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Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5611 OF 1999
Economic Transport Organization ...
Appellant
Vs.
M/s. Charan Spinning Mills (P) Ltd. & Anr. ...
Respondents
J U D G M E N T
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.
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
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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.
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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
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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
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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,
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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.
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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
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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
1
- 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
India Ltd. Vs. Davangere Cotton Mills Ltd. - 1998
(2) CPJ 16. It was held that the consignor could
1
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
1
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
1
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.
1
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 :
1
"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
1
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
1
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
1
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 apportionable 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
1
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
2
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
2
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
Sons Ltd. Vs. Nelson Line (Liverpool) Ltd. (No.1) - 1906
(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
2
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.
2
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.
2
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
2
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.
2
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
2
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
3
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.
3
(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
3
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
3
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
3
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
3
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
3
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
3
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
3
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
there 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 maybe
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,
4
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
4
effectual receipt therefor. 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.
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(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
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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,
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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.
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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
4
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
4
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.
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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."
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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 Fora under Consumer Protection
Act, the principle of common law above-
mentioned gets attracted to all these cases
coming up before the Consumer Fora. 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/- is
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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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