Subrogation & Special Power of Attorney"
To M/s
National insurance Co.Ltd., 3 Dindigal In consideration of your paying to us a
sum of Rs.4,47,436.00 (Rupees Four Lakhs Forty Seven Thousand Four Hundred
& Thirty Six only) in respect of loss/damage to the under mentioned goods
and/or duly payable thereon insured under policy no.
500703/21/24/95/007
issued by National Insurance Co. Ltd., we hereby assign, transfer and abandon
to you all our actionable rights, title and interest in and to the said goods
and proceeds thereof (to the extent provided by law) and all rights and
remedies against Railway Administration and/or sea carriers and/or agents of
Sea Carriers and/or Port Authorities and/or Customs Authorities and/or persons
or persons whosoever is liable in respect thereof.
We hereby
guarantee that we are the persons entitled to enforce the terms of contracts of
transportations set forth in the bills of lading and/or railway receipt and/or
any other documents of title evidencing the contract of transportation or
bailment relating to land covering the property described below for
transportation or bailment and agree to indemnify you for all and any losses
and consequences should it turn out that we are not the persons to enforce the
terms of the contract.
And we
hereby subrogate to you that rights and remedies that we have in consequence of
or arising from loss/damage to the under mentioned goods and we further hereby
grant to you full power to take and use all lawful ways and means to demand,
recover and to receive the said loss/damage, customs penalty or refund of
customs duty and all and every debt from whom it may concern.
And we
also hereby authorize you to use our name in any action or proceedings that you
may bring either in your own name or in our name in relation to any of the
matters hereby assigned, transferred and/or abandoned to you and we undertake
for ourselves to assist and concur in any matters or proceedings which you may
deem expedient or necessary in any such actions or proceedings and to execute
all deeds, assignments and or documents including any and all pleadings and
releases which may be necessary therefor and generally to assist therein by all
means in our power.
We hereby
authorize you to file a suit or suits in courts of law against the Union of
India owning and representing Indian Railways, the Sea Carriers Charterers
Agents of Sea Carriers and/or Port Authorities or any other carriers and or
bailees and/or person or persons, firm or firms, corporation or corporation, to
recover the claim moneys of the aforesaid claim or claims and for the said
purposes to join us as a co-plaintiffs if you so intend. We further hereby give
you authority to sing, declare, verify and affirm and execute jointly and
severally in our name and on our behalf, plaints, affidavits, vakalatnamas,
petitions and such other applications and/or notices and documents as may be
found necessary for the commencement or continuation of proceedings to recover
the claim moneys.
We
further undertake if called upon by you to do so ourselves to institute any
such action or proceedings that you may direct on your behalf; it being
understood that you are to indemnify us and any other persons whose names may
necessarily be used, against any costs, charges or expenses which may be
incurred in respect of any action or proceeding that may be taken by virtue of
this agreement.
The
payment received for herein is accepted with the understanding that the said
payment shall not enure to the benefit of any carrier or bailees under the
provision of any contract of carriage or otherwise; that in making the said
payment the underwriter does not waive any rights of subrogation or otherwise
against any carrier or bailee and acceptance of this receipt shall not
prejudice or take away any rights or remedies which the said underwriter would
otherwise have by virtue of such payment.
We
further agree that any moneys collected from any carrier port authorities or
any persons or persons, shall be your property, and if received in the first
instance by the undersigned we undertake to make over to you immediately the
amount so received.
We hereby
further agree that in event of the loss packages and/or contents thereof
subsequently being traced, we undertake to accept and take delivery of the same
and the claim shall then be readjusted on the correct basis of the then
loss/damage and in the event of any refund providing to be due to the
underwriter, we undertake on demand to make such refund to you.
We hereby
appoint you, your officers and agents and their successors severally our agents
and attorneys-in-fact with irrevocable power to collect any and all such claims
and to begin, prosecute, compromise, arbitrate or withdraw either in our own
name or in your name but at your expense any and all legal proceedings which
you may deem necessary to enforce such claim or claims including proceedings
before any international tribunal and to execute in our name any documents
which may be necessary to carry into effect the purpose of this agreement, and
for that purpose we further authorize you to do all or any of the acts, deeds
and things herein mentioned, for us, on our behalf and in our name.
xxxxx
(emphasis supplied) The use of the words "we hereby assign, transfer and
abandon to you all our actionable rights, title and interest" in the
document, is in regard to rights and remedies against (1) railway
administration (2) sea carriers (3) agents of sea carriers (4) port authorities
(5) customs authorities and (6) persons whomsoever is 4 liable in respect
thereof. Even though, the matter relates to carriage of goods by road, the
claims or remedies against a road carrier are not even mentioned. Excluding the
irrelevant clauses, the document continues to be a letter of subrogation.
