Bangalore District Court
M/S Deccan Charterers Pvt Ltd vs The New India Assurance Company on 29 September, 2021
1
Com.A.S.152/2018
IN THE Court OF LXXXVII ADDL.CITY CIVIL & SESSIONS
JUDGE, (EXCLUSIVE DEDICATED COMMERCIAL COURT)
AT BENGALURU (CCH.88)
THIS THE 29th DAY OF SEPTEMBER 2021
PRESENT:
SRI.CHANDRASHEKHAR U., B.Sc., LL.M.,
LXXXVII ADDL.CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.A.S.No.152/2018
PLAINTIFF: M/s Deccan Charterers Pvt Ltd., ,
Represented by its L Legal-Manager,
Sri. Vijay K.C
Jakkur Aerodrome,
Bellary Road,
Bengaluru - 560 064.
(Reptd by Mr. PCSN -Adv)
AND
DEFENDANT : The New India Assurance Company
Ltd.,
35/1, 1st Floor, Fortune Park,
Tasker Town,
Shivajinagar,
Bengaluru - 560 001.
RESPONDENTS 1. Mr. M. Rama Prasad,
Presiding Arbitrator,
New No.7, Old No.4,
1st Floor, 18th East Street,
Tiruvanmiyuyr,
Chennai 600 041.
2
Com.A.S.152/2018
RESPONDENTS 2. Mr. V. Ramaswamy,
Co-Arbitrator,
"Mithila", No.21,
Kolathu Mettu Street,
Kottiwakkam,
Chennai - 600 041
RESPONDENTS 3. Mr. S.R. Singh,
Co- Arbitrator,
401-A, Bachubhai Building,
187, Cr.D.N. Road,
Fort, Mumbai - 400 001.
Date of Institution of the 17.07.2018
suit
Nature of the suit (suit on
pronote, suit for
declaration & Possession, Arbitration Suit
Suit for injunction etc.)
Date of commencement of -
recording of evidence
Date on which judgment
was pronounced 29.09.2021
Total Duration Year/s Month/s Day/s
03 02 12
(CHANDRASHEKHAR U),
LXXXVII Addl.City Civil & Sessions Judge,
(Exclusive dedicated Commercial Court)
Bengaluru.
3
Com.A.S.152/2018
JUDGMENT
The plaintiff has filed the above petition under Section 34 of the Arbitration & Conciliation Act, 1996, (hereinafter called as 'the Act') for setting aside the Award, dated 21.04.2018 passed by the respondents No.1 to 3 and to refer the dispute for fresh adjudication to independent sole Arbitrator.
2. The brief facts of the case of the plaintiff are as hereunder:-
The plaintiff herein was the claimant before the Arbitral Tribunal engaged in the business of operation and maintenance of Aircraft. The defendant No.1 is the Insurer, in respect of Insurance coverage of the Aircraft in question. On 28.11.2014, the Aircraft (PILATUS VT- DAR) of the plaintiff had hard landing at Guwahati Airport and sustained damage. The claim for insurance was made and certain disputes resulted therein. Thereafter, matter was referred to Arbitration and Arbitral Tribunal was constituted. It has stated that since, there was no fatality involved, the claim was restricted to the damage to the Aircraft covered under an insurance policy 4 Com.A.S.152/2018 issued by the respondent/defendant herein. Unlike other policy issued in respect of Motor Vehicle, the Aircraft insurance policy, due to its technical nature, was insured for an agreed value of US$ 15,00,000/- (covering all aspects of an Aircraft that is to say the engine, hull (air frame) pilots and the passengers are insured for full value. Under the policy issued by the defendant, in the event of unfortunate incident involving the insured Aircraft, the policy provided that any estimate of repairs to the aircraft as consequence of the incident exceeds 75% of the agreed value of the Aircraft, the Aircraft would be considered as a Constructive Total Loss and in such an event, the defendant would be liable to reimburse a sum of Rs.9 crores and become the absolute owner of the wrecked aircraft and become entitled to cost recoverable by way of salvage. Immediately upon the damage being suffered by aircraft, the incident was reported to the Aviation Regulatory Authority (DGCA) as well. The procedure contemplated having been followed both in letter and spirit.
The defendant nominated one retired Air Force official to conduct a survey of the Aircraft. It is further stated that incident was also brought to the notice of the insurer 5 Com.A.S.152/2018 immediately vide e-mail, dated 29.11.2014. Upon receipt of the intimation, the insurer deputed Sqn. Ldr. Kapil Mohan (Retd) to survey the damaged aircraft and access the liability of the insurer. Accordingly, the Sqn. Ldr. Kapil Mohan visited the Guwahati Airport on 2.12.2014 and carried out the initial survey of the Aircraft. The plaintiff submitted its first claim bill on 5.2.2015 for an amount US$ 1.65 million to 1.85 million, based on a third party estimates of work involved and mail from Engine OEM as preliminary estimate, so that additional cost cannot be incurred. Upon the initial survey done by the Surveyor and after submission of the claim bill by the plaintiff, the surveyor against the terms and conditions of the policy, rejected the claim on the grounds of breach of pilot warranty without assessing the loss. Thereafter, after discussion between the plaintiff and the insurer and after bringing to the notice of the insurer that the grounds on which the claim was initially rejected by the surveyor had been waived in the policy and no longer applicable, the insurer proceeded with the loss assessment. The surveyor instructed to continue with the assessment of loss. The Surveyor requested the plaintiff to provide the estimates of the repairs from the OEM and their 6 Com.A.S.152/2018 authorised representative and upon submission of the same and upon instruction given by the Surveyor, the plaintiff submitted final estimates of repairs for Rs.8,92,17,320/-, which is in excess of the 75% of the insured value of the Aircraft. Hence, the plaintiff submitted its claim for total loss. It is further stated that the Surveyor who had to be neutral and unbiased, from the outset, plainly exhibited bias by rejecting the claim of the plaintiff in totality, without reference to the policy document or the exceptions contained therein, finally fixed the liability of claimant at Rs.5.08 crores by disallowing, without any tangible reasons, different aspects of the claim as put forth by the plaintiff. The plaintiff with good gesture, accepted the offer of settlement as the insurer assured the plaintiff that the cost of such repairs would be paid to it directly, so that utilising the in house skills and by the use of approved/certified repairers of the Aircraft, the Aircraft could be made airworthy. However, the defendant for reasons best known to it, credited the value of the claim directly to Syndicate Bank to whom the Aircraft was hypothecated and the plaintiff could not get aircraft repair charges, besides payment of heavy hangar charges to the 7 Com.A.S.152/2018 authorities. When the plaintiff came to know about the payment that is proposed to be made to the Bank, it would be accepted for considering the total loss of the Aircraft and to pay the amount. Accordingly, the dispute was referred to Arbitration and as per the policy conditions, the defendant appointed their earlier employees as Arbitrators and one neutral Arbitrator. The Arbitral Tribunal after considering the objection statement raised issues and ultimately, Award came to be passed directing the respondents to pay an amount of Rs.29,04,332/- to the claimant being the reimbursement of WIP and storage charges and paid a sum of Rs.5,96,15,554/- to the Syndicate Bank. The one of the Arbitrators passed dissenting award allowing the claim of the plaintiff as contended by assigning separate reasons.
3. Being aggrieved by the said Award, the plaintiff has preferred the above suit stating that the Award passed by the 1st and 2nd respondents is against the law, biased and therefore, liable to be set aside. It is further, stated that having found that Surveyor report was not proper, substituting their own views without there being any 8 Com.A.S.152/2018 evidence, by relying upon fictitious and notional IRDA guidelines. The Award is against the public policy and evidence on record. Since, 1st and 2nd respondents were earlier employees of the insurance company, they tried to protect the insurance company by their impugned Award and the reason assigned by then is improper and there is no proper basis for assessment of loss. The endorsement of the policy is very clear that if the cost assessment report of the aircraft is more than 75% of the agreed value, then, the Aircraft is to be considered a constructive total loss and the plaintiff is entitled to full insured value of the Aircraft. The 1 st and 2nd respondents yielded to the representation of the insurer and considered the wrongful estimation of the survey in arriving that the cost of the repair of the aircraft, thereby depriving plaintiff full value of the Aircraft. The conduct of the 1st and 2nd respondent was apparently colluded as demonstrated by the observation of the third respondent who has refused to become a party to such miscarriage of justice. The Arbitral Award is a miscarriage of justice and they having failed to notice that the Surveyor who first rejected the claim without realising that the causes given by him to reject the 9 Com.A.S.152/2018 claim was neither sustainable in law or on under contract, waling an extra mail to deny that the aircraft was constructive total loss as the cost of repair as explained in the estimates was in excess of 75% of the agreed value of the aircraft. The Award is in conflict between the parties and Award is opposed to public policy and against the evidence adduced and the conduct of the Arbitrator is also biased. Accordingly, it has prayed for setting aside the Award.
4. The defendant has filed objection statement stating that the application is not maintainable and liable to be dismissed in limine. It is further contended that suit is false, frivolous and is filed without any merits. There is no cause of action for the arbitration suit as defendant complied the Award already, no grounds are made out to set aside the Award as required under Section 34 (2) of the Act. The plaintiff has failed to furnish proof that it was in any manner incapacitated and the agreement was not valid under law and that proceedings before the Tribunal was in accordance with the law and that the present suit is motivated to have more gain for the plaintiff, which it is not entitled as per law and 10 Com.A.S.152/2018 terms of insurance policy. Without prejudice to the above contention, the defendant has stated further that the averments made by the plaintiff in para No.3 are correct about hard landing, conducting of survey, loss, etc. It is further admitted that the lodging of claim, conducting of Arbitration proceedings, etc. It has also admitted that the insurance policy covered, damages caused to the aircraft on constructive total loss. It has admitted about damages caused to the aircraft, intimation to Aviation Regulatory Authority and to it. It has also admitted about assessment of damages by the Sq. Ldr Kapil Mohan to assess the damages and conducting survey by the Surveyor on 2.12.2014, etc. It is also admitted that the plaintiff has filed final estimation for Rs.8,92,17,320/- and the 1st defendant assessed liability at Rs.5.08 crores as per the terms of the insurance policy. However, it has denied about total loss and endorsement in the policy and other aspects. It has admitted about acceptance of the plaintiff of the offer and settlement and payment made to Syndicate Bank. The defendant has communicated the same to the plaintiff and plaintiff in order to gain wrongfully has filed the present case. It has also 11 Com.A.S.152/2018 admitted about present suit is filed on account of payment to the Syndicate Bank by the defendants. It has paid the amount to the Syndicate Bank by obtaining consent of the plaintiff. This is second round of litigation to gain wrongfully nothing else. It has paid the amount as per the Award and there is nothing to decide further. The plaintiff wants to gain more by way of approaching this Court and same cannot be entertained. Accordingly, it has prayed for dismissal of the suit.
5. Heard, learned counsel for the plaintiff and defendant.
6. Now, the points that arise for my consideration are:-
1. Whether the plaintiff proves that the Award passed by learned Arbitrators is against the documents and terms of the contract and as such, it is liable to be set aside?
2. What Order ?
7. My findings on the above Points are as under:
Point No.1 :- In the Affirmative.
