PNP 1 ARBAP90-10=1.10 IN THE HIGH COURT OF JUDICATURE AT BOMBAY O. O. C. J. ARBITRATION APPLICATION NO.90 OF 2010 Aditya Medisales Ltd. ..Applicant. Vs. The New India Assurance Co. Ltd. ..Respondent. ..... Mr. R.J.Cama with Mr. Mahesh Londhe i/b Sanjay Udeshi & Co. for the Applicant. Mr. A.K. Sharma i/b B.B. Nangare & Associates for the Respondent. ..... CORAM : DR.D.Y.CHANDRACHUD, J. 1 October 2010. P.C. : 1. The application has been filed under Section 11(6) of the Arbitration and Conciliation Act 1996. The Applicant had insured stocks with the Respondent under a Standard Fire & Special Perils Floater policy for the period between 1 April 2005 and 31 March 2006. The claim of the Applicant is based on an alleged damage to its stocks occasioned by the unprecedented flooding which took place in Mumbai on 26 July 2005. Clause 13 of the policy of insurance contains an arbitration clause in the following terms : PNP 2 ARBAP90-10=1.10 “13. If any dispute or difference shall arise as to the quantum to be paid under this policy (liability being otherwise admitted) such difference shall independently of all other questions be referred to the decision of a sole arbitrator to be appointed in writing by the parties to or if they cannot agree upon a single arbitrator within 30 days of any party invoking arbitration, the same shall be referred to a panel of three arbitrators, comprising of two arbitrators, one to be appointed by each of the parties to the dispute/difference and the third arbitrator to be appointed by such two arbitrators and arbitration shall be conducted under and in accordance with the provision of the Arbitration and Conciliation Act, 1996.” 2. The valuer initially assessed the loss suffered at Rs.1.96 Crores by a report dated 30 January 2006, which was reduced in an addendum dated 29 June 2007 to Rs.76.76 lacs. On 10 April 2008 the Respondent called upon the Applicant to return “the loss vouchers” for Rs.76.61 lacs failing which it was stated that it would be presumed that the Applicant had no claim against the insurer. By its reply dated 21 April 2008 the Applicant stated that it had submitted its claim in the amount of Rs.2.52 Crores against which the amount approved was Rs.76.76 lacs which was not acceptable on the ground that it had not been assessed in accordance with the PNP 3 ARBAP90-10=1.10 conditions of the policy. Accordingly the insurer was requested to release an amount of Rs.76.61 lacs and keep the file open for a joint meeting with the insurer and with the surveyor. The Applicant invoked the arbitration clause by its notice dated 3 December 2009. The defence of the insurer in a reply dated 18 February 2010 was that the Applicant had discharged the loss voucher without indicating any reservation on the quantum of the settlement offer and that as a result there was a full and final settlement of the claim of the Applicant. 3. The existence of the arbitration clause is not in dispute. There is no dispute about the position that the Applicant has approached the appropriate High Court with jurisdiction and that there is an arbitration agreement between the parties. The only defence which is urged at the hearing of the Application is that there is a full and final settlement of the claim of the Applicant and that consequently an application under Section 11(6) is not maintainable. Now in order to appreciate the defence, it would be necessary to PNP 4 ARBAP90-10=1.10 advert to the correspondence that ensued between the parties. The Applicant had, as already noticed addressed a letter on 21 April 2008 to the insurer specifically stating that the loss which has been approved by the insurer in the amount of Rs.76.76 lacs was not acceptable and that the claim of the Applicant was to the extent of Rs. 2.52 Crores. On 6 May 2009, the insurer addressed a letter to the Applicant enclosing a cheque dated 23 April 2009 in the amount of Rs.76.61 lacs in full and final settlement. In its reply dated 7 May 2009, the Applicant, while thanking the insurer drew attention to the fact that the cheque was in favour of the Bank of Baroda Account Aditya Medisales Limited, but that the bank had ceased to be the banker for the Applicant. The cheque was accordingly returned and a request was made that a cheque should be drawn in favour of the current bankers of the Applicant. On 27 August 2009 the insurer addressed a letter to the Applicant forwarding a cheque in the amount of Rs.76.61 lacs in full and final settlement of the claim. According to the Applicant it had made the following endorsement at the foot of the letter : PNP 5 ARBAP90-10=1.10 “To, Sr. Divisional Manager, We thank you for the above cheque. We are accepting the same under protest and our right to invoke the arbitration remains valid as we are not agreeable to the assessment.” While responding to the acknowledgment of the payment, the insurer by its letter dated 31 August 2009 stated thus : “We are in receipt of your acknowledgment of the claim payment through cheque on 27.08.2009. Please note that the payment made by us in respect of the above claim is full & final.” 4. On 23 September 2009 the Applicant addressed a letter to the insurer recording that after a delay of nearly four years it had been offered a ‘meagre’ amount of Rs.76.61 lacs as settlement against a total claim of Rs.2.52 Crores. The Applicant stated that it was “forced to accept the said amount” which it did only as part payment of the total claim in view of the inordinate delay in making payment and other “dilatory and pressure tactics employed” against the Applicant. The Applicant recorded that it had protested time and PNP 6 ARBAP90-10=1.10 again and that the insurer had been informed that the amount had been accepted as part payment. 