THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.33 of 2011 (Dated : 05-07-2011) Between: M/s.S.M.Labs Pvt. Ltd., Rep. by its Executive Director Sri G.Manikya Reddy …Applicant A n d The Senior Divisional Manager M/s. New India Assurance Co. Ltd., R.P.Road, Secunderabad and others ….Respondents THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.33 of 2011 ORDER: This application has been taken out under sub-section (6) of Section 11 of the Arbitration and Conciliation Act, 1996 seeking appointment of an arbitrator to adjudicate the disputes between the applicant and the respondent in respect of deferred claim of an amount of Rs.97,13,788/- on account of damages suffered in fire accident occurred on 09.02.2009 in the premises of the factory located at Plot No.C-5, IDA, Moula-Ali, Hyderabad – 500 040. 2. The averments in the application, in brief, are:- (a) The respondent company was the insurer of the applicant – S.M.Labs Pvt. Ltd. for the period from 01.10.2008 to 30.9.2009. The policy is known as “Standard Fire and Special Perils Policy”, vide Policy No.612900/11/8/11/00004299. The coverage of insurance is for Rs.1,80,00,000/-. An accident occurred in the factory premises of the applicant on 9.2.2009 due to short circuit causing extensive damage to the plant, machinery and stocks etc. The respondent company was informed of the accident preceded by a report filed before the concerned Fire Station. An amount of Rs.1,57,49,053/- has been claimed as damages. The respondent company appointed Surveyor and Valuer to conduct survey and submit report. The applicant company cooperated with the surveyors by furnishing all the details sought for by them. The respondent company settled the claim for an amount of Rs.60,35,265/-. According to the applicant, it accepted the cheque under protest and that the respondent did not furnish the details with regard to the basis on which the claim has been settled. The applicant company secured copy of the Surveyor’s report from the respondent on 22.4.2010. On verification of the survey report, the applicant company found that certain information is missing in the survey report. Thereupon, the applicant company addressed letter dated 17.5.2010 to the respondent company seeking clarification of the points raised therein. The respondent company had furnished copy of the detailed working giving the break up, on 7.10.2010. The applicant company noticed discrepancies with regard to the quantum of amount settled and came to the conclusion that there is dispute with regard to the quantum of amount settled. (b). The applicant company addressed a letter to the respondent company on 30.11.2010 proposing reference of the dispute to an arbitrator as provided under Condition No.13 of the Insurance Policy. The applicant also suggested the name of Sri Justice T.N.C.Ranga Rajan, a retired Judge of this Court as an arbitrator for adjudication of the dispute. The respondent company issued a reply on 29.01.2011 stating that there is no dispute, which is required to be referred to the arbitrator for settlement as the amount has been received by the applicant towards full and final settlement of his claim. Hence, this application seeking the relief stated supra. For better understanding of the grievance of the applicant, I deem it appropriate to refer para (6) of the affidavit filed in support of the application, which reads as hereunder:- “ Therefore, it is submitted that as per Express Provisions under the General Condition No.13 of the Insurance Policy, we have addressed a letter to the respondent’s company on 30/11/2010 suggesting to refer dispute to the Arbitrator as provided under the said provisions which is mandatory being mutually agreed express condition, also suggesting the name of Hon’ble Justice Sri T.N.C.Ranga Rajan (Retd.) as Arbitrator to the above dispute, through our counsel. On receipt of above said letter a communication dt.27/12/2010 was received initially from the Head Office stating that the competent authority agreed for appointment of Mr.S.Upendra, CA, Bengaluru to act as Arbitrator etc. In fact the appointment of the named Arbitrator was in connection with another claim by M/s.S.V.Labs. The said communication is therefore, appears to have been issued without even looking into the actual issue of the petitioners herein. In other words, the callous attitude adopted is an indication in that regard with respect to the claims made by the insured. However, the respondent company got issued reply notice dated 29/01/2011 stating that there is no dispute when the amount settled and the amounts received as such there is no dispute referable to Arbitration. Further saying that the Clause No.13 of the policy will not apply to this case. This reply notice is only with reference to a clarification given by us on 11/01/2011 with reference to a clarification sought orally by the respondent company to indicate the disputed quantum of amount for which we clarified the same as about Rs.84,00,000/-, however, the factual amount of Rs.97,13,788/- which shall stand corrected. Therefore, we had to once again by a letter dated 07/02/2011 clarified the issue as the reply notice dt.29/01/2011 was issued without referring to our initial proposal dt.30/11/2010 for reference of the dispute to Arbitration. Even to this letter, in an attitude of audacity exhibited the respondent company got issued yet another communication dt.21/02/2011 rejecting our proposal for reference to Arbitration stating that it is only as an after thought”. 