Madras High Court
Chennai Petroleum Corporation Limited vs Reliance General Insurance Company ... on 29 September, 2023
Author: Abdul Quddhose
Bench: Abdul Quddhose
Arb.O.P.(Com.Div) Nos.231 and 232 of 2023
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Reserved on : 21.09.2023
Pronounced on : 29.09.2023
CORAM:
THE HON'BLE MR. JUSTICE ABDUL QUDDHOSE
Arb.O.P.(Com.Div) Nos.231 and 232 of 2023
Chennai Petroleum Corporation Limited,
Represented by its Company Secretary,
No.536, Anna Salai,
Teynampet,
Chennai - 600 018. ... Petitioner
In both petitions
Vs.
Reliance General Insurance Company Limited,
Represented by its Chief Executive Officer,
19, Reliance Centre,
Walchand Hirachand Marg,
Ballard Estate,
Mumbai - 400 001. ... Respondent
In both petitions
Prayer in both petitions : Arbitration Original Petition (Commercial
Division) filed under Section 11 (6) (a) and (c) of the Arbitration and
Conciliation Act, 1996 to appoint an arbitrator, on behalf of the
respondent, in accordance with the provisions of the Arbitration and
Conciliation Act, 1996, to adjudicate the disputes between the petitioner
and the respondent under the policy all risk package insurance policy
https://www.mhc.tn.gov.in/judis
1/39
Arb.O.P.(Com.Div) Nos.231 and 232 of 2023
Nos. 1216652117051161 and 1216652117048448 issued by the
respondent to the petitioner and to direct the respondent to pay the cost
of these proceedings.
For petitioner
In both petitions : Mr.S.Arjun Suresh
for M/s.Dua Associates
For respondent
In both petitions : Mr.Satish Parasaran
Senior Counsel
for Mr.Adithya Reddy
COMMON ORDER
The petitioner has raised a dispute with the respondent under the All risk Package Insurance Policy Nos.1216652117048448 and 1216652117051161 dated 01.12.2015 and 01.01.2016 respectively. These petitions have been filed under Section 11 of the Arbitration and Conciliation Act, 1996, seeking for appointment of an arbitrator by this Court in respect of the dispute which has arisen under the two insurance policies. Since the insurance claim arose out of the very same calamity, these petitions are disposed of by a common order.
2. The petitioner is the insured and the respondent is the insurer under the aforementioned Insurance policies. The premises of the https://www.mhc.tn.gov.in/judis 2/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 petitioner were damaged due to the floods that had occurred in the City of Chennai and other parts of Tamil Nadu during December, 2015. The insurance policies taken by the petitioner with the respondent gave coverage for those eventualities. The petitioner also made a claim with the respondent for the loss / damage suffered by them at their premises at Manali and Nagapattinam due to the floods and the resultant stagnation of water, on 02.12.2015.
3. The final claim admitted by the loss adjudicator, vide its report towards material damage, was Rs.8,48,34,115/-, after applying a deductible of Rs.5 Crores. The final claim admitted by the loss adjudicator towards add-on cover was Rs.30,57,10,137/-, after applying a deductible of Rs.5 Crores. The total amount sanctioned by the respondent to the petitioner's claim, after applying deductible twice, was Rs.39.05 Crores.
4. According to the petitioner, as per clause 6.12 of the Insurance policies, the respondent ought have applied only one deductible of Rs.5 Crores, in respect of the total claim, but, has erroneously, applied a https://www.mhc.tn.gov.in/judis 3/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 deductible of Rs.5 Crores each on the amount under the head of (a) material damage and (b) add-on cover separately. According to the petitioner, the respondent had wrongfully levied a total of Rs.10 Crores as deductibles from the amount due and payable to the petitioner. The final assessment of the claim was communicated by the respondent to the petitioner on 12.11.2019.
5. The petitioner, upon receipt of the said final assessment of the claims, had written to the respondent on 19.11.2019, stating that the levy of two deductibles under the policies was erroneous and requested the respondent to revise its assessment. According to the petitioner, despite repeated reminders, the respondent did not accede to the request of the petitioner.
