Case: THE ORIENTAL INSURANCE CO. LTD Vs. DICITEX FURNISHING LTD

2. The relevant facts in this appeal are that on 17.09.2011, Dicitex obtained a Standard Fire and Special Peril Policy; it was issued by the appellant to cover the stocks of goods lying in its three separate godowns located at Thane, Maharashtra, by three separate endorsements. The total sum insured was @ 13 crores. ? Clause 13 of the terms and conditions of the said policy contained an arbitration clause. On 25.05.2012, a fire broke out at night on the ground floor of the building occupied by RFCL, which fire spread to the first floor of the building and completely engulfed all of the appellant?s three godowns which had stored its goods. All the stocks in all the three godowns were completely destroyed. Dicitex informed the appellant on 26.05.2012, about the fire and the consequential loss. The appellant appointed M/s. C.P. Mehta & Co. as Surveyors and Assessors to survey the loss suffered by Dicitex and to report on the claim to be lodged upon the insurer-appellant, by the said company. Dicitex lodged a total and final claim upon the appellant for a sum of 14,88,14,327/- ? comprising 13,52,85,752/- towards cost of the materials ? destroyed and 1,35,28,575/- as overheads. Dicitex claims also ? to have submitted comprehensive documentary evidence and detailed work sheets in support of the claim made to the insurer. On 14.08.2012, after visiting Dicitex?s factory and the godowns, and after scrutinizing the materials submitted by it in support of its claim, the Surveyor appointed by the insurer filed a Final Survey Report recommending that the claim be settled for an amount of 12,93,26,704.98/- and that after deducting an ? amount of 5% towards compulsory deduction for excess, a net amount of 12,28,60,369/- be paid over to Dicitex. The latter ? alleged that a copy of this survey report was not supplied to it, by the insurer, or the surveyor.On 20.09.2012, Dicitex addressed a letter to the appellant?s chairman, informing him of the financial distress that it was facing, requesting for settlement of the claim on priority basis. Dicitex also informed him about a temporary loan obtained -to the tune of 10 crores- from Union Bank of India for 3 months at ? a high rate of interest which was due for repayment in September 2012 and requested him that it would be a great financial help if its claim could be settled on priority basis which would mitigate their hardship. Again, on 25.10.2012, Dicitex informed the insurer that the sale value of the goods destroyed was above 19 ? crores and that it had not only lost its goods but also its profits. Dicitex informed that it had already submitted all the documentary evidence supporting the claim to the Surveyor, M/s. C.P. Mehta & Co., yet another letter was addressed to the appellant?s chairman on 31.10.2012 placing on record that it had understood from the surveyor M/s. C.P. Mehta & Co. that the Head Office of the appellant asked for some more information in connection with the claim. Dicitex stated that compiling, organizing and sending various documents totalling around 35,000 in number, entailed voluminous work. It was stated that the surveyor had already gone through those documents and had picked up at random, sample of various concerned records. Dicitex stated that it was arranging to compile the documents and agreed to send them to the surveyor as soon as possible. In other letters (dated 10.01.2012, 28.01.2013), again requests were made to the insurer to release the amounts. Apparently, the appellant appointed a Chartered Accountant (M/s Naveen Jhand & Associates) to carry out a resurvey of the claim made by it (Dicitex). The latter had already furnished 37,700 documents physically, which showed the exact quantity of furnishing fabrics in meters. Dicitex brought to the notice of the Chairman-cum- Managing Director that the new surveyors had asked for large number of documents again and such documents could not be supplied. On 09.02.2013, addressing the new surveyor M/s Naveen Jhand, Dicitex submitted 37,700 documents and submitted further documents to the said new surveyor. It submitted that since the previous 9 months, it had been providing different documents/information to different people and submitted whatever was requested by the new surveyor in broader form and requested them to submit their report at the earliest.In accordance with the format sent by the insurer and after obtaining Dicitex?s signature, a cheque for 3.5 crores was ? handed over to it. Dicitex signed the discharge voucher on 04.03.2013, when the insurer paid the said sum of 3.5 crores to ? Dicitex as on account payment in the matter of its claim. Union Bank of India