1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION ARBITRATION PETITION NO.62 OF 2007 Oriental Insurance Co. Ltd. .. Petitioner Versus Akbar Labels Pvt.Ltd. .. Respondent Mr.Sunil Chavan i/b. M.V.Kini & Co. for petitioner Mr.P.K.Dhakephalkar, Senior Advocate with A.P.Wachasundar i/b. H.H.Trivedi forr respondent. CORAM : S.C.DHARMADHIKARI, J. DATE : November 19, 2009. P.C.: 1] The petitioner is a Government of India Company and engaged in the business of insurance, including fire insurance (for short, the Insurer). The respondent is a company registered and incorporated under the Companies Act, 1956 and have its registered office at Mumbai. The petitioner, a Government of India company, is challenging the Award dated 29th May 2006 directing payment of Rs.1,62,42,919/- with interest and costs of the arbitration. 2 2] The respondent made a claim under a Fire Insurance policy complaining that there was a fire at their factory in Thane dist. The insurance cover was from 6th November 2001 to 5th November 2002 to cover the risk of fire to building, machinery, furniture, electrical installations, stocks etc. for a sum of Rs.1,97,50,000/- with further provision of additional Rs.7 lakhs for earthquake, fire and shock risk. 3] It was reported by the respondents that on 14th Novemberr 2001 at about 4.00 p.m. Fire broke out at their factory premises and their goods, machinery, materials and stocks stored therein were destroyed. When the claim was registered, Insurer appointed its Surveyor to survey and assess the damage and the loss caused by the fire. On the basis of the preliminary survey report and as an on account relief, Rs.75 lakhs were released to the respondent, subject to verification of documents. 4] A final survey report was submitted, wherein the loss and damages were assessed at Rs.1,62,42,919/-. The survey report is dated 17th August 2002. 5] It was the case of the respondents that in tune with this survey 3 report, the sum quantified as damages and loss assessed by the Surveyor ought to have been released in full. It appears that there was a decision taken not to make payment and in fact the respondents invited attention of the petitioner to Section 64 UM of the Insurance Act. The petitioner appointed second surveyor viz., M/s.Shrivastavan Surveyors Pvt.Ltd. The appointment of this surveyor was termed as illegal by respondents – original claimants. It appears that the correspondence ensued and since the sum was not released, ultimately respondents invoked the arbitration clause under the Contract. An arbitration petition was filed in this Court and, therefore, the Arbitrator was appointed by this Court. It is not necessary to refer to this aspect in any further details. 6] It has been stated by the respondents in their claim petition that despite admitting the liability and making part payment, the act of the petitioner in appointing the second surveyor for no reason and demanding money from the respondents to settle the matter and delay the payment is illegal and, therefore, the Arbitrator must determine the quantum and pass appropriate award. 7] The claim was laid before the Arbitrator by the respondent – 4 original claimant in June 2004. 8] The written statement was filed by the petitioners and it is common ground that this written statement was filed on 30th September 2004. In this written statement, it was urged that the claim is not maintainable. It was contended by the petitioners that the respondent claimant did not approach the Tribunal with clean hands. The contention raised was that the petitioners have repudiated and rejected the claim and the reasons for rejection have been set out. It is alleged that after the receipt of final survey report and scrutiny of supporting documents, it is found that valuation of the alleged loss assessed by the Surveyor was on the higher side. Therefore, a second surveyor was appointed as Investigator. The Investigator carried out investigations and it was revealed that the respondents could not have suffered loss of Rs.75 lakhs. The Investigator has discovered during the course of his investigation that some manufacturers and suppliers of machines, admitted that at the instance of respondent, they issued false bills and/or quotations by jacking up the price in order to enable the respondents to support the claim under the policy. 5 9] Thus, the petitioners raised the issue of fraud. They denied their liability to pay the amount and dealt with the statement of claim on merits. 10] It further appears from the record that a rejoinder was also submitted as the petitioner forwarded not only written statement but counter claim. Therefore, the respondents submitted their written statement to the counter claim and dealt with the issue of fraud. 