Case Note & Summary
The matter pertained to an arbitration petition under Section 34 of the Arbitration and Conciliation Act, 1996 filed by National Insurance Company Limited challenging an arbitral award dated 20 March 2012 that had allowed certain claims of Opera Clothing, a partnership firm. The dispute originated from two insurance policies issued by the petitioner to the respondent: a Standard Fire and Special Perils Policy (No. 260201/11/05/3100000004) covering machinery and installations for Rs. 2,62,70,000 and a Floater Policy (No. 260201/11/05/3100000005) covering stock of fabrics and readymade garments for Rs. 2,73,30,000, both effective from 7 April 2005 to 6 April 2006. On 26 July 2005, heavy rains and floods caused extensive damage to the respondent's factory premises at Kurla, Mumbai. The respondent informed the insurer on 27 July 2005 and a surveyor was appointed. The surveyor initially could not conduct a detailed survey due to water accumulation and instructed the respondent to segregate damaged goods. Due to foul smell, the respondent, following an advisory from insurers, advertised and sold the damaged goods in an auction on 8 August 2005 for Rs. 25,91,480. The petitioner alleged breach of clause 7 of the policies for selling goods without consent and not submitting a list within fifteen days. The respondent lodged a claim on 23 September 2005 for a net amount of Rs. 2,35,16,687 after deducting salvage. The surveyor assessed the net loss at Rs. 1,90,08,775, and the respondent, allegedly under coercion, wrote on 22 December 2005 agreeing to accept this amount as final. The surveyor recommended treating the claim as non-standard due to breach and settling at 75% of assessed loss, leading to an offer of Rs. 1,44,14,017. The respondent submitted an affidavit on 16 October 2006 agreeing to accept this sum in full and final settlement and executed vouchers. However, on 30 October 2006, the respondent alleged forced settlement due to financial crises and demanded the balance. After correspondence, the respondent invoked arbitration clause 13 on 9 February 2007. An arbitrator was appointed by the High Court on 5 February 2010. The respondent filed a claim for Rs. 1,78,80,003, and the petitioner raised defences including non-arbitrability and full and final settlement. The arbitrator passed an award on 20 March 2012 directing payment of Rs. 91,02,670 with interest at 12% per annum from 23 December 2005. The petitioner then filed the present Section 34 petition seeking to set aside the award. The judgment text provided is incomplete and does not include the High Court's final decision or reasoning.
Issue of Consideration
Whether the arbitral award dated 20 March 2012 allowing claims of Opera Clothing was liable to be set aside under Section 34 of the Arbitration and Conciliation Act, 1996 on grounds of non-arbitrability, full and final settlement, and breach of policy conditions.
Law Points
- Section 34 of Arbitration and Conciliation Act
- 1996
- arbitrability of insurance disputes
- effect of full and final settlement on arbitration
- non-standard claims under insurance guidelines
Case Details
2015 LawText (BOM) (03) 37
Arbitration Petition No. 778 of 2012
Mr. A.M. Vernekar with Mr. Samarth Pai for Petitioners; Mr. Chetan Kapadia with Ms. Rachita Romani for Respondents
National Insurance Company Limited
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Nature of Litigation
Arbitration petition under Section 34 of the Arbitration and Conciliation Act, 1996 challenging an arbitral award that allowed certain claims of the respondent-insured against the petitioner-insurer.
Remedy Sought
Petitioners (National Insurance Co. Ltd.) sought setting aside of the arbitral award dated 20 March 2012.
Filing Reason
The petitioners challenged the award on grounds including non-arbitrability, full and final settlement, breach of policy conditions, and alleged coercion in settlement.
Previous Decisions
The learned arbitrator rendered an award on 20 March 2012 directing the petitioners to pay Rs.91,02,670/- with interest at 12% p.a. from 23 December 2005. Prior to that, the respondents had filed Arbitration Petition No.196 of 2007 under Section 11, and a sole arbitrator was appointed by order dated 5 February 2010.
Issues
Whether the dispute was arbitrable under clause 13 of the insurance policy.
Whether the respondents' acceptance of payment and execution of vouchers constituted full and final settlement barring further claims.