3. Notice to the respondents came to be ordered on 21.4.2011. The respondents entered appearance and filed counter. It is stated in the counter affidavit that the policy was obtained by the financier bank, namely, M/s.Union Bank of India of the applicant company. The applicant as well as the financier who is the insurer received Rs.60,25,914/- towards full and final satisfaction of the claim under a letter dated 31.3.2010. The applicant is fully aware of the details of the survey report and after discussions only the applicant agreed to receive the amount by way of cheque. The applicant has never asked for copy of the survey report before the settlement of the claim as he is fully aware of its contents. Until and unless the applicant gets the survey report set aside by approaching a Civil Court, he cannot be permitted to contend that the report of the surveyor is arbitrary and irrational. The applicant’s letter dated 4.2.2010 indicates that the applicant requested the respondent for settlement of the amount basing on the survey report. The financier, who obtained policy on behalf of the applicant has not raised any objections at any point of time with regard to the settlement and indeed the financier is signatory to the settlement voucher. The applicant company has been asked by the respondent under letter dated 13.01.2010 to furnish certain documents. Instead of furnishing the documents sought for, the applicant stated that he has given information to the surveyor. As such, the applicant is in touch with the surveyor at every point of time and knows the contents of the report fully. The applicant voluntarily without any objections received the amount settled. Therefore, there is no dispute which is required to be referred for settlement. 4. Heard learned counsel appearing for the applicant and learned counsel appearing for the respondent. 5. Learned counsel appearing for the applicant submits that the applicant received an amount of Rs.60,25,914/- towards part satisfaction of the claim and even if it is construed as receipt simplicitor, the same has been issued under financial constraints in which case, receiving an amount of Rs.60,25,914/- cannot be treated as an acceptance towards full satisfaction of its claim. He would also contend that by the time the applicant issued receipt, he was not aware of the contents of the Surveyor report and therefore, there was no occasion for him to raise objection to the valuation made by the surveyor and that on receipt of the Surveyor’s report, he came to know that the assessment of the surveyor is not correct and therefore, the claims made by the applicant under various heads need adjudication as per Condition No.13 of the General Conditions of the policy by taking recourse to the provisions of the Arbitration and Conciliation Act, 1996. In a way, his contention is that the receipt for Rs.60,25,914/- cannot be treated towards full satisfaction of the applicant’s claim. In support of his submissions, reliance has been placed on the decisions of the Supreme Court in National Insurance Co. Ltd. vs. M/s.Boghara Polyfab Pvt. Ltd.[1]. By referring the said decision, learned counsel contends that the case of the petitioner falls under illustration (iv) indicated in para (52) of the judgment. 6. Learned counsel appearing for the respondent submits that the applicant along with its financier issued receipt for accepting Rs.60,25,914/- towards full satisfaction and discharge of the claims upon the company under policy No. 612900/11/08/11/00004299, in which case, there is no dispute with regard to the quantum of amount, which is required to be resolved under Condition No.13 of the General Conditions of Policy by taking recourse to the provisions of Arbitration and Conciliation Act, 1996. In a way, it is his contention that the dispute was concluded and the applicant and its financier fully and finally accepted the settlement of the claim by receiving an amount of Rs.60,25,914/-. He would also contend that the policy has been taken by the financier of the applicant company and he is signatory to the full satisfaction receipt and therefore, it is impermissible for the applicant to contend that whatever amounts received under Full Satisfaction memo is only towards part satisfaction of his claim. In support of his submissions, learned counsel apart from placing reliance on the self-same judgment cited by the learned counsel appearing for the applicant, placed reliance on the following decisions:- (1) Bhagwati Prasad Pawan Kumar v. Union of India[2] (2) Chairman & Managing Director, National Thermal Power Corporation Ltd, New Delhi and another v. M/s.P.K.Ramaiah & Company[3] (3) Krishna Kumar Acharya v. Branch Manager, New India Assurance Co.