A.Shahul Hameed vs New India Assurance Company Ltd on 2 November, 2021

[Cites 11, Cited by 0]

Kerala High Court

A.Shahul Hameed vs New India Assurance Company Ltd on 2 November, 2021

The short point to be decided in this appeal under Section 37 of the Arbitration and Conciliation Act, 1996 ('the Act') is the extent to which the court in a proceeding under Section 34 of the Act can interfere in the award passed by the Arbitrator and whether the court has the power to modify the award by reducing the amount awarded by the Arbitrator. These aspects are no longer res integra in the light of a catena of decisions on the points.

2. The appellant and the third respondent (the Arbitrator) herein are the first and second respondents respectively and the first respondent and second respondents herein (New India Assurance Company Ltd.) are the petitioners before the court below. A brief reference to the facts of the 4 Arbitration Appeal No.28 of 2009 case -

The parties will be referred to as described in the proceedings before the Arbitrator. The appellant claimant is the owner of a small-scale Bone Meal Industrial & Metal Crusher Unit, which was set on fire on 10.09.2000 by some miscreants, due to which he suffered a loss of more than ₹65 lakhs. The Unit was insured with the New India Assurance Company Ltd. The Surveyor assessed the loss at ₹47,18,286/-, but the claimant was paid only an amount of ₹11,46,000/-. Therefore, he moved for the appointment of an Arbitrator which was allowed by this Court and the third respondent herein was appointed as the Arbitrator. The Arbitrator passed an award directing the Insurance Company to pay a further amount of ₹28,39,740/- to the claimant. The award was challenged by the Insurance Company in O.P.(Arb.) No.80/2005 on the file of the Additional District Court, Alappuzha. The learned Additional District Judge ('the ADJ') interfered with the award holding that the insurance policy does not cover raw bones and that the said item cannot 5 Arbitration Appeal No.28 of 2009 be treated as a material coming within the term 'stock in process' mentioned in the policy and therefore reduced an amount of ₹18,40,000/- from the amount awarded. According to the appellant, the court below has exceeded its jurisdiction and gone to the extent of adjudicating on matters which did not form part of the records and on points relating to which the Insurance Company had no case. As the court below had exceeded its jurisdiction and stepped beyond its limits, the present appeal has been filed.

3. Heard both sides and perused all the records.

4. The points urged by the learned counsel for the claimant appellant during the course of the arguments are - (i) the fact that raw bones do not come under the term 'stock in process', which alone according to the Insurance Company has been insured, was never raised or urged before the Arbitrator; (ii) as the said issue was never raised before the Arbitrator, it was impermissible for the Insurance Company to have raised it in the proceedings before the court below, and (iii) the 6 Arbitration Appeal No.28 of 2009 learned ADJ has modified the award by reducing the amount awarded by the Arbitrator which is beyond the scope of the powers of the court under Section 34 of the Act. The learned counsel relies on the decisions of the Hon'ble Supreme Court in Project Director, NHAI v. M. Hakeem (SLP (Civil) No. 13020/2021) ; NTPC Ltd. v. M/s. Deconar Services Ltd. (Civil Appeal No. 6483/2014 along with Civil Appeal No.6484/2014) ; Sri Chittarnjan Maity v. UOI (Civil Appeal Nos. 15545 and 15546 0f 2017) ; UOI v. M/s. Susaka Pvt. Ltd. (Civil Appeal No. 8530 of 2009) ; Fiza Developers & Inter Trade P. Ltd. v. AMCI (I) Pvt. Ltd. (Civil Appeal No. 5139 of 2009) ; M/s. Canara Nidhi Ltd. v. M. Shashikala (Civil Appeal No. 7544-7545 of 2019) and PSA Terminals Pvt. Ltd. v. The Board of Trustees of V.O. Chidambranar Port Trust Tuticorin (Civil Appeal Nos.3699 & 3700 of 2018) in support of his arguments.

5. Per contra, the learned counsel for the Insurance Company, submitted that if there is any patent illegality in the award of the 7 Arbitration Appeal No.28 of 2009 Arbitrator or as contemplated under S. 34(2) (b) (ii) of the Act, if it is in conflict with the public policy of India, the same can be looked into and the court under Section 34, can certainly interfere. In this case, the Arbitrator has awarded an amount of ₹25 lakhs by way of loss of stock of raw bones, which according to the Insurance Company, is not 'stock in process' and hence not covered by the terms of the policy. As amount has been awarded for a head for which there is no insurance cover, the award of the Arbitrator relating to the said portion is an illegality and against public policy and hence the court below was justified in interfering with the same, goes the argument. Reference was made to DLF Home Developers Ltd. (M/s.) v. Martin George (2021 (3) KHC 590) , a Division Bench decision of this Court and also Associate Builders v. DDA (AIR 2015 SC 620) ; The Project Director, NHAI Nos.45 E & 220, NHAI v. M.Hakeem & ors. [MANUPATRA 2020(4) CTC 582] and DLF Home Developers Ltd. v. Martin George (2021 (3) KLT Online 1019) in support of his argument.

