Case: National Insurance Co. Ltd.   Vs. M/S. Boghara Polyfab Pvt.Ltd

2. The respondent (Insured) obtained a standard Fire and Special Perils (with a floater) Policy from the appellant (Insurer) to cover its goods in its godowns situated at Surat for the period 4.8.2003 to 3.8.2004. The sum insured was Rs. Three crores, subsequently increased to Rs. Six crores. On 27.5.2004 the respondent requested the insurer to increase the sum insured by another Rs. six crores for a period of two months. Accordingly, the appellant issued an additional endorsement increasing the sum insured by another Rupees six crores, in all Rupees twelve crores. The respondent alleges that the additional endorsement cover issued by the appellant was for 69 days, that is from 27.5.2004 to 3.8.2004. The appellant alleges that the additional endorsement cover was for a period of 60 days from 27.5.2004 to 26.7.2004. (Note: The appellant claims that during subsequent investigations, it came to light that its AAO (Dilip Godbole) had delivered to the respondent, a computer generated Additional Endorsement (unauthorisedly altered by hand) showing the period of additional cover as 69 days up to 3.8.2004, and departmental proceedings have been initiated against the said officer)3. On 5.8.2004, the respondent reported loss/damage to their stocks on account of heavy rains and flooding which took place on 2/3.8.2004 and made a claim in that behalf. The surveyor submitted a preliminary report dated 14.8.2004 followed by a final survey report dated 6.12.2004 according to which the net assessed loss (payable to respondent) was Rs.3,18,26,025/-. The said sum was arrived at on the basis that the sum insured was Rs.12 crores, the actual value of stocks in the godowns at risk was Rs.8,15,99,149/-, value of damaged goods was Rs.5,22,81,001/-, and the recoverable salvage value was Rs.1,87,79,922/-. The appellant informed the surveyor by letter dated 1.3.2005 that there was an error in the net assessed loss arrived at by the surveyor as it assumed the sum insured as Rs.12 crores up to 3.8.2004 whereas the sum insured was only Rs.6 crores after 26.7.2004 till 3.8.2004, and therefore instructed the surveyor to prepare the final report regarding net assessed loss by taking the sum insured as only Rupees six crores. The surveyor therefore gave an addendum to the final survey report on 22.3.2005 reassessing the net loss by taking the sum insured as only Rupees six crores. The value of goods at risk, the value of damaged goods and the value of recoverable salvage remained unaltered. By modifying the percentage of insurance at 75.53%, the Net Assessed Loss was re-worked as Rs.2,34,01,740/-. The respondent protested against the loss being assessed by taking the sum insured as only Rupees six crores. The claim and the dispute were pending consideration for a considerable time4. The respondent alleged that the appellant forced the respondent to accept a lower settlement; that the appellant informed the respondent that unless and until the respondent issued an undated Discharge voucher-in-advance (in the prescribed form) acknowledging receipt of Rs.2,33,94,964/- in full and final settlement, no amount would be released towards the claim; that in that behalf, the appellant sent the format of the discharge voucher to be signed by respondent on 21.3.2006; that on account of the non-release of the claim, it was in a dire financial condition and it had no alternative but to yield to the coercion and pressure applied by the appellant; that therefore the respondent signed and gave the said discharge voucher, undated, as required by the insurer during the last week of March, 2006. The payment was released by the appellant only after receiving the said discharge-voucher. It is extracted below:REGD. OFFICE : 3, MIDDLETON STREET,POST BOX NO.9229, KOLKATA 700071Loss Voucher Non Motor & PAReceived from National Insurance Company Limited through its policy issuing office (herein after called the Company) the sum of Rs.2,33,94,964.00 (Rupees two crore thirty three lakh ninety four thousand nine hundred sixty four only) in full and final settlement of all my/our claims in respect of the property lost or damaged due to others on or about 03/08/2004 under Policy No.250501/11/03/3100000145In consideration of such payment I/we hereby absolve the Company from all liability present or future arising directly or indirectly out of the said loss or damage under the said policy5. Simultaneously, the respondent lodged a complaint dated 24.3.2006 with the Insurance Regulatory