Orissa High Court
United India Insurance vs M/S. Ganesh Sponge Pvt. Ltd on 29 February, 2024
Author: D.Dash
Bench: D.Dash
IN THE HIGH COURT OF ORISSA AT CUTTACK
ARBA No.36 of 2019
In the matter of an Appeal under Section 37 of the Arbitration
and Conciliation Act, 1996 assailing the judgment dated 16th
September, 2019 passed by the learned District Judge,
Khurda at Bhubaneswar in Arb(P) No.38 of 2017.
----
United India Insurance .... Appellant Company Ltd.
-versus-
M/s. Ganesh Sponge Pvt. Ltd. .... Respondent Appeared in this case by Hybrid Arrangement (Virtual/Physical Mode):
================================================ For Appellant - Mr.Jayasankar Mishra, Advocate For Respondent - Mr.Amit Patnaik, Advocate, CORAM:
MR. JUSTICE D.DASH Date of Hearing : 04.01.2024 : Date of Judgment: 29.02.2024 D.Dash, J. The present Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as 'the A&C Act' 1996), has been filed with the prayer to set aside the judgment dated 16.09.2019 passed by the learned District Judge, Khurda at Bhubaneswar in Arbitration Petition No.38 of 2017 arising out of the award passed by the sole Arbitrator-Page 1 of 35 ARBA No.36 of 2019
{{ 2 }} Sri Bijayananda Das, Additional District Judge-cum-Special Judge, CBI, (Retd.) in Arbitration Case No.01 of 2016.
2. Factual Matrix of the Case:-
The Respondent-Company is a private Limited Company which has a Sponge Iron manufacturing plant in Angul. The Respondent-Company had purchased a D.G. set for the purpose of being used in its factory. The D.G. set was insured with the Appellant-Insurance Company. The D.G. set was carrying the insurance coverage for one year with effect from 19.08.2013 to 18.08.2014. The policy was a "Machinery Breakdown Insurance Policy". During subsistence of the policy, the D.G. set got damaged and broke down on 05.06.2014. The Respondent-Company thus intimated the fact to the Appellant-Insurance Company vide letter dated 06.06.2014. The Appellant-Insurance Company instead of taking immediate action in the matter in estimating the damages caused to the D.G. set, caused delay. On the consent of the Appellant-Insurance Company, the Respondent-
Company took step for repairing the D.G. set with an anticipation to get the cost that would be involved in repairing the D.G. set reimbursed from the Appellant-Insurance Company. The D.G. set was accordingly entrusted for repairing to M/s. Garuda Power Private Ltd. at Asansol (West Bengal) and that was within the knowledge of the Appellant- Insurance Company.
Page 2 of 35 ARBA No.36 of 2019
{{ 3 }} The Respondent-Company then furnished an estimate of Rs.22,11,973/- to the Appellant-Insurance Company for payment. All required documents in support of the same were placed with the Appellant-Insurance Company as and when they so required. The competent Surveyor being deputed by the Appellant-Insurance Company came to inspect the damaged/broken down D.G set in order to settle the cost/claim. The claim was, however, not settled and the Appellant-Insurance Company went on causing delay. For such delay in settlement of the claim by the Appellant- Insurance Company, the Respondent-Company sustained production loss. In order to reduce the loss of production, attempt was made to complete the repairing work meeting the expenditures by the Respondent-Company from its own funds. The Respondent-Company, however, from time to time requested the Appellant-Insurance Company to release the claims incurred in repairing the D.G. set, which, however, was not given immediate attention.
The Respondent-Company also incurred transportation cost to and fro for the D.G. set, travel expenses of MSM and BLV for inspection and test over and above the cost of the repairing charges raised by the repairing company. The Respondent-Company came to know from its Banker that a sum of Rs.7,41,861/- has been credited to its account. The Respondent-Company then could not follow as to how and Page 3 of 35 ARBA No.36 of 2019 {{ 4 }} when the Appellant-Insurance Company determined the claim with such reduced amount and credited to the account of the Respondent-Company. The Respondent-Company then by its letters dated 19.05.2015, 20.05.2015 and 21.05.2015 requested the Appellant-Insurance Company to explain all the detail reasons for reduction of such huge amount from the genuine claim advanced by the Respondent-Company. The Appellant- Insurance Company remained silent and all those letters of the Appellant-Insurance Company were not responded to.
The Respondent-Company, therefore, finally served a reminder to the Appellant-Insurance Company on 20.08.2015 requesting therein, at least to release the repairer's bill amount of Rs.22,11,973/- as the repairer-Company was demanding hard to clear up its dues with interest. This was not responded to by the Appellant-Insurance Company who sat silent over the matter. So it is said that the Appellant-Insurance Company has violated the terms of the contract by not discharging their contractual obligation in settling the claim of the Respondent- Company in time and as such made the Respondent-Company suffer in various ways. The Respondent-Company, therefore, stated that the Appellant-Insurance Company is liable to pay the damages in addition to the claims raised. When such dispute arose between the parties, the Respondent-Company through its Advocate issued notice on 19.12.2015 invoking the Clause-13 of the Conditions of Contract for referring the Page 4 of 35 ARBA No.36 of 2019 {{ 5 }} matter to the sole Arbitrator for adjudication and determination of the claims of the Respondent-Company. The Respondent-Company advanced the claims as under:-
1. Claim item No.1 For repairing charges Rs.14,70,112/-
2. Claim item No.2 For transportation cost Rs.1,10,320/-
to and fro, hiring of hydra for lifting and setting
3. Claim item No.3 For travelling expenses Rs.70,000/-
4. Claim item No.4 For hiring D.G. set Rs.31,50,000/-
from 1.9.2014 to
31.5.2015
5. Claim item No.5 For loss of profit and Rs.40,72,474/-
over head.
