arbp491-10.doc 1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.491 OF 2010 ALONGWITH ARBITRATION PETITION NO.492 OF 2010 The Oriental Insurance Company Ltd .. Petitioner versus Krishlon Synthetics Pvt Ltd & Ors .. Respondents Mrs.Anita Castellino with Mr.Ashutosh Gavnekar i/by R.V.Samuel for the Petitioner. Mr.Naushad R.Engineer a/w Mr.Ramachandran N & Mr.Vivek Ravani i/by Narayanan & Narayanan for respondent No.1. CORAM: S.C.DHARMADHIKARI, J. DATE : 15th FEBRUARY 2011 P.C. . This is an award rendered by the Arbitral Tribunal on a claim against the petitioner-insurer by the respondent-insured. 2 The complaint to the Tribunal was that in the flood of 26th July 2005, in the factory of the respondent, valuable stocks were lost arbp491-10.doc 2 and the same were insured with the petitioner-insurer. Therefore, compensation be paid in terms of the applicable policy. The insurer appointed a surveyor and proceeded to pay a sum of Rs.45 lakhs and odd to the respondent. The respondent accepted this sum under protest and in terms of the contract raised a claim before the Arbitral Tribunal stating therein that the surveyor appointed has omitted to take into consideration settled procedures and principles and has unreasonably deducted from the total claim several sums on account of wastages etc which are contrary to the prescribed accounting standards. Therefore, the surveyor’s report cannot be said to be conclusive and binding when it is full of accounting errors and contravenes the settled procedures. 3 On the other hand the petitioner submitted that the Arbitral Tribunal has limited jurisdiction and it cannot go beyond the survey report and sit in judgment over the procedure and principles applied by the surveyor. If such a course is adopted, that would mean that the surveyor’s report can be easily discarded and such being the state of affairs, unless the claimant demonstrates that arbp491-10.doc 3 the surveyor has acted contrary to all settled principles and proves that case, by producing cogent and reliable material, the report should not be interfered with. 4 The Tribunal on perusal and scrutiny of the entire materials concluded that the respondent made a claim of Rs.1 crore and odd, whereas, the surveyor only certified the loss of Rs.45 lakhs. The Tribunal on the materials produced concluded that the surveyor was given entire set of documents, ledger books including the purchase invoices, petty ledger accounts, monthly bank statements, stock registers etc. When this material was made available by the claimant to the surveyor, the surveyor ought to have taken the figures therefrom and arrived at the correct figure of the losses. On the other hand, the surveyors have adopted a strange method by starting an investigation of the entire record prior to 1st April 2005. In the opinion of the Tribunal, the investigation of records prior to 1st April 2005 was irrelevant. If the Accounting year is from March to March every year and flooding took place in July 2005, then, records produced from 1st April 2005 should have been arbp491-10.doc 4 the basis and when they are so produced, then, the surveyor should have taken them into account and computed the losses. The surveyor also ought to have cited some instances where wastage of cloth pieces was found. However, the surveyors took a general perception of the claim and proceeded to apply a percentage which was not at all supportable. They had infact referred the matter to a Chartered Accountant, but that was also of no assistance. If there was a projected stock on the date of flooding, then, some deductions therefrom on account of wastage was permissible but to deduct on the basis of wastages a sum to the extent of 75% was contrary to all accounting principles and standards. 5 Concluding thus, the Arbitral Tribunal held that the survey report cannot be said to be conclusive. However, it did not award the claim in its entirety. It observed that even the claimants have not brought complete evidence and therefore, relying on purchases of salvage materials and statements of such purchasers, the Tribunal arrived at a figure and awarded Rs.27 lakhs over and above the amount fixed by the surveyor. It is such an award which is arbp491-10.doc 5 challenged in this Court under section 34 of the Arbitration and Conciliation Act, 1996. 