6. According to the petitioner, due to the aforementioned circumstances, the petitioner was forced to submit a consent letter under duress to the respondent, failing which, the respondent had threatened to withhold the payment of Rs.36.05 Crores that was due and payable to the petitioner and admitted by the respondent under its assessment. https://www.mhc.tn.gov.in/judis 4/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 According to the petitioner, left with no alternative, the petitioner submitted the consent letter, in a format prepared by the respondent, on 25.11.2019. According to the petitioner, even at the time of submission of the consent letter, the petitioner had once again requested the respondent to revise the deductibles erroneously applied to the total amounts sanctioned under the assessment. It is also the case of the petitioner that the respondent failed to release an amount of Rs.2.59 Crores under the policy covering the Iranian interest.
7. The petitioner has also registered a complaint with the Insurance Regulatory and Development Authority (IRDA) on 08.02.2021, seeking their intervention. The petitioner after receipt of the sum of Rs.36.05 Crores, which according to the petitioner, is not the correct assessment of the loss by the respondent, has written a letter to the respondent on 15.02.2021, raising a protest against the levy of the second deductible. According to the petitioner, there was no response to the said communication.
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8. The petitioner has invoked arbitration in accordance with the arbitration clause contained in clause 6.11 of the policies and in particular to the deductibles and the withheld amount under the policies, by issuing a notice to the respondent on 18.02.2022. The petitioner issued the first notice invoking the arbitration clause under the policies, which covered a common subject matter and pertaining to the same parties. The petitioner wrote to the respondent, annexing the list of three names, for the appointment of a sole arbitrator, by mutual consent of the parties. However, according to the petitioner, despite several reminders, including vide e-mail on 08.03.2022 and 13.04.2022, the respondent did not reply to the said notice within a period of thirty days as required under the policies.
9. As per the policies, if the parties fail to agree to a sole arbitrator, each party has to nominate one arbitrator and the nominated arbitrators have to appoint a third presiding arbitrator, to decide the dispute between the parties. The petitioner, therefore, issued a notice dated 10.06.2022 (Second Notice) nominating its arbitrator and requesting the respondent https://www.mhc.tn.gov.in/judis 6/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 to nominate its arbitrator, in terms of the policies. The respondent, through its Advocate, issued a reply dated 13.07.2022 to the second notice, stating inter-alia, that the claims were not arbitrable and failed to nominate its arbitrator. The respondent relied upon the consent letter dated 25.11.2019, issued by the petitioner, in support of its contention. However, according to the petitioner, the respondent had failed to consider that the petitioner, vide e-mail dated 25.11.2019 as well as vide letter dated 15.02.2021, had expressed its objection and further stated that the consent was issued under duress. According to the petitioner, there is no accord and satisfaction with regard to the legitimate dues that are payable by the respondent to the petitioner under the policies. It is also the contention of the petitioner that the arbitrability or otherwise of the claims can be decided only by the arbitral tribunal and not by this Court under Section 11 of the Arbitration and Conciliation Act, 1996. Under the aforementioned circumstances, this petition has been filed under Section 11 of the Arbitration and Conciliation Act, 1996.