and Development Authority wherein, after setting out the facts, it alleged:We lodged a claim with our insurers immediately and pursued the matter with them. Even after the Surveyor Mr. Mehernosh Todiwala of M/s. Bhatawadekar & Co. had submitted his report on 22nd March, 2005, the insurers refused to settle our claim on various counts. We had various meetings at the Divisional, Regional and even the Head Office of the insurers, but to no availIn March, 2005, the insurer company forced us to accept a lower settlement and we were told that we would have to agree to a lower settlement to ensure expeditious settlement of the claim. Accordingly on and around the 15th of March, 2005 nearly 8 months after the loss we gave our forced consent to the lower settlement offered in the hope that the claim amount would be received immediatelyThereafter for the next 1 year, the insurers failed to settle our claim and made us run from pillar to post for the settlementFinally on March 21st 2006 the insurers have sent us a voucher for the sum of Rs.2,33,94,94 which considering our dire financial condition, and the continuous failed promises from the insurers, we have had no choice but to acceptSir, subsequent to the loss, since we could not pay our international suppliers on time they almost completely stopped all our shipments. This has resulted in tremendous financial loss to us. We have lost our long hard earned reputation in the market by becoming defaulters. The insurers have deliberately starved our unit of funds to ruin us financiallyYou will appreciate that we are now faced with a situation where we have no choice but to accept the payment being released to us unconditionally as the insurers have made it very clear that the payment will not be released if there is any conditional discharge of the vouchers. In order to safeguard our right to claim the difference amount and any other claims arising out of the financial losses incurred by us a direct result of the deliberate delay in settlement of our claim by the insurers, we make a humble request to the I.R.D.A. to take up the matter with the insurers to ensure that justice prevails and we are paid the entire compensation due to us6. The respondent also issued a legal notice dated 27.5.2006 wherein it was alleged that the amount due by the insurer was Rs.3,18,26,025/-, and that under duress and implicit coercion, it had accepted the payment of Rs.2,33,94,964/-, by signing and handing over a full and final discharge voucher. By the said notice, the respondent demanded the difference amount with interest at the rate of 12% per annum from 6.12.2004 (date of final survey report) till the date of payment. The respondent also informed the appellant that if payment was not so made within 15 days, the notice should be treated as notice invoking arbitration. The appellant by its reply dated 2.8.2006, rejected the said demand. The appellant contended that the respondent had unconditionally accepted the claim settlement amount fully and finally; that respondent had not registered any protest while accepting the claim cheque; that the amount payable was arrived at amicably after discussing all aspects of the claim with the insured and at no juncture any protest was expressed; and that therefore the question of invoking the provision for arbitration did not arise7. In view of appellants refusal to agree for arbitration, the respondent filed an application under section 11 of the Arbitration & Conciliation Act, 1996 (Act for short) in the Bombay High Court. The said petition was resisted by the appellant by reiterating that the respondent had accepted the payment of Rs.233,94,964/- in full and final settlement and therefore, the respondent could not invoke the arbitration clause8. The learned Chief Justice of the Bombay High Court exercising power under section 11 of the Act, allowed the petition by order dated 19.4.2007. After considering the facts, he was of the view that there was a serious dispute between the parties as to whether discharge voucher was given voluntarily or under pressure or coercion, and that required to be settled by the Arbitral Tribunal. He therefore appointed Sri Justice S.N.Variava as the sole arbitrator. The learned Chief Justice left open the question whether there was any coercion/undue influence in regard to issue of full and final settlement discharge voucher by the respondent, and permitted the parties to lead evidence before the arbitrator on that question. The said order is challenged by the insurer in this appeal by special leave.