11] At Annexure H – page 113 of this petition, is a copy of an application purportedly made on 18th March 2005, to the Arbitral Tribunal praying that the Tribunal should decide whether the proceedings are being conducted fairly inasmuch as fraudulent bills and documents are being submitted by the respondents, Whether the Tribunal could still go ahead with the proceedings ignoring the valid pleas raised by the Insurer. In paras 2, 3 and 4 of this application this is what is stated:- “2. In the instant case, the claimants have resorted to submission of fraudulent documents and bills in support of their claim which has been established beyond any reasonable doubt by the Investigator 6 appointed by the respondents. A copy of the said investigator is attached herewith which will clearly sow that the claimant in furtherance of making a false and fraudulent claim has with a view to cause wrongful loss to the rrespondents have adduced and supplied bills which are a serious breach under the terms of insurance contract.” “3. Therefore, the respondents have already sent a letter of repudiation to the claimants inter alia rrequesting him to make refund of the sum of Rs.75,00,000/- (Rupees Seventy Five Lakhs only) paid to him inadvertently believing the documents submitted by the claimants as true. However, when the Investigator has pointed out about the submission of fabricated and fraudulent bills the respondents have already taking steps to file a recovery suit of Rs.75,00,000/- and hence in our view not a single penny is due and paable to the claimants. This is so, because any fraudulent acts committed by the claimants in furtherance of the claim makes the whole claim void ab initio. Therefore, we strongly feel that no purpose would be served in continuing with the arbitral proceedings.” “4. Moreover, the claimants have no locus standi to initiate the Arbitral Proceedings when in fact and as a matter of fact the claim in 7 itself is not payable under the insurance contract in view of the fact that the claimants lost their right because they have used misrepresentation, fraud and also submitted fabricated documents which is a serious criminal breach. Therefore, we being a Government of India Undertaking has to closely follow all the terms, conditions and exclusions under the insurance policy. That being so, we regret that the arbitral proceedings would completely vitiate the whole matter and request that the preliminary question of jurisdiction for proceeding with the Arbitration may first be decided prior to proceeding any further in the matter.” 12] Thereafter, on 6th December 2005, another letter was written to the sole arbitator by the petitioner inviting his attention to the decision of repudiation of the contract. Condition No.8 of the insurance policy was relied upon and, therefore, the case of the petitioner was that no arbitration can be conducted in the matter. There is no dispute regarding quantum of loss. This is the stand taken on 6th December 2005. 13] However, the award states that the petitioners did participate in the proceedings before the sole arbitrator. The award points out that the 8 petitioners participated for some time and, thereafter, remained absent. That is a clear finding in the Tribunal’s award. Thereafter, the matter proceeded on the basis of the available material and the subject award has been made. 14] While impugning the Award, it is contended by the petitioner that the application made to the sole Arbitrator is invoking his jurisdiction under section 16 of the Arbitration and Conciliation Act, 1996. There was a clear jurisdictional issue which ought to have been addrressed and decided by the Tribunal. Tribunal’s failure to do so vitiates the Award. The issue of jurisdiction goes to the root of the matter. In the instant case, there was no dispute as far as quantum is concerned. The dispute regarding quantum alone could have been referred. Once the stand is that the Contract itself is repudiated or in any event stands vitiated on account of fraud, then, remedy of respondents – original claimants is not to pursue the arbitration reference but to initiate substantive proceedings. The arbitrator erred in not adverting to these issues. Since this vitiates the Award totally, the same should be set aside. 15] Even as far as the aspect of fraud is concerned, the Arbitrator has 9 not adverted to the said issue. It is contended that the Arbitrator erred in accepting the claim and making an award in favour of the respondents in the teeth of the second survey report. For all these reasons, the award should be set aside. 16] On the other hand, respondents have supported the subject award and contended that no case is made out for interfering therewith in this Court’s limited jurisdiction under section 34 of the Arbitration Act. 17] With the assistance of the learned Counsel appearing for both sides, I have perused the petition and the annexures thereto so also the Award. 18] The learned Arbitrator has in para 16 of the Award concluded that original respondents – petitioners before me did not participate in the Arbitration after examining their witness Mr.Shrinivas. There is no challenge to the evidence of the respondents claimants. The arbitrator therefore had to believe and accept the said evidence. Yet, the Arbitrator has referred to the materials produced on record. He has held that it is not disputed that both sides agreed to a reference to the sole arbitrator. Both parties were permitted to raise such pleas as are permissible in law. Both 10 parties filed pleadings. The arbitrator has held that in terms of section 16(2) of the Act, if the issue of jurisdiction had to be raised, then, it was incumbent upon the petitioners to have so raised it before filing their first statement of defence. It is common ground that the written statement constitutes the first statement of defence and it was filed on 30th September 2004. Thereafter, on 16th March 2005, the subject application, containing the afore-reproduced statements, was filed. The Arbitrator, therefore, was in no error in holding that the issue cannot be raised at a belated stage. He, therefore, adverted to the materials that were produced by parties before him. In my opinion, it has been rightly held by the Arbitrator that the stage at which the objection to his jurisdiction could have been raised, is before filing the first statement of defence. That stage is already over. Therefore, the said issue could not have been raised and more so, when by consent the parties agreed to refer the dispute to the sole arbitrator. 