10. A counter affidavit has been filed by the respondent in both the petitions and they state as follows:
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a) They never threatened to withhold payment to the petitioner unless consent letter was issued by the petitioner in their favour to receive a lesser sum;
b) The petitioner, only out of their free will, issued the consent letter;
c) Having issued a consent letter without any pre-condition, the petitioner cannot be allowed to belatedly raise disputes after accepting the settlement on their own accord;
d) The respondent had replied to the petitioner's protest against the alleged erroneous application of second deductible on 03.12.2019, apprising the petitioner of the fact that deductibles will be levied separately for property damage and add-on cover. The petitioner was aware that second deductible would be applicable when they were issued the discharge voucher in June, 2020;
e) The allegation that the respondent failed to release an amount of Rs.2.59 Crores with regard to the Policy covering Iranian Interest is unrelated to the present matter at hand, which deals with payment under the non-Iranian Policy only. The respondent has paid and settled, all its dues under the Non Iranian Policy, which is the subject matter of these https://www.mhc.tn.gov.in/judis 8/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 petitions;
f) The petitioner was well aware of the second deductible in December, 2019 itself and yet decided to raise the dispute more than a year later in February, 2021. The dispute has been raised after the discharge voucher was issued in June, 2020. The petitioner has raised the dispute belatedly over payment that the petitioner had consented to and received without any protest at the time of receipt of the money;
g) The existence of a valid arbitrable dispute, with regard to the claim made by the petitioner, is disputed. Firstly, the petitioner had voluntarily submitted a consent on 25.11.2019 and they cannot now be allowed to question the same. Secondly, clause 6.11 merely deals with disputes regarding 'quantum of payment', but, in the instant case, the issue is with regard to the validity of the consent letter in the light of the petitioner's allegation of threat. Thirdly, the discharge voucher was issued in June, 2020 itself and therefore, it is evident that there is no arbitrable dispute;
h) The arbitration clause contained in clause 6.11 of the policy does not include within its ambit the issue at hand, i.e., whether the consent agreement is valid and was signed without duress or not. Clause https://www.mhc.tn.gov.in/judis 9/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 6.11 envisages disputes only pertaining to "quantum of payment" which is not the instant case.
11. The learned counsel for the petitioner relied upon the following Authorities in support of the petitioner's conditions:
a) United India Insurance Company Limited Vs. Antique Art Exports Private Limited reported in 2019 (5) SCC 362;
b) Mayavati Trading Private Limited Vs. Pradyaut Deb Burman reported in 2019 (8) SCC 714;
c) Oriental Insurance Company Limited Vs. Dicitex Furnishing Limited reported in 2020 (4) SCC 621;
d) Bharat Sanchar Nigam Limited and Another Vs. Nortel Networks India Private Limited reported in 2021 (5) SCC 738;
e) NTPC Ltd. Vs. SPML Infra Ltd. reported in 2023 SCC Online SC 389;
f) Industrial Promotion and Investment Corporation of Orissa Limited Vs. New India Assurance Company Limited and Another reported in 2016 (15) SCC 315.
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12. In support of the contention of the respondent that the issue on hand is not an arbitrable dispute, learned Senior Counsel appearing for the respondent drew the attention of this Court to the following Authorities:
a) NTPC Ltd. Vs. SPML Infra Ltd. reported in 2023 SCC Online SC 389;
b) A Single Bench Judgment of the Orissa High Court (Dr.S.Muralidhar. CJ) in its decision rendered on 05.05.2023 in the case of M/s.COS Board Industries Ltd. Vs. New India Assurance Co. Ltd. in ARBP.No.35 of 2022.
Discussion:
13. Before delving into the matter, it is to be noted that only on 21.09.2023, when the matter was reserved for orders, it was informed by the learned Senior Counsel appearing for the respondent, on instructions, that the admitted sum of Rs.2.59 Crores covering the claim towards Iranian interest was paid by the respondent to the petitioner. Earlier, during the course of the submissions made by the learned counsel for the petitioner, he had submitted that even assuming the other claims are not https://www.mhc.tn.gov.in/judis 11/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 arbitrable in view of the alleged "accord and satisfaction", the claim towards payment of the admitted sum of Rs.2.59 Crores is an arbitrable dispute. He further submitted that even if the said payment is made now, subsequent to the filing of the Section 11 application, the respondent is liable to pay interest on the said sum of Rs.2.59 Crores, since the same would have been paid belatedly. The submission made by the learned counsel for the petitioner with regard to this aspect is worthy of acceptance, as admittedly, even if the payment of the admitted sum of Rs.2.59 Crores in respect of Iranian interest has been paid, the said payment on a prima facie consideration is a belated payment and the issue whether the petitioner is entitled to claim interest from the respondent for the said belated payment is obviously an arbitrable dispute.
