OMP NO.319/2003 Page 1 * IN THE HIGH COURT OF DELHI AT NEW DELHI + OMP No. 319/2003 14th October, 2009 ORIENTAL INSURANCE COMPANY LTD. ...Petitioner s Through: Mr. N.K.Kaul, Sr. Advocate with Mr. Joy Basu and Ms. Anu Bagai, Advocates. VERSUS AMIRA FOODS (INDIA) LTD. ....Respondents Through: Jayant Nath, Sr. Advocate with Mr. Ayush Aggarwal, Advocate. CORAM: HON’BLE MR. JUSTICE VALMIKI J.MEHTA 1. Whether the Reporters of local papers may be allowed to see the judgment? 2. To be referred to the Reporter or not? YES 3. Whether the judgment should be reported in the Digest? YES % JUDGMENT (ORAL) VALMIKI J. MEHTA, J. 1. OMP 319/2003 is the objection petition filed by M/s Oriental Insurance Company Ltd. against the award dated 9.5.2003 passed by the Arbitral Tribunal consisting of 3 Arbitrators. There are two awards, one by the majority of Hon‟ble Mr. R.S.Pathak (Retired Chief Justice of India) and Justice J.K.Mehra (Retired Judge of this Court) and a separate award has been rendered by the third Arbitrator Sh. Vishnu Mehra, Advocate and which also decides all issues in accordance with the majority award except that in respect of the issue with regard to the survey report, the matter has been remitted for preparing a fresh survey report. OMP NO.319/2003 Page 2 2. The facts of the case are that the respondent/non-objector company sought an insurance policy for its stocks which were to be in different locations i.e. at different ports/godowns. The policy was also required keeping in view the total overall value limit of the policy, although there would be changes in the value of stocks and sub-limits in different locations from time to time. The business of the respondent was, inter alia, of export of its goods (mostly rice) and as per the stand of the respondent, as orders were executed and procurements made the value of stocks in the different godowns in the country fluctuated frequently. According to the case of the respondent, it was difficult to keep track of these fluctuations and hence it could not take separate policies for each godown and, therefore, a single policy was required to meet its insurance requirement. 3. The insurance policy was given by the objector to the respondent initially for a sum of Rs.20 crores under its cover note dated 7.8.1997. This figure of Rs.20 crores was enhanced to Rs. 25 crores on the endorsement in the cover note dated 12.8.1997. The insurance policy in this regard was issued on 14.8.1997. This court is, therefore, concerned with this policy, and the endorsements. Further enhancements were made to the value of the policy. First one was by 8 crores on 24.11.1997 and the second one by Rs.5 crores on 26.3.1998 bringing the total value of the policy for the stocks covered to Rs. 38 crores w.e.f 26.3.1998. The policy in question is a Fire Declaration Policy. This policy required the respondent to make a declaration on a monthly basis for the value of stocks at each location. Such declarations were duly made by the respondents on a monthly basis to the objector and the last relevant declaration which is material, is the one dated OMP NO.319/2003 Page 3 5.6.1998 because the incident/event for which the insurance claim was made is dated 9.6.1998 when the Kandla Port was hit by a cyclone causing damage to the stocks of rice of the respondent. The damage was surveyed by the surveyor of the objector company. The respondent made a claim of Rs.11.3 crores which after removal of partially damaged stocks was reduced to Rs.7.2 crores. As against this claim of Rs.7.2 crores, the objector company accepted a claim of Rs. 4,30,91,103/- only and disallowed the balance amount on the ground that stocks were under insured. 4. What is relevant is that the objector company first made an on account ad hoc payment of Rs. 2,49,36,994/- out of the total claim approved of Rs. 4,30,91,103/-. As per the respondent the objector insurance company asked the claimant to approve this figure of Rs.4,30,91,103/- in full and final settlement before releasing the balance. The contention of the non-objector is that disputing this position it had already written a letter to the objector on 16.12.1998 and the date of the signing of the full and final satisfaction voucher was subsequently done on 17.12.1998. Also, the respondent company on the next day thereafter vide its letter dated 18.12.1998, immediately after signing of the alleged full and final settlement voucher, wrote that the voucher had been got signed under economic duress because the objector insurance company refused to release even the admitted amount unless the full and final settlement voucher was signed by the respondent company. 