Whether the respondents' letter dated 22 December 2005 agreeing to accept net loss of Rs.1,90,08,775/- was voluntary or under coercion.
Whether the arbitrator's award was patently illegal or in conflict with public policy under Section 34.
Submissions/Arguments
Petitioners argued that respondents breached clause 7 of the policies by selling damaged goods without consent and not submitting a list within fifteen days.
Petitioners contended that the respondents had agreed to accept the surveyor's assessment of net loss at Rs.1,90,08,775/- and later executed an affidavit and vouchers accepting Rs.1,44,14,017/- in full and final settlement.
Petitioners contended that the dispute was not arbitrable under clause 13 of the insurance policy.
Respondents claimed they were forced to accept the settlement due to acute financial crises and coercion by the surveyor.
Respondents alleged that the salvage value of Rs.50 lakhs assessed by the surveyor was excessive compared to the actual salvage realized of Rs.25,91,480/-.
Judgment Excerpts
By this petition filed under section 34 of the Arbitration & Conciliation Act, 1996 (for short the said “Arbitration Act”), the petitioners have impugned the arbitral award dated 20th March, 2012 rendered by the learned arbitrator allowing some of the claims made by the respondents.
The respondents had obtained from the petitioners Unit No.260201, Mumbai two policies viz. (1) Standard Fire and Special Perils Policy No.260201/11/05/3100000004 insuring the Machinery, Electric Installations, Showroom, A.C., Computers, Printers, Scanners, Fax Xerox, Packing Materials lying at Lower Parel, Kurla and Daman for an amount of Rs.2,62,70,000/- and (2) Floater Policy No.260201/11/05/3100000005 insuring the stock of fabrics and readymade garments of all kinds' finished, semi finished and unfinished goods, raw materials pertaining to the respondents business lying at three locations viz. Lower Parel, Kurla and Daman for a sum of Rs.2,73,30,000/-.
On 8th August, 2005, the petitioners alleged that the respondents had committed a breach of clause 7 of the policies by sale of goods and by not submitting a list of damaged properties and not making claims within fifteen days of the alleged loss suffered by the respondents.
It is the case of the petitioners that after being satisfied with the assessment of the net loss carried out by the surveyor, the respondents by their letter dated 22nd December, 2005 informed the petitioners that the respondents were agreeable to accept the net loss of Rs.1,90,08,775/- worked out by the surveyor and that they would accept the decision of the petitioners as final.
It is the case of the petitioners that the respondents accordingly submitted an affidavit dated 16th October, 2006 agreeing to accept a sum of Rs.1,44,14,017/- less difference premium in full and final settlement from the petitioners and agreed not to make any claim or demand for any other amount or for difference any time in future.
Procedural History
On 26 July 2005, heavy rains and floods damaged respondent's premises. Respondents informed petitioners on 27 July 2005 and a surveyor was appointed. Surveyor visited on 28 July 2005 but detailed survey was delayed. On 4 August 2005, respondents could not quantify loss due to power cut. On 6 August 2005, respondents advertised sale of damaged goods and conducted an auction on 8 August 2005, realizing Rs.25,91,480. Petitioners alleged breach of clause 7. Respondents lodged a claim on 23 September 2005 for net Rs.2,35,16,687. On 22 December 2005, respondents wrote agreeing to net loss of Rs.1,90,08,775 (allegedly under coercion). Survey submitted final report on 23 December 2005 recommending non-standard claim at 75%. On 16 October 2006, respondents submitted affidavit accepting Rs.1,44,14,017 in full and final settlement, and payment was made on 20 October 2006. Respondents objected on 30 October 2006, alleging forced settlement. Arbitration was invoked on 9 February 2007. High Court appointed arbitrator on 5 February 2010. Statement of claim filed on 14 June 2010; statement of defence on 23 August 2010. Arbitrator framed issues on 3 December 2010. Evidence recorded thereafter. Arbitral award passed on 20 March 2012. Present petition filed under Section 34.
Acts & Sections
- Arbitration and Conciliation Act, 1996: Section 34, Section 11
- Indian Partnership Act, 1932:
- Companies Act, 1956:
