Introduction
Date of the Judgment: April 07, 2025
Citation: 2025 INSC 453
Judges: B. V. Nagarathna, J., Satish Chandra Sharma, J.
Can an insurance company reject a claim if a ship’s voyage starts before the monsoon but is delayed due to unforeseen circumstances? The Supreme Court of India recently addressed this question while examining a dispute over a marine insurance policy. The core issue revolved around interpreting a clause that stated the voyage must “commence & complete before monsoon sets in.” The bench, comprising Justice B. V. Nagarathna and Justice Satish Chandra Sharma, delivered the judgment.
Case Background
Sohom Shipping Pvt. Ltd., the Appellant, is in the shipping business with offices in various locations including Kolkata. The Appellant purchased a new barge named ‘Srijoy II’ and planned its first voyage from Mumbai to Kolkata.
To facilitate this, the Appellant applied for a ‘single voyage permit’ to the Director General of Shipping (DGS), projecting the Vessel’s departure from Mumbai on April 30, 2013, and arrival in Kolkata on May 15, 2013. The DGS instructed the Indian Register of Shipping (IRS) to conduct a detailed inspection.
The Appellant sought insurance for the voyage and submitted a proposal to the Respondent, M/S. The New India Assurance Co. Ltd. An insurance contract was established, covering the period from May 16, 2013, to June 15, 2013. This Insurance Contract included a special condition stating that the “voyage should commence & complete before monsoon sets in,” along with Special Warranties specifying that the “Vessel to depart in local weather condition not exceeding Beaufort Scale No. 4…”.
The IRS granted clearance for the voyage in accordance with MS Circular No. 03 of 2008, and the DGS issued a “No objection” certificate.
The Vessel began its voyage on June 6, 2013. However, the next day, it anchored near Ratnagiri Port due to adverse weather and engine failure, eventually running aground.
The Appellant requested assistance from the Respondent for towing and salvaging the Vessel after the Insurance Contract had expired. On July 25, 2013, a ‘Notice of Abandonment’ was issued to the Respondent, claiming total loss based on the high cost of repairs compared to the insured amount.
On September 12, 2013, the Respondent issued a ‘Repudiation Notice,’ rejecting the Appellant’s claim on the grounds that the Vessel set sail after the monsoon had begun, thus breaching the special condition in the Insurance Contract. The surveyor appointed by the Respondent concluded that the Appellant was in wilful breach of the condition.
The Appellant, aggrieved by the rejection of the insurance claim, filed a consumer complaint under Section 21 of the Consumer Protection Act (COPRA) before the National Consumer Disputes Redressal Commission (NCDRC). The NCDRC dismissed the complaint on April 13, 2021, stating that the Appellant suppressed material facts by not disclosing all its plans to the Respondent, and did not act in good faith.
Timeline:
| Date | Event |
|---|---|
| April 30, 2013 (Projected) | Vessel expected to sail from Mumbai. |
| May 15, 2013 (Projected) | Vessel expected to arrive at Kolkata. |
| May 16, 2013 | Insurance Contract commenced. |
| June 1, 2013 | Monsoon season starts on the East Coast as per DGS Circular. |
| June 6, 2013 | Vessel undertook the voyage from Mumbai. |
| June 7, 2013 | Vessel anchored near Ratnagiri Port due to bad weather and engine failure. |
| June 15, 2013 | Insurance Contract expired. |
| July 25, 2013 | Appellant issued a ‘Notice of Abandonment’ to the Respondent. |
| September 12, 2013 | Respondent issued a ‘Repudiation Notice’ rejecting the claim. |
| April 13, 2021 | NCDRC dismissed the consumer complaint. |
| April 29, 2025 | Parties to appear before NCDRC for determination of insured sum. |
Arguments
Submissions by the Appellant
- Knowledge of Policy Period: The Respondent was aware that the policy period included the monsoon season, so repudiation on this ground is invalid.
- Non-Material Condition: The special condition was non-material because the Respondent knew the voyage would occur during foul weather.
- Implied Waiver: There was an implied waiver of the special condition since the insurance covered a period including the monsoon, and the Respondent knew the Vessel would travel through Kerala, where the monsoon starts on June 1st.
-
Contra Proferentum Rule: The Court should apply the rule of verba chartarum fortius accipiuntur contra proferentem (Contra Proferentum) against the Respondent because the phrase is ambiguous due to surrounding circumstances. Reliance was placed on:
- General Assurance Society Ltd. v. Chandumull Jain & Anr. (1966) 3 SCR 500 – Supreme Court.
- Industrial Promotion and Investment Corporation of Orissa Ltd. v. New India Assurance Company Ltd. & Anr. (2016) 15 SCC 315 – Supreme Court.
- Dawsons Ltd. v. Bonnin [1992] 2 A.C. 413.
- Failure of Due Diligence: The Respondent failed to conduct reasonable due diligence by providing the policy knowing the circumstances.
-
Absurd Consequences: Treating the special condition as a condition precedent would lead to absurd consequences, as any claim would be rejected. Reliance was placed on:
- Ramji Karamsi v. The Unique Motor and General Insurance Co. Ltd. AIR 1951 Bom 347 – Bombay High Court.
Submissions by the Respondent
- Breach of Special Condition: The Appellant breached the special condition by setting sail after the monsoon had started.
- Breach of IRS Conditions: The Appellant also breached Clause 3.1.2 of the Insurance Contract by violating IRS conditions, sailing in waters with waves exceeding 2 meters.
- Condition is Determinable: The special condition is precise and not ambiguous, negating the applicability of the Contra Proferentum rule.
- Forgery Allegation: The Appellant allegedly forged and fabricated the policy submitted to authorities, with no amendment to the special condition.
- DGS Notice: According to DGS Notice No. 03/2008, the monsoon season starts on June 1st, and the policy was valid from May 16, 2013, to June 15, 2013.
- No Disclosure: The Appellant did not disclose its intention to set sail during the monsoon season in the application.
-
Reliance on Judgments: The Respondent relied on several Supreme Court judgments:
- Sea Lark Fisheries v. United India Insurance Co. & Anr. (2008) 4 SCC 131
- Deokar Exports (P) Ltd. v New India Assurance Co. Ltd. (2008) 14 SCC 598
- Contship Container Lines Ltd. v. D.K. Lall & Ors. (2010) 4 SCC 256
- Rajankumar & Brothers (Impex) v. Oriental Insurance Co. Ltd. (2020) 4 SCC 364
- Hind Offshore (P) Ltd. v. Iffco-Tokio General Insurance Co. Ltd. (2023) 9 SCC 407
Submissions Table
| Main Submission | Appellant’s Sub-Arguments | Respondent’s Sub-Arguments |
|---|---|---|
| Validity of Repudiation |
✓ Respondent knew the policy covered the monsoon period. ✓ Special condition was non-material. ✓ Implied waiver of the condition. |
✓ Appellant breached the special condition. ✓ Appellant breached IRS conditions. |
| Interpretation of the Special Condition | ✓ Ambiguous, thus Contra Proferentum applies. | ✓ Condition is determinable and precise. |
| Conduct and Disclosure | ✓ Respondent failed due diligence. |
✓ Appellant committed forgery. ✓ Appellant didn’t disclose intention to sail in foul season. |
| Consequences of Strict Interpretation | ✓ Leads to absurd consequences if treated as condition precedent. | ✓ Relies on multiple judgments to support their case. |
Issues Framed by the Supreme Court
- Whether the special condition stating “voyage should commence & complete before monsoon sets in” was breached, justifying the repudiation of the Appellant’s claim by the Respondent?
Treatment of the Issue by the Court: “The following table demonstrates as to how the Court decided the issues”
| Issue | How the Court Dealt With It | Brief Reasons |
|---|---|---|
| Whether the special condition was breached, justifying repudiation of the claim? | The Court held that the special condition was impliedly waived due to its non-material nature. | The Court found that the Respondent was aware the voyage would occur during the monsoon season. Strict interpretation would lead to absurd results, vitiating the purpose of the insurance contract. |
Authorities
Cases Relied Upon:
- General Assurance Society Ltd. v. Chandumull Jain & Anr. (1966) 3 SCR 500 – Supreme Court: Relied upon for the principle that insurance contracts are construed contra proferentem in case of ambiguity.