6. Claim item No.6 For miscellaneous Rs.75,917/-
purchases lubricant,
Engine oil and battery
Total Rs.89,49,096/-
3. On consent of the parties, Sri Bijayananda Das was appointed as the sole Arbitrator and he entered upon the reference on 29th February, 2016 and issued notice fixing 12.03.2016 for appearance of the parties.
4. The Appellant-Insurance Company while countering the claim advanced by the Respondent-Company submitted that the claim statement is misconceived, untenable and liable to be rejected. It is stated that the claims are not justified and in tune with the insurance policy and, therefore, not arbitrable. It has been stated that the Respondent-Company as per the policy Page 5 of 35 ARBA No.36 of 2019 {{ 6 }} condition is entitled to the cost incurred for repairing subject to the deductions etc. The Respondent-Company took steps for repairing and its anticipation to the cost involved in repairing the D.G. set is misconceived. The Appellant- Insurance Company was not aware as to where the D.G. set had been sent for repair and no consent was sent for the purpose from M/s. Garuda Power Private Ltd. It is stated that since there was no delay on the part of the Appellant- Insurance Company in dealing the claims, the allegations on that score is unfounded and, therefore, the Appellant- Insurance Company in no way responsible for the production loss, if any, suffered by the Respondent-Company.
The Appellant-Insurance Company has stated that the sum insured for the D.G. set was Rs.48,51,408/-, which is equal to the purchase price as per invoice dated 11.10.2008 inclusive of all costs of transportation and other expenses. The Respondent-Company had raised a claim of Rs.22,11,973/- and the other amounts now claimed were not the part of the claim. Lastly, as regards the claim items, it is submitted that the claim of Rs.14,70,112/- is not payable since according to the policy conditions, the previous amount had been paid. The transportation charges as claimed by the Respondent- Company to the extent of Rs.1,10,320/- is not payable by the Appellant-Insurance Company. The travelling expenses of Rs.70,000/- as per the claim laid by the Respondent-Company Page 6 of 35 ARBA No.36 of 2019 {{ 7 }} is also not payable. In respect of claim amount of Rs.31,50,000/- towards hiring charges of the D.G. set, it is said that the same is not justified. The claim towards loss and profit computed at Rs.40,72,747/- is not known to the Appellant-Insurance Company and there is no nexus of the same with the contract. The Appellant-Insurance Company denied its liability towards payment of Rs.75,917/- stating it to be beyond the scope of the policy. It is thus stated that the claim raised by the Respondent-Company for a sum of Rs.89,49,096/- is baseless.
It is further stated that the interest of Rs.13,23,976/-, litigation expenses of Rs.1,00,000/- along with interest @18% per annum from 18.03.2016 till payment and cost etc. are not entertainable in law. So, the Appellant-Insurance Company asserted that the claims raised by the Respondent-Company deserve to be dismissed.
It is also stated that there is no dispute as such to refer the matter to the Arbitrator. The Respondent-Company without any dispute much less arbitrable dispute has unnecessarily dragged the Appellant-Insurance Company to the litigation. They state that soon after the loss was reported, a Surveyor was deputed who visited the spot and inspected the machinery. After the repairs in the approved workshop of the manufacturer as per the choice of Respondent-Company, the Surveyor again examined the machinery in presence of the authorized agent of the Respondent-Company and there was Page 7 of 35 ARBA No.36 of 2019 {{ 8 }} mutual assessment of the loss against the claim as payable. The report was submitted. Thereafter, the Appellant-Insurance Company further examined the matter and making necessary deductions as per the policy conditions such as, depreciation, policy expenses and others and after seeking clarification from the Respondent-Company finally determined the amount payable. Accordingly, the Appellant-Insurance Company has paid the amount as admissible strictly in accordance with the policy conditions. The Respondent-Company did not raise any dispute at any point of time. In the absence of any dispute as per the terms of the policy, the Appellant-Insurance Company has stated that the Respondent-Company has frivolously filed the claim. It is further stated that the entire claim of Rs.22,11,973/- towards the cost of repairing made by the authorized repairer was fully and finally paid by deducting the admissible deduction as per the policy. After the claim was settled and payment was made, the Respondent-Company out of greed sent a letter to know the detail of the break up and thereafter issued notice to the Appellant-Insurance Company to appoint an Arbitrator by invoking the clause in the policy as if there is a dispute when, in fact, there is no disputes.
5. On the above case and counter case of the parties, the sole Arbitrator settled the following issues:-
(1) Whether the claims as lodged by the Claimant are arbitrable as per the policy conditions?Page 8 of 35 ARBA No.36 of 2019
{{ 9 }} (2) Whether the Claimant is entitled to the claims as per its claim statement?
(3) Whether the claim Item Nos.2,3,4 and 7 as lodged are excepted matters to the policy agreement? (4) Whether the Claimant is entitled to interest, if so, at what rate and from which period?
(5) Whether the Claimant is entitled to interest, if so, at what rate and from which period?
(6) Whether the Claimant is estopped from raising any claim as per claim Item No.1?
(7) Whether the Claimant is entitled to cost of arbitration and litigation expenses?
(8) Whether the Claimant is entitled to any other relief/reliefs?