endorsed the said discharge voucher. According to Dicitex, all data that was requisitioned by the new surveyor, was provided by it. Several meetings took place between the representatives of the new surveyor, the appellant and Dicitex. Dicitex, mentioned several letters to the appellant, and the surveyor, in 2013 regarding the release of the amounts. Dicitex had also stated that it felt strongly that the new surveyor was just not satisfied with whatever was provided by it though all the data it submitted had proved its genuine claim and the intention of the new surveyor was to somehow reduce the claim. In other letters (such as the one dated 21.02.2014), Dicitex informed the appellant that the surveyor was refusing to commit to any fixed date within which they would be submitting their report and also the appellant?s officials had no answers to its questions with regard to when its claim would be settled. Dicitex requested the General Manager to set a deadline to settle their claim at the earliest. It wrote several letters to the appellant?s officers about the huge financial losses suffered by it due to delay in settlement of the claim. Dicitex informed the General Manager to settle the claim within 15 days.On 27 th May, 2014, Dicitex received an email from the appellant stating that a discharge voucher for the balance amount of the claim payable as described was being enclosed. It was requested to execute the voucher along with the banks discharge on the space earmarked on the left side and send the scanned copy back. By the email dated 28.05.2014, Dicitex replied to the email of 27.05.2014 and referred to the discharge voucher sent by the appellant to it for signature. Dicitex placed on record that its total claim was approximately 15 crores and ? the surveyor had assessed the same at approximately 12.93 ? crores. Dicitex stated that the basis for arriving at the figure of 7.16 crores was not explained (by the appellant). It requested ? the Regional Manager of the appellant to provide the claim assessment working for their understanding to enable Dicitex to take up the matter with their Board of Directors for consideration. The appellant, by email dated 29.05.2014, alleged that M/s. C. P. Mehta & Co. had initially assessed the loss at 12,28,60,369/-. However, it had certain issues on the costing; ? it, therefore, appointed M/s. Naveen Jhand and Associates to have another look at the costing aspect and reconfirm/verify the costing for loss assessment purpose. According to the said report submitted by M/s. Naveen Jhand and Associates, the assessment worked to 7,16,30,148/- and accordingly, the competent ? authority had granted the claim. The appellant enclosed the working of the claim and requested Dicitex to go through it and send an unconditional discharge voucher duly signed by it and the bankers. Dicitex, the insured did not do so and informed the appellant that it had noticed that what was given was just a statement of calculation, without explanation/basis, that adjustments had resultant deductions in Dicitex?s claim by more than 50% as assessed by the surveyor appointed by the appellant. Dicitex stated that since the appellant had taken 2 years to offer the final settlement of the claim, it (Dicitex) was suffering from a huge financial constraint and had to pay bank interest and installments, salaries and wages, hence, it was left with no alternative but to accept the offer of the appellant reluctantly and was accordingly sending the voucher duly discharged by Dicitex and their bankers for doing the needful. Dicitex alleged that since the appellant did not relent, and insisted that any further payment would be made only if the discharge voucher was executed exactly at the time and in the form and manner as required by it as well as the letter dated 31.05.2014 was withdrawn. Dicitex stated that as it was in urgent need of funds to meet its mounting liabilities, it was coerced into withdrawing its earlier letter of 31.05.2014 and in executing the discharge voucher exactly as dictated by the respondents. By the letter dated 06.06.2014, addressed to the Regional Manager, Dicitex withdrew the letter dated 31.05.2014 submitted along with the discharge voucher for a full and final settlement of their claim. It requested the appellant to remit the claim amount immediately. The discharge voucher was on the letter head of the appellant, duly endorsed by Dicitex?s bankers. In the discharge voucher, it was recorded that it accepted a sum of 3,66,30,148/- in full and final settlement of its claim. It was ? also recorded that Dicitex voluntarily gave discharge receipt in full and final settlement of their claim, present or future, arising