- Industrial Promotion and Investment Corporation of Orissa Ltd. v. New India Assurance Company Ltd. & Anr. (2016) 15 SCC 315 – Supreme Court: Cited for expounding on the principle of contra proferentem and when it applies.
- Dawsons Ltd. v. Bonnin [1992] 2 A.C. 413: Cited by the appellant regarding the interpretation of ambiguous clauses.
- Ramji Karamsi v. The Unique Motor and General Insurance Co. Ltd. AIR 1951 Bom 347 – Bombay High Court: Relied upon to argue that a condition precedent leading to absurd consequences should not be strictly enforced.
- Sea Lark Fisheries v. United India Insurance Co. & Anr. (2008) 4 SCC 131 – Supreme Court: Cited by the respondent.
- Deokar Exports (P) Ltd. v New India Assurance Co. Ltd. (2008) 14 SCC 598 – Supreme Court: Cited by the respondent.
- Contship Container Lines Ltd. v. D.K. Lall & Ors. (2010) 4 SCC 256 – Supreme Court: Cited by the respondent.
- Rajankumar & Brothers (Impex) v. Oriental Insurance Co. Ltd. (2020) 4 SCC 364 – Supreme Court: Cited by the respondent.
- Hind Offshore (P) Ltd. v. Iffco-Tokio General Insurance Co. Ltd. (2023) 9 SCC 407 – Supreme Court: Cited by the respondent.
Legal Provisions Considered:
- Section 67 of the Consumer Protection Act, 2019 (COPRA): Under which the appeal was preferred.
- Section 21 of COPRA: Under which the Appellant filed a consumer complaint before the NCDRC.
Authority Treatment Table
| Authority | Court | How It Was Considered |
|---|---|---|
| General Assurance Society Ltd. v. Chandumull Jain & Anr. (1966) 3 SCR 500 | Supreme Court | Relied upon for the principle of contra proferentem. |
| Industrial Promotion and Investment Corporation of Orissa Ltd. v. New India Assurance Company Ltd. & Anr. (2016) 15 SCC 315 | Supreme Court | Cited for expounding on the principle of contra proferentem and its application. |
| Dawsons Ltd. v. Bonnin [1992] 2 A.C. 413 | [Not Specified] | Cited by the appellant regarding the interpretation of ambiguous clauses. |
| Ramji Karamsi v. The Unique Motor and General Insurance Co. Ltd. AIR 1951 Bom 347 | Bombay High Court | Relied upon to argue against strict enforcement of a condition precedent leading to absurd consequences. |
| Sea Lark Fisheries v. United India Insurance Co. & Anr. (2008) 4 SCC 131 | Supreme Court | Cited by the respondent. |
| Deokar Exports (P) Ltd. v New India Assurance Co. Ltd. (2008) 14 SCC 598 | Supreme Court | Cited by the respondent. |
| Contship Container Lines Ltd. v. D.K. Lall & Ors. (2010) 4 SCC 256 | Supreme Court | Cited by the respondent. |
| Rajankumar & Brothers (Impex) v. Oriental Insurance Co. Ltd. (2020) 4 SCC 364 | Supreme Court | Cited by the respondent. |
| Hind Offshore (P) Ltd. v. Iffco-Tokio General Insurance Co. Ltd. (2023) 9 SCC 407 | Supreme Court | Cited by the respondent. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Appellant | Respondent |
|---|---|---|
| Validity of Repudiation | Upheld the argument that the repudiation was invalid. | Rejected the argument that the repudiation was valid. |
| Interpretation of the Special Condition | Agreed that the condition was ambiguous and should be interpreted in their favor. | Rejected the argument that the condition was precise and unambiguous. |
| Conduct and Disclosure | Upheld the argument that the Respondent failed due diligence. | Rejected the arguments of forgery and non-disclosure. |
| Consequences of Strict Interpretation | Agreed that strict interpretation leads to absurd consequences. | [Not Applicable] |
How each authority was viewed by the Court?
- General Assurance Society Ltd. v. Chandumull Jain & Anr. (1966) 3 SCR 500: The Court relied on this case to reiterate the principle that in case of ambiguity, an insurance contract is likely to be construed against the company.
