Karnataka High Court
M/S. Men Favourite Shop vs The Oriental Insurance Company Ltd on 8 August, 2024
-1-
NC: 2024:KHC:31962-DB
MFA No.3966/2017
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 8TH DAY OF AUGUST, 2024
PRESENT
THE HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
THE HON'BLE MR JUSTICE VENKATESH NAIK T
MISCELLANEOUS FIRST APPEAL No.3966/2017 (AA)
BETWEEN:
M/S. MEN FAVOURITE SHOP
PROP: SRI MANOHAR D. CHATLANI
NO.23, COMMERCIAL STREET
BANGALORE-560 001 ...APPELLANT
(BY SRI SRIDHAR G., ADVOCATE)
AND:
1. THE ORIENTAL INSURANCE COMPANY LTD.,
DIVISION III, NO.48
CHURCH STREET
BANGALORE-560 001
REP. BY ITS MANAGING DIRECTOR
2. SRI V.MURALI KRISHNA
AGED ABOUT 68 YEARS
PRESIDING ARBITRATOR
Digitally NO.732, 'A' BLOCK, SAHAKAR NAGAR
signed by K S BANGALORE-560 092
RENUKAMBA
3. SRI G.RAGHAVENDRA RAO
Location:
High Court of RETD. DISTRICT & SESSIONS JUDGE
Karnataka ARBITRATOR
NO.18, 2ND CROSS
JUDICIAL OFFICERS LAYOUT
SANJAY NAGAR, BANGALORE-560 094
4. SRI B.N. SUBRAMANYA
AGED ABOUT 66 YEARS
CHARTERED ACCOUNTANT
ARBITRATOR
11TH CROSS, 8TH MAIN
MALLESHWARAM, BANGALORE-560 055 ...RESPONDENTS
(BY SRI R.GOVINDARAJAN, ADVOCATE FOR R1;
R2 TO R4 SERVED & UNREPRESENTED)
-2-
NC: 2024:KHC:31962-DB
MFA No.3966/2017
THIS MISCELLANEOUS FIRST APPEAL IS FILED UNDER
SECTION 37(1)(C) OF THE ARBITRATION AND CONCILIATION ACT,
1996 PRAYING TO SET ASIDE THE ORDER DATED 25.02.2017
PASSED BY V ADDITIONAL CITY CIVIL JUDGE, BENGALURU (CCH-
13) IN A.S.NO.28/2010 AND TO UPHOLD THE ARBITRAL AWARD
PASSED BY SRI G.RAGHAVENDRA RAO, RETIRED DISTRICT JUDGE,
ARBITRATOR DATED 25.12.2009, SRI B.N.SUBRAMANYA,
CHARTERED ACCOUNTANT-ARBITRATOR DATED 25.12.2009 AND
SRI MURALI KRISHNA, PRESIDING ARBITRATOR DATED 25.12.2009
ETC.
THIS MISCELLANEOUS FIRST APPEAL COMING ON FOR
FURTHER HEARING, THIS DAY, JUDGMENT WAS DELIVERED
THEREIN AS UNDER:
CORAM: HON'BLE MRS JUSTICE K.S.MUDAGAL
AND
HON'BLE MR JUSTICE VENKATESH NAIK T
ORAL JUDGMENT
(PER: HON'BLE MRS JUSTICE K.S.MUDAGAL) This appeal is filed challenging the judgment and decree in A.S.No.28/2010 on the file of V Additional City Civil Judge, Bengaluru. By the impugned judgment and decree, the learned Arbitration Court has reversed the arbitration awards dated 25.12.2009 passed by the Arbitral Tribunal.
2. The appellant is a proprietary concern called M/s. Men Favourite Shop which is running a garment business in a shop in Commercial street. The appellant had insured its concern under the policy issued by respondent No.1 termed as Standard Fire and Special Perils Policy. Said policy was in force from 23.10.2002 to 22.10.2003. A fire accident took place in -3- NC: 2024:KHC:31962-DB MFA No.3966/2017 the insured shop on 23.03.2003. On 24.03.2003, appellant informed respondent No.1 Insurer regarding the incident.
3. Respondent No.1 appointed one M/s.
K.N.B.Surveyors Pvt. Ltd., to assess the loss/damages. The said Surveyor submitted his report on 21.10.2003 assessing the damages at Rs.1,86,914/-. Respondent No.1 offered to settle the claim for Rs.1,86,330/-. Under the discharge voucher dated 01.12.2003 appellant received Rs.1,86,330/- offered by respondent No.1. The appellant sent letter dated 12.12.2003, objecting the Surveyor's report and the payments made.
4. The Arbitral Tribunal consisting of respondent Nos.2 to 4 was constituted with respondent No.2 as the Presiding Arbitrator. Before the Arbitral Tribunal, appellant filed claim petition claiming damages of Rs.17,19,729/-. Respondent No.1 filed its counter to the claim petition and sought dismissal of the claim petition.