22.
A document should be transaction-specific. Or at least an effort
should be made to delete or exclude inapplicable or irrelevant clauses. But
where a large number of documentation is required to be done by officers not-
conversant with the nuances of drafting, use of standard forms with several
choices or alternative provisions is found necessary. The person preparing the
document is required to delete the terms/clauses which are inapplicable. But
that is seldom done. The result is that the documents executed in standard
forms will have several irrelevant clauses. Computerisation and large legal
departments should have enabled insurance companies, banks and financial institutions
to (i) improve their documentation processes and omit unnecessary and
repetitive clauses; (ii) avoid incorporation of other documents by vague
references; and (iii) discontinue pasting or annexing of slips. But that is
seldom done. If documents are clear, specific and self-contained, disputes and
litigations will be considerably reduced.
23.
Let us now consider the decision in Oberai. The assured therein
had executed two documents in favour of the insurer, on settlement of the
claim. The first was a letter of subrogation and the second was a special power
of attorney. The letter of subrogation stated as follows :
"In
consideration of your paying to us the sum of Rs.64,137 only in full settlement
of our claim for non-delivery/shortage and damage under Policy No.
2142140400015 issued by you all on the under- mentioned goods, we hereby
assign, transfer and abandon to you all our rights against the Railway
Administration, road transport carriers 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 claim for 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.
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
reasonable require for the purpose of carrying out this agreement."
The
special power of attorney authorized the insurer to file a suit in court
against the Railway Administration, for recovery of the claim on behalf of the
assured, in the name of the assured, and to give a valid discharge and effectual
receipt there for. On the basis of the said documents, the complaint was
initially filed by the insurer. Subsequently, the assured was added as a party.
Though
the claim of the assured therein was settled by the insurer for Rs.64,137/- as
against the consignment value of Rs.93,925/-, the insurer appears to have sued
for the full value of Rs.93,925/- which was awarded by the District Forum and
affirmed by the National Commission. This Court held that where there is a
subrogation simpliciter, the insurer can sue the wrong-doer in the name of the
assured, and where there is an assignment, the insurer is entitled to sue the
wrong-doer in his own name. This Court held that the document executed by the
assured though titled as `letter of subrogation' was, in fact, an assignment by
the assured of its rights in favour of the insurer. This Court held that the
use of the following words in the document amounted to an absolute assignment,
as contrasted from subrogation:
"(i)
We hereby assign, transfer and abandon to you all our rights against the
Railway Administration, road transport carriers 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 claim for the said damage or loss.
(ii) We
hereby subrogate to you the same rights as we have in consequence of or arising
from the said loss or damage."
23.1)
There is no doubt that the first portion which stated that all rights were
assigned, transferred and abandoned in favour of the insurer and also empowered
the insurer to sue in its own name, if read in isolation would amount to an
assignment. But if those words are read with the other recitals and the words
"in consideration of your paying to us the sum of Rs.64,137/- only in full
settlement of our claim for non-delivery/shortage and damage, under policy
issued by you...." make it clear that it was a subrogation-cum-assignment.