6. Issue No.1 has been decided in favour of the Respondent-Company that the claims raised are arbitrable. Rest of the issues being taken up together, after discussion of evidence, both oral and documentary, let in by the parties and in the backdrop of the rival case/claims, the sole Arbitrator has awarded claim of Rs.14,17,112/- for repairing charges, Rs.1,10,320/- for transportation cost etc., Rs.31,50,000/- for hiring charges of the D.G. set, Rs.75,970/- for cost of the lubricant, engine oil and battery. Thus, in total the sole Arbitrator has passed the award for payment of Rs.48,06,349/- to be paid by the Appellant-Insurance Company to the Page 9 of 35 ARBA No.36 of 2019 {{ 10 }} Respondent-Company. The claim on the other heads towards the loss and profit and travelling expenses etc. have been declined. Finally, the award runs as under:-
"In the result, I hereby direct the Respondent No.1-Insurance Company to pay an amount of Rs.48,06,349/- (Rupees Forty-eight lacs Six thousand three hundred forty-nine) only with 8 (eight) percent interest per annum from the date of commencement of the present proceeding till the date of award and 12 (televe) percent interest per annum from the date of the award till payment. The aforesaid amount should be paid by the Respondent No.1-Insurance Company within three months hence, failing which the Claimant Company can recover the same by taking appropriate recourse of law."
7. The Appellant-Insurance Company then filed an application under section 34 of the A & C Act before the learned District Judge, Khurda at Bhubaneswar, which came to be numbered as Arb (B) No.238 of 2017.
The learned District Judge, upon hearing the parties and on goring through the award having examined the same, within the scope and ambit of the provision contained under section 34 of the Act and the settled law on the subject has dismissed the said application.
8. Hence the present Appeal under section 37 of the A & C Act is at the instance of the Appellant-Insurance Company. Page 10 of 35 ARBA No.36 of 2019
{{ 11 }} Appellant Insurance-Company's submission
9. Learned counsel for the Appellant-Insurance Company- Shree Jayasankar Mishra, submitted that the learned Arbitrator has travelled beyond the arena of agreement by awarding Rs.31,50,000/- towards hire charges of another D.G. set for the period by taking an erroneous view that the agreement nowhere excludes such a course to be adopted by the Respondent-Company so as to manage the situation till repairing of the D.G. set is made in order to prevent the loss in the manufacturing unit. He submitted that when hiring charges is not indicated anywhere in the policy condition and when it has been mentioned that consequential loss would not be paid, the learned Arbitrator has committed illegality in directing for payment of hiring charges. In support of the same, he placed reliance upon the decision of the Hon'ble Apex Court in Life Insurance Corporation of India & Another Vrs. Sunita, (2022) 1 SCC 68.
10. Next, it was submitted that when the Respondent- Company had claimed only a sum of Rs.14,70,112/-, the learned Arbitrator has awarded far beyond that which was not permissible. The award on the head of transportation cost and miscellaneous expenses, which is said to have been based on the basis of the evidence available on record, is untenable.
11. Learned Arbitrator has committed grave illegality in not examining the Surveyor's report without having said as to Page 11 of 35 ARBA No.36 of 2019 {{ 12 }} whether it is genuine or not in either accepting the said report on rejecting the same. The learned Arbitrator has simply deducted the amount from the claim estimate of Rs.22,11,973 - Rs.7,41,861= Rs.14,70,112/- on the head of repairing charges. The learned Arbitrator when has not accepted the survey report, two courses were open, either to depute second Surveyor or to award based on non-standard method which has not been made. In support of such submission, he relied upon the decision of the Apex Court in Shivram Chandra Jagarnath Cold Storage Vrs. The New India Assurance Company Ltd., (2022) 4 SCC 539.
Furthermore, it was submitted that the Respondent- Company admittedly received the amount of Rs.7,41,861/- from the Appellant-Insurance Company. So, once the payment has been made by the Appellant-Insurance Company and it has been utilized by the Respondent-Company that has ended the dispute and the learned Arbitrator ought to have treated the same as full and final settlement of the claim of the Respondent-Company.
Respondent-Company's Submission
12. Learned counsel for the Respondent-Company Mr. Amit Pattnaik submitted that this Court in seisin of an Appeal under section 37 of the A & C Act is not permitted to undertake independent assessment on the merit of the award by delving into the claims reappreciating the evidence on Page 12 of 35 ARBA No.36 of 2019 {{ 13 }} record duly evaluated by the learned Arbitrator and thereby substitute the view taken by the learned Arbitrator by evaluating or probing the mental process by which the learned Arbitrator has reached its conclusion. According to him, the award would show that the learned Arbitrator has gone through the statements of the claim and counter in detail and having perused the evidence, both oral and documentary, let in by the parties has arrived at a final view by assigning the reasons at its level. So, the same does not fall within the grounds of challenge as made under section 44(2) of the A & C Act. Reliance was placed on Haryana Tourism Ltd. Vrs. Kandhari Beverages Limited, (2022) 3 SCC 237 and MMTC Vrs. Vedanta Limited, (2019) 4 SCC 163.
13. It was next submitted that the claim awarded by the learned Arbitrator are all supported with good reasons and when the view appears to be plausible, in the facts and circumstances of the case, the learned Arbitrator can be said to have acted well within the scope of the agreement. Reliance was placed on the case of Associate Builders Vrs. Delhi Development Authority, (2015) 3 SCC 49. Furthermore the submission was made that the claim with respect to hiring charges when was not excluded or barred or excepted under the agreement, the learned Arbitrator did commit no error at all in allowing the claim on that head basing upon the evidence available on record as that is consequential. The Page 13 of 35 ARBA No.36 of 2019 {{ 14 }} decision of the Apex Court in case of Atlanta Vrs. Union of India, (2022) 3 SCC 739 was relied upon.