6 The two submissions that have been canvassed in support of the petition by Mrs.Castellino are that the Arbitral Tribunal was not at all justified in interfering with the survey report and sitting in judgment over the same. That would mean that a survey report can be discarded and disbelieved easily and lightly. That cannot be an approach while adjudicating on the claims of the present nature, where parties have tendency to inflate the figures. Ultimately, the arbitrators ought to be aware that the petitioner is a public sector insurance company which deals with public money. It appoints surveyors to quantify and compute the losses. Once the surveyors have been appointed and they have completed their job, then, their approach should not be faulted merely because another opinion is possible. In such circumstances, the Arbitral Tribunal has committed a gross error and perversity in disbelieving the surveyors and awarding an amount according to their perception of accounting standards. arbp491-10.doc 6 7 She then submits that the Arbitral Tribunal has also not abided by the settled principles that surveyors are a link between the insurer and insured for determination of settlement, loss or damage and the Report of the surveyor in respect of the loss suffered by the insurer, has to be accepted. This survey is traceable to the statutory provisions. Under the scheme of the Insurance Act particularly, when the facts are noted, the report of the surveyor is the basis for calculating the losses. Once it is the basis, then, it should not be easily and lightly ignored. Hence, the Award is contrary to public policy and should be set aside. 8 Mr.Engineer on behalf of the respondent supported the award and contended that the Arbitral Tribunal has done nothing which can be termed as an act of perversity nor is their conclusion so unreasonable, erroneous and irrational that no reasonable person would arrive at the conclusion, in the given circumstances. He submits that none could foresee the calamity of the nature seen by this city on 26th July 2005 when 976 mm rain was recorded in a arbp491-10.doc 7 single day. The factory of the petitioner is close to Mithi river. It was submerged in 7 ft deep water. The petitioner is a unit which carried on garment manufacture activity and therefore stock of cloth lying for processing in the area covered by 10,000 sq.ft was such that one could not envisage that wastage of the same would be to the extent indicated by the surveyor. Ultimately, 80% of the stock was held to be destroyed. The compensation was claimed on the basis of this destruction. The factory was closed for about five days and it was not possible to even access the same. In such circumstances, the surveyors going by the settled principle that the insurers in such claims should not be rigid and inflexible but assist the persons like the respondent, should have accepted the award and paid the amount. Instead, it has chosen to challenge the same. The award need not be interfered with as this is not a Court of appeal which can undertake the exercise of re-appraisal and re-appreciation of evidence. For all these reasons, he submits that the petition may be dismissed. 9 With the assistance of the learned counsel appearing for arbp491-10.doc 8 the parties, I have perused the said award in some details. While it is true that the claim was made against the petitioner which is a public sector insurance company dealing with public funds and public money, it is equally true that the contract between the parties provided that in case the respondent was not satisfied with the amount quantified and determined by the surveyor, it could seek the intervention of the Arbitral Tribunal. In the statement of claim it was pointed out that the surveyors have acted contrary to all accounting principles and standards so also settled norms while computing the losses. They had discarded the available documents and stock registers to arrive at a figure which in their opinion was justified. The approach was not to assist the insured but to find fault with the manner of accounting. There was no necessity of going back and seeking documents for the period prior to 1st April 2005 when the calamity occurred in July 2005. 10 To my mind, in the peculiar facts of this case the Arbitral Tribunal was called upon to go into the question of finality attached to the survey report. What Mrs.Castellino placed in service is a arbp491-10.doc 9 decision of the Hon’ble Supreme Court rendered while analysing the claim under section 64-UM of the Insurance Act, 1938. The Supreme Court has clarified that it is not as if second survey cannot be undertaken by the insurer. If there is one survey already undertaken but that report is in the opinion of the insurer not capable of being relied upon, then, the statute permits the insurer itself to call for the second survey. In what circumstances the second survey should be ordered and what are the applicable principles there for is the ratio of this decision. Beyond this, the decision does not say anything much less what is contented by Mrs.Castellino. In the judgment in the report cited before me, namely, (2009) 8 Supreme Court Cases 507 (Sri Venkateswara Syndicate Vs. Oriental Insurance Company Ltd & Anr) it is not stated that no arbitration can be held or any Tribunal is prevented by any statutory provision or otherwise from entertaining any grievance with regard to the survey. In these circumstances, this decision is clearly distinguishable on facts. 