Case Note & Summary
The New India Assurance Company Limited (Petitioner) issued two fire and special perils insurance policies to M/s. Alan Scott Industries Limited (Respondent) covering raw materials, stock, and premises/machinery for their socks manufacturing plant. A fire occurred causing loss. The Respondent claimed on reinstatement value basis but replaced machinery after 12 months without seeking written extension from the insurer. The arbitral tribunal awarded compensation on reinstatement value basis. The Petitioner challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996. The learned single Judge, by order dated 5th June 2008, found that the tribunal had not dealt with three contentions: non-arbitrability, acceptance of Rs.1,10,46,134/- in full and final settlement, and entitlement to interest. Instead of setting aside the award, the Judge remitted these issues to the tribunal. The tribunal then made an auxiliary award dated 5th May 2009 deciding all three issues against the Petitioner. The Petitioner filed a second petition challenging the auxiliary award. The court held that the remission was proper under Section 34(4). On the merits, the court found that the tribunal's interpretation of the reinstatement clause was plausible and not patently illegal. The acceptance of payment under protest did not constitute full and final settlement. The tribunal's award of interest at 18% per annum from the date of cause of action was within its discretion under Section 31(7)(a) and not excessive. Both petitions were dismissed.
Headnote
A) Arbitration Law - Remission of Award - Section 34 Arbitration and Conciliation Act, 1996 - Court remitted award to arbitral tribunal for decision on three specific issues instead of setting it aside - Held that remission is permissible under Section 34(4) to give an opportunity to cure defects (Paras 1-2). B) Insurance Law - Reinstatement Value - Fire Insurance Policy - Insured claimed on reinstatement value basis but replaced machinery after 12 months without seeking extension - Arbitral tribunal allowed claim on reinstatement value - Held that the tribunal's interpretation of policy terms was plausible and not patently illegal (Paras 3-10). C) Arbitration Law - Full and Final Settlement - Acceptance of Payment - Respondent accepted Rs.1,10,46,134/- under protest and continued to claim balance - Held that acceptance under protest does not amount to accord and satisfaction barring further claims (Paras 11-15). D) Arbitration Law - Interest - Section 31(7)(a) Arbitration and Conciliation Act, 1996 - Arbitral tribunal awarded interest at 18% per annum from date of cause of action till payment - Held that tribunal has discretion to award interest even in absence of contract, and rate of 18% is not excessive (Paras 16-20).
Issue of Consideration
Whether the arbitral tribunal correctly decided the three issues remitted by the court: (i) non-arbitrability of the dispute; (ii) whether the respondent had accepted a sum in full and final settlement of the award; (iii) whether the respondent is entitled to interest in the absence of a contract and at what rate.
Final Decision
Both Arbitration Petitions are dismissed. The original award and the auxiliary award are upheld.
Law Points
- Arbitration and Conciliation Act
- 1996
- Section 31(7)(a)
- Section 34
- Section 16
- Insurance Law
- Reinstatement Value
- Full and Final Settlement
- Interest
- Remission of Award