5. Now it is in this background that the defence of the insurer would have to be assessed. According to the insurer the Applicant had on 21 April 2009 issued a settlement intimation voucher recording a full satisfaction and discharge of the claim in the amount of Rs.76.61 lacs. This was prior to the payment of the amount and as already noted earlier when the insurer forwarded a cheque on 27 August 2009 the case of the Applicant is that this was accepted under protest and reserving the right of the Applicant to invoke arbitration since it was not agreeable to the assessment. During the course of the hearing of these proceedings on the previous occasion, the hearing was adjourned in order to enable counsel appearing on behalf of the insurer to produce a copy of the letter dated 27 August 2009, which according to the Applicant bears the endorsement of protest. A notice to produce was also issued to the advocate for the insurer on 23 September 2010 by the advocate for the Applicant. Counsel PNP 7 ARBAP90-10=1.10 appearing on behalf of the insurer, however, states that the letter has not been provided to him by his clients. 6. While deciding an application under Section 11(6) of the Arbitration and Conciliation Act 1996 there are certain issues which have to be decided by the Chief Justice, or as the case may be, his designate. These issues are (i) whether a party making the application has approached the appropriate High Court and (ii) whether there is an arbitration agreement and whether the Applicant is a party to the agreement. Then there are issues which the Chief Justice or his designate, may decide or if it is so considered appropriate and proper, leave them to the arbitral Tribunal to decide. Issues in this category are (i) whether the claim is barred or is a live claim; and (ii) whether the parties have concluded the contract by recording satisfaction of their mutual rights and/or applications by receiving the final payment without objection. The issues which the Chief Justice or his designate should leave exclusively to the arbitral Tribunal are (i) whether a claim made falls within the arbitration PNP 8 ARBAP90-10=1.10 clause; and (ii) the merits of the claim involved in arbitration. This categorization has been enunciated in the judgment of the Supreme Court in National Insurance Company Ltd. V. Boghara Polyfab Pvt. ltd.1 The Supreme Court has observed, in the context of the second category of issues as follows : “When we refer to a discharge of contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher which is validly and voluntarily executed. If the party which has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/ coercion/ undue influence practised by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement / voucher is rendered void and cannot be acted upon. Consequently, any dispute raised by such party would be arbitrable.” 7. In deciding whether an issue relating to a mutual satisfaction or settlement should be decided in an application under Section 11(6) or would be best left to the arbitration Tribunal, the Chief Justice or his designate must be guided by the object of the Act which is to expedite the arbitration process with minimum judicial intervention. Hence, where there is an allegation that a discharge 1 (2009) 1 SCC 267. PNP 9 ARBAP90-10=1.10 agreement has been executed under coercion, undue influence or duress, the dispute raised by a party questioning the voluntary nature of the agreement would raise an arbitrable question. 8. In the present case, the circumstances on the record are such as should result in the formation of the view that the question as to whether there was an accord and satisfaction should be left for determination by the arbitral Tribunal. The case of the Applicant is that it had specifically recorded its acceptance of the cheque under protest at the foot of the insurer’s letter dated 27 August 2009. According to the Applicant the existence of the endorsement is authenticated by the reference in the insurer’s letter dated 31 August 2009 to the acknowledgment of the payment made by the Applicant. That apart, the Applicant in its letter dated 23 September 2009 had at the earliest possible opportunity raised the defence that it was compelled to accept the payment by a cheque of Rs.76.61 lacs, but that it had done so only as part payment and under protest. Whether the Applicant is correct in this assertion or otherwise is a PNP 10 ARBAP90-10=1.10 matter which would have to be decided on the basis of evidence in the course of the arbitral proceedings. Both as a matter of first principle and particularly having regard to the law laid down by the Supreme Court in Boghara Polyfab (supra) this is not one of those matters where the Court can conclude at this stage that there was a definite accord and satisfaction of the claim. On the contrary, there is a serious matter of dispute between the parties which is arbitrable and which would have to be decided on the basis of evidence adduced before the Arbitrator. 9. Despite a notice dated 3 December 2009, the insurer has not proceeded to make a nomination of its Arbitrator. As already noted earlier, the existence of the arbitration agreement is not in dispute. Hence, this is a fit and proper case for the appointment of an arbitrator under the provisions of the Arbitration and Conciliation Act 1996. Shri Justice B.N. Naik, Former Judge of this Court is appointed as sole arbitrator under the provisions of the Arbitration and Conciliation Act 1996. The Arbitration Application is accordingly PNP 11 ARBAP90-10=1.10 disposed of. There shall be no order as to costs. The Prothonotary and Senior Master shall forthwith communicate a copy of this order to the sole arbitrator together with a memorandum of address of parties. (Dr. D.Y.Chandrachud, J.)