Calcutta High Court
Oriental Insurance Company Limited vs Ai Champdany Industries Limited on 25 November, 2014
Equivalent citations: AIR 2015 (NOC) 287 (CAL.)
Author: Ashim Kumar Banerjee
Bench: Ashim Kumar Banerjee
Form No. J.(2)
IN THE HIGH COURT AT CALCUTTA
Civil Appellate Jurisdiction
Original Side
Present :
The Hon'ble Mr. Justice Ashim Kumar Banerjee
And
The Hon'ble Mr. Justice Ashis Kumar Chakraborty
A.P.O. No. 312 of 2014
A.P. No. 607 of 2014
Oriental Insurance Company Limited
Vs.
AI Champdany Industries Limited
For the Appellant : Mr. Abhrajit Mitra, Senior Advocate
Mr. Chayan Gupta, Advocate
Mr. Rajesh Singh, Advocate
For the Respondent : Mr. Jishnu Saha. Senior Advocate
Mr. Sabyasachi Choudhury, Advocate Mr. Abhijit Guha Roy, Advocate Mr. S.E. Huda, Advocate Heard on : November 3,7,12, 13 and 14, 2014 Judgment on : November 25, 2014 ASHIM KUMAR BANERJEE. J:
Champdany Industries Limited was running a jute mill. They got their factory and stock insured through the Oriental Insurance Company Limited. There were altogether five insurance policies prevalent for the year 2006-2007. On or about April 22, 2006 a devastating fire broke out in the mill causing substantial loss, not only to the stock but also to the plant and machineries and the building. Champdany informed the Insurance Company. Initially Bhadra and Associates, surveyor, surveyed the damage caused by the fire. The survey report would appear at page 109-191 of the paper book. Oriental possibly wanted to have a second opinion on the issue. They engaged Apex Surveyors Private Limited who submitted their report dated May 10, 2007 appearing at pages 192-
202. Champdany raised a claim in respect of four out of five policies that were prevalent at the time of fire. Oriental subsequently came to know, earlier there had been similar incidents of fire at least, on more than one occasion. Champdany did not inform them about the past incident hence, Oriental could not impose appropriate loading charges that Insurance Company was entitled to impose considering the high risk that might be involved in the policy of insurance. The records would reveal, from time to time Oriental condoned the latches on the part of Champdany for such suppression. Oriental however, issued supplementary bill of additional premium on such count in respect of all the policies. The present appeal would also involve a cross-objection involving a sum of Rs.2402801 that, according to Champdany, had been duly paid through the forwarding letter dated May 22, 2006 appearing at page 95 in response to the bill raised upon them appearing at page-93 thereof.
Oriental examined the claim and partly allowed the same to the extent of Rs.1,44,50,511. Pertinent to note, Bhadra assessed the loss at Rs.1,74,81,613. From the calculation that Oriental made, we would find, Oriental more or less accepted the survey report of Bhadra however, deducted the additional premium for Rs.24,02,801 that would make a substantial difference between the two figures. Champdany was not happy. They raised a dispute that the parties referred to arbitration. A former Judge of this Court acted as arbitrator. Champdany made a claim before the arbitrator to the extent of Rs.6,37,98,410. The Insurance Company filed a counter statement. They denied each and every claim. According to them, they allowed the claim to the extent of Rs.1,70,05,613 and then deducted recovery of premium to the extent of Rs.1,52,301 and 24,02,801 that would make the final figure of Rs.1,44,50,511 that the Insurance Company already paid to Champdany. Hence, there was no claim payable by the Insurance Company. Arbitrator allowed the claim of Champdany to a substantial extent after rejecting all the contentions that the Insurance Company made. The arbitrator awarded a sum of Rs.4,20,80,490. The arbitrator also awarded cost to the extent of Rs.3,45,100 as well as interest at the rate of 10% as pendente lite and 18% for the post award period. Being aggrieved, Oriental filed an application for setting aside. Champdany accepted the award although a part of their claim had been rejected. The learned Single Judge rejected the prayer of Oriental expressing inability to entertain the prayer in view of the limited scope that the arbitration Court would have under Section 34. However, at the end of it, the learned Judge interfered with the award permitting deduction of the premiums that the Insurance Company had made while settling the claim. Being aggrieved, Oriental preferred the instant appeal whereas Champdany filed a cross-objection against the deduction that the learned Judge allowed. We heard the appeal and the cross-objection on the above mentioned dates.