Further, the second operative portion which states that "we hereby
subrogate to you the same rights as we have in consequence of or arising from
the said loss or damage" are not words of assignment. When the words used
are : "we hereby subrogate to you" and not "we hereby transfer
or assign in your favour", having regard to the settled meaning of
"subrogate", the said words could not operate as an absolute
assignment, but only as an subrogation. The genesis of the document is
subrogation. The inclusion of an assignment is an additional right given to the
insurer. The document did not cease to be a subrogation by reason of
enlargement of subrogation by granting such additional right. In para 22 of the
judgment, this Court negatived the contention that the letter of subrogation
and the special power of Attorney should be read together and if so read, the
document would be a subrogation. But the special power of attorney when read
with the term in the letter of subrogation, "we hereby subrogate to you the
same rights as we have in consequence of or arising from the said loss of
damage" will certainly show that the document was intended to be a
subrogation also and not a mere assignment. With great respect to the learned
Judges who decided Oberai, it has to be held that Oberai was not correctly
decided, as it held a `subrogation-cum-assignment' as a mere `assignment'. It
ignored the fact that, shorn of the cover and protection of subrogation, the
document, if read as a simple assignment would fall foul of section 6(e) of
Transfer of Property Act and thus would be unenforceable. But the ultimate
decision in Oberai may be correct as the complaint was filed by the insurer, in
its own name and on its own behalf making a claim for the entire value of the
goods, in excess of what was paid to the assured. Though the assured was
belatedly impleaded as a co-complainant, the nature and contents of the
complaint was not apparently changed, and continued to be one by the insurer as
assignee. On those peculiar facts, the finding that the complaint under the Act
by the insurer (who was not a consumer) was not maintainable, was justified.
23.2) We
may also refer to the frequent misconstruction of para 23 of the decision in
Oberai by some carriers. The said para does not mean that when the consignment
is received by the carrier from the consignor and put it in the course of
transportation, the carrier has provided the service and thereafter either
ceases to be a service provider or ceases to be responsible for delivery of the
goods, and that consequently, the consignor ceases to be a `consumer'. All that
para 23 of Oberai meant was that in a contract for carriage of goods between
the consignor (assured) and the carrier, if the consignor assigns the right to
claim damages to an assignee, after the goods are lost or damaged, the assignee
cannot claim to be a "consumer" under the Act. It impliedly meant
that if the assignment had been done before the loss or damage to the goods,
then the assignment would have been in regard to `property' and not a mere
right to sue, and the assignee as consignee would be entitled to sue the
carrier. Be that as it may.
24.
We therefore answer the questions raised as follows:
(a) The
insurer, as subrogee, can file a complaint under the Act either in the name of
the assured (as his attorney holder) or in the joint names of the assured and
the insurer for recovery of the amount due from the service provider. The
insurer may also request the assured to sue the wrong doer (service provider).
(b) Even
if the letter of subrogation executed by the assured in favour of the insurer
contains in addition to the words of subrogation, any words of assignment, the
complaint would be maintainable so long as the complaint is in the name of the
assured and insurer figures in the complaint only as an attorney holder or
subrogee of the assured.
(c) The
insurer cannot in its own name maintain a complaint before a consumer forum
under the Act, even if its right is traced to the terms of a Letter of
subrogation-cum-assignment executed by the assured.
(d)
Oberai is not good law insofar as it construes a Letter of
subrogation-cum-assignment, as a pure and simple assignment. But to the extent
it holds that an insurer alone cannot file a complaint under the Act, the
decision is correct.
25.
We may also notice that section 2(d) of Act was amended by
Amendment Act 62 of 2002 with effect from 15.3.2003, by adding the words
"but does not include a person who avails of such services for any
commercial purpose" in the definition of `consumer'. After the said
amendment, if the service of the carrier had been availed for any commercial
purpose, then the person availing the service will not be a `consumer' and
consequently, complaints will not be maintainable in such cases. But the said
amendment will not apply to complaints filed before the amendment.
Re :
Question (d)
26.
Section 14(1)(d) of the Act provides that the Forum under the Act
can direct payment of compensation awarded by it to the consumer for any loss
or injury suffered by the consumer due to the negligence of the opposite party.
This, according to the appellant, makes it mandatory for the complainant to
establish negligence on the part of the opposite party, i.e. the carrier. It is
further contended that presumption of negligence under Section 9 of the
Carriers Act, 1865 (which provides that in any suit brought against a common
carrier for the loss, damage or non- delivery of the goods entrusted to him for
carriage, it shall not be necessary for the plaintiff to prove that such loss,
damage or non-delivery of goods was owing to the negligence or criminal act of
the carrier, his servants and agents) is applicable only to a civil suit, and
not to a complaint under the Act which specifically contemplates establishment
of negligence by evidence. It is submitted that in this case the compensation
has been awarded even though no evidence was led by the complainants about
negligence of the driver of appellant.