5. The majority award of the arbitrators has held as follows:- OMP NO.319/2003 Page 4 (i) The full and final settlement voucher was not signed voluntarily by the respondent company but was signed under duress and therefore, it cannot be said to be full and final settlement between the parties. (ii) The arbitration clause between the parties was interpreted and it was held that the clause in question is wide enough to include therein the determination of the issue as to whether full and final settlement between the parties was arrived at. This finding was arrived at because the objector insurance company contended that the arbitrators under the subject arbitration clause could only adjudicate upon the quantum of the claim and could not decide the issue with regard to whether or not there was full and final settlement under the voucher in question. (iii) The nomenclature of the policy whether the same is a Fire Declaration Policy or a Floaters Policy is immaterial because what has to be referred to are the terms of the contract between the parties, contemporaneous correspondence and the actions of the parties in furtherance of the contract so as to determine the meaning which the parties would ascribe to the terms of the contract. Accordingly, it is held that the sublimits for each location will change as per monthly declarations submitted by the respondent. The arbitrators awarded the respondent company the amount with respect to the loss of its stocks on the ground that though the sub-limit of the stocks at Kandla Port as per the insurance policy was stated to be of Rs. 9 crores however, on account of the important exchange of correspondence dated 2.8.97, it was clear that the valuation so fixed of the sublimit at Kandla Port was to be taken in the overall total limit of the insurance policy because by means of the monthly declaration different valuations of the stocks at OMP NO.319/2003 Page 5 different locations had to be given by the respondent company and which figures were duly given clearly showing that with respect to each month the sublimit amount for different locations stood changed than as mentioned in the insurance policy and the actual value of stocks was different each month which accordingly changed each sublimit of insurance amount at the different locations. (iv) The arbitrators refused the request of the objector company to refer the matter back to the surveyors for fresh valuation of the loss in stocks because the arbitrators came to a finding that sufficient opportunity right from the beginning was available to the objector insurance company in case it was of the opinion that the policy was a Floaters Insurance Policy and not a Fire Declaration Policy, and if that be so then, the objector ought to have got the survey report accordingly. (v) There are other findings and observations in the award which would be referred to in due course in this judgment. (vi) The arbitrators have finally awarded interest at the rate of 15% per annum from 11.12.1998 till the date of the award and also costs of Rs.9,16,333/- and on the entire amount thus awarded interest thereon was further held payable at the rate of 12% per annum from the date of the award till the date of payment by the objector company to the respondent. 6. Before I proceed to make my observations and give my judgment, it must at once be made clear that the scope of hearing of objections under Section 34 of the Arbitration and Conciliation Act, 1996 is now well defined and no longer res integra. There are basically only three grounds on which the award passed by the Arbitrator can be challenged under Section 34 of OMP NO.319/2003 Page 6 the Act. These grounds are : (i) the award is illegal i.e. against the law of the land (ii) the award is against the contractual provisions between the parties and (iii) the award is so perverse that it shocks the judicial conscience. Keeping in mind the aforesaid requirements and ingredients of Section 34 of the Act, the award and objections raised needs to be examined and has been so examined by me. 7. The learned counsel for the objector Mr. Neeraj Kishan Kaul, Senior Advocate has strenuously argued two points. The first point is that according to the objector the arbitration clause in question has been wrongly interpreted by the Arbitrators to come to the decision as to that they were entitled to determine whether or not there was any full and final settlement between the parties on account of the respondent signing the full and final settlement dated 17.12.1998. He further argued that the judgment of the Supreme Court in National Insurance Co. Ltd. Vs. M/s. Boghara Polyfab Ltd. 2008(12)Scale 654 is distinguishable and what actually ought to have been applied is the ratio of the decision of the Supreme Court in the case of Nathani Steel Ltd. Vs. Associated Constructions 1995 Supp. (3)SCC 324. The counsel has also further contended that the Arbitrator can have no jurisdiction in case the arbitration clause does not permit the Arbitrators to decide the issue of full and final settlement between the parties because that would amount to the Arbitrator exceeding his jurisdiction. For this purpose, the counsel has relied upon Gaya Electric Supply co. Ltd. Vs. State of Bihar AIR 1953 SC 182. It was also argued that in fact there was a full and final settlement when the respondent signed the full and final settlement receipt dated 17.12.1998. OMP NO.319/2003 Page 7 8. The counsel has further strongly urged that since the policy in question is a Fire Declaration Policy it has necessarily to be location specific with a fixed sublimit for each location and since in this case the valuation of stock with respect to different locations has changed, it is contended that consequently the respondent company was not entitled to the benefit of change in the valuation of difference in stocks under different locations as specified by them every month in their declaration to the objector company. It is further contended that unless and until the respondent company specifically applied for change of sublimit with respect to each of the locations, it was not permissible for the respondent company to claim an insurance amount at a location which is higher than that prescribed in the sublimit for that location. 