NEW INDIA ASSURANCE COMPANY LTD Versus GENUS POWER INFRASTRUCTURE LTD. Supreme Court - Arbitration and Conciliation Act, 1996. Section-11
Supreme Court of India
CIVIL APPEAL NO. 10784 OF 2014 @ SPECIAL LEAVE PETITION (CIVIL) NO.24652 OF 2013 Judgment Date: Dec 04, 2014
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 10784 OF 2014 @
SPECIAL LEAVE PETITION (CIVIL) NO.24652 OF 2013
NEW INDIA ASSURANCE COMPANY LTD .... Appellant
Versus
GENUS POWER INFRASTRUCTURE LTD. .... Respondent
J U D G M E N T
Uday U. Lalit, J.
1. Leave granted. This appeal challenges the order dated 30.05.2013
passed by the High Court of Delhi in Arbitration Petition No.212 of 2011
appointing an arbitrator to adjudicate the disputes between the present
parties.
The respondent has a manufacturing unit for which it had purchased a
Standard Fire and Special Perils Policy ('policy' for short) from the
appellant on 17.04.2009, which policy was for a period of one year and the
total sum assured was Rs.91 crores and 10 lacs only. On 29.10.2009 there
was a fire explosion in the adjoining Indian Oil Corporation Terminal
causing extensive damage to the manufacturing unit of the respondent. On
being notified, the appellant appointed a category "A" Licensed Surveyor
and Loss Assessor in compliance of Section 64 UM of the Insurance Act, 1938
to assess the damage. In the assessment of the respondent and as per the
claim lodged by it, the loss caused to its plant and machinery, buildings
fixtures and furnitures and stocks was to the tune of Rs.28.79 crores. It
appears that the Surveyor submitted his final report on 27.07.2010 and
assessed the loss at Rs.6,09,77,406/-. It is contended by the appellant
but denied by the respondent that the final survey report was duly
communicated to the respondent on 01.11.2010.
On 11.03.2011 the respondent signed a detailed letter of subrogation which
was on a stamp paper, accepting Rs.5,96,08,179/- in full and final
settlement of its claim under the policy and the relevant portion of said
letter dated 11.03.2011 was to the following effect:
To,
New India Assurance Co. Ltd.
Regional Office
Nehru Place, Tonk Road,
Jaipur
Dear Sir,
That in consideration of claim amount of Rs.5,96,08,179 (Rupees Five
Crores Nintey Six Lakhs Eight Thousand One Hundred Seventy Nine only)
(herein after referred as "Claim amount") as full and final settlement
amount of our claim No.330203/11/10/01/00100001 arising under policy
No.330203/11/09/11/00000018 (herein after referred as "Policy") covering
fire loss of my/our factory situated on Plot No.SPL 3, Sitapura, -
Industrial area Jaipur (herein after referred as "Factory Premises") due to
fire that took place in IOC Terminal on 29-10-2009, we hereby subrogate our
rights on behalf of M/S Genus Power Infrastructures Limited Jaipur (herein
after referred as "Insured") in favour of New India Assurance Co. Ltd.
(herein after referred as "Insurer") as under:-
That we the Insured hereby subrogate all the rights and remedies (to the
extent provided by aforesaid contract of Insurance and under the General
law and further any other Law enforceable consequence to the above loss)
against the RIICO, Indian Oil Corporation, Govt. of Rajasthan, other
insurance company or any other agency/authority of Govt. of Rajasthan, semi
Govt. etc. whom so ever is liable in respect whereof in favour of the
Insurer regarding Fire accident taken place on 29-10-2009 in IOC terminal
in Sitapura Industrial Area, Jaipur and claim arises under "Policy"
covering fire loss of Insured factory in "Factory Premises" in favour of
the "Insurer".
That we the Insured further assign and transfer all rights to Insurer to
recover the claim amount or any part thereof from RIICO, Indian Oil
Corporation, Govt. of Rajasthan, other insurance company or any other
agency/authority of Govt. of Rajasthan, semi Govt. etc. who so ever is
liable.