5. Arbitral Tribunal formulated following five issues for consideration:
(i) Whether the Respondent proves that the Claimant has received the amount already paid in full and final settlement of the claims and -4- NC: 2024:KHC:31962-DB MFA No.3966/2017 hence the Arbitration Court has no jurisdiction to consider the claim afresh?
(ii) Whether the Claimant proves that he is entitled to receive Rs.17,19,729/- as against Rs.1,86,330/- already received by him from the Respondent and that the report of the Surveyor cannot be accepted as contended by him?
(iii) Whether the Claimant is entitled to any other relief?
(iv) Whether the Claimant is entitled to interest on the amount claimed ? If so, at what rate?
(v) What order or award ?
6. The parties adduced evidence before the Arbitral Tribunal. On hearing the parties, all the three Arbitrators by award dated 25.12.2009 unanimously rejected the claim of respondent No.1 that the appellant herein received Rs.1,86,330/- in full and final settlement of all the claims including interest, thereby respondent No.1 was discharged and the arbitrators have no jurisdiction to consider the claim.
The arbitrators by majority decision allowed the claim for Rs.10,64,463/-.
7. Aggrieved by that award, respondent No.1 filed A.S.No.28/2010 before V Additional City Civil Judge, Bangalore -5- NC: 2024:KHC:31962-DB MFA No.3966/2017 under Section 34 of the Arbitration and Conciliation Act, 1996 ('the Act' for short).
8. Challenge to the award was on the ground that, the appellant unconditionally received Rs.1,86,330/- in full settlement of its claim, thereby the contract of Insurance was discharged and there was no existing dispute to refer to Arbitration. Therefore, the Arbitral Tribunal had no jurisdiction to arbitrate into the matter. The appellant contested the said suit by filing its counter.
9. Learned City Civil Judge on hearing the parties, by the impugned judgment and order held that the appellant accepted the amount under receipt dated 01.12.2003 unconditionally in unqualified manner and the Tribunal's finding is patently illegal and opposed to the public policy.
10. The question before this Court is "whether the judgment and order of District judge is contrary to Section 34 of the Act ?"
11. The scope of interference in arbitral award is prescribed under Section 34 of the Act. Section 34 of the Act as -6- NC: 2024:KHC:31962-DB MFA No.3966/2017 it stood as on the date of reference by this Court to the Arbitrator reads as follows:
"34. Application for setting aside arbitral award.--(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3). (2) An arbitral award may be set aside by the Court only if--
(a) the party making the application furnishes proof that -
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope of the submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or -7- NC: 2024:KHC:31962-DB MFA No.3966/2017
(b) the Court finds that--
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or
(ii) the arbitral award is in conflict with the public policy of India.
Explanation--Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of Section 75 or Section 81.
(3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under Section 33, from the date on which that request had been disposed of by the arbitral tribunal:
Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral tribunal will eliminate the grounds for setting aside the arbitral award."
12. Out of the aforesaid five grounds, respondent No.1 challenged the arbitral award only on the ground that the -8- NC: 2024:KHC:31962-DB MFA No.3966/2017 award is in conflict with public policy of India. Infact, it has not specifically stated what was the public policy violated.
13. Before this Court it was argued that under Annexure-C (Ex.C10 as marked by the Tribunal) there was unqualified acceptance of claim determined. Thereby the contract stood discharged, consequently the clause enabling the parties to refer the matter to the arbitration lost its existence. Therefore, it was contended that, the reference itself was bad. Then the whole question was whether under the said document, there was unqualified acceptance of Rs.1,86,330/-. The burden of proving that the contract stood discharged was on the respondent No.1.
14. Appellant contended that, Annexure-C (Ex.C10) was not unqualified acceptance. He endorsed in the document that he has received the amount subject to the terms of the policy. Respondent No.1 also did not dispute such endorsement. The appellant had endorsed on the said receipt as follows:
"Rcd as per terms of policy"
15. Whether by such endorsement, the appellant had reserved his right or expressed his reservation about -9- NC: 2024:KHC:31962-DB MFA No.3966/2017 acceptance of Rs.1,86,330/- as full and final settlement of his claim was the question before the Arbitral Tribunal. Even in Annexure-C (Ex.C10) what is mentioned as Rs.1,86,330/- is full and final settlement of all claims for loss or damages sustained. But it does not say that the same is received as "full and final settlement of the claim". Arbitral Tribunal on examination of the evidence before it concurrently held that the said document does not amount to acceptance of the amount in full and final settlement. It was held the same is not unqualified acceptance.
16. There cannot be any dispute that whether such amount was received unconditionally or without reservation is the question of fact which required appreciation of the evidence. The Hon'ble Supreme Court in para 19 of the judgment in Bombay Slum Redevelopment Corporation Private Limited. v. Samir Narain Bhojwani (Civil Appeal No.7247/2024) referring to its several earlier judgments held that the scope of interference in petition under Section 34 of the Act, is very narrow and the jurisdiction under Section 37 of the Act is still more narrower. It was further held that the scope of interference under Sections 34 and 37 of the Act in the arbitration award is very limited and the Courts must be
- 10 -
NC: 2024:KHC:31962-DB MFA No.3966/2017 very specific while dealing with arbitral awards and confine themselves strictly to the grounds available under Section 34 of the Act.