Point No.2 :- As per the final Order for the following reasons.12
Com.A.S.152/2018 REASONS
8. POINT NO.1 : Learned counsel for the plaintiff would argue that the Award passed by learned Arbitrators against the facts of the case, terms of the contract of Insurance policy and also the ground reality. He would further argue that non-consideration of material facts, such as, the amount paid by the plaintiff towards labour costs and removing aircraft from the run way, hangar charges and other miscellaneous charges as stated by way of report of the Surveyor and the Arbitrators by considering the report submitted by the Surveyor appointed by the respondents is nothing, but, helping the respondents to reduce the quantum of compensation, which ought to have been granted by considering constructive total loss. Ofcourse, there is no dispute about the accident met by the aircraft, i.e., PILATUS VT- DAR on 28.11.2014, at 3.35 pm, at Guwahati Airport and had sustained major damage towards important parts, due to improper landing and the respondents attribute negligence on the part of the Pilot, co-Pilot in landing of the aircraft on the relevant date and time. The main contention of the plaintiff as could be seen from the plaint averments that the Arbitral 13 Com.A.S.152/2018 Tribunal consisting of 1st and 2nd respondents with majority opinion passed the Award without there being any evidence, by relying upon the fictitious notional IRDA guidelines, the reliance of IRDA guidelines without understanding the basic reality in getting the aircraft completely repaired and when the policy provides for considering total loss upon the requirement of repairs, which exceeds 75% of the agreed value and by reduction of the same by the Surveyor and acceptance of the loss report by the respondents No.1 and 2 in their majority opinion is against the public policy of India, resulting in impugned Award. The respondents have not considered the assessment for computation of loss on the basis of contract of policy only to deny the claim. Further, though, it was agreed for cash on repair payment on the basis of the Survey Report and offer made by the respondents, when it was brought to the notice of the plaintiff that the amount will be paid to financier i.e., Syndicate Bank, then, the plaintiff withdrew the acceptance and emphasised for considering total loss on the basis of various reports submitted by the Pratt & Whitney Canada to whom the engine was sent for OEM, on 17th April 2015 and report of the said 14 Com.A.S.152/2018 Pratt & Whitney is also very clear and the same has been claimed by the claimant in the report made in the claim petition. On the other hand, the Surveyor appointed by the respondent i.e., Sqn. Ldr. Kapil Mohan (Retired), who submitted the report and his report is against the ground reality, who recommended to close the file. The repair estimation submitted by M/s Tantacle Aero logistic Pvt. Ltd., Bengaluru, discloses that it requires estimated cost of 19,51,113 US$ and the Surveyor observed about violation of Pilot Warranty policy, which will not come in the way of constructive total loss as contended in the Arbitral Tribunal. The report submitted by the Surveyor is only to help the respondent, who is under the mercy of the respondents to help and to reduce the approximate loss sustained. Ofcourse, the estimation was also submitted by Pratt & Whitney Canada, which also discloses total amount payable of US$ 8,61,844/- for their estimate, after opening the engine in the presence of officials of the plaintiff to find out the actual damage caused to the engine, propeller, etc. Learned Arbitral Tribunal without considering the documents submitted by the plaintiff, i.e., report of Prat & Whitney Canada and subsequent 15 Com.A.S.152/2018 report of M/s Air Charter Services Pvt Ltd., regarding the condition and engine over hauling, etc. Therefore, learned counsel for the plaintiff would argue that the reason assigned by the 1st and 2nd respondent for reduction of the claim, though there is damage is more than 75% and merely considering the report of the Surveyor, without considering the contention of the plaintiff made payment directly to the Bank, which made the plaintiff to suffer a lot and not in a position to repair the aircraft or reuse it. According to him, when the claimant had agreed to receive the amount directly by furnishing the Bank account, but, the defendant insisted for no objection from the Banker and ultimately paid the amount to Syndicate Bank. Therefore, the plaintiff is not in a position to get the aircraft repaired as it requires huge amount, besides the hangar charges and other charges at the Airport and it is now beyond economic repairs. So, when it becomes total scrap, then what is the purpose of taking policy with agreed value of Rs.9 crores. If this is the tendency of the insurer to deprive the insured of the claim for the loss, then, it is against the law relating to insurance. In the said connection, he took the Court to the Award, wherein, 1 st and 16 Com.A.S.152/2018 2nd respondents have confirmed and 3rd Arbitrator i.e., 4th respondent has upheld the claim of the claimant and given a dissent note in the Award. The 3rd Arbitrator has assigned reasons holding that it is total loss and payment of money to the Bank made the plaintiff to lose the