Allahabad High Court
Vishnu Bhagwan Agrawal And Anr. vs National Insurance Company Ltd. And ... on 22 January, 2004
Equivalent citations: 2004(3)AWC1969, 2004 ALL. L. J. 3479, 2004 A I H C 4904, 2005 ARBILR(SUPP) 175, (2004) 3 ALL WC 1969, (2004) 19 INDLD 77
Author: Y.R. Tripathi
Bench: Jagdish Bhalla, Y.R. Tripathi
JUDGMENT Y.R. Tripathi, J.
1. This appeal has been directed against the judgment and order dated 22,4.1997 passed by Sri Ram Prakash, the then Civil Judge (Senior Division). Mohanlalganj, Lucknow in regular suit No. 80 of 1999 and Misc. Case No. 114/89, whereby he having allowed the objection filed by the respondent No. 1 against the award dated 3.3.1989 in the case of Shakun Udyog, Sriram Road, Lucknow through its proprietor Vishnu Bhagwan Agrawal v. National Insurance Company and Anr., has set aside the award and remitted the case to the Umpire for making a reconsidered award within a period of four months.
2. The factual matrix of this appeal, shorn of unnecessary details, is that the appellants obtained an insurance policy from respondent No. 1, whereby they got their jute stock worth Rs. ten lacs kept in the premises of Haryana Oil Mills situate at Aishbagh Road, Lucknow and mortgaged in favour of Bank of Baroda, Hazratganj, Lucknow. Initially the jute stock was got insured for the period from 13.10.1984 to 13.10.1985. Indisputably on 27.10.1984 the amount of policy was raised from Rs. ten lacs to twenty lacs. The appellants had hypothecated the said jute stock with the Bank of Baroda and in terms of the hypothecation agreement, the entire stock pledged to the Bank had to be insured. It appears that in the meantime, some more stock of jute was purchased by the appellants and they sent a letter on 1.7.1985 to respondent No. 1 to increase the amount of insurance policy to the value of raw jute stocked in their godown, i.e., Rs. 23,13,747 + its 10% and inform them of the premium payable on it. However, before any reply could be received from the respondent No. 1, the appellants wrote another letter to the respondent No. 1 informing it about their shifting of the jute stock from the godown of Haryana Oil Mills, Aishbagh, Lucknow to Surendra Rerolling Mills, Aishbagh, Talkatora Road, Lucknow. A request was also made in this letter for making necessary changes in the policy. It appears that after the stock of jute was shifted to Surendra Rerolling Mills, Aishbagh. Talkatora Road, Lucknow, a fire broke out in the godown on the intervening night on 25/26.9.1985 and the entire stock of jute was destroyed. The appellants lodged a claim with the respondent No. 1 for a sum of Rs. 25,45,121.70 p. (Rs. 23,13,745 being the value of jute destroyed in the fire +10%), but the respondent No. 1 showed its preparedness to settle the claim only at Rs. 12,30,000 being the market value of the stock engulfed fn the fire. As no unanimity could be reached at between the parties on the point of quantum of compensation payable, the matter was referred for arbitration, as per terms of the agreement, to Sri P. B. Agrawal, nominated by the appellants and Sri P.P. Mehrotra, nominated by the respondents. It appears that the two arbitrators did not reach at any consensus on the point of compensation, hence the matter was referred to the umpire Sri S.C. Maheshwari, who gave his award on 3.3.1989 holding the appellants entitled to the amount of Rs. 23,55,132.71 p. with interest at the rate of 10% per annum from 10.3.1986 to the date of award and at the rate of 6% per annum on the principal amount thereafter till the date of payment or the date of decree whichever was earlier. After the service of notice of the award, the appellants approached the Court below which caused the award filed before it and directed notices thereof to be given to the parties. On service of notice of filing of the award, the respondent No. 1 filed its objections to the award which was heard and allowed by the learned court below as stated above, aggrieved from which the appellants have come up in this appeal.
3. We have heard the learned counsel for the parties at sufficient length and have gone through the material on record.
4. The learned counsel for the appellants has assailed the judgment of the Court below mainly on the ground that the conclusions arrived at by it are erroneous and against law and they do not constitute 'misconduct' on the part of umpire on which award could legally have been set aside. Section 30 of the Arbitration Act, 1940 provides that an award shall not be set aside except on one or more of the following grounds, namely :
(a) that an arbitrator or umpire has misconducted himself or the proceedings ;
(b) that an award has been made after the issue of the order of the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35 ;
(c) that an award has been improperly procured or is otherwise invalid.