14. With regard to the "accord and satisfaction" issue, and whether the claim is barred by limitation, this Court in the forthcoming paragraphs will discuss and consider the said issues. https://www.mhc.tn.gov.in/judis 12/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023
15. The petitioner claims that, only under duress, the petitioner issued the consent letter dated 25.11.2019 to the respondent, agreeing to receive a lesser sum towards full and final settlement of its Insurance claim. However, according to the respondent, only on its own volition, the petitioner had issued the consent letter on 25.11.2019 to the respondent. Therefore, this Court will have to decide as to whether the issue of "accord and satisfaction" can be decided by this Court, while exercising its power under Section 11 of the Arbitration and Conciliation Act, 1996.
16.There are several ways in which parties can discharge their contractual obligations. For example, the doctrine of accord and satisfaction allows parties to discharge their contractual obligations by performing certain modified obligations or by novating or rescinding the existing contract. In other words, a liability arising out of a breach of contract can be discharged by a new agreement (an 'accord'), wherein the parties mutually agree a new consideration, forfeiting their right of action against their previous contractual obligations. The 'satisfaction' is the https://www.mhc.tn.gov.in/judis 13/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 discharge of the substituted obligations. Central to this is the consent and mutual agreement of all parties involved. The doctrine and its use in India have been derived from the common law. Section 63 of the Contract Act 1872 embodies the principle of discharge of contract by accord and satisfaction. The jurisprudence encompasses contract law, tort law and, more recently, arbitration law, bringing to the fore the issue of whether:
•an arbitration clause in an original contract survives in the substituted settlement; and •an arbitrable dispute exists for the purposes of the appointment of an arbitrator by the courts.
17.As a defence against this doctrine and to escape fulfilling their contractual obligations or have the substituted consideration or agreement rendered void, parties often argue that the consent given was not freely obtained but was the result of:
•coercion;
•financial duress;
•undue influence; or •fraud.
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18.This is seen in contractual disputes but more often in cases involving insurance claims, wherein the claimant often settles for an amount less than the claimed amount and gives up all claims and rights via the execution of a discharge certificate or voucher due to an unequal bargaining position. The Honourable Supreme Court has held that this defence is acceptable only in insurance disputes wherein a prima facie case has been made by the party and not in commercial contract cases wherein it is assumed that both parties have equal bargaining power.
19.National Insurance Company Limited v Boghara Polyfab Private Limited reported in 2009 (1) SCC 267 is one of the most important judgments that has held that a claim for arbitration cannot be rejected solely on the ground that a settlement agreement or discharge voucher has been executed by the claimant if the claimant disputes the settlement agreement's validity. If one party that has executed and issued a discharge voucher or settlement can prove coercion, fraud or undue influence, discharge of the contract in light of the voucher or settlement is rendered void and cannot be relied upon. Consequently, the disputes between the parties would be arbitrable. Paragraph 29 of the above mentioned judgment further lists three circumstances where it is clear https://www.mhc.tn.gov.in/judis 15/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 that the arbitration agreement contained in a contract cannot be invoked when the contract has been discharged via performance or accord and satisfaction:
(a) Where the obligations under a contract are fully performed and discharge of the contract by performance is acknowledged by a full and final discharge voucher/receipt. Nothing survives in regard to such discharged contract.
(b) Where the parties to the contract, by mutual agreement, accept performance of altered, modified and substituted obligations and confirm in writing the discharge of contract by performance of the altered, modified or substituted obligations.
(c) Where the parties to a contract, by mutual agreement, absolve each other from performance of their respective obligations (either on account of frustration or otherwise) and consequently cancel the agreement and confirm that there is no outstanding claims or disputes.
20.This principle may not apply where both parties are businesspersons and the contract is a commercial transaction. In other words, the principle will not apply where the contracting parties' bargaining power is equal or almost equal. Rather, it will apply only in cases where there is an inequality of bargaining power in favour of one party. Further, in these cases, the provisions will be read against the party which has drafted the contract following the principle of contra https://www.mhc.tn.gov.in/judis 16/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 proferentum, which also has limited applicability in commercial transactions.