directly/indirectly in respect of the said loss/accident and subrogated all their rights and remedies to appellant in respect of the loss/damages. Further correspondence ensued whereby Dicitex informed the appellant that since there was a huge difference between the total amount claimed by it, and the final claim settlement amount by the appellant, the same was required to be discussed and resolved, failing which Dicitex would be required to invoke the arbitration, as per clause 13 of the terms and conditions attached to the policy. The appellant, by the letter dated 17.07.2014 addressed to Dicitex, informed that it was surprised by the proposal to invoke arbitration after the clean discharge voucher was signed for the sum of 7,16,30,148/- in ? full and final settlement of the said loss. The respondents denied that there existed any dispute of quantum in respect of the said claim and contended that the amount due to Dicitex arising out of indemnity, arising from the policy was duly verified and assessed based on the documents submitted by Dicitex. The appellant did not agree to Dicitex?s request for any differential amount or request for proceeding for arbitration under the policy. On 24.07.2014, by a letter addressed to the appellant, Dicitex denied that the amount received by it was a clean discharge voucher in full and final settlement of their claim and reiterated that it suffered a major loss of 14,16,94,329/-. The surveyor, ? M/s. C.P. Mehta & Co. had submitted their report assessing the loss at 12.93 crores. Dicitex also placed on record that as ? against approximately the claim of 14.70 crores, the appellant ? released only 3.50 crores on 04.03.2013 i.e. almost 10 months ? after the loss had occurred, and after a lapse of 27 months, the appellant made "a take it or leave it" offer of 7.16 crores towards ? full and final settlement of their claim, the discharge was accepted reluctantly by it. Dicitex alleged that upon meeting the appellant?s officers, it was instructed to withdraw the letter of protest and accept the claim settlement unconditionally which was a proof of coercion.The position taken by the appellant was that Dicitex was paid 7,16,30,148/- in a clean discharge and full and final ? settlement of their claim and there existed no dispute with regard to the quantum of claim and refused to appoint any arbitrator. In these circumstances, Dicitex approached the Bombay High Court under Section 11(6) of the Act, for appointment of an arbitrator. Dicitex relied on the assessment of M/s C.P. Mehta & Co., which had assessed the loss at 12.93 crores. It contended that the ? appellant released only 3.50 crores on 4.03.2013 i.e. almost 10 ? months after the loss suffered by Dicitex due to fire, and only after a lapse of 27 months made "a take it or leave it" offer of 7.16 crores towards full and final settlement of their claim. ? Dicitex stated that it had taken a loan of a substantial amount and had to bear the extra burden of high interest and found itself defaulting on timely loan repayments. It was further submitted that Dicitex was unable to pay income tax on time, as a result of which, it had to pay a sum of 23.90 lacs in the year 2012-2013 ? and a sum of 11.10 lakhs in the year 2013-2014 towards ? interest for the delayed payments of income tax. It was also argued, on behalf of Dicitex, that it was subjected to economic duress and coercion which resulted in the signing of the discharge voucher, which could not preclude its invocation of the arbitration agreement.The appellant resisted the application, contending that Dicitex had not demonstrated whether the second discharge voucher signed by it was under economical or financial duress under the arbitration agreement. It was urged that since Dicitex had signed the discharge voucher and accepted the payment made by the respondents unconditionally and confirmed that the said payment was received in full and final settlement of their claim, present or future, arising directly/indirectly in respect of the said loss/accident and subrogated all their rights and remedies to the appellant in respect of the loss/damages, there exists no dispute between the parties which can be referred to arbitration. It was argued that Dicitex having signed the discharge voucher for 7,16,30,148/- in full and final settlement ? due to alleged loss suffered by Dicitex, the arbitration application was not maintainable. It was submitted that the appellant had replied to the letter dated 21.06.2014 stating that Dicitex had withdrawn only discharge voucher dated 31.05.2014. The appellant also stated that in the arbitration agreement itself, Dicitex had to explain the exact correctness of the allegation of coercion and duress with details and particulars about signing the discharge voucher. It was further contended that though the payment was received by Dicitex on 09.06.2014, it raised protest only on 21.06.2014. Even in the letter dated 21st June 2014, Dicitex referred to the discharge voucher dated 31.05.2014 which was not admittedly acted upon by the insurer. Dicitex did not resile from the discharge voucher dated 31.05.2014, and thus on that ground also, this arbitration application is not maintainable.The appellant relied on some decisions of this court (New Indian Assurance Co. Ltd v Genus Power Infrastructure Ltd. (2015) 2 SCC 424.   