11 The apprehension of Mrs.Castellino that there are several arbp491-10.doc 10 claims against the public sector insurers like the petitioner on account of the unfortunate flooding on 26th July 2005 and if this principle is held to be applicable to all such cases, the insurers will have to shell out huge sums and that is also public money. This apprehension is not at all well founded in as much as no Arbitral Tribunal can determine any figure arbitrarily and merely because in its opinion something more needs to be given to the insured. Ultimately, the adjudication must be held within the four corners of the contract and the principles for which General Insurance is provided. The scheme of the Insurance Act, the principles under lying determination of losses on account of natural calamity, the contract between the parties and all settled principles of accounting and survey have to be applied. Therefore, it is not as if when this award is upheld that this Court is in any way approving or holding that in all such cases the survey reports have no significance or that their reliability is questionable. Ultimately, everything depends upon the facts and circumstances of each case and no general rule can be laid down. It is not as if the petitioner is bound to settle to all claims even if they are inflated. arbp491-10.doc 11 12 Therefore, this award can by no stretch of imagination be said to be a precedent for all cases and merely because this Court has not interfered therewith does not mean that the principles applied in the facts of this case have been upheld by the Court and shall be applied to all claims of the present nature made against public sector insurance companies. 13 In the peculiar facts of this case, what the Arbitral Tribunal was called upon to consider is the correctness of the computation of the losses claimed of the respondent and the quantification done by the surveyor. The loss was occasioned on account of flooding of the factory and destruction of the stock. The stock is of cloth and on an average about two lakhs mm of cloth is processed in the factory of the respondent which is housed in an area of 10,000 sq.ft. The machines and the stocks are on the same floor where the flooding took place. The processing activity goes on continuously and the respondent is a garment manufacturer. Therefore, to say that 75% of the stock is wastage, can by no stretch arbp491-10.doc 12 of imagination be said to be reasonable. The Arbitral Tribunal has while accepting this claim to the extent indicated in the award has given detailed reasoning from paras 12 to 15. It held that the wastage of about 07 mtrs to 40.00 mtrs has not been adequately proved when the surveyor wanted to put the value at 75%. The stock register as on 1st April 2005 onwards should have been given more credibility. There was no need to call for records prior to 1st April 2005. Similarly, the entire basis of substantial wastage or dead stock in the business of the present nature is not founded on any settled norm or criteria. In the business in which the respondent was engaged, the surveyor should have gone by the stocks of raw material and the bank figures to arrive at some reasonable basis. Once the surveyors admit that they have received the documents for the entire relevant period, then, those alone should have been taken into consideration. Yet, the arbitrators have held that whatever the respondent claims, is also not true and correct. There were salvage buyers and these salvage buyers were called upon by the surveyors to purchase the salvage of the respondents and these salvage operators and particularly, Anupama Trading Corporation had arbp491-10.doc 13 addressed a letter and had stated that the salvage was lying in the open and was likely to fetch lesser price because of wetness and sunlight. The material was inspected by him and he addressed another letter. Therefore, these trading corporations were independent persons and their letters are stating that 80% of the fabrics were damaged and torn. Out of that 1,90,000 mtrs of cloth were in sound condition, therefore, this should have been taken as a basis for computing the losses is the conclusion in the award. That is also based on the documents produced and challenge thereto by Mrs.Castellino cannot be entertained in my limited jurisdiction as if I am deciding an appeal against award. 14 In the peculiar facts of this case, I do not find that any perversity is committed by the Arbitral Tribunal and all the more because it has slashed down and reduced the claim of respondent and awarded Rs.27,00,000/- and odd over and above the survey figure. Therefore, the award cannot be said to be unreasonable or based on a principle which is contrary to law. For all these reasons, this petition is devoid of any merits and particularly once the arbp491-10.doc 14 clarification as above is given with regard to the claims made on public sector insurance companies. The petition is, therefore, dismissed but without any order as to costs. (S.C.DHARMADHIKARI, J)