aircraft as company is not in a position to repair it and very purpose of taking out insurance policy found to be negated/nullified. He took the Court to ink Page No.37 and page No.20 of the Award, wherein, it is stated by the Arbitrators that if the net payable loss as per assessment exceeds 75% of the agreed value, then, aircraft will be declared as BER (Beyond Economical repair). From the above, it can be seen that surveyor informed the claimant that net loss assessment will be the basis to decide whether the claim is eligible for CLT and not to the estimation. Further, he took the Court to contention raised before the Tribunal by the claimant by way of Written Argument dated 15.8.2017, wherein, the plaintiff herein had contended that the surveyor had reduced the estimate cost and disallowed the costs of some of the spare parts, etc., from the estimate and the Arbitrators referred to the e-mail, dated 29.7.2015, sent to Mr. Khan of the claimant, wherein, it 17 Com.A.S.152/2018 is stated that "I would like to inform that the repair estimate or the document prepared by the Surveyor to assess any loss. Based on the loss assessment, based on the estimate the aircraft is declared as BER, if the net costs of the repair exceeds 75% of the agreed value of the aircraft. In the present case, Deccan has not even submitted the repair scheme for PILATUS based on which the repairer i.e., ACS prepared the structure repair estimate. He referred to the joint meeting held at Institute on 24.8.2015, which discloses that if the insured decides to repair the aircraft, then after the repairs, with the proof of payment to various vendors and if the aircraft loss sustained less than 75% of the agreed value, the settlement would be done on the basis of the actual cost and if insured decides not to repair the aircraft, then the settlement would be done based on the estimate only. So, the respondents waited for repair estimate from OEM authorised structure repairer and to find out the final loss and if it exceeds 75% of agreed value for the purpose of BER. When, the report of Pratt & Whitney, reveals the cost of repair, which is more than 75%, how could the Surveyor reduced the same, so as to make it less than 75% of the 18 Com.A.S.152/2018 claim. It is nothing, but, to help the respondents and wash up their hands. So, this fact is against the terms of the contract and non-consideration of the materials placed before the Arbitrator, itself goes against the Award on the ground of public policy as contended in the suit. The Arbitral Tribunal has not given any reason, simply accepted the report of the Surveyor and reduced the estimate and paid the amount to financer, which is against the basic law of insurance. The question of making payment to the Bank will arise only, if it is total loss, then, ofcourse, the interest of the financier has to be protected. Here, by treating the loss and making payment to the Bank, then, how could plaintiff get it repaired, the very purpose of taking insurance policy is defeated.
9. Per contra, learned counsel for the 1 st respondent would argue that as per the Award it has paid amount to the Syndicate Bank with the consent of the plaintiff and therefore the plaintiff cannot agitate the same by way of plaint under Section 34 of the Act. The plaintiff submitted final estimate of the cost of repair at Rs.8,92,17,320/- and the defendant has assessed the liability at Rs.5.08 crores and since the aircraft 19 Com.A.S.152/2018 was hypothecated to Syndicate bank, it paid the amount to Syndicate Bank, though, it was not treated as total loss. Ofcourse, in case of total loss, insurer has to pay the entire amount to the financier, but, it is not so. Since, the 1 st respondent has already settled the claim, there is no question of reconsideration of the same in the present suit and no grounds are made out to set aside the Award as contemplated under Section 34 (2) of the Act and the present suit is filed to have more advantages to the plaintiff, which it is not entitled as per law and also terms of the insurance policy. Since, defendant is holding public found and it has acted very well within the ambit, scope and also terms and conditions and limitation of the insurance policy issued to the plaintiff. With this argument, the Court has to analyse whether the Arbitral Tribunal has acted in accordance with law and whether it has considered the material placed before it to consider constructive total loss or payment to the plaintiff about repair cost.
10. Learned counsel for the 1 st respondent would cite the decision in the case of Hindustan Steel Works 20 Com.A.S.152/2018 Construction Ltd., Vs. C. Rajasekhar Rao, reported in (1987) 4 SCC 93, to the effect that:
"the Court to probe into the mental process of the Arbitrator and speculate, where no reasons are given by the Arbitrator, as to what impelled the arbitrator to arrive at his conclusion. In the present case the award of the Umpire was not a speaking Award. The Umpire had not spoken his mind indicating why he had done what he had done; he had narrated only how he came to make the award. In the absence of any reasons for making the award, it is not a speaking award at all. In the absence of any legal proposition, which was unsustainable or improper in the award, the award was not open to interference by the Court.