19] For the reasons that are recorded in the Award and considering the clear position in law, I do not find any substance in the first contention of Mr.Chavan that the Arbitrator failed to decide the issue of his jurisdiction. 11 20] As far as second contention that the claim was vitiated by fraud is concerned, admittedly it touches the merits. In para 17 of the Award, the learned Arbitrator referred to the pleadings and framed necessary issues. The Issue No.II and III concern petitioner’s action of appointing second surveyor and that of refusing to pay the balance sum under the claim on account of fraud. On these issues, the burden was clearly and squarely placed on the petitioners. The learned Arbitrator has after adverting to the oral and documentary evidence held that the petitioners – original respondents failed to discharge their burden. Admittedly, in this case, the petitionerrs paid a sum of Rs.75 lakhs to the respondents. The Surveyor had recommended payment of Rs.1.62 Crores and odd. Therefore, it is with regard to the balance quantum that the reference to the arbitration was made. The arbitrator was in no error, therefore, to make a reference to this admitted factual position. He has held that petitioners were aware of the findings of the first surveyor and second surveyor about the breach of condition. If there was indeed breach of the conditions as pointed out by the second surveyor and, therefore, the claim was fraudulent and the petitioners were advised to repudiate the contract, then, the arbitrator rightly concluded that it should have been done by the petitioners at the earliest. If the contract had been repudiated, then, there would have been 12 no occasion for the respondents to make a claim and request that the matter be referred to arbitration. By not taking such steps the petitioners allowed the matter to proceed. Therefore, once the report of the second surveyor was put in issue so also the aspect of fraud, then, it was incumbent upon the petitioners to have proved the same. 21] As is clear from the record, after examining Mr.Shrinivas, as witness, the petitioners did not participate in the proceedings any further. The Arbitrator, therefore, adverting to the legal and factual position, firstly held that the petitioners could not have appointed second surveyor to re-assess the loss. He also went into the manner in which the second surveyor proceeded to re-assess the loss and held that the surveyor acted improperly and illegally. The action of the second surveyor was rightly held to be vitiated as he was named as Investigator. This fact is admitted by second surveyor in his cross examination. Thus, the Arbitrator committed no error in concluding that the appointment was illegal. 22] After turning down the objection to his jurisdiction, the learned Arbitrator referred to the aspect of fraud and his findings are in paras 18 to 20 of the Award. 13 23] These are essentially findings on facts based upon the contents of the survey report and the admitted part payment. 24] While deciding the petition under section 34 of the Act, this Court does not sit as a Court of Appeal over the decision of the Arbitrator. There is no power conferred upon this Court to re-appraise and re- appreciate the oral and documentary evidence before the Arbitrator. Once the contention raised by the petitioner calls upon me to undertake that exercise, then, it is not permissible for me to set aside this award on the ground that the Arbitrator erred in his conclusion that the fraud perpetrated by the respondents allegedly on the petitioners is not proved. That is a matter which squarely falls for decision and determination before the Arbitrator. The Arbitrator having assessed the materials on record including the reports of the first surveyor, has concluded that the first surveyor Viren Shah who is a senior and reputed person in the field has not been examined and his report cannot be discarded in law. For these reasons and relying upon the fact that the petitioners did not participate in the proceedings after a particular stage, that the learned Arbitrator directed release of the balance sum and rightly so with interest. 14 25] In such circumstances, the Award directing release and payment of sum of Rs.88,71,919/- to the respondents – original claimants along with costs of Arbitration and interest cannot be set aside in this Court’s limited jurisdiction enumerated above. 26] In the result, the petition fails and it is accordingly dismissed. No costs. (S.C.DHARMADHIKARI, J)