5. A perusal of the judgment of the Court below goes to show that it has held that the umpire has wrongly concluded about the raw jute having been insured for the value of Rs. 23,13.747 + 10% and that he has further committed an illegality in awarding compensation equivalent to the insured value of the jute destroyed, ignoring the specific stipulation in the insurance policy to the effect that the claimant was entitled only to the value of the property at the time of the happening of the accidental fire or at the option of the insurer, reinstatement or replacement of the property destroyed. It cannot be disputed that an arbitrator or for that matter an umpire is the creature of the agreement and he cannot act arbitrarily, irrationally, capriciously and independently of the contract. He has to function within the periphery of the contract and if he travels beyond its bounds, it will certainly amount to his misconduct. True, it is not for the Court to say that in its opinion, the evidence was not sufficient to establish the conclusion at which the arbitrator or umpire arrived at or that the arbitrator had not given sufficient weight to the provisions of the Evidence Act, but where the arbitrator or umpire with perverse reasoning arrives at any conclusion, the Court certainly has the power to interfere with it. However, before we proceed to discuss as to whether or not the umpire in this case has committed any misconduct warranting the setting aside of his award, we would like to examine the infirmities in the award as pointed out by the Court below.
6. The learned court below, it would be found, has held that the umpire has wrongly concluded that the insured amount in the present case was Rs. 23,13,745 + 10%. It has observed that the amount of insurance could not have been increased unilaterally by the insured claimants and the principle of estoppel applied by the umpire was unwarranted. It is not in dispute that the stock of jute was insured for the value of Rs. twenty lacs. What is disputed is that whether or not the amount of policy was further increased. It appears that on 1.7.1985 the appellants wrote a letter to the respondent No. 1 enclosing therewith the statement of stock in their godown as on 30th of June, 1985 and informing it that in case of any eventuality the compensation will be claimed on the cost of goods + 10%. It is not disputed by the parties that the respondent No. 1, prior to the claim lodged by the appellants, had not explicitly agreed to increase the amount of the policy. The learned umpire applying the principle of estoppel against the respondent No. 1 had concluded that there was implied and 'deemed consent' of respondent No. 1 to increase the amount of policy, which the Court below found to be unacceptable. We too find that a unilateral proposal on the part of the appellants to increase the amount of the policy to Rs. 23,13,747 + 10% in absence of acceptance on the part of respondent No. 1 either expressly or impliedly could not have been treated to have binding effect on the parties. True, there was no material before the umpire to show 'denial' or 'admission' of the respondent No. 1 about Rs. 1,653 lying with it, but even if that amount of the claimant appellants was lying with the respondent No. 1, still the unilateral proposal for increasing the insured sum could not have been taken to have had the implied consent of the respondent No. 1. The conclusion thus drawn by the umpire about the insured sum under the policy having been raised as proposed by the claimant appellants through their letter dated 1.7.1985 being not based on reasonable interpretation of either law or fact was apparently perverse.
7. Then, the next ground taken by the Court below for setting aside the award is the determination of quantum of compensation. The umpire, it would be found, had determined the compensation equivalent to the amount of policy ignoring the value of the property at the time of happening. The contention of the respondent No. 1 in that respect was that the claimants were entitled only to the value of the property at the time of happening or at its option, reinstatement or replacement of the property destroyed in the fire and not the amount for which that property had been insured. The learned court below has upheld the said contention of the respondent No. 1, It is not disputed that the amount of compensation in this case ought to have been calculated in accordance with the terms of the policy, which in fact are the result of agreement between the parties and are binding on them. The policy contains the following stipulation with regard to the payment of compensation in the event of happening of destruction of the stock of jute insured :
"The Company agrees (subject to the conditions contained herein or endorsed or otherwise expressed hereon which conditions shall so far as the nature of them respectively will permit be deemed to be conditions precedent to the right of the insured to recover hereunder) that if after payment of the premium the property insured described in the said Schedule, or any part of such property, be destroyed or damaged by :
(1) Fire including Fire resulting from explosion ; (2) Lightning ; (3) Explosion of boiler used for domestic purposes only ; (4) Explosion of gas used for domestic purposes only or for lighting or heating in a building not forming part of any gas works ;
at any time before 4 O'clock in the afternoon of the last day of the period of insurance named in the said Schedule or of any subsequent period in respect of which the insured shall have paid and the Company shall have accepted the premium required for the renewal of the policy, the Company will pay to the insured the value of the property at the time of the happening of its destruction or the amount of such damage or at its option reinstate or place such property or any part thereof."