11. He has also cited another decision in the case of M/s Chandok Machineries Vs. M/s S.N. Sunderson & Co., reported in 2018 SCC OnLine Delhi 11000, to the effect that "the Court acting under Section 34 cannot re-appreciate the findings as if sitting as Court of Appeal. To counter this argument, learned counsel for the plaintiff would cite the decision in the case of National Highways Authority of India Vs. M. Hakeem and another, reported in 2021 SCC OnLine SC 473, wherein, their lordships by referring to various appeals arising out of Special Leave Petition by referring to the earlier decision in case of McDermott International Inc. Vs. Burn Standard Co. Ltd., reported in 21 Com.A.S.152/2018 (2006) 11 SCC 181 has held in Para No.52 of that decision that:
52. "The 1996 Act makes provision for the supervisory role of Courts, for the review of the arbitral award only to ensure fairness. Intervention of the Court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to began the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the Court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it".
Further, in Para No.40 and 41, it is held that:
40. "It can therefore be said that this question has now been settled finally by at least 3 decisions of this Court. Even otherwise, to state that the judicial trend appears to favour an interpretation that would read into Section 34 a power to modify, revise or vary the award would be to ignore the previous law contained in the 1940 Act; as also to ignore the fact that the 1996 Act was enacted based on the UNCITRAL Model Law on International Commercial Arbitration, 1985 which, as has been pointed out in Redfern and Hunter on International Arbitration, makes it clear that, given the limited judicial interference on extremely limited grounds not dealing with the merits of an award, the 'limited remedy' under Section 34 is co-terminus with the 'limited right', namely, either to set aside an award or remand the matter under the circumstances mentioned in Section 34 of the Arbitration Act, 1996.
41. "A look at the Arbitration Acts of England, the United States, Canada, Australia and Singapore 22 Com.A.S.152/2018 also lead to the same conclusion. In each of those legislative measures, there are express provisions which permit the varying of an award, unlike Section 34 of the present Act. In para 51, the learned Single Judge then refers to recourse to a court against an arbitral award, and argues that a statue cannot be interpreted in such manner as to make the remedy worse than the disease. As has been pointed out by us, the "disease" can only be cured in very limited circumstances thus limiting the remedy as well. Also, to assimilate the Section 34 jurisdiction with the revisional jurisdiction under Section 115 of the Code of Civil Procedure, 1908 (the "CPC"), is a revision may be entertained and then states that the High Court may make 'such order as it thinks fit'.
These latter words are missing in Section 34, given the legislative scheme of the Arbitration Act, 1996. For all the aforesaid reasons, with great respect to the learned Single Judge, it is not correct in law and therefore stands overruled".
12. So, according to learned counsel for the plaintiff, when the Arbitrators i.e., Respondent No.2 and 3 solely relying upon Surveyor report, who deducted the amount out of the estimated bill of Rs.8,93,17,320/- without there being any basis and allowed the claim of Rs.5,96,16,554/- as loss on cash in lieu repair basis is highly incorrect and it is a mistake committed by the Surveyor and learned Arbitrators respondent No.2 and 3 blindly believed the report and there was no occasion for the plaintiff to testify the report. In a situation like this, when the respondents No.2 and 3 being 23 Com.A.S.152/2018 the erstwhile employees of the respondent No.1 company acted against the interest of the plaintiff with bias and therefore, the said aspect has to be decided as held in the case decided as stated supra. He has also cited the decision in the case of Kinnari Mullick and another Vs. Ghanshyam Das Damani , reported in (2018) 11 SCC 328, wherein, it was held that "for the limited purpose, the Court acting under Section 34 can get further, particulars by sending the award back to the arbitrators with a direction to assign reason and to send it back. The latest decision in this regard, is in the case of Smt. Padma Mahadev and others Vs. M/s Sierra Constructions Private Limited, dated 22nd March 2021 by the Division Bench of High Court of Karnataka, wherein, their lordships have specifically stated when the Court acting under Section 34 can set aside the Award, when there is a patent illegality or by rejecting the claim and also assigning reason, why the quantum of loss is reduced by the Surveyor, so as to help the insurance company, i.e., respondent No.1. With the help of these two decisions, he would further argue by referring the various documents produced before the Arbitral Tribunal by referring to the detail 24 Com.A.S.152/2018 report submitted to DGCA at Annexure-II, dated 29 th November 2014, intimated the same and the 1st respondent was also intimated about the accident