14. It was submitted that the unilateral transfer of the amount by the Appellant-Insurance Company to the account of the Respondent-Company would not tantamount to discharge of liability towards full and final settlement of the claim under the Insurance Contract.
According to him, the decision cited by the learned counsel for the Appellant-Insurance Company in case of Bhagabati Prasad Pawan Kumar (supra) is distinguishable since that was a case where the cheque being given, the Company had encashed the same and utilized the money without any demur and thereafter objection had been raised.
15. It was also submitted that the report of the Surveyor of the Insurance Company is not the conclusive proof or evidence of unimpeachable character so to form the sole basis of the claim and, therefore, the learned Arbitrator having given anxious, thoughts and consideration over the case and counter case of the parties as also the evidence on record keeping in view the Surveyor's report has undertaken the exercise of passing the award. Reliance was placed upon the decision of the Hon'ble Apex Court in case of New India Assurance Company Ltd., Vrs. Pradeep Kumar, (2009) 7 SCC 787 and also a decision of this Court in case of Suryo Udyog Vrs. New India Assurance Company Ltd., rendered in ARBP Page 14 of 35 ARBA No.36 of 2019 {{ 15 }} Nos.39 and 41 of 2018, which has been refused to be interfered by the Hon'ble Apex Court in SLP (C) No.7688-89 of 2023.
Issues for consideration
16. Having heard learned counsel for the parties and on perusal of the award and materials available on record, this Court is called upon to determine the following issues:-
(a) What is the scope of this Court's power under section 37 of the A & C Act and additionally whether the arbitral award is in contravention of public policy of the State under section 34(2) (b) (ii) as alleged by the Appellant-Insurance Company?
(b) Whether the Respondent-Company was precluded/estopped from raising any dispute after having accepted the payment of the nature of so- called full and final settlement.
17. The scope of this Court's power under section 37 of the A & C Act and whether the Arbitral award is in contravention of the public policy of the State under section 34(2)(b) (ii) of the A & C Act.
1. In the present case, we are only concerned with Section 37(1)(c) which states that an appeal lies under Section 37 from an order setting aside or refusing to set aside an arbitral award under Section 34 of the A& C Act.
2. It may be noted that the law laid down by the Supreme Court constricts the supervisory role of the courts while Page 15 of 35 ARBA No.36 of 2019 {{ 16 }} testing the validity of an Arbitration Award. In the case of Mcdermott International Inc. v. Burn Standard Co. Ltd. 1 , the Supreme Court has held as under:--
"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 Ld. Arbitral Tribunals, violation of natural justice, etc. The court cannot correct errors of the Ld. Arbitral Tribunals. It can only quash the award leaving the parties free to begin 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."
18. It is now a settled position that while exercising a power under Section 34 of the A&C Act, the arbitral award can only be confirmed or set aside, but not modified. To buttress the said position of law, reliance is placed on the decision of the Supreme Court's recent judgment and order in NHAI v. M. Hakeem 2, wherein the Supreme Court held that:
1
(2006) 11SCC 181 2 2021 SCC Online SC 473 Page 16 of 35 ARBA No.36 of 2019 {{ 17 }} "16. What is important to note is that, far from Section 34 being in the nature of an appellate provision, it provides only for setting aside awards on very limited grounds, such grounds being contained in sub-sections (2) and (3) of Section 34. Secondly, as the marginal note of Section 34 indicates, "recourse" to a court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-sections (2) and (3). "Recourse" is defined by P. Ramanatha Aiyar's Advanced Law Lexicon (3rd Edn.) as the enforcement or method of enforcing a right. Where the right is itself truncated, enforcement of such truncated right can also be only limited in nature. What is clear from a reading of the said provisions is that, given the limited grounds of challenge under sub-sections (2) and (3), an application can only be made to set aside an award. This becomes even clearer when we see sub-section (4) under which, on receipt of an application under sub-section (1) of Section 34, the court may adjourn the Section 34 proceedings and give the Arbitral Tribunal an opportunity to resume the arbitral proceedings or take such action as will eliminate the grounds for setting aside the arbitral award. Here again, it is important to note that it is the opinion of the Arbitral Tribunal which counts in order to eliminate the grounds for setting aside the award, which may be indicated by the court hearing the Section 34 application.
xxx
31. Thus, there can be no doubt that given the law laid down by this Court, Section 34 of the Arbitration Act, 1996 cannot be held to Page 17 of 35 ARBA No.36 of 2019 {{ 18 }} include within it a power to modify an award. The sheet anchor of the argument of the respondents is the judgment of the learned Single Judge in Gayatri Balaswamy [Gayatri Balaswamy v. ISG Novasoft Technologies Ltd., 2014 SCC OnLine Mad 6568 : (2015) 1 Mad LJ 5] . This matter arose out of a claim for damages by an employee on account of sexual harassment at the workplace. The learned Single Judge referred to the power to modify or correct an award under Section 15 of the Arbitration Act, 1940 in para 29 of the judgment. Thereafter, a number of judgments of this Court were referred to in which awards were modified by this Court, presumably under the powers of this Court under Article 142 of the Constitution of India. In para 34, the learned Single Judge referred to para 52 in McDermott case [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] and then concluded that since the observations made in the said para were not given in answer to a pointed question as to whether the court had the power under Section 34 to modify or vary an award, this judgment cannot be said to have settled the answer to the question raised finally.
xxx
42. It can therefore be said that this question has now been settled finally by at least 3 decisions [McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 11 SCC 181] , [Kinnari Mullick v. Ghanshyam Das Damani, (2018) 11 SCC 328 : (2018) 5 SCC (Civ) 106] , [Dakshin Haryana Bijli Vitran Nigam Ltd. v. Navigant Technologies (P) Ltd., (2021) 7 SCC 657] of this Court. Even otherwise, to state Page 18 of 35 ARBA No.36 of 2019 {{ 19 }} 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 coterminous 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.
xxx
48. Quite obviously if one were to include the power to modify an award in Section 34, one would be crossing the Lakshman Rekha and doing what, according to the justice of a case, ought to be done. In interpreting a statutory provision, a Judge must put himself in the shoes of Parliament and then ask whether Parliament intended this result. Parliament very clearly intended that no power of modification of an award exists in Section 34 of the Arbitration Act, 1996. It is only for Parliament to amend the aforesaid provision in the light of the experience of the courts in the working of the Arbitration Act, 1996, and bring it in line with other legislations the world over."