[4] (4) Nathani Steels Ltd. v. Associated Constructions [5] (5) M/s. P.K.Ramaiah v. Chairman & Managing Director, National Thermal Power Corporation[6] 7. In Bhagwati Prasad’s case ( 2nd supra), the Supreme Court observed that the Courts must examine the evidence to find out whether in the facts and circumstances of the case the conduct of the `offeree’ was such as amounted to an unequivocal acceptance of the offer made. If the facts of the case disclose that there was no reservation in signifying acceptance by conduct, it must follow that the offer has been accepted by conduct. On the other hand, if the evidence disclose that the `offeree’ had reservation in accepting the offer; his conduct may not amount to acceptance of the offer in terms of Section 8 of the Contract Act. 8. In Krishna Kumar Acharya’s case (4 supra), the Rajasthan High Court held that after acceptance of the amount in full settlement of all claims upon the Insurance Company, there was no dispute or difference in between the insured and the insurer, which can be referred to arbitration under the arbitration clause. 9. In Nathani Steels Ltd. case ( 5 supra), the Supreme Court held that once the parties have arrived at a settlement in respect of any dispute or difference arising under a contract and the dispute or difference is amicably settled by way of final settlement by and between the parties, unless that settlement is set aside in proper proceedings, it cannot lie in the mouth of one of the parties to invoke the Arbitration clause. 10. I n M/s.P.K.Ramaiah and Company’s case ( 6 supra), the Supreme Court held that in case of voluntary and unconditional written acceptance of payment in full and final settlement, subsequent claim in respect of the same work cannot be called as arbitral dispute. 11. Both the counsel heavily relied on the decision in National Insurance Co. Ltd. vs. M/s.Boghara Polyfab Pvt. Ltd( 1 supra). The Supreme Court considered the proposition of law laid down in Union of Inida v. Kishorilal Gupta [ 1960(1) SCR 493], Damodar Valley Corporation v. K.K.Kar [ 1974(1) SCC 141] and Indian Drugs & Pharmaceuticals Ltd. v. Indo Swiss Synthetic Gem Manufacturing Co. Ltd.[ 1996(1) SCC 54] and stated some illustrations as to when claims are arbitrable and when they are not, when discharge of contract by accord or satisfaction are disputed. Paras 27 and 28 of the cited judgment need to noted and they read thus:- “( 27. ) LET us consider what a civil court would have done in a case where the defendant puts forth the defence of accord and satisfaction on the basis of a full and final discharge voucher issued by plaintiff, and the plaintiff alleges that it was obtained by fraud/coercion/undue influence and therefore not valid. It would consider the evidence as to whether there was any fraud, coercion or undue influence. If it found that there was none, it will accept the voucher as being in discharge of the contract and reject the claim without examining the claim on merits. On the other hand, if it found that the discharge voucher had been obtained by fraud/undue influence/coercion, it will ignore the same, examine whether plaintiff had made out the claim on merits and decide the matter accordingly. The position will be the same even when there is a provision for arbitration. The Chief Justice/his designate exercising jurisdiction under section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the arbitral tribunal with a specific direction that the said question should be decided in the first instance. 28. Some illustrations (not exhaustive) as to when claims are arbitrable and when they are not, when discharge of contract by accord and satisfaction are disputed, to round up the discussion on this subject : (i) A claim is referred to a conciliation or a pre-litigation Lok Adalat. The parties negotiate and arrive at a settlement. The terms of settlement are drawn up and signed by both the parties and attested by the Conciliator or the members of the Lok Adalat. After settlement by way of accord and satisfaction, there can be no reference to arbitration. (ii) A claimant makes several claims. The admitted or undisputed claims are paid. Thereafter negotiations are held for settlement of the disputed claims resulting in an agreement in writing settling all the pending claims and disputes. On such settlement, the amount agreed is paid and the contractor also issues a discharge voucher/no claim certificate/full and final receipt. After the contract is discharged by such accord and satisfaction, neither the contract nor any dispute survives for consideration. There cannot be any reference of any dispute to arbitration thereafter. (iii) A contractor executes the work and claims payment of say Rupees Ten Lakhs as due in terms of the contract. The employer