and after intimating the DGCA, the respondent appointed a Surveyor to assess the loss, who conducted survey and submitted his report. The plaintiff herein made available the estimate prepared by a Pratt & Whitney, a Canada Company, when the engine was sent to it for preparing estimate and the said company submitted the estimate at 1.06 Million US $ to 1.9 Million US $. The Surveyor who submitted report on 28.2.2015, concluded that aircraft and engine could be repaired at most lower cost and he verified the policy and submitted report that claim cannot be allowed as there is breach of Pilot Warranty. Subsequently, upon submission of the documents and right of the plaintiff to use the aircraft with Pilot having sufficient experience, then, the Surveyor and defendant moved for settlement by cash in lieu of repairs at Rs.5,96,16,554/-. He would further argue that though it was accepted on the ground that the amount would be paid to the plaintiff to the account furnished for deposit of the amount. But, the defendant paid the amount directly to the financier 25 Com.A.S.152/2018 i.e., Syndicate Bank, Bengaluru, though, it is not a total loss. Further, Syndicate Bank, has also written letter to the insurance company to consider it as total loss. When the plaintiff expressed its desire to get it repaired if amount is paid to it, the same was not considered by the defendant and therefore, the acceptance was withdrawn by issuing a subsequent mail. The claimant had also sent the estimation given by Pratt & Whitney Canada to the Surveyor, who without there being any basis reduced the quantum or repair estimate from US $ 733,044.18 to US $ 483,107.60, though the engine has run only for 147.9 hours as against the life of 5,000 hours. It is further argued that the respondent Nos. 2 and 3 blindly accepted this and reduced the loss sustained and paid the amount directly to the Bank and now there is no question of repairing the aircraft as nothing is received by the plaintiff. If the respondent No.1 had paid the amount to plaintiff directly, he would have repaired the same and paid the loan amount to the Syndicate Bank. The defendant was not prepared for total loss or get it repaired and give it to the plaintiff. So, somewhere here, the arbitrators appear to have acted arbitrarily, so as to help the 26 Com.A.S.152/2018 insurance company, which is against the terms of the insurance policy and attracts the ratio laid down in the decision in the case of National Highways Authority of India stated supra. It appears from the report of the Surveyor that it has disallowed the labour cost, cost of shifting the aircraft from the runway, VAT, service tax, 10% of escalation charges, parking charges, hangar rental charges, cost of obtaining Bank particulars. He has disallowed all the above claims and ultimately paid the amount to Bank, which is the main grievance of the plaintiff. Now, the Court has to see what is the loss incurred in the business contract which is necessary to know whether there is any violation of terms and conditions. The clause No.1 under the Hull and aircraft repair, insurance policy states that "in respect of any claim on equipment that become payable on the basis of a total loss, settlement shall be made to, or to the order of the contract party. In respect of any other claim, settlement shall be made with such party as may be necessary to repair the equipment unless otherwise agreed after consultation between the insurers and the insured and were necessary under the terms of the contract, the Contract party/parties". Such payment 27 Com.A.S.152/2018 shall only be made provided there are in compliance with all applicable loss and regulations. The constructive Total Loss endorsement reads as " When the cost of repair of the damage to the insured aircraft together with the cost of salvaging and /or Transportation from the place of accident to the place of repair and returned to service be estimated at 75% or more of the agreed value of the aircraft, the insured and the insurer may be mutually agreed to declare a constructive total loss and the insurer shall pay the agreed value of the aircraft less the net value of the aircraft in its damaged condition. This latter value shall be fixed by experts or by sale as may be mutually agreed by the insured and the insurers". With the help of these two endorsements, he would argue that when the 1st respondent is not prepared to get the aircraft repaired and made airworthy and when it is not ready to take it as salvage by treating it as constructive total loss, then, the merely relying upon the surveyor report, who reduced the estimate amount arbitrarily appears to be improper and it appears that the same has been done in collusion with the defendant to protect the insurance company. When it appears from the records that the 28 Com.A.S.152/2018 Arbitrators have not properly conducted arbitration or considered the documents placed before the Court and simply accepted the report of the Surveyor, then, it amounts to non- consideration of material documents, which also come in the purview of Section 34(2) of the Act. They cannot simply pay some amount and wash of their hands.