Further, the Supreme Court also re-iterated the above position in National Highway Page 19 of 35 ARBA No.36 of 2019 {{ 20 }} Authority of India vs. Sri P.Nagaraju @ Cheluvaiah & Anr as under:
"26. Under the scheme of the Act 1996 it would not be permissible to modify the award passed by the learned Arbitrator to enhance or reduce the compensation based on the material available on record in proceeding emanating from Section 34 of the Act, 1996..."
19. It is thus amply clear that the extent of judicial scrutiny under Section 34 of the A&C Act is limited and the scope of interference is narrow. Under Section 37, the extent of judicial scrutiny and scope of interference is further narrower still. An appeal under Section 37 is akin to a second appeal, the first appeal being by way of objections under Section 34. Where there are concurrent findings of facts and law, first by the Learned Arbitral Tribunal which are then confirmed by the court while dealing with objections under Section 34, in an appeal under Section 37, the Appellate Court should be very cautious and loathe to interfere in the findings returned in the award by the Arbitral Tribunal and confirmed by the court under Section
34. As laid down by the Apex Court, the supervisory role of the court in arbitration proceedings has been kept at a minimal level and this is so because, the parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as the parties prefer the expediency and finality offered by it.
Page 20 of 35 ARBA No.36 of 2019
{{ 21 }}
20. Further, the Supreme Court in the case of UHL Power Co. Ltd. v. State of H.P.,1 recently held as follows:
"16. As it is, the jurisdiction conferred on courts under Section 34 of the Arbitration Act is fairly narrow, when it comes to the scope of an appeal under Section 37 of the Arbitration Act, the jurisdiction of an appellate court in examining an order, setting aside or refusing to set aside an award, is all the more circumscribed. In MMTC Ltd. v. Vedanta Ltd. [MMTC Ltd. v. Vedanta Ltd., (2019) 4 SCC 163 : (2019) 2 SCC (Civ) 293] , the reasons for vesting such a limited jurisdiction on the High Court in exercise of powers under Section 34 of the Arbitration Act have been explained in the following words : (SCC pp. 166-67, para
11) "11. As far as Section 34 is concerned, the position is well-settled by now that the Court does not sit in appeal over the arbitral award and may interfere on merits on the limited ground provided under Section 34(2)(b)(ii) i.e. if the award is against the public policy of India. As per the legal position clarified through decisions of this Court prior to the amendments to the 1996 Act in 2015, a violation of Indian public policy, in turn, includes a violation of the fundamental policy of Indian law, a violation of the interest of India, conflict with justice or morality, and the existence of patent illegality in the arbitral award. Additionally, the concept of the "fundamental policy of Indian law" would cover compliance with statutes and judicial precedents, adopting a judicial approach, ______________________________ 1 2022 SCC Online SC 19 Page 21 of 35 ARBA No.36 of 2019 {{ 22 }} compliance with the principles of natural justice, and Wednesbury [Associated Provincial Picture Houses Ltd. v. Wednesbury Corpn., (1948) 1 KB 223 (CA)] reasonableness. Furthermore, "patent illegality" itself has been held to mean contravention of the substantive law of India, contravention of the 1996 Act, and contravention of the terms of the contract."
21. A similar view, as stated above, has been taken by the Supreme Court in K. Sugumar v. Hindustan Petroleum Corpn. Ltd.1, wherein it has been observed as follows:
"2. The contours of the power of the Court under Section 34 of the Act are too well established to require any reiteration. Even a bare reading of Section 34 of the Act indicates the highly constricted power of the civil court to interfere with an arbitral award. The reason for this is obvious. When parties have chosen to avail an alternate mechanism for dispute resolution, they must be left to reconcile themselves to the wisdom of the decision of the arbitrator and the role of the court should be restricted to the bare minimum. Interference will be justified only in cases of commission of misconduct by the arbitrator which can find manifestation in different forms including exercise of legal perversity by the arbitrator."
22. In the same vein, the Supreme Court in the case of Haryana Tourism Ltd. v. Kandhari Beverages Ltd. 2 has held as follows:
______________________________ ______________________________ 1 (2020) 12 SCC 539 1 2 (2020) 12 SCC 539 (2022) 3 SCC 237 Page 22 of 35 ARBA No.36 of 2019 {{ 23 }} "9. As per settled position of law laid down by this Court in a catena of decisions, an award can be set aside only if the award is against the public policy of India. The award can be set aside under Sections 34/37 of the Arbitration Act, if the award is found to be contrary to: (a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or
(d) if it is patently illegal. None of the aforesaid exceptions shall be applicable to the facts of the case on hand. The High Court has entered into the merits of the claim and has decided the appeal under Section 37 of the Arbitration Act as if the High Court was deciding the appeal against the judgment and decree passed by the learned trial court. Thus, the High Court has exercised the jurisdiction not vested in it under Section 37 of the Arbitration Act. The impugned judgment and order [Kandhari Beverages Ltd. v. Haryana Tourism Ltd., 2018 SCC OnLine P&H 3233] passed by the High Court is hence not sustainable."