National Insurance Co. Ltd v Boghara Polyfab Pvt Ltd (2009) 1 SCC 267  ; Union of India (UOI) and Ors. v Master Construction Co. (2011) 12 SCC 349 etc.In the impugned judgment, while allowing the application, the single judge analysed the decisions of this court, including Boghara Polyfab (supra). It was noted that a perusal of the correspondence prima facie indicated that the first surveyor appointed by the insurer had recommended the payment of more than 12 crores in favour of Dicitex. For some reasons, the ? appellant did not accept the said report submitted by their own surveyor and instead appointed M/s Naveen Jhand and Associates to re-compute the costings. It was also held that Dicitex had furnished more than 37,700 documents to the surveyor for their appraisal for submitting the report. Dicitex had placed on record from time to time, documents to show that it had taken loans from the banks who were pressurising it for repayment of those loans and interest. The account of Dicitex with those banks had drawn the excess amount. The final amount was sanctioned by the respondents only after 27 months of the fire having taken place, which caused loss to Dicitex. Dicitex had produced about 11 letters addressed by the banks to Dicitex, calling upon Dicitex to regularize their bank accounts and showing the excess amount drawn by it in various accounts. Dicitex had also placed on record, the conduct of the second surveyor, who was, according to it, demanding several other documents which were unwarranted and/or already submitted by it. The learned judge noticed that prima facie, Dicitex was facing financial distress and economical duress and in view of its various urgent business liabilities, it apparently signed the said discharge voucher reluctantly. It is not in dispute that the appellant refused to accept such discharge voucher signed by Dicitex with letter of protest. Therefore, a few days later, a discharge voucher was signed by Dicitex. It was, however, Dicitex?s case that the appellant had insisted upon it to sign a clean discharge voucher and to withdraw the letter of protest addressed by it, failing which, the insurer would not release the amount, even that was reflected in the discharge voucher. Dicitex thereafter withdrew the letter dated 31.05.2014, and signed another discharge voucher. After signing another discharge voucher, Dicitex placed on record their objection that the same was signed due to pressure of the respondents.In view of the analysis made, the single judge allowed the application, observing asOn perusal of the large number of correspondence exchanged between Dicitex and the respondents which were not disputed by the respondents, in my prima facie view, it indicates that Dicitex was facing the financial constraint and economical and financial duress on the part of the respondents in not sanctioning and paying the final claim for 27 months from the date of fire. Dicitex having faced pressure from their bankers and suffering from other business liabilities including the demand of income tax department, Dicitex was under the economical and financial duress and the said discharge voucher thus, in my prima facie view, cannot be considered as an unconditional discharge voucher thereby Dicitex giving up their claim in future arising out of the said discharge voucher.In my view, if Dicitex would not have signed such discharge voucher acknowledging the payment of the lesser amount than what was alleged to be due to Dicitex after 27 months of the loss suffered, the respondents would not have released even the said amount mentioned in the discharge voucher. In my view, if according to the respondents, Dicitex was not entitled to recover the amount as claimed by Dicitex, but the lesser amount, the respondents could have released the amount as payable according to the respondents, but could not have insisted for execution of a discharge voucher as a pre-condition before releasing such payment.Learned counsel for the respondents could not refer to any provision in the insurance policy or any other provision of