13. Now, coming to the aspect of issue of discharge voucher by the plaintiff, it is argued that since, it was agreed that, the defendant would pay the amount of Rs.5,97,64,556/- directly to the account of the plaintiff company and when the defendant expressed that it requires no objection from financier, then, immediately the plaintiff withdraw the consent and requested for consideration of total loss as per conditions of the policy. The dissenting arbitrator appears to have understood the case properly and given dissent note and since the majority view was for accepting the report of the Surveyor by way of cash in lieu of repair basis, which is unknown to Insurance Law and does not find a place in the insurance policy. Further, what are all the duties, responsibility of the Surveyor has been stated in the clause 29 Com.A.S.152/2018 No.13 of IRDA at Chapter IV and it appears somewhere, the Surveyor has erred and he bent upon to help the insurance company for the reason best known to him. The documents amply indicate that even for the cash in lieu proposal, the plaintiff had furnished its Bank account, but the insurance company was insisted for no objection, immediately that acceptance was withdrawn by issuing mail to the 1 st respondent. Ofcourse, this Court cannot appreciate or re- appreciate the evidence, but fact remains is that all is not well in the decision taken by the Arbitrators that too, when it is found that aircraft is beyond repair. No doubt, this has to be decided jointly by the insurer and insured and the estimate given by the Canada company, which is known for its name, but the same was not taken note of by the Surveyor and it appears that the provisions of AVN 28B and AVN 67B has been violated by offering the settlement under the cash in lieu of repairs. The claimant has claimed balance amount Rs. 3,08,17,832/- towards cost and expenses and revenue loss and since, the damage is more than 75% of the agreed value as per the estimate prepared by the Canada company by deducting the insured value and the amount paid, the plaintiff 30 Com.A.S.152/2018 has sought for Rs.3,03,83,446/-, so that it could repair the aircraft and make it airworthy. I do not want to comment upon the repair of cost and expenses by the Surveyor, there is no reason for non-consideration of materials submitted by the plaintiff before the Arbitrator and fact that two arbitrators are former employees of the defendant company, it would certainly affect the interest of the plaintiff, when so much of documents are placed before the Arbitral Tribunal to decide the claim. Now, the plaintiff is left with nothing because the amount has already been paid to the financier and plaintiff is not in a position to repair it and it becomes total loss, which becomes salvage then, that is the case, what is the purpose of taking insurance policy that too of high value of Rs.9 crores. Therefore, in view of the above fact, I am of the view that the Award suffers from infirmities and non-consideration of material documents and solely depending the Surveyor report, so as to help the insurance company. Therefore, the Award requires to be set aside.
14. Ofcourse, if the award is set aside the parties are always at liberty to go for fresh arbitration keeping in mind the observation of the Court and the parties are always at 31 Com.A.S.152/2018 liberty to put forth their defence in a right prospective and the arbitrator to decide the case, in accordance with provisions of law and materials placed before it in the spirit of provisions of law relating to arbitration and insurance. Hence, I answer point No.1 in the Affirmative.
15. Point No.2 :- For the aforesaid reasons, I proceed to pass the following Order.
ORDER The suit/petition filed by the plaintiff U/S. 34 of Arbitration & Conciliation Act, 1996 is hereby allowed with costs.
The award dated 21.4.2018 passed by the Arbitrators/ respondents is hereby set aside. (Dictated to the Stenographer, typed by him, corrected and then pronounced by me in open Court on this the 29th day of September, 2021).
(CHANDRASHEKHAR U), LXXXVII Addl.City Civil & Sessions Judge, (Exclusive dedicated commercial Court) Bengaluru.
sk 32 Com.A.S.152/2018