Featured image for Supreme Court Judgment dated 13-03-2019 in case of petitioner name Export Credit Guarantee Corpor vs M.S. Creations
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Supreme Court Rules on Insurance Liability in Export Credit Guarantee Cases

The Supreme Court of India, in Export Credit Guarantee Corporation of India Ltd. & Anr. vs. M.S. Creations & Anr., ruled on the issue of insurance liability in cases involving export credit guarantees. The case arose from a dispute between an exporter and the Export Credit Guarantee Corporation (ECGC) over a claim for compensation under an insurance policy.

The judgment clarified the circumstances under which ECGC is liable for payments under its insurance policies, particularly when banks or third parties involved in the transaction default.

Background of the Case

The dispute involved an exporter, M.S. Creations, which had obtained a Shipments (Comprehensive Risk) Policy from ECGC. The policy was intended to protect exporters from default by foreign buyers. The exporter shipped goods to a buyer in Ivory Coast, who failed to make payments. The exporter subsequently filed a claim with ECGC, seeking compensation for the unpaid amounts.

The ECGC rejected the claim, arguing that the non-payment was due to the failure of the collecting bank, Banque de l’Habitat de Côte d’Ivoire (BHCI), which had released documents without obtaining acceptance from the consignee. The exporter filed a complaint with the State Consumer Disputes Redressal Commission, which ruled in favor of the exporter. ECGC appealed to the National Consumer Disputes Redressal Commission (NCDRC), which upheld the decision of the State Commission. ECGC then appealed to the Supreme Court.

Petitioner’s Arguments (Export Credit Guarantee Corporation)

ECGC contended the following:

  • The insurance policy explicitly excluded claims arising from the default or insolvency of a collecting bank.
  • The collecting bank, BHCI, acted negligently by releasing documents without obtaining acceptance from the buyer.
  • Since the bank’s failure was the proximate cause of the loss, the claim was not covered under the insurance policy.
  • The State and National Commissions erred in holding ECGC liable despite the clear exclusion clause in the insurance contract.

Respondent’s Arguments (M.S. Creations)

The exporter countered the arguments, stating:

  • ECGC had approved the transaction and was aware of the change in the collecting bank.
  • The buyer failed to make payment, which should be covered under the insurance policy.
  • The exporter had acted in good faith and was not responsible for the collecting bank’s actions.
  • ECGC had made a payment under a similar policy to Punjab National Bank (PNB), which demonstrated its liability in the case.

Supreme Court’s Observations

The Supreme Court ruled that ECGC was not liable for the claim. The Court noted:

“The insurance policy explicitly excludes liability for losses caused by the default of a collecting bank. The loss suffered by the exporter was directly attributable to the bank’s negligence.”

The Court further stated:

“An insurer is bound only by the terms of the policy. The exclusion clause is clear, and the commissions erred in imposing liability on ECGC.”

Final Judgment

The Supreme Court ruled as follows:

  • The NCDRC order was set aside.
  • ECGC was not liable for the exporter’s claim.
  • The payment made to Punjab National Bank under a different policy did not establish liability under the Shipments Policy.

The Court concluded:

“Insurance contracts must be interpreted strictly. Where an exclusion clause applies, liability cannot be imposed contrary to the terms of the contract.”

Implications of the Verdict

This ruling has significant implications for export credit insurance and the enforcement of contractual terms:

  • Clarification of Insurance Liabilities: The judgment reaffirms that insurance claims must be assessed strictly based on policy terms.
  • Liability of Collecting Banks: Exporters must ensure that their banks follow due procedures to avoid losses.
  • Precedent for Future Disputes: The ruling sets a precedent for similar cases involving insurance claims against ECGC.
  • Strengthens Contractual Enforcement: Courts will uphold clear exclusion clauses in insurance contracts.

This Supreme Court judgment reinforces the importance of carefully drafting and adhering to contractual provisions in export credit insurance policies.


Petitioner Name: Export Credit Guarantee Corporation of India Ltd..
Respondent Name: M.S. Creations.
Judgment By: Justice D.Y. Chandrachud, Justice Hemant Gupta.
Place Of Incident: Haryana.
Judgment Date: 13-03-2019.

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