27.
It is no doubt true that Section 14(1)(d) of the Act contemplates award
of compensation to the consumer for any loss suffered by consumer due to the
negligence of the opposite party (Carrier). Section 9 of Carriers Act does not
lay down a preposition that a carrier will be liable even if there was no
negligence on its part. On the other hand, it merely raises a presumption that
when there is loss or damage or non-delivery of goods entrusted to a carrier,
such loss, damage or non-delivery was due to the negligence of the carrier, its
servant and agents. Thus where the consignor establishes loss or damage or non-
delivery of goods, it is deemed that negligence on the part of the carrier is
established. The carrier may avoid liability if it establishes that the loss,
damage or non- delivery was due to an act of God or circumstances beyond its
control. Section 14(1)(d) of the Act does not operate to relieve the carrier
against the presumption of negligence created under Section 9 of the Carriers
Act.
28.
The contention of appellant that the presumption under section 9
of the Carriers Act is available only in suits filed before civil courts and
not in other civil proceedings under other Acts, is not tenable. This Court in
Patel Roadways Ltd. v. Birla Yamaha Ltd. [2000 (4) SCC 91] has observed:
"The
principle regarding the liability of a carrier contained in S.9 of Carriers Act
namely, that the liability of a carrier is that of an insurer and that in a
case of loss or damage to goods entrusted to the carrier the plaintiff need not
prove negligence, are applicable in a proceeding before the Consumer Forum. The
term "suit" has not been defined in Carriers Act nor it is provided
in the said Act that the term `suit' will have the same meaning as in Civil PC.
Therefore, the term `suit' has to be understood in its ordinary dictionary meaning.
In that sense, term `suit' is a generic term taking within its sweep all
proceedings initiated by a party for valuation of a right vested in him under
law. It is true that a proceeding before Consumer Forum is ordinarily a summary
proceeding and in an appropriate case where the commission feels that the
issues raised are too contentious to be decided in summary proceedings it may
refer parties to Civil Court. That, however, does not mean that proceedings
before the Consumer Forum is to be decided by ignoring the express statutory
provision of Carriers Act in a proceeding in which a claim is made against a
common carrier. A proceeding before the Consumer Forum comes within the sweep
of term `suit."
29.
Again in Economic Transport Organization vs. Dharward District
Khadi Gramodyog Sangh - 2000 (5) SCC 78, this Court reiterated the principle
stated in Patel Roadways and added the following :
"Even
assuming that section 9 of the Carriers Act, 1865 does not apply to the cases
before the Consumer For a under Consumer Protection Act, the principle of
common law above- mentioned gets attracted to all these cases coming up before
the Consumer For a. Section 14(1)(d) of the Consumer Protection Act has to be
understood in that light and the burden of proof gets shifted to the carriers
by the application of the legal presumption under the common law. Section
14(1)(d) has to be understood in that manner. The complainant can discharge the
initial onus, even if it is laid on him under section 14(1)(d) of the Consumer
Protection Act, by relying on section 9 of the Carrier Act. It will, therefore,
be for the carrier to prove absence of negligence."
We
reiterate the said settled position and reject the contention of the appellant
that the presumption under section 9 of Carriers Act is not available in a
proceeding under the Consumer Protection Act and that therefore, in the absence
of proof of negligence, it is not liable to compensate the respondents for the
loss.
Conclusion
30.
The loss of consignment by the assured and settlement of claim by
the insurer by paying Rs.4,47,436/-established by evidence. Having regard to
the presumption regarding negligence under section 9 of Carriers Act, it was
not necessary for the complainants to prove further that the loss/damage was
due to the negligence of the appellant or its driver. The presumption regarding
negligence was not rebutted. Therefore, the District Forum was justified in
allowing the complaint brought by the assured (first respondent) represented by
the insurer and the insurer for recovery of Rs.447,436. The said order was
affirmed by the State Forum and the National Forum. We find no reason to
interfere with the same. The appeal is, therefore, dismissed.
......................................J [Chief Justice of India]
.......................................J R. V. Raveendran]
......................................J [D. K. Jain]
.......................................J [P. Sathasivam]
......................................J [J. M. Panchal]
New Delhi;
February 17, 2010.
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