23. More recently, the Supreme Court affirmed the above legal position in the case of Punjab State Civil Supplies Corporation Ltd. v. Ramesh Kumar and Company 1 .
24. In the light of the parameters, as laid down by the Apex Court, vis-a-vis the scope of judicial intervention that the present appeal impugning the order dated 19.5.2018 passed by the learned District Judge, Khurda at Bhubaneswar in Arbitration Petition No. 41 of 2016 arising ______________________________ 1 2021 SCC Online SC 1056 Page 23 of 35 ARBA No.36 of 2019 {{ 24 }} out of arbitration award dated 8.7.2016 passed in Arbitration Case No. 1 of 2014 by the learned Ld. Arbitral Tribunal has to be dealt with.
25. In the case of Oil & Natural Gas Corporation Ltd. v. Western Geco International Limited 1, the Apex Court has observed that the award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:
a. fundamental policy of Indian law; or b. the interest of India; or c. justice or morality; or d. if it is patently illegal.
After being subsequently discussed in Associate Builders v. Delhi Development Authority the position of law was clarified and laid down succinctly by the Supreme Court in the case of Sangyong Engg. & Construction Co.
Ltd. v. NHAI2, wherein the Apex Court has held that:
"34. What is clear, therefore, is that the expression "public policy of India", whether contained in Section 34 or in Section 48, would now mean the "fundamental policy of Indian law" as explained in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] i.e. the fundamental policy of Indian law would be relegated to "Renusagar"
understanding of this expression. This would necessarily mean that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 ____________________________ 1 (2014) 9 SCC 70 2 (2019) SCC Online SC 677 Page 24 of 35 ARBA No.36 of 2019 {{ 25 }} SCC 263 : (2014) 5 SCC (Civ) 12] expansion has been done away with. In short, Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as explained in paras 28 and 29 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , would no longer obtain, as under the guise of interfering with an award on the ground that the arbitrator has not adopted a judicial approach, the Court's intervention would be on the merits of the award, which cannot be permitted post amendment.
However, insofar as principles of natural justice are concerned, as contained in Sections 18 and 34(2)(a)(iii) of the 1996 Act, these continue to be grounds of challenge of an award, as is contained in para 30 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
35. It is important to notice that the ground for interference insofar as it concerns "interest of India" has since been deleted, and therefore, no longer obtains. Equally, the ground for interference on the basis that the award is in conflict with justice or morality is now to be understood as a conflict with the "most basic notions of morality or justice". This again would be in line with paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49: (2015) 2 SCC (Civ) 204] , as it is only such arbitral awards that shock the conscience of the court that can be set aside on this ground.
36. Thus, it is clear that public policy of India is now constricted to mean firstly, that a domestic award is contrary to the fundamental Page 25 of 35 ARBA No.36 of 2019 {{ 26 }} policy of Indian law, as understood in paras 18 and 27 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , or secondly, that such award is against basic notions of justice or morality as understood in paras 36 to 39 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] .
Explanation 2 to Section 34(2)(b)(ii) and Explanation 2 to Section 48(2)(b)(ii) was added by the Amendment Act only so that Western Geco [ONGC v. Western Geco International Ltd., (2014) 9 SCC 263 : (2014) 5 SCC (Civ) 12] , as understood in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , and paras 28 and 29 in particular, is now done away with.
37. Insofar as domestic awards made in India are concerned, an additional ground is now available under sub-section (2-A), added by the Amendment Act, 2015, to Section 34.
Here, there must be patent illegality appearing on the face of the award, which refers to such illegality as goes to the root of the matter but which does not amount to mere erroneous application of the law. In short, what is not subsumed within "the fundamental policy of Indian law", namely, the contravention of a statute not linked to public policy or public interest, cannot be brought in by the backdoor when it comes to setting aside an award on the ground of patent illegality.
38. Secondly, it is also made clear that reappreciation of evidence, which is what an appellate court is permitted to do, cannot be Page 26 of 35 ARBA No.36 of 2019 {{ 27 }} permitted under the ground of patent illegality appearing on the face of the award.
39. To elucidate, para 42.1 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , namely, a mere contravention of the substantive law of India, by itself, is no longer a ground available to set aside an arbitral award. Para 42.2 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , however, would remain, for if an arbitrator gives no reasons for an award and contravenes Section 31(3) of the 1996 Act, that would certainly amount to a patent illegality on the face of the award.
40. The change made in Section 28(3) by the Amendment Act really follows what is stated in paras 42.3 to 45 in Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49:
(2015) 2 SCC (Civ) 204] , namely, that the construction of the terms of a contract is primarily for an arbitrator to decide, unless the arbitrator construes the contract in a manner that no fair-minded or reasonable person would; in short, that the arbitrator's view is not even a possible view to take. Also, if the arbitrator wanders outside the contract and deals with matters not allotted to him, he commits an error of jurisdiction. This ground of challenge will now fall within the new ground added under Section 34(2-A).
41. What is important to note is that a decision which is perverse, as understood in paras 31 and 32 of Associate Builders [Associate Builders v. DDA, (2015) 3 SCC 49 : (2015) 2 SCC (Civ) 204] , while no longer being a ground for challenge under "public policy of Page 27 of 35 ARBA No.36 of 2019 {{ 28 }} India", would certainly amount to a patent illegality appearing on the face of the award. Thus, a finding based on no evidence at all or an award which ignores vital evidence in arriving at its decision would be perverse and liable to be set aside on the ground of patent illegality. Additionally, a finding based on documents taken behind the back of the parties by the arbitrator would also qualify as a decision based on no evidence inasmuch as such decision is not based on evidence led by the parties, and therefore, would also have to be characterised as perverse."