law in support of their claim that the respondents were entitled to insist for execution of such discharge voucher before releasing any payment in favour of Dicitex with a confirmation not to make any claim in future arising out of the said claim. The Supreme Court has already deprecated the practice followed by the government departments, statutory corporations and government companies for obtaining such undated discharge voucher as the condition for releasing lesser amount and has held that the said procedure is unfair, irregular and illegal. Though the Chief Justice or his designate is empowered to decide the issue as to whether the parties had concluded the contract by recording satisfaction of their mutual rights and obligations thereby receiving the final payment without objection based on the affidavits and the pleadings or can leave the said issue to be decided by the arbitral tribunal, in my view, it would be appropriate if the issue raised by the respondents that Dicitex had signed such discharge voucher unconditionally and the issue raised by Dicitex that the same was under duress and coercion is conclusively decided by the arbitral tribunal and if necessary, by leading oral evidence. The learned designate of the Chief Justice in case of M/s.Yasho Industries Pvt. Ltd. Vs. The New India Assurance Company Limited in Arbitration Petition No.314 of 2014 decided on 24th June 2015 which is relied upon by one of the party has taken a similar view. Special Leave Petition against the said order is rejected.In so far as the issue of arbitrability of the claim raised by the respondents on the ground that Dicitex proposed to make the claim amount higher than the insured sum is concerned, if any claim higher than the insured sum is made by Dicitex before the arbitral tribunal, the respondents can raise such issue of arbitrability and the same can be decided by the arbitral tribunal. The issue of arbitrability of claim on such ground cannot be decided in these proceedings. 61. Clause 13 of the arbitration agreement of the policy which provides that if any dispute or difference shall arise as to the quantum to be paid under the policy, such difference shall be referred to the decision of a sole arbitrator to be appointed in writing by the parties 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. Since the respondents have refused to appoint any arbitrator out of the names suggested by Dicitex in their letter dated 14th July 2014 and had not suggested any other name, this application filed under Section 11 (6) of the Arbitration Act is maintainable. In my view, the arbitration agreement exists between the parties.?

Reasoning: 19. A close look at the facts in the present case would show that though the pleadings in the initial application under Section 11(6) are weak, nevertheless, the materials on the record, in the form of copies of the inter se correspondence of the parties – which span over 2 years, clearly show that Dicitex kept repeatedly stating that it was facing financial crisis; it referred to credits obtained for its business and the urgency to pay back the bank. It is a matter of record that the Surveyor?s report, dated 14.08.2014, recommended payment of 12,93,26,704.98/- ? to Dicitex. Equally, it is a matter of record that the appellant referred the matter to a chartered accountant?s firm, to verify certain inventory and sales figures. It went by the report of the latter, who stated that the estimate of loss could not be more than 7,16,30,148/-. This is what ? was offered to Dicitex, by May, 2014. Dicitex?s application under Section 11(6) is replete with references to the number of letters written to the appellant, seeking release of amounts; it also averred to inability to pay its income tax dues, the pressure from bankers (in support of which, copies of letters of bankers were produced along with the application).An overall reading of Dicitex?s application (under Section 11(6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. It cannot be disputed, that several letters – spanning over two years- stating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. This court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings. At this stage, therefore, the court- which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read: arbitration) proceeding. If the court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court. There are decisions of this court (Associated Construction v Pawanhans Helicopters Ltd. (2008) 16 SCC 128  and Boghara Polyfab (supra) upheld the concept of economic duress. Having regard to the facts and circumstances, this court is of the opinion that the reasoning in the impugned judgment cannot be faulted.