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

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

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– 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 (2

nd

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

1

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 (7

th

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-à-vis the assured. The letter of subrogation is

a contractual arrangement which crystallizes the rights of

the insurer vis-à-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-à-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

2

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-à-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

3

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

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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

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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

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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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