26. Furthermore, the law is no longer res integra and is settled that where the Ld. Arbitral Tribunal has assessed the material and evidence placed before them in detail, the court while considering the objections under Section 34 of the A&C Act does not sit as a court of appeal and is not expected to re- appreciate the entire evidence and reassess the case of the parties. The jurisdiction under Section 34 is not appellate in nature and an award passed by an Arbitral Tribunal cannot be set aside on the ground that it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, another view is possible. The duty of the court in these circumstances is to see whether the view taken by the Learned Arbitral Tribunal is a plausible view on the facts, pleadings and evidence before the Learned Arbitral Tribunal. Even if on the assessment of material, the court in seisin of an application under Section 34 is of the view that Page 28 of 35 ARBA No.36 of 2019 {{ 29 }} there are two views possible and the Learned Arbitral Tribunal has taken one of the possible views, based on the material before it, the court would be reluctant to interfere. The court is not to substitute its view with that of the Learned Arbitral Tribunal, if the view taken by it is reasonable. The same has been previously reiterated by this Court in the case of State of Orissa v. Bhagyadhar Dash1.
27. This Court has perused the statement of the claim and the counter and has carefully gone through the arbitral award and thus would like to highlight certain facts or evidences that are placed on record by the parties before the learned Arbitrator in course of hearing, which are as follows:-
"In view of the Machinery Breakdown Insurance Policy vide Ext.C/1, provisions have been made for liability in case of breakdown of machineries. According to the provision, it is the requirement of this insurance that the sum insured shall be equal to the cost of replacement of the Insured property by new property of the same kind and same capacity, which shall mean its replacement cost including freight, dues and customs, duties, if any, and erection costs. From the evidence both documentary and oral, it is clearly established that the D.G. set of the Claimant-Company has been insured and the same was damaged during the subsistence of the said policy and there is no dispute that the same was repaired by M/s. Garuda Power Limited, Asansol.
As per the claim statement, the Claimant Company has claimed Rs.14,70,112/- towards repairing charges after deducing the amount paid by ____________________________ 1 A.I.R 2011 S.C. 3409 Page 29 of 35 ARBA No.36 of 2019 {{ 30 }} the Respondent-Insurance Company. Similarly, in Claim Item No.2, the Claimant-Company has incurred an expenditure of Rs.1,10,320/- towards transportation. For hiring of the D.G. set from 01.09.2014 to 31.05.2015, a sum of Rs.31,50,000/- has been incurred by the Claimant Company. Since a new D.G. set to fill-up the loss of the Company during absence of the original D.G. set which has been sent for repairing. Besides the above amount, the Claimant Company has also incurred a sum of Rs.75,917/- towards purchase of Lubricant, Engine oil and battery which is liable for payment. In respect of Claim Item No.5, a sum of Rs.40,72,747.00 has been claimed towards loss of profit and overhead. When cost of Rs.31,50,000.00 has been claimed for hiring D.G. set from 01.09.2014 to 31.05.2015 then said amount is not at all admissible. However, the Claimant Company has sustained loss for the period from 05.06.2014 to 31.08.2014. As such, the claim amount of Rs.14,70,112/- (rupees Fourteen lacs seventy thousand one hundred twelve) for Claim Item No.1, Rs.1,10,320/- (rupees One lakh ten thousand three hundred twenty) for Claim Item No.2, Rs.31,50,000/- (rupees Thirty-one lacs fifty thousand) for Claim Item No.4 and Rs.75,917/- (rupees Seventy-five thousand nine hundred seventeen) for Claim Item No.6 are justified in view of the evidence adduced both oral and documentary by both the parties. As such the amount comes to Rs.48,06,349/- . As regards Claim amount of Rs.40,72,747/- towards loss of profit and Rs.70,000/- towards travelling expenses, the same are not justified and the said claims are rejected."
28. The policy is nomenclatured as 'Machinery Breakdown Insurance Policy'. It is not in dispute that on 05.06.2014 the D.G. set got damaged around 11.10 p.m. which was Page 30 of 35 ARBA No.36 of 2019 {{ 31 }} immediately intimated to the Appellant-Insurance Company on the next day, i.e., on 06.06.2014. The D.G. set was sent to the authorized repairer M/s. Garuda Power Private Ltd., at Asansol, West Bengal on 22.06.2014. Initial payment of Rs.5,00,000/- was made and amount of Rs.22,11,973/- was quoted towards repairing cost. On 10.08.2015, the Respondent- Company on its own paid the balance outstanding of Rs.17,11,937/- and additional cost of Rs.60,000/- towards testing charges after which it was allowed to take back the repaired D.G. set to the factory site. The Appellant-Insurance Company has credited a sum of Rs.7,41,861/- to the account of the Respondent-Company.
It is the evidence of the witness examined on behalf of the Respondent-Company as C.W.1 that in order to avoid huge production loss in between 01.09.2014 to 31.05.2015, another D.G. set was hired from M/s. Kapany Engineering Company at Hathkhol, Bhilaai, Chhatisgarh during the period of repair of their own D.G. set and an expenditure of Rs.31,50,000/- was incurred as also lubricant Indian Oil etc. worth of Rs.75,917/- was used to run the said D.G. set and all these were because of the negligence of the Appellant- Insurance Company in setting the claim. It is also his evidence that a sum of Rs.23,320/- has been paid by the Respondent- Company towards the transportation of damage D.G. set and Page 31 of 35 ARBA No.36 of 2019 {{ 32 }} an amount of Rs.60,000/- has been paid towards resting. Those have been supported by the documents (Ext.C/1 to Ext.C/13).