8. From the above stipulation, it is amply clear that in the event of any happening of destruction of the stock of raw jute by fire, the respondent No. 1 was liable to pay to the insured claimants only the value of the property at the time of such happening or the amount of such damage or at its option reinstate or replace such property or any part thereof. Under the terms of the policy, therefore, the appellants can, in no way, be said, to be entitled to the insured sum irrespective of the value of raw jute at the time of the happening of the accidental fire in their godown. Reliance has been placed by the learned counsel for the appellants on the law laid down by a Division Bench of High Court of Delhi in the case of Vishan Narain v. Oriental Insurance Co. Ltd., 2002 ACJ 1883, wherein in the case of theft of an insured Maruti van the claimant was held entitled to the insured sum by repelling the argument that it was entitled only to the market value of the stolen vehicle. In that case, it does not appear that the agreement between the claimant and the insurance company contained any stipulation like the one in the present case.
9. Now adverting to the question whether or not the aforesaid two infirmities constituted misconduct on the part of umpire which could be made the basis for setting aside the award, we find that this point has hotly been debated from both the sides. The learned counsel for the appellants has urged that while deciding the objection raised by a party against the arbitrator's award, the jurisdiction of the Court is limited as expressly indicated in the Arbitration Act and it has no jurisdiction to sit in appeal and examine the correctness of award on merits. He further urged that the umpire had given a reasoned award taking plausible view which could not have been gone into by the learned court below as it had no jurisdiction to investigate into the merits of the case and examine the oral and documentary evidence on record for the purposes of finding out whether or not the umpire had committed any error of law. In support of his contention, the learned counsel for the appellants has placed reliance upon the law laid down in the cases of Puri Construction Put. Ltd. v. Union of India, AIR 1989 SC 777 ; Dandasi Sahu v. State of Orissa, AIR 1987 Ori 274 ; Hindustan Tea Co. v.K. Sashikant and Co. and Anr., AIR 1987 SC 81 ; Food Corporation of India v. Joginderpal Mohinderpal and Anr., AIR 1989 SC 1263 ; Hind Builders v. Union of India, AIR 1990 SC 1340 ; Union of India v. Bungo Steel Furniture Private Ltd., AIR 1967 SC 1032 and U.P. Hotels etc. v. U.P. State Electricity Board, AIR 1989 SC 268. Having given our conscious thought to the arguments raised and the law cited by the learned counsel for the parties, we do not find it a case where interference by the Court below can be held to be uncalled for on account of either there being two plausible views and one having been taken by the umpire or on account of wrong interpretation of language. There was apparently jurisdictional error committed by the umpire which had gone to the root of the case. It cannot be denied that the umpire had no jurisdiction to award the compensation by travelling beyond the terms of the policy of which he himself was the creation. Indisputably, in terms of the conditions of the policy, the claimant-appellants could not have been awarded the compensation more than the value of the property at the time of the happening. As pointed out above, there was only a proposal on the part of the claimant appellants through their letter dated 1.7.1985 to enhance the insured amount to the value of the property as it stood on 30th of June, 1985, i.e., Rs. 23,13,747 + its 10%. There is nothing on record to show that this unilateral proposal was ever accepted by the respondent No. 1. From the facts of the case, the consent of respondent No. 1 with regard to the increase in insured amount could also not have been deemed for its failure to give the reply to the said letter of the appellants. The Court below has thus rightly come to the conclusion that under the circumstances, the insured amount could not have been taken to be Rs. 23,13,747 + its 10% by the umpire by applying the principle of estoppel. Then despite there being a specific clause that in the event of any happening, the claimant-appellants will be paid the value of the property at the time of happening or at the option of the insurer, be reinstated or replaced with the property so damaged or destroyed in the incident, the umpire committed manifest error in awarding the compensation in clear disregard of the terms of the policy. The Apex Court in the case of Associated Engineering Company v. Government of Andhra Pradesh and Anr., AIR 1992 SC 232, has held that where it is apparent not by construction of the contract but by merely looking at the contract that the umpire travelled totally outside the permissible territory and exceeded his jurisdiction in making the award, it is an error going to the root of his jurisdiction. The Apex Court has further held in this case that :
"The arbitrator cannot act arbitrarily, irrationally, capriciously or independently of the contract. His sole function is to arbitrate in terms of the contract. He has no power part from what the parties have given him under the contract. If he has travelled outside the bounds of the contract, he has acted without jurisdiction. But if he has remained inside the parameters of the contract, his award cannot be interfered with unless he has given reasons for the award disclosing an error apparent on the face of it. A conscious disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award."
10. In view of the discussions above, we find that the umpire in making the award has not only taken an erroneous and perverse view on facts and law but had also committed jurisdictional error by making conscious disregard of the agreement from which he himself had derived his authority. The Court below thus was fully within its limits to treat those errors as misconduct on the part of the umpire and has rightly set aside the award. We thus do not find any justification to interfere with the order impugned in this appeal.
11. The appeal thus fails and is dismissed with costs.