Court's reasoning:
12. In this case existence of an arbitration clause in the contract of insurance is not in dispute18. What is however clear is when a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or under influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under section 11 of the Act or by the arbitral Tribunal as directed by the order under section 11 of the Act. A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant19. We may next examine some related and incidental issues. Firstly, we may refer to the consequences of discharge of a contract. When a contract has been fully performed, there is a discharge of the contract by performance, and the contract comes to an end. In regard to such a discharged contract, nothing remains - neither any right to seek performance nor any obligation to perform. In short, there cannot be any dispute. Consequently, there cannot obviously be reference to arbitration of any dispute arising from a discharged contract. Whether the contract has been discharged by performance or not is a mixed question of fact and law, and if there is a dispute in regard to that question, that is arbitrable. But there is an exception. Where both parties to a contract confirm in writing that the contract has been fully and finally discharged by performance of all obligations and there are no outstanding claims or disputes, courts will not refer any subsequent claim or dispute to arbitration. Similarly, where one of the parties to the contract issues a full and final discharge voucher (or no due certificate as the case may be) confirming that he has received the payment in full and final satisfaction of all claims, and he has no outstanding claim, that amounts to discharge of the contract by acceptance of performance and the party issuing the discharge voucher/certificate cannot thereafter make any fresh claim or revive any settled claim. Nor can he seek reference to arbitration in respect of any claim. When we refer to a discharge of contract by an agreement signed by both 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 who 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 practiced 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 arbitrable26. Obtaining of undated receipts-in-advance in regard to regular/routine payments by government departments and corporate sector is an accepted practice which has come to stay due to administrative exigencies and accounting necessities. The reason for insisting upon undated voucher/receipt is that as on the date of execution of such voucher/receipt, payment is not made. The payment is made only on a future date long after obtaining the receipt. If the date of execution of the receipt is mentioned in the receipt and the payment is released long thereafter, the receipt acknowledging the amount as having been received on a much earlier date will be absurd and meaningless. Therefore, undated receipts are taken so that it can be used in respect of subsequent payments by incorporating the appropriate date. But many a time, matters are dealt with so casually, that the date is not filled even when payment is made. Be that as it may. But what is of some concern is the routine insistence by some government Departments, statutory Corporations and government Companies for issue of undated no due certificates or a full and final settlements vouchers acknowledging receipt of a sum which is smaller than the claim in full and final settlement of all claims, as a condition precedent for releasing even the admitted dues. Such a procedure requiring the claimant to issue an undated receipt (acknowledging receipt of a sum smaller than his claim) in full and final settlement, as a condition for releasing an admitted lesser amount, is unfair, irregular and illegal and requires to be deprecated27. 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 instance29. Let us now examine the receipt that has been taken in this case. It is undated and is in a pro forma furnished by the appellant containing irrelevant and inappropriate statements. It states : I/we hereby assign to the company, my/our right to the affected property stolen which shall, in the event of their recovery, be the property of the company. The claim was not in regard to theft of any property nor was the claim being settled in respect of a theft claim. We are referring to this aspect only to show how claimants are required to sign on the dotted line, and how such vouchers are insisted and taken mechanically without application of mind30. The discharge voucher form was handed over to the respondent on 21.3.2006. It was signed and delivered to the appellant immediately thereafter acknowledging that a sum of Rs.2,33,94,964/- had been received from the insurer (appellant) in full and final settlement, and that in consideration of such payment, the respondent absolved the appellant from all liabilities, present and future, arising directly or indirectly, out of said loss or damage under the policy. Admittedly, on the date when such discharge voucher was signed and given by the respondent, the payment of Rs.233,94,964/- had not been made. It was made after receiving the voucher. Therefore, at the time of signing the voucher by the respondent and at the time of delivery of voucher by the respondent to the appellant, the contents of the voucher that the said amount had been received, that such amount had been received in full and final settlement of all claims, and that in consideration of such payment, the company was absolved from any further liability, are all false and not supported by consideration31. In this case the High Court examined the issue and found that prima facie there was no accord and satisfaction or discharge of the contract. It held that the appellant is still entitled to raise this issue before an arbitrator and the arbitrator has to decide it. On the facts and circumstances and the settled position of law referred by us above, we are also prima facie of the view that there is no accord and satisfaction in this case and the dispute is arbitrable. But it is still open to the appellant to lead evidence before the arbitrator, to establish that there is a valid and binding discharge of the contract by way of accord and satisfaction.