17. The Arbitral Tribunal award shows that the Tribunal formulated five issues based on the pleadings of the parties and the first issue was "whether the respondent proves that the claimant has received the amount already paid in full and final settlement of the claims and hence Arbitration Court has no jurisdiction to consider the claim afresh"?. It shows that the burden was placed on respondent No.1 to prove that under Annexure-C (Ex.C10), liability was discharged fully and finally.
18. Arbitral Tribunal in paras 10 to 16 of the award in detail dealt with the evidence and came to the conclusion that respondent No.1 has failed to prove that the appellant/claimant/petitioner has received the amount in full and final settlement of the claims and thereby the Tribunal has lost its jurisdiction. In arriving at such conclusion the Tribunal relied on the judgment of Hon'ble Supreme Court in National Insurance Co. Ltd. v. M/s.Boghara Polyfab Pvt. Ltd.1 1 AIR 2009 SC 170
- 11 -
NC: 2024:KHC:31962-DB MFA No.3966/2017
19. In Boghara Polyfab Pvt. Ltd.'s case referred to supra, the Hon'ble Supreme Court held that the claim for arbitration cannot be rejected merely or solely on the ground that settlement agreement or discharge voucher had been executed by the claimant especially when its validity is disputed by the claimant.
20. When the Tribunal gave such detailed reasoning for finding on issue No.1, learned District Judge without any discussion, in para 20 of his judgment jumped to the conclusion that the award is patently illegal and opposed to the public policy. The Arbitration Court does not even say which public policy was violated.
21. The learned District Judge referring to Circular Ref.No.IRDA/NL/CIR/Misc/173/09/2015 dated 24.09.2015 issued by the Insurance Regulatory and Development Authority of India held that the appellant has received the amount in full and final settlement of the claim. The said circular is made available for perusal of this Court. In preamble of the said circular itself, it is stated that insurer shall not use the instrument of discharge voucher as a means of estoppel against the aggrieved policy holders when such policy holder
- 12 -
NC: 2024:KHC:31962-DB MFA No.3966/2017 approaches judicial fora and has issued the following directions:
''Where the liability and quantum of claim under a policy is established, the insurers shall not withhold claim amounts. However, it should be clearly understood that execution of such vouchers does not foreclose the rights of policy holder to seek higher compensation before any judicial fora or any other fora established by law."
22. Reading of the above paragraph shows that as per Insurance Regulatory and Development Authority of India voucher like Annexure-C (Ex.C10) did not foreclose the rights of the policy holders to approach the jurisdictional forum seeking higher compensation. Learned District Judge has read it otherwise. Therefore the judgment and order under challenge itself is perverse.
23 In the judgment in P.R.Shah, Shares & Stock Brokers (P) Ltd. v. B.H.H.Securities (P) Ltd.2 relied on by learned Counsel for the appellant, in similar circumstances it is held that the Court under Section 34 of the Act does not sit in appeal over award of the arbitral Tribunal for re-appreciating or reassessing the evidence. In the present case, even that re- appreciation was not validly done, though there was no scope for the same.
2(2012) 1 SCC 594
- 13 -
NC: 2024:KHC:31962-DB MFA No.3966/2017
24. Learned Counsel for respondent No.1 contended that Annexure-C (Ex.C10) was unqualified discharge receipt and there was no scope for the arbitrators to rely on the same. In support of such contention, he relies on the following judgments:
(i) Union of India v. Master Construction Co.3
(ii) M/s.Dharampal Kohli v. Union of India4
(iii) Madan Lal v. Sunder Lal5
25. Reading of the above judgments show that in those cases, there was unqualified acceptance in full and final settlement of the claim of the claimant. But the same is not the fact in the case on hand. Therefore those judgments cannot be justifiably applied to the facts of the present case.
26. Overall analysis of the materials on record show that the learned District Judge in reversing the arbitral award has acted contrary to the letter and spirit of Section 34 of the Act and judicial precedents referred to above regarding Section 34 of the Act. Therefore the impugned judgment and order is liable to be set aside. Hence the following: 3
(2011) 12 SCC 349 4 AC No.55/2012, DD 13.09.2013 Madhya Pradesh High Court 5 AIR 1967 SC 1233
- 14 -
NC: 2024:KHC:31962-DB MFA No.3966/2017 ORDER The appeal is allowed with costs.
The impugned judgment and order dated 25.02.2017 in A.S.No.28/2010 passed by the V Additional City Civil Judge, Bengaluru is hereby set aside.
The suit in A.S.No.28/2010 is dismissed. Arbitral award dated 25.12.2009 is hereby confirmed.
Sd/-
(K.S.MUDAGAL) JUDGE Sd/-
(VENKATESH NAIK T) JUDGE MN,KSR List No.: 1 Sl No.: 42