Arbitration Appeal No.28 of 2009

6. Ext.A10 is the policy document, the terms of which are not disputed. The challenge in this appeal by the claimant is relating to the interference made by the court below and reversal of the finding of the Arbitrator that raw bones are covered under the policy and so the claimant is entitled to be compensated for the loss of the same. We shall first refer to the description of the property (the portion relating to building, plant and furniture also insured as per Ext. A10 policy, is not being referred to, as the same is not disputed) referred to in the policy. Under the heading 'STOCK IN PROCESS', the items mentioned are - bone powder, butter, etc. and the same have been insured for an amount of ₹25 lakhs. The case of the claimant that there was stock of 546 tons of raw bones on the date of the incident of fire, was accepted by the Arbitrator and the loss of stock was arrived at on the basis of Ext.X4 report of the first Surveyor and a sum of ₹25 lakhs awarded under that head. This finding of the Arbitrator did not find favor with the court below. The learned ADJ referred to the case of the claimant that raw bones brought from the slaughter houses are cleaned, crushed and then 9 Arbitration Appeal No.28 of 2009 entered in the stock register. The learned ADJ agreed with the view of the Arbitrator that raw bones or crushed bones is raw material and that the stock of raw bones /crushed bones is the major item as far as the unit of the claimant is concerned. However, the learned ADJ disagreed with the conclusion of the Arbitrator that raw bones/crushed bones are 'stock in process' and that it is an item covered by the policy. According to the learned ADJ, 'stock in process' as per the policy does not include raw bones/crushed bones and went on to hold that the reasoning of the Arbitrator that it represents raw material in different stages of conversion for making the final products and hence is an item of stock in process, is wrong. The learned ADJ held that nothing had been produced by the claimant to counter the definite case of the Insurance Company that raw bones/crushed bones are not covered by the policy; that as per the principles of interpretation "heading" is only an indicator and it will not control or guide the contents and so going by the heading "stock in process", it can never be said that raw bones/crushed bones are covered by the policy; that had there been an insurance cover for the same, the 10 Arbitration Appeal No.28 of 2009 company would have described those items also specifically under the heading "stock in process"; that stock in process can never be raw materials as stock in process simply means the stock undergoing the process of transformation for making the final products and that any other interpretation would be doing violence to the plain language of the policy; and that the word "etc" is to be understood ejusdem generis with the preceding words "bone powder and butter". Holding so, the learned ADJ concluded that the award to the extent it held that raw bones/crushed bones are covered by the policy and so the award of the amount of ₹20,27,500/- towards loss of raw bones of 546 tons is patently illegal and that the Arbitrator has gone beyond the scope of the policy and went on to set aside the award to the extent to which it allowed the claim for loss of bones. This according to the learned counsel for the appellant is nothing but modification of the award which cannot be done by the court.

7. Now to the argument of the appellant that such a contention was never taken by the Insurance Company before the Arbitrator. In 11 Arbitration Appeal No.28 of 2009 paragraph 6 of the statement of objections submitted by the Insurance Company before the Arbitrator, it is stated thus - "... It is further clear from the report that the debris left after the fire was only of the Crushed Bone, Bone Meal and Tallow and not of any "Raw Bone" which allegedly recounted for the major stock and NOT COVERED UNDER ANNEXURE -R1 POLICY." Further, paragraph 14 of the objection reads - "As submitted already and as revealed from Annexure R1, the policy does not cover the stock of Row [ SIC] Bone but it covers only the "STOCK IN PROCESS" as specifically referred to therein. This being the entire 546 tons of Row [SIC] Bone stated as stocked by the claimant (but now stated as Crushed Bone (which is contrary to the survey report) does not come within the purview of Annexure R1 policy. ... ". Therefore, the Insurance Company has certainly raised this ground in their written objections submitted before the Arbitrator.

8. However, the Insurance Company does not seem to have been serious in agitating the said point before the Arbitrator. A reading of 12 Arbitration Appeal No.28 of 2009 the award shows that the main attempt of the Company was to assert and to demolish the case of the claimant that considerable quantity of raw bone stocked in the premises had been lost in the fire. According to them, the stock had been shifted to the go-down of the claimant in Tamil Nadu; that there was no stock as claimed by the claimant in the premises and that he is not entitled to any further payments apart from the amount already sanctioned and disbursed to him. The Arbitrator relying on Ext.X2 scene mahazar; Ext.X4 report of the surveyor, Ext.A20 stock register and the oral evidence let in, accepted the case of the claimant and awarded a sum of ₹25,00,000/- under that head. Apart from this, the Insurance Company does not seem to have canvassed the point before the Arbitrator that raw bones are not covered by the policy, though such a contention is seen raised in their written objections. Hence the Arbitrator has not answered it also.