CONTENTIONS OF THE INSURANCE COMPANY:
Mr. Abhrajit Mitra led the team of counsel appearing for the appellant Insurance Company however, Mr. Chayan Gupta a junior member of the team advanced the main argument on behalf of the Insurance Company. At the end, Mr. Mitra supplemented. CHAYAN GUPTA:
The appellant attacked the award and/or the judgment and Order on two counts:
i) The surveyor assessed the loss to the extent of Rs.1.74 crores approximately. The Insurance Company, after making appropriate calculations, substantially allowed the claim on the basis of the survey report. Hence, there could be no scope for entertaining any further claim unless Champdany could confront the survey report. Once Champdany accepted the survey report and relied on the same, there could be no further scope of making any claim.
ii) The arbitrator failed in discussing the loss analysis that the Insurance Company made on account of depreciation.
Pertinent to note, the surveyor allowed depreciation to the extent of 65% in respect of building and 70% in case of plant and machinery. The arbitrator reduced it to 50% on the admission of Champdany that would not be permissible. The arbitrator modified the ratio of depreciation on account of stock by disallowing the deduction that the surveyor allowed, the arbitrator could not have done so without having any expertise or taking assistance of any independent expert on the issue. On the cross-objection Mr. Gupta would submit, the deduction that the Insurance Company made, was for additional premium. It was common knowledge of all concerned in the field of insurance, additional premiums could be levied to cover additional risk that might surface later on and in any event, Champdany paid such premium in respect of other policy hence, there was nothing wrong in realizing the unpaid premiums by way of adjustment against the compensation that Champdany would get.
He would lastly contend, the deduction that the surveyor allowed in respect of stock would emanate from a breach that Champdany caused by not stacking the stock as per the lay out plan. The Insurance Company could have rejected the claim in toto yet, they condoned the latches and availed the appropriate deduction that the surveyor allowed on that count. In this regard, he would rely upon the decision in the case of M/s. J.G. Engineers Private Limited Vs. Union of India & Anr. reported in All India Reporter 2011 Supreme Court Page-2477.
JISHNU SAHA:
Mr. Jishnu Saha learned senior Counsel, while opposing the appeal and pressing his cross-objection, would take us to the documents as also the evidence that the parties led before the arbitrator on all the issues raised on behalf of the Insurance Company referred to above. On the question of depreciation Mr. Saha would contend, the survey report unilaterally allowed the depreciation to the extent of 65% without considering the nature of damage, the salvage done and the improvement that Champdany caused to the building, plant and machineries etc. According to him, Champdany categorically denied, there could be any depreciation to the extent of 65% to the land and building as claimed above, the arbitrator rather allowed the depreciation relying on the admission made by Champdany in the pleadings. Similarly, once the ash was weighted, so was the salvaged goods, and it would tally with the stock, there could be no further depreciation that could be allowed. On the other issue of deduction for alleged breach Mr. Saha would contend, the cover note that the Champdany received, did not contain, any such clause. The Insurance policy was later on sent that too, much after the incidence of fire hence, question of breach would not arise at all.
On the cross-objection, Mr. Saha would draw our attention to page- 93-95 to show, the additional premium was duly paid that the learned Judge did not take into account. He would admit the liability to pay additional premium, however, contend, it was paid. ABHRAJIT MITRA:
Mr. Mitra would support what his junior would submit on behalf of the appellant. He added, once there was any breach, the provisions of Section 28(3) of the Arbitration and Conciliation Act, 1996 would come into play and the learned Judge did not commit any error in taking into account such aspect that the arbitrator failed to notice. He would rely upon paragraph 7 of the decision in the case of M/s. J.G. Engineers Private Limited (supra).