admits the claim only for Rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of Rupees Six Lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard pressed for funds and keen to get the admitted amount released, signs on the dotted line either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration. (iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The `accord' is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration. (v) A claimant makes a claim for a huge sum, by way of damages. The respondent disputes the claim. The claimant who is keen to have a settlement and avoid litigation, voluntarily reduces the claim and requests for settlement. The respondent agrees and settles the claim and obtains a full and final discharge voucher. Here even if the claimant might have agreed for settlement due to financial compulsions and commercial pressure or economic duress, the decision was his free choice. There was no threat, coercion or compulsion by the respondent. Therefore, the accord and satisfaction is binding and valid and there cannot be any subsequent claim or reference to arbitration. 12. The points for determination are:- 1) Whether the applicant received Rs.60,25,941/- towards full satisfaction and discharge of his claims ? 2) Whether any dispute subsists, after acceptance of Rs.60,25,941/-, which requires reference to the arbitration for adjudication as per Clause (13) of the General Conditions of the policy ? POINTS 1 AND 2:- 13. It is beyond pale of controversy that that the applicant and its financier, who insured the plant, machinery and stocks on behalf of the applicant with the respondent, issued receipt accepting Rs.60,25,914/- towards full satisfaction and discharge of claim under Policy No.612900/11/08/11/0004299. For better appreciation, I may refer the text of the receipt issued by the applicant as well as its financier, i.e., Union Bank of India, A.S.Rao Nagar Branch and it reads as hereunder:- ………………………….. ………………………………………………………………………………………………… Settlement Intimation Vocher CLAIM NO.612900/11/08/11/90000115 Srl.No.:1 Dev.OFFICER 900001/union Bank of India Agent : 1108/UBI, AS RAO NAGAR BR, RECEIVED From THE NEW INDIA ASSURANCE COMPANY LTD. the sum of RUPEES SIXTY LAKH TWENTY FIVE THOUSAND NINE HUNDRED FOURTEEN ONLY Which I/We agree to accept in full satisfaction and discharge of my/our claim upon the Company under Policy No.612900/11/08/11/0004299 in respect of M/s. UBI, DR AS RAO NAGAR BR. A/c N. --------------------------------------------------------------------------------------- 14. A plain reading of the above-referred text of the receipt indicates that the applicant and its financier received the amount towards full satisfaction and discharge of the claim relatable to Policy No. 612900/11/08/11/90000115. The Financier who has taken the policy on behalf of the applicant has not raised any dispute that the amount received is only towards part satisfaction and not towards full satisfaction. The only contention advanced by the applicant is that by the time he received , he was not aware of the report of the Surveyor and therefore, there was no occasion for him to know as to what was the assessment made by the Surveyor in respect of the property gutted in fire accident. I do not see any substance in his contention since the applicant himself stated in his letter dated 04.02.2010 that he has been provided with statement showing the list of damages of raw material semi-finished and finished goods, which is forming part of survey report. Even the applicant requested under the said letter to consider the Survey report and settle the claim. A reading of the above-referred letter indicates that the Directors of the applicant company participated in the survey and they were aware of the survey report by the time the respondent settled the claim of Rs60,25,941/-. The receipt issued by the applicant and its financier clearly indicates that they accepted Rs.60,25,914/- towards full satisfaction of claims. Neither the applicant nor its financier made any reservations while accepting the said amount. Once the applicant and its financier received the amount, the contract is discharged and therefore, neither the contract nor any dispute survives for consideration and in which case, there cannot be any reference of the dispute to arbitration. The facts of the case squarely come within the 2nd illustration as enunciated in para (28) of the National Insurance Co. Ltd. vs. M/s.Boghara Polyfab Pvt. Ltd ( 1 supra). In that view of the matter, I find that the application is devoid of merits and it is liable to be dismissed. 15. Accordingly, the Arbitration Application is dismissed. No order as to costs. _____________________ B.SESHASAYANA REDDY, J Dt.05-07-2011 RAR THE HON’BLE SRI JUSTICE B.SESHASAYANA REDDY Arbitration Application No.33 of 2011 Dated : 05-07-2011 [1] 2009(1) SCC 267 [2] 2006(2) IAC 434 (SC) [3] 1992(1) ALT 100 [4] 2002(4) RAJ 291 (Pat) [5] 1995 Supp(3) Supreme Court Cases 324 [6] 1994 Supp (3) Supreme Court Cases 126