9. The learned counsel for the Insurance Company referred to ground (5) in the Original Petition under S.34 when asked whether the 13 Arbitration Appeal No.28 of 2009 aforesaid ground had been raised before the court below. But ground (5) in the petition reads- "The Arbitrator has omitted to consider the difference between the "Raw bone and "Crushed bone" and entries in the stock register and report of the surveyors on these aspect, and order of the RDO and entered into an illogical conclusion [ Ext. A7, A8, A20, B1, X4] and allowed amount for Raw bones. Hence the award is liable to be set aside." Therefore, it is clear that the Insurance Company had no specific case that raw bones were not covered by the policy. They also had no case before the court below that in spite of the fact that they had raised a specific contention before the Arbitrator, he never considered the same. The Insurance Company do not seem to have pursued the said contention and as noticed earlier, they were stressing on the case that there was no stock as contended by the claimant in the premises and that it had been shifted to Tamil Nadu. In fact, the court below is also seen to have opined that this contention of the Company is probable. But then went on to hold that irrespective of the same, the claimant cannot claim any amount by way of damages for loss of raw bones as it is not covered 14 Arbitration Appeal No.28 of 2009 by the policy. Now the question is, could the court below under S. 34 of the Act have done this.

10. The Arbitrator in paragraph no.9 of the award has given a detailed discussion, on the basis of which, he concluded that the claimant is entitled to an amount of ₹25 lakhs for the loss of stock of raw bones due to the fire. After referring to the stock register and the scene mahazar prepared by the police in the crime registered relating to the arson committed in the business concern of the claimant, the Arbitrator has concluded that raw bones of the quantity claimed by the claimant was actually there in the business concern at the time of the incident, which has been destroyed due to the fire and hence the claimant is entitled to be compensated for the loss of stock.

11. It is true as held by the court below relying on the decision of the Apex Court in ONGC Ltd. v. Saw Pipes Ltd. (AIR 2003 SC 2629), that when an award goes against the terms of the contract or is contrary to the provisions of the Act or is patently illegal, the court can in 15 Arbitration Appeal No.28 of 2009 the exercise of its jurisdiction under Section 34 interfere in the matter. It is well settled that an arbitral award can be set aside by the court only on limited grounds or on one or more grounds set forth under sub-section (2) of S. 34 of the Act. Normally the award of the Arbitrator is final and conclusive as long as the Arbitrator has acted within his authority according to the principles of fair play. It is not open to the court to re- assess the evidence in order to find out whether the Arbitrator had committed any error or to decide the question of adequacy of evidence as the arbitrator appointed is the sole Judge of the quantity and quality of evidence. As has been held in Ssangyong Engineering and Construction Co. Ltd. v. NHAI (2019 KHC 6554) in the light of sub-section (3) to Section 28 of the Act, construction of the terms of a contract is primarily for an Arbitrator to decide and therefore unless the Arbitrator construes the contract in a manner that no fair minded or reasonable person would do, the intervention of the court with the construction is absolutely uncalled for. If the view of the Arbitrator is a plausible one, the court should refrain from interfering with the arbitral 16 Arbitration Appeal No.28 of 2009 award (DLF Home Developers Ltd.(M/S.) v. Martin George [2021 (3) KHC 590]). An interpretation placed on a contract by the Arbitrator, even if erroneous, is only an error of fact which cannot be re-appreciated by the court below (See Kochi Refineries Ltd. vs. M/s.Reva Enviro Systems Pvt. Ltd. [2016 2 KHC 232]). As held by the Apex Court in Associate Builders v. DDA [AIR 2015 SC 620] , it is only when the arbitral award is in conflict with public policy of India as per S.34(2)(b)

(ii) of the Act, that merits of an award can be looked into under certain specified circumstances. The award can be set aside if it is contrary to -

(i)fundamental policy of Indian law; or (ii) the interest of India; or (iii) justice or morality; or (iv) if it is patently illegal. Illegality must go to the root of the matter and if the illegality is of a trivial nature, it cannot be held that the award is against public policy. It could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the court.

12. In the case on hand, the learned ADJ concluded that the award so far as it allowed the claim for loss of stock of raw bones, is 17 Arbitration Appeal No.28 of 2009 incorrect and hence, the same was set aside. It was held that the award of ₹18,14,000/- towards loss of raw bones has to be excluded from the award of ₹25 lakhs for the loss of stock. As the Surveyors had assessed the loss of bone meal and tallow at ₹6,50,000/-, the claimant is entitled to get only the said amount for loss of stock. The claimant is entitled only to get a further amount of ₹9,99,714/- from the Insurance Company with simple interest at the rate of 6% per annum till realisation. The direction of the Arbitrator to the Insurance Company to pay the balance amount of ₹28,39,740/- was interfered with and an amount of ₹18,40,000/- was deducted and the balance was directed to be paid to the claimant. This is nothing but modification of the award of the Arbitrator which is impermissible and beyond the jurisdiction of the court in a proceeding under Section 34 of the Act (National Highways No. 45 E & 220 NHAI v. Hakeem [AIR 2021 SC 3471]). Further, none of the infirmities pointed out by the Apex Court in the aforesaid cases are made out in the case on hand.

Arbitration Appeal No.28 of 2009 Under these circumstances, as the court below has gone beyond its jurisdiction and modified the award, the judgment of the court below is liable to be set aside and hence we do so. The appellant succeeds and hence the appeal is allowed and the award of the Arbitrator is restored.

All pending interlocutory applications are closed.

Sd/-

P.B.SURESH KUMAR, JUDGE Sd/-

C.S.SUDHA, JUDGE ami/

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