9. I have very carefully considered the submissions of the learned counsel for the objector and the respondent company. I am afraid that I do not agree with the contentions as raised by the objector and the objection petition has to fail. 10. A reference to the impugned award shows that with respect to each of the contentions which have been raised by the present objector, the Arbitrators have duly referred to the respective contentions and thereafter arrived at necessary findings. On the issue with regard to whether the arbitration clause in question entitled the Arbitrators to decide whether there was full and final satisfaction between the parties, the majority award holds as under: OMP NO.319/2003 Page 8 “10.2. This contention has only to be stated to be rejected. The Arbitration Clause reads as under: “If any 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 an arbitrator to be appointed in writing by the parties in difference, or if they cannot agree upon a single arbitrator to the decision of two disinterested persons as arbitrators of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party in accordance with the provisions of the Arbitration Act, 1940, as amended from time to time and for the time being in force. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of a notice in writing requiring an appointment, the other party shall be at liberty to appoint a sole arbitrator and in case of disagreement between the arbitrators , the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meeting.” The phrase, “if any difference shall arise as to the quantum to be paid under this Policy is sufficiently wide to cover the claims in the present case. The Claimant‟s whole contention is that the quantum determined by the Respondent as being payable under the policy i.e. Rs. 4,30,91,103/- is not correct and that the quantum or the amount that the Claimant was entitled to be paid was Rs.7,05,07,442.77 towards the actual loss suffered and Rs.30,70,606/- towards expenses incurred in minimizing or mitigation of loss. Additionally, the Claimant has also pointed out that whereas the loss accepted by the Respondent as per the final Surveyor Report is Rs.6,83,44,556.80, the actual loss suffered is Rs.7,05,07,442.77 and therefore it is not correct for the Respondent to suggest that the actual loss suffered is not disputed. It is clear that there is a dispute or difference as to the quantum to be paid under the Policy itself. The Tribunal has therefore jurisdiction to determine this dispute.” (Emphasis added) 11. In the realm of the interpretation of the contract, the Arbitrators are supreme and this matter has been pronounced upon repeatedly by the Supreme Court and one such judgment is the judgment in Mc Dermott International Inc. Vs. Burn Standard Co. Ltd. 2006 (11)SCC 181. “112. It is trite that the terms of the contract can be express or implied. The conduct of the parties would also be a relevant factor in the matter of construction of a contract. The construction of the contract agreement is within the jurisdiction of the arbitrators having regard to OMP NO.319/2003 Page 9 the wide nature, scope and ambit of the arbitration agreement and they cannot be said to have misdirected themselves in passing the award by taking into consideration the conduct of the parties. It is also trite that correspondences exchanged by the parties are required to be taken into consideration for the purpose of construction of a contract. Interpretation of a contract is a matter for the arbitrator to determine, even if it gives rise to determination of a question of law.” (Emphasis added) 12. I find that the interpretation given by the Arbitrators to the arbitration clause that within the term “quantum to be paid in this policy” is a valid one to cover the determination of the issue of full and final settlement as this is one possible view and it is not such a perverse view which calls for interference by this Court, more so under Section 34 of the Act. Not only this, the Arbitrators have referred to the doctrine of contra proferentes and the various Supreme Court judgments to hold that in case of ambiguity in interpretation of an insurance policy the same should be strictly interpreted in favour of the insured and against the insurance company. Again this is a plausible view. I am also of the view that once a quantum has to be decided naturally and automatically it has to be decided that whether quantum is at all payable or not. If that be so, that whether any quantum as claimed by the insured is payable or not, then to determine such a question it is necessary to arrive at a decision whether there was an earlier full and final settlement. 