21.Boghara Polyfab also sets out categories for determining which preliminary issues must be referred to an arbitrator and which must be adjudicated by the courts when their intervention is sought for the appointment of an arbitral tribunal under Section 11 of the Arbitration and Conciliation Act 1996. Barring the determination of whether there is an arbitration agreement and whether the applicant is a party thereto, the remaining issues can be referred to the arbitrator. While identifying and setting out the three categories, the judgment referred to the landmark seven-bench judgment SBP v Patel Engineering Limited, which delved into Section 11 of the Arbitration and Conciliation Act 1996 and held that the courts' power to appoint an arbitrator under Section 11 is a judicial power. It further held that the determination of whether a contract has been discharged by accord and satisfaction is a mixed question of fact and law which the courts have the power to decide. However, this decision has been legislatively overruled by subsequent amendments to the act.
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22.Several judgments post-Boghara Polyfab have applied the same ruling. For instance, the 2011 decision in Union of India v Master Construction Company (Master Construction Case) reported in 2011 (12) SCC 349 relied on Boghara Polyfab and held that when considering a claim that a discharge voucher was obtained via fraud, coercion or undue influence, "the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine".
23.With the insertion of Section 6A into Section 11 of the Arbitration and Conciliation Act 1996 by the Arbitration and Conciliation Amendment Act 2015 (2015 amendment act), judicial intervention and examination when appointing an arbitrator on the application of a party has been limited to examining the existence of an arbitration agreement; the remaining issues, preliminary or otherwise, must be referred to the arbitral tribunal for adjudication.
24. In the decision rendered by the Honourable Supreme Court in United India Insurance Company Limited v Antique Art Exports Private https://www.mhc.tn.gov.in/judis 18/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 Limited, reported in 2019 (5) SCC 362, it was held that there cannot be a rule under which mere allegation of a discharge voucher being obtained by fraud, coercion or undue influence by the other party is sufficient to appoint an arbitrator unless the party can produce prima facie evidence to substantiate the same. However, no rule of thumb was set out to determine what prima facie constitutes a bona fide dispute, and this is to be decided by a judge on a case-by-case basis when deciding to invoke Section 11(6) of the Arbitration and Conciliation Act 1996.
25.However, Antique Art decision was soon subjected to judicial scrutiny by a three-judge bench of the Supreme Court. Honourable Mr.Justice Nariman in Mayavati Trading Private Limited v Pradyuat Deb Burman reported in 2019 (8) SCC 714 held that Boghara Polyfab and Antique Art stand, in part, legislatively overruled by the 2015 amendment act. Therefore, the three categories set out in Boghara Polyfab regarding which issue fell within the purview of the court and the threshold set out in Antique Art (regarding the determination of which disputes should be referred to arbitration, which would have included going into whether accord and satisfaction had taken place) has https://www.mhc.tn.gov.in/judis 19/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 been legislatively overruled. Accordingly, the Supreme Court or High Court, when considering applications under Sections 11(4) to 11(6) of the Arbitration and Conciliation Act 1996, must confine themselves to the examination of the existence of an arbitration agreement and leave all other preliminary issues to be decided by the arbitral tribunal.
26.On the other hand, in relation to general commercial disputes, the Supreme Court in WAPCOS Limited v Salma Dam Joint Venture reported in 2020 (3) SCC 169, adjudicated an appeal whereby the High Court had, in exercise of its powers under Section 11(6) of the Arbitration and Conciliation Act 1996, appointed a sole arbitrator. On the question of whether an arbitration agreement subsists between the parties after amending the original agreement, it was held that in a commercial setting, parties often enter into a settlement and, in such cases, cannot be later allowed to take a plea of coercion or duress. Once the disputes are settled and the parties are satisfied, the matter is closed for all purposes; therefore, the arbitration petition was held to be not maintainable. But insurance disputes cannot be equated to general commercial disputes and it is an exception to the general rule that once https://www.mhc.tn.gov.in/judis 20/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 parties have arrived at a settlement with regard to a general commercial dispute, they cannot go back on the settlement and re-agitate the claim once again. In insurance disputes, the insurer's bargaining power to compel the insured to accept a