29. The learned Arbitrator appears to have appreciated all those evidences, both oral and documentary, making detail analysis of the same along with the Appellant-Insurance Company defence in the light and backdrops of the terms of the agreement and has arrived at a conclusion backed by good reasons.
It is not correct to hold that the Surveyor's report is final and binding on the learned Arbitrator. The Apex Court very recently in case of National Insurance Company Ltd. v. Hareshwar Enterprises (P) Ltd.1 reiterated the position that though the assessment of loss by an approved surveyor is a prerequisite for payment or settlement of the claim, the surveyor report is not the last and final word on the subject matter of loss. It is not that sacrosanct that it cannot be departed from. The surveyor's report must take all details into consideration and cannot be based on surmises and conjectures. The Arbitral Tribunal in any and all cases can apply its own mind to the material on record to arrive at a reasonable conclusion. The same has also been observed by the High Court of Bombay in New India Insurance Co. Ltd. v. Pyarelal Textile Limited2 Once it is found that the Learned Arbitrators are not arbitrary or capricious, then they are deemed to be the last word on facts.
__________________________ 1 2021 SCC Online SC 628 2 (2013) 2 Bom CR 740 Page 32 of 35 ARBA No.36 of 2019 {{ 33 }}
30. It is seen in our given case that the learned Arbitrator has elaborately considered various documents, submissions and evidence let in by the parties in respect of each head of the claim. The learned Arbitrator has extensively gone to the evidence and evaluated the entire material before it and has passed a reasoned and detailed speaking order. Despite the submissions advanced with respect to the error committed by the learned Arbitrator in discarding the Surveyor's report no case has been made to hold that the conclusion arrived at by the learned Arbitrator is perverse and illegal rather it appears that the learned Arbitrator has taken a plausible view in this matter. The arbitral award is not liable to be set aside on this ground especially having noted that the learned Arbitrator has considered all the evidence put forth by the parties.
The Hon'ble Apex Court in case of P.R. Shah Shares & Stock Broker (P) Ltd. v. B.H.H. Securities (P) Ltd.1 has held that a Court does not sit in appeal over the award of an Arbitrator by re-assessing or re-appreciating the evidence. An award can be challenged only on the grounds mentioned in Section 34(2) of the Act and in absence of any such ground, it is not possible to re-examine the facts to find out whether a different decision can be arrived at. This view was relied on by the High Court of Delhi in M/S Pragya Electronics Pvt. Ltd. v. M/s Cosmo Ferrites Ltd.2 and was re-iterated by Apex Court ____________________________ 1 (2012) 1 SCC 594 2 2021 SCC OnLine Del 3428 Page 33 of 35 ARBA No.36 of 2019 {{ 34 }} in Swan Gold Mining Ltd. v. Hindustan Copper Ltd.1.The Appellant-Insurer Company has merely averred that the award is in violation of the public policy of India without specifically substantiating the same. In light of the aforesaid facts, and the Appellant-Insurer Company's inability to substantiate it's case, this Court is of the view that there is no apparent violation of any terms of public policy in the present case, much less any patent illegality, given how it is quite evident for this Court to follow the basis on which the Learned Arbitrator has arrived at its conclusions.
31. Coming to the attack of the Appellant-Insurance Company that the Respondent-Company is estopped from raising any dispute after acceptance of the payment of the nature of so-called full and final settlement, it is now the well settled law that the acceptance of such a payment is not a bar to the Court's jurisdiction to adjudicate upon a dispute arising out of the quantum of such payment. It has been held by the Hon'ble Apex Court in case of National Insurance Company Vrs. Boghara Polyfab Pvt. Ltd., (2009) 1 SCC 267 that even in the case of issuance of full and final discharge/settlement voucher/no-dues certificate, the arbitrator or Court can go into the question whether the liability has been satisfied or not. This principle has been consistently followed in several decisions, including Chairman and Managing Director, NTPC Ltd. v. Reshmi Constructions, Builders and Contract, R.L. __________________________ 1 (2015)5 SCC 739 2 (2009) 1 SCC 267 Page 34 of 35 ARBA No.36 of 2019 {{ 35 }} Kalathia & Co. v. State of Gujarat2 and Ambica Construction v. Union of India.
32. The issue in the case at hand has been adequately dealt by the learned Arbitrator keeping in view the evidence available on record. In the instant case, it was one unilateral transfer of funds to the account of the Respondent-Company without their knowledge which has been subsequently objected to and dispute has been raised.
Therefore, in the light of the forgoing discussions, keeping in view the settled principles of law and for the reasons given above, this Court is of the considered view that the learned Arbitrator acted well within its jurisdiction and in conformity with law and, therefore, the award passed is thus well in order, which has rightly been refused to be set aside by the learned District Judge in seisin of an application under section 34 of the A & C Act.
33. Resultantly, the award of Rs.48,063,49/- with pendente lite interest @ 8% per annum and post award simple interest @ 12% per annum in favour of the Respondent -Company till actual payment as held under the arbitral award dated 09.06.2017 is upheld. The Respondent-Company is directed to make the payment without any further delay.
Accordingly, the Appeal (ARBA No.36 of 2019) stands dismissed. There shall, however, be no order as to cost.
Signature Not Verified Digitally Signed Signed by: HIMANSU SEKHAR DASH Reason: Authentication (D. Dash), Location: OHC Date: Himansu 07-Mar-2024 19:58:02 Judge. Page 35 of 35 ARBA No.36 of 2019