That we the Insured further assign and transfer all rights to agitate the
Claim before the RIICO, Indian Oil Corporation, Govt. of Rajasthan, other
insurance company or any other agency/authority of Govt. of Rajasthan, semi
Govt. etc. who so ever is liable to pay the compensation/claim. The
Insurer will be entitled to file complaint/claim before any court of law,
tribunal or any other adjudicatory authority and plead the same on behalf
of ourselves and in getting success in adjudication therein will be
entitled to retain the amount paid.......
.......................................................................
........................................................................
In witness whereof we get our hands on this Subrogation letter on the 11th
day of March 2011.
For Genus Power Infrastructure ltd.
Authorized Signatory
Signature
4. After nearly three weeks i.e on 31.03.2011 the respondent issued a
notice to the appellant stating that the discharge voucher was signed under
extreme duress, coercion and undue influence exercised by the appellant who
took undue advantage of the extreme financial difficulties of the
respondent. The respondent further sought to appoint its nominee
arbitrator. On 21.04.2011 the appellant replied that there was no
arbitrable dispute which existed between the parties inasmuch as the
respondent had voluntary signed the letter of subrogation and had accepted
payment in full and final settlement of its claim. In the meantime on
05.04.2011 the respondent had filed a petition under section 11 of the
Arbitration and Conciliation Act, 1996 (The 'Act' for short) before the
High Court of Delhi alleging that it had accepted the payment as stated
above because of extreme financial difficulty, duress and coercion. On
10.05.2013 the High Court after recording rival submissions of the parties
adjourned the matter which was then taken up on 30.05.2013 when the High
Court observed;
"Vide order dated 10th May, 2013, this Court has already observed that
there is a valid arbitration agreement between the parties and there are
disputes which are covered under the arbitration agreement. The learned
counsel for the respondent submits that the disputes are not arbitrable.
The respondent can raise this objection before the learned arbitrator."
In that view of the matter the High Court proceeded to appoint a sole
arbitrator to adjudicate the disputes between the parties.
5. The aforesaid order dated 30.05.2013 is the subject matter of
challenge in the present appeal. Appearing for the appellant Mr. Gaurab
Banerji, learned Senior Advocate submitted that the letter of subrogation
was a detailed agreement which was finalized and signed after negotiations
between the parties and in the presence of two witnesses. The amount
agreed to was the amount recommended by the surveyor, reduced by the
mandatory reinstatement premium payable under clause 15 of the policy and
as such the settlement took place at the amount recommended by the
surveyor. Placing reliance on the financial status of the respondent, it
was submitted that its annual turnover is more than Rs.500 crores for last
few years and it was quite improbable that such a company would feel
financially constrained and stand coerced as alleged, in giving discharge
on receipt of Rs.5.98 crores. Mr. Krishnan Venugopal, learned Senior
Advocate appearing for the respondent submitted that knowing that the
respondent was under tremendous pressure owing to the complete destruction
of its manufacturing unit and not being in a position to negotiate, the
appellant by using its dominant position had forced the respondent to sign
the discharge voucher and accept the payment as stated above. In support,
reliance was placed on the decision of this court in National Insurance Co.
Ltd. vs. Boghara Polyfab (P) Ltd.[1] by Mr. Venugopal.
6. The question that arises is whether the discharge in the present case
upon acceptance of compensation and signing of subrogation letter was not
voluntary and whether the claimant was subjected to compulsion or coercion
and as such could validly invoke the jurisdiction under Section 11 of the
Act. The law on the point is clear from following decisions of this
court. In National Insurance Co. Ltd. vs. Boghara Polyfab Pvt. Ltd. in
paras 26 and 51 it was stated as under:-
"26. 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 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 arbitrable.
51. 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."
7. In the decision rendered in Union of India vs. Master Construction
Co.[2] this court observed as under:
"18. In our opinion, there is no rule of the absolute kind. In a case where
the claimant contends that a discharge voucher or no-claim certificate has
been obtained by fraud, coercion, duress or undue influence and the other
side contests the correctness thereof, the Chief Justice/his designate must
look into this aspect to find out at least, prima facie, whether or not the
[pic]dispute is bona fide and genuine. Where the dispute raised by the
claimant with regard to validity of the discharge voucher or no-claim
certificate or settlement agreement, prima facie, appears to be lacking in
credibility, there may not be a necessity to refer the dispute for
arbitration at all.