- Ramji Karamsi v. The Unique Motor and General Insurance Co. Ltd. AIR 1951 Bom 347: The Court found this case persuasive in holding that a condition precedent should not be enforced if it leads to absurd results, supporting the Appellant’s claim.
What weighed in the mind of the Court?
The Supreme Court’s decision in Sohom Shipping Pvt. Ltd. v. M/S. The New India Assurance Co. Ltd. & Anr. was primarily influenced by the need to prevent an absurd outcome that would undermine the very purpose of the insurance contract. The Court emphasized that interpreting the special condition (“voyage should commence & complete before monsoon sets in”) strictly would leave the assured without a remedy in case of a marine accident, thereby negating the essence of insurance. The Court also considered the Respondent’s awareness of the voyage occurring during the monsoon season, indicating an implied waiver of the special condition. The sentiment analysis reveals that the Court was driven by principles of fairness, practicality, and the need to uphold the integrity of insurance contracts.
| Reason | Percentage |
|---|---|
| Prevention of Absurd Outcome | 35% |
| Implied Waiver by Respondent | 30% |
| Fairness and Practicality | 25% |
| Upholding Contract Integrity | 10% |
Fact:Law Ratio:
The Supreme Court’s decision was influenced by both factual and legal considerations. The factual aspects, such as the Respondent’s knowledge of the voyage and the impracticality of the special condition, played a significant role. However, legal principles such as contra proferentem and the interpretation of contract terms were also crucial. The ratio of Fact:Law in this case is as follows:
| Category | Percentage |
|---|---|
| Fact (Consideration of factual aspects) | 60% |
| Law (Legal considerations) | 40% |
This indicates that the Court’s decision was more heavily influenced by the specific facts of the case, while still adhering to established legal principles.
Logical Reasoning:
The Supreme Court considered the argument that the special condition was breached, but reasoned that the Respondent was aware of the circumstances, and a strict interpretation would lead to an absurd outcome. Therefore, the Court concluded that the special condition was impliedly waived.
The Supreme Court held that the special condition could not be treated as a condition precedent to waive liability under the policy. It stated:
“This amounts to an absurdity, vitiating the very purpose behind an insurance contract. As a result, we hold that the special condition cannot be treated as a condition precedent to waive any liability under the policy. It has been impliedly waived by the parties due to its non-material nature.”
The Court also noted:
“Even if the voyage was undertaken immediately, i.e. on 16.05.2013, the Vessel would have arrived at the Kolkata harbour in the first week of June 2013, i.e. after the commencement of foul weather season on the east coast. There is absolutely no permutation and combination in which the Appellant could have fulfilled this condition under the policy…”
Finally, the Court emphasized:
“The only logical conclusion of the information provided is that the insurance was availed to cover the foul weather period along the west and east coast.”
Key Takeaways
- Insurance contracts should be interpreted in a way that avoids absurd outcomes that undermine the purpose of the contract.
- Insurance companies cannot rely on special conditions to repudiate claims if they were aware of circumstances that made those conditions impossible to fulfill.
- The principle of implied waiver can be applied when a strict interpretation of a condition precedent would lead to an unfair or illogical result.
Directions
The Supreme Court allowed the appeal, set aside the NCDRC order, and remanded the matter to the NCDRC. The NCDRC was directed to determine the extent of the insured sum liable to be paid by the Respondent to the Appellant. The parties were directed to appear before the NCDRC on April 29, 2025, for expeditious consideration of the claim.
Development of Law
The ratio decidendi of this case is that an insurance company cannot enforce a special condition that is impossible to fulfill, especially when the company was aware of the circumstances that made it so. This clarifies the application of the principle of implied waiver in insurance contracts and reinforces the need for fairness and practicality in interpreting contract terms. The decision reinforces that insurance contracts should be interpreted to give effect to their purpose, rather than allowing insurers to escape liability through strict and impractical interpretations of specific clauses.
Conclusion
In summary, the Supreme Court allowed the appeal, emphasizing that the special condition in the insurance contract was impliedly waived due to its non-material nature and the Respondent’s awareness of the circumstances. The matter was remanded to the NCDRC for a determination of the insured sum payable to the Appellant, underscoring the importance of fairness and practicality in interpreting insurance contracts.