13. At this stage, it is necessary to refer to the recent decision of National Insurance Co. Ltd. Vs. M/s. Boghara Polyfab Ltd. (supra) in which an absolutely identical clause as the one in question in the present case was in OMP NO.319/2003 Page 10 issue. Para 12 of the judgment refers to that clause and the issue in question. This para is reproduced below: “12. In this case existence of an arbitration clause in the contract of insurance is not in dispute. It provides that “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 to all other questions be referred to the decision of a sole Arbitrator.” The rival contentions give rise to the following question for our consideration: In what circumstances a court will refuse to refer a dispute relating to quantum to arbitration, when the contract specifically provides for reference of disputes and differences relating to the quantum to arbitration? In particular, what is the position when a respondent in an application under section 11 of the Act, resists reference to arbitration on the ground that petitioner has issued a full and final settlement discharge voucher and the petitioner contends that he was constrained to issue it due to coercion, undue influence and economic compulsion?” 14. The Supreme Court in the judgment of Boghara Polyfab interpreting this very identical clause has after considering the entire case law and the earlier judgments has held that an issue with regard to full and final settlement can and ought to be in fact adjudicated by the Arbitrators. The various illustrations given by the Supreme Court in Boghara Polyfab case with respect to full and final settlement whether the issue can be urged or not before the Arbitrator is contained in para 28 of the judgment and the present case falls within the sub para (iii) and (iv) of the judgment which are reproduced below: “28 ........ ....... (iii) A contractor executes the work and claims payment of say Rupess 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 OMP NO.319/2003 Page 11 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.” 15. In the present case, the Arbitrators have come to a categorical finding that the full and final settlement voucher was not signed by the respondent voluntarily and it was under duress. The Arbitrators in this regard have held as under: “10. 14 We hold that the evidence on record establishes that the Claimant did not voluntarily or unconditionally issue the discharge voucher dated 17 December 1998. We do not accept the Respondent‟s contention that any protest must only be in writing. A protest can be made orally or in writing or even be inferred from the conduct of the party. Even otherwise there is sufficient evidence in writing as to the state of affairs. 10.15. The Claimant has proved that it received the letter dated 11 December 1998 on 14 December 1998 when Mr. Vaishnavi, Mr. Phukela and Mr. Dua of the Respondent, came to the office of Mr. Anil Chanana of the Claimant carrying the said letter. This has been spoken to by Mr. Anil Chanana in his affidavit in evidence at para 23 and there has been no suggestion to the contrary by Respondent or its witness. Mr. Anil Chanana has also stated that he had informed the said officers that the payment could not be in full and final settlement as the claim was for Rs.7.354 crores which was a OMP NO.319/2003 Page 12 genuine claim and that the Respondent had not even explained as to why it was sought to be reduced. Mr. Anil Chanana has stated that the Respondent officials stated that without an unconditional discharge voucher being issued, they would not release the balance payment. What is material is that Mr. Anil Chanana was not at all cross examined on the paragraph referred to above and not even a suggestion was put that the contents were not correct. We have no reason therefore not to accept the Statement of Mr. Anil Chanana. 10.16 Further, evidence has been led that on 16 December 1998, Mr. Anil Chanana visited the office of Mr. Vaishnavi, Assistance Manager of the Respondent Company at Jeevan Bharti Building where Mr. Phukela and Mr. Dua were also present. He had carried with him a letter on Claimant‟s letterhead acknowledging receipt of the balance payment being released but reserving the right to claim further amounts not approved by the Respondent Company. His statement is that once again Mr. Phukela and Mr. Vaishnavi refused to accept the letter stating that there must be an unconditional discharge without which no payment would be made. A document of discharge in standard format of the Respondent Company was handed over to the Claimant for signature. This is stated in para 24 of Mr. Anil Chanana‟s affidavit in evidence and he has not been cross examined on this paragraph also. 10.17 It is also evident that on 16 December 1998 itself, the Claimant posted a letter by Registered Post (proof of registry was produced during the hearing) bringing out all these facts which are stated by Mr. Anil Chanana. By this letter also the Claimant informed the Respondent that due to financial pressure they were being coerced to issue a discharge voucher as desired by the Respondent but the Claimant was reserving their right to press for the balance due. It was specifically stated that the voucher was being signed involuntarily under pressure and coercion. This letter was admitted received by the Respondent on 18 December 1998 which was, no doubt, after the money was released. However, the letter was posted on 16 December and is evidence of the prior protest and involuntarily signature appended to the discharge voucher dated 17 December 1998. Along with the letter is enclosed a receipt on the Claimant‟s letterhead acknowledging release of payment but with the right to press for the balance due. This also shows that Mr. Anil Chanana‟s statement in para