19. It cannot be overlooked that the cost of arbitration is quite huge-most
of the time, it runs into six and seven figures. It may not be proper to
burden a party, who contends that the dispute is not arbitrable on account
of discharge of contract, with huge cost of arbitration merely because plea
of fraud, coercion, duress or undue influence has been taken by the
claimant. A bald plea of fraud, coercion, duress or undue influence is not
enough and the party who sets up such a plea must prima facie establish the
same by placing material before the Chief Justice/his designate. If the
Chief Justice/his designate finds some merit in the allegation of fraud,
coercion, duress or undue influence, he may decide the same or leave it to
be decided by the Arbitral Tribunal. On the other hand, if such plea is
found to be an afterthought, make-believe or lacking in credibility, the
matter must be set at rest then and there.
22. The above certificates leave no manner of doubt that upon receipt of
the payment, there has been full and final settlement of the contractor's
claim under the contract. That the payment of final bill was made to the
contractor on 19-6-2000 is not in dispute. After receipt of the payment on
19-6-2000, no grievance was raised or lodged by the contractor immediately.
The authority concerned, thereafter, released the bank guarantee in the sum
of Rs 21,00,000 on 12-7-2000. It was then that on that day itself, the
contractor lodged further claims."[pic]
8. It is therefore clear that a bald plea of fraud, coercion, duress or
undue influence is not enough and the party who sets up a plea, must prime
facie establish the same by placing material before the Chief Justice/his
designate. Viewed thus, the relevant averments in the petition filed by
the respondent need to be considered, which were to the following effect:-
"(g) That the said surveyor, in connivance with the Respondent Company, in
order to make the Respondent Company escape its full liability of
compensating the Petitioner of such huge loss, acted in a biased manner,
adopted coercion undue influence and duress methods of assessing the loss
and forced the Petitioner to sign certain documents including the Claim
Form. The Respondent Company also denied the just claim of the Petitioner
by their acts of omission and commission and by exercising coercion and
undue influence and made the Petitioner Company sign certain documents,
including a pre-prepared discharge voucher for the said amount in advance,
which the Petitioner Company were forced to do so in the period of extreme
financial difficulty which prevailed during the said period. As stated
aforesaid, the Petitioner Company was forced to sign several documents
including a letter accepting the loss amounting to Rs.6,09,55,406/- and
settle the claim of Rs.5,96,08,179/- as against the actual loss amount of
Rs.28,79,08,116/- against the interest of the petitioner company. The said
letter and the aforesaid pre-prepared discharge voucher stated that the
petitioner had accepted the claim amount in full and final settlement and
thus, forced the petitioner company to unilateral acceptance the same. The
petitioner company was forced to sign the said document under duress and
coercion by the Respondent Company. The Respondent Company further
threatened the petitioner Company to accept the said amount in full and
final or the Respondent Company will not pay any amount toward the fire
policy. It was under such compelling circumstances that the petitioner
company was forced and under duress was made to sign the acceptance
letter."
9. In our considered view, the plea raised by the respondent is bereft
of any details and particulars, and cannot be anything but a bald
assertion. Given the fact that there was no protest or demur raised around
the time or soon after the letter of subrogation was signed, that the
notice dated 31.03.2011 itself was nearly after three weeks and that the
financial condition of the respondent was not so precarious that it was
left with no alternative but to accept the terms as suggested, we are of
the firm view that the discharge in the present case and signing of letter
of subrogation were not because of exercise of any undue influence. Such
discharge and signing of letter of subrogation was voluntary and free from
any coercion or undue influence. In the circumstances, we hold that upon
execution of the letter of subrogation, there was full and final settlement
of the claim. Since our answer to the question, whether there was really
accord and satisfaction, is in the affirmative, in our view no arbitrable
dispute existed so as to exercise power under section 11 of the Act. The
High Court was not therefore justified in exercising power under Section 11
of the Act.
10. In the circumstances, we allow the present appeal in the aforesaid
terms and set aside the order of the High Court . No order as to costs.
.............................J.
(Anil R. Dave)
.............................J.
(Uday Umesh Lalit)
New Delhi,
December 04, 2014