OUR VIEW:
Before we address on the controversy let us first discuss the law once more that we ordinarily do while dealing with a question of the like nature that would arise under Section 34.
The decision in the case of Oil and Natural Gas Corporation Limited Vs. Saw Pipes Limited reported in 2003 Volume-V Supreme Court Cases Page-705 would hold the field. If we look to the provisions of Section 34 we would find a very limited scope for the arbitration Court to review an award and interfere with the same. The scope of judicial interference could only be possible when there was patent illegality ex facie apparent that would amount to miscarriage of justice or the same was contrary to the public policy and/or the law of the land. Otherwise, the Court would be slow in interfering with the same. The Court would also nullify an award when it was outside the scope of the arbitration agreement that would permit the arbitrator to adjudicate. The process of arbitration is recognized in law as an alternate dispute resolution mechanism. The arbitrator, being the master of his own procedure, may not have to follow the nitty-gritties of the procedural law. He need not be a person having the vast knowledge of law. He might be an expert on the subject that was brought to him for adjudication. He might be a man of prudence that the parties would think and thus entrust him to adjudicate upon their discord outside the Court of law. Once the parties would agree to have resolution of controversy by such mechanism, the Court would have no power to upset the result unless it was contrary to public policy or patently illegal, de hors the basic laws of the land. In short, a fair decision by an arbitral Tribunal after adequate opportunity given to the parties following the principles of natural justice and adhering to the basic laws of the land, must not be upset by Court. The Arbitration Court is not the Court of Appeal over the decision of the Tribunal. Court is not an upper tire of decision making process. It would only examine whether the process was fair and would conform to the requirement that a Tribunal should follow as per the agreement and in terms of the Arbitration and Conciliation Act 1996. Under the new law of the 1996 the Court's power under the old law of 1940 had undergone a severe change curtailing such power. The concept is to encourage people to have the dispute resolved outside Court availing the alternate mode and thus reducing the work load of the Court. It was not the intention of the legislature, Court would act as a superior body to the Tribunal.
With the above mind set, let us proceed to deal with the present controversy. The parties were bound by the contract. In the present case, the contract was the policy of insurance that would also incorporate the arbitration clause. Hence, the arbitrator was bound by the matrix contract, being the contract of insurance and the conditions stipulated in the policy of insurance that would bind both the parties. Fire broke out in Champdany mill on April 22, 2006. There were five subsistent insurance policies. Champdany lodged claim in respect of four. Insurer appointed surveyor being an expert on the subject. Insurer had a second opinion from another surveyor who was also an expert. Considering both the reports, the insurer allowed the claim that would almost cover the survey report that the surveyor submitted. Once Champdany accepted the report and did not make any confrontation on such score we wonder how they could establish their tall claim before the arbitrator. Mr. Saha would contend, he would not question the survey report, he would question deduction and depreciation that would also form part of the report. We are unable to appreciate how this could be possible, however, we would examine such issue in detail little later. Let us compartmentalize the scope of dispute. There are three issues which we find, would take care of the entire discord:
i) Depreciation ii) Deduction iii) Recovery of additional premium
The first two would cover the appeal whereas the third one would cover the cross-objection.
DEPRECIATION:
Depreciation was allowed to the extent of 65% in case of land and building and 70% in case of plant and machinery. In case of land and building the surveyor observed, the affected building was about twenty years old. Considering the type of construction and nature of its utilization, 65% depreciation of the material cost should be allowed.
In case of plant and machinery similar observation was made to the extent, the affected plant and machineries were twenty years old and 70% depreciation was reasonable in the context of age and working condition of the machinery.
The arbitrator reduced the depreciation amount in both cases flatly at the rate of 50% per annum. The relevant paragraphs are quoted below:
BUILDING:
"Now the question is the rate at which depreciation is to be adjusted for building. The claimant's witness being C.W.1 actually has not denied adjustment of depreciation in his affidavit of evidence but has disputed the rate in paragraph 27 thereof stating that "Under no stretch of imagination the depreciation could have been more than 50% and the rates employed by the surveyor are absurd, without any basis whatsoever and contrary to all established principles of valuation."
In paragraph 25.4 of the report the surveyor considered depreciation at 65% but apart from a contention in the written argument there is no material or evidence that total life of the building is thirty years as stated by R.W.1 for the first time in answer to question No.171 and that depreciation in this fact should be 65%. Neither the surveyor nor the respondent has stated any basis for taking depreciation at 65%. Therefore the rate 50% admitted by the claimant is accepted as appropriate."
PLANT AND MACHINERY:
Deduction on account of depreciation has been challenged on the same ground as was challenged in case of Building and for the same reason as discussed in assessing loss for building it is held that deduction for depreciation is permissible.
But the consideration is the rate of depreciation. The claimant's witness in paragraph 29 of the affidavit of evidence state that "depreciation under no stretch of imagination could have exceeded 50% and the rate of 70% is absurd, arbitrary and contrary to all established parameters of valuation." The surveyor has not stated any reason or basis for adjusting depreciation at 70%. Even when asked specifically in question No.180 in cross examination the R.W.1 did not give any reply disclosing basis of such rate of depreciation. Therefore rate 50% admitted by claimant is accepted." The arbitrator in both these cases did not consult any independent expert whether the assessment of depreciation was proper or not. It was nobody's case, arbitrator had the expertise to assess depreciation. The arbitrator merely relied on the admission of the claimant to the extent of 50%. Such process, in our view, would not be the right approach. Mr. Saha, in most uncertain term, made it clear to us, they would rely upon the survey report meaning thereby, they would accept the assessment of loss that the surveyor made. Once they accepted the assessment that would appear from the survey report they would have to take the entire document as sacrosanct. Neither they confronted it by a counter survey report from another expert nor invited the arbitrator to appoint an independent expert. No such method was adopted. The process adopted by arbitrator is unknown in the field of insurance and/or law. The arbitrator could reject the depreciation or a part of it however, he would have to assign reason thereof. The arbitrator should give reason why such depreciation was wrong and then rely on the admission of the claimant and by way of concession could allow such deduction here. In this case, arbitrator did not assign any reason why 65% or 70% was wrong in fact, he did not have the expertise to say so hence, the shortcut method that the arbitrator adopted by allowing the deduction on the strength of the admission of the claimant, would be a total miscarriage of justice. We are not the Court of Appeal. The Arbitrator's decision to allow or disallow depreciation would not be within our domain. However, arbitrator was duty bound to assign reason that he failed to do in respect of such depreciation.
We are not unmindful of the fact, mere insufficiency of reason would not make an award per se illegal. We do not find, any reason at all allowing or disallowing such depreciation. The decision to reduce the scope of depreciation was totally without reason. The arbitrator observed, there was no material or evidence that total life of the building was thirty years and the depreciation should be 65%. The assessment of depreciation or the age of the building is ordinarily done by expert based on his knowledge and experience in the subject that could only be confronted by another expert. A person without having such expertise cannot confront. We feel, the challenge to the award to such extent, should succeed. STOCK AND DEDUCTION:
On this score, we are with the claimant. Mr. Gupta strenuously urged this issue. According to him, as per the lay out plan a part of the stock would have to be stored in the lower tire whereas the balance was to be stored at the upper floor. Moreover, considering the height of the floors having the capacity to stored goods, only 40% was availed in the upper floor whereas major part of the goods were kept in the lower tire contrary to the conditions of the policy. Upper floor was not damaged by the fire. Had the goods been kept strictly as per the lay out plan, there would have been less damage hence, the surveyor deducted a substantial part of the damage that they assessed. He would refer to various clauses of the policy of insurance and the evidence on the subject to support his contention. He would also rely upon the decision cited in the case of M/s. J.G. Engineers Private Limited (supra), to suggest, once there was a breach the Insurance Company was entitled to deduction on the basis of the presumption that the goods had not been stored as per the lay out plan.
Per contra, Mr. Saha would submit, there could be no presumption in the process of assessment of loss. There was no allegation of any fraud alleged to have committed by Champdany. The cover note did not specifically indicate such issue at least, not drawn our attention to by Mr. Gupta. The subject policy that Oriental talked about, was forwarded much after the incident hence, the plea of Section 28(3) of the said Act of 1996 that Mr. Mitra would suggest, would not arise at all. In our view, Mr. Saha was correct in his submission, an assessment of damage would be on the basis of actual loss that one would suffer, it cannot depend upon surmise and conjecture and/or presumption. If Champdany did not adhere to the policy or conditions thereof Oriental could reject their claim. However, they would have to prove the breach. When Mr. Saha would strenuously contend, conditions stipulated in the policy came within their knowledge after the incident neither Mr. Gupta nor Mr. Mitra could successfully confront him.
We would refer to few questions and answers on the issue. In reply to the question posed to him during cross-examination, the surveyor contended, they had taken physically inspection of the mill with the lay out plan and found, stock was piled up to 12-14 feet high. They were not kept in the go-down. The finish goods were also found to be dumped on the machines. On such assumption, the surveyor allowed the deduction. In reply to question 127, the surveyor admitted, no semi finish stock remained in the machine and after weaving, the roll that comes out also in the process stock, so the materials waiting for the dying, were kept piled up for use together. The surveyor also expressed their inability to have further investigation in absence of appropriate co-operation from the insured. In our view, the deduction on account of stock merely on the ground, it was not kept as per the lay out plan, was totally unreasonable. This could be relevant, had there been any fraud alleged. We repeat, once Insurance Company accepted the claim application and assessed it on merit they condoned the latches, if any, on the part of the claimant to adhere to the lay out plan. The goods were covered by the fire policy. Fire broke out accidently that was proved hence, the damage that was caused to the goods so assessed by the surveyor appointed by the insurer, should be allowed. The learned arbitrator did so. The learned Single Judge declined to interfere and in our view, very rightly. The second issue must go in favour of the respondent.
We are thus left with the sole question of additional premium. Mr. Saha, on principle, does not question the authority of the Insurance Company to levy such additional premium. Rather, he would admit the same to be payable. In fact, the fifth policy that was not the subject matter on the present appeal, would also attract additional premium that the claimants paid as would appear from page-225 of the second volume. Hence, question would only remain as to whether the amount so deducted by the learned Judge was actually paid through page-93-95 or that the payment made as per 93-95 would have any nexus with the deduction that the learned Judge made on account of additional premium.
Once the liability was accepted the claimant must pay the additional premiums. If they had already paid they could not be asked to pay it again however, the figures would not tally. The Learned Judge considered two figures for Rs.1,52,301 and 24,02,802 whereas page-95 would suggest the amount as Rs.22,75,392. Mr. Saha tried to co-relate however, that was not clear to us. We asked Mr. Rajesh Singh the Advocate-on-record for Oriental Insurance to take instruction on that score and inform us accordingly.
The parties mentioned the matter before us on November 17, 2014 when we asked the parties to have reconciliation of accounts. Accordingly, Mr. Abhijit Guha Roy learned advocate on record for the respondent-claimant mentioned the matter on November 18, 2014 and informed, accounts were reconciled and after reconciliation, they did not want to press their cross-objection. Accordingly, cross-objection is dismissed as not pressed. RESULT:
The appeal thus succeeds in part.
The award stands modified to the extent of stock where the arbitrator reduced the percentage of depreciation, in case of land and building and stock that would be at the rate of 65% and 70% respectively as per the survey report. Rest of the award would stand affirmed.
Order of the learned Judge would thus stand modified. The appeal is disposed of accordingly without any order as to costs. Ashis Kumar Chakraborty, J:
I agree.
[ASHIM KUMAR BANERJEE, J.] [ASHIS KUMAR CHAKRABORTY, J.]