Case Note & Summary
The petitioner, Agrocel Industries Pvt. Ltd., was engaged in the production of Marine Chemical Bromine and had availed a 'Loss of Profit (Fire) Policy' from the respondent, United India Insurance Company Ltd., for an insured amount of Rs.20 crores on its gross profit. On 6 and 7 September 2011, heavy rainfall in the Kutch region caused flooding, damaging the petitioner's factory and resulting in loss of production. The petitioner informed the respondent and a surveyor was appointed, who assessed the loss at Rs.3,59,58,346/-. However, the respondent rejected the claim on the ground that the loss was caused by 'inundation', which was excluded under the policy. The matter was referred to arbitration, and the arbitral tribunal rejected the claim. The petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, arguing that the award was contrary to the public policy of India. The court examined the policy terms and found that the Loss of Profit Policy specifically covered loss due to fire but excluded loss caused by 'inundation'. The court noted that the petitioner had also availed a Standard Fire and Special Perils Policy which covered flood damage, and under that policy, the petitioner had already received Rs.1,72,25,105.88. The court held that the arbitrator's interpretation of the policy was plausible and not perverse, and the award did not shock the conscience of the court. The petition was dismissed.
Headnote
A) Arbitration - Section 34 of Arbitration and Conciliation Act, 1996 - Public Policy - Challenge to Arbitral Award - The court examined whether the arbitral award was contrary to the public policy of India. Held that the award was not patently illegal or perverse as the arbitrator had correctly interpreted the policy exclusion for 'inundation' and the claim was not maintainable under the Loss of Profit Policy. (Paras 1-16) B) Insurance Law - Interpretation of Insurance Policy - Exclusion Clauses - Loss of Profit (Fire) Policy - The policy covered loss of profit due to fire but excluded loss caused by 'inundation'. The court held that the heavy rainfall and flooding constituted 'inundation' and thus the claim was rightly rejected. (Paras 2-10) C) Evidence - Surveyor's Report - Binding Nature - The surveyor's report assessed the loss at Rs.3,59,58,346/- but the arbitrator found that the loss was not covered under the policy. The court held that the surveyor's report cannot override the policy terms. (Paras 6-12)
Issue of Consideration
Whether the arbitral award rejecting the petitioner's claim for loss of profit under the Loss of Profit (Fire) Policy is liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996, on the ground that it is contrary to the public policy of India, particularly when the loss was caused by flood/inundation which was excluded under the policy.
Final Decision
The court dismissed the petition, upholding the arbitral award dated 24 July 2015. The court held that the award was not contrary to the public policy of India and that the arbitrator's interpretation of the policy exclusion was plausible.
Law Points
- Arbitration Act
- 1996
- Section 34
- Public Policy
- Interpretation of Insurance Policy
- Exclusion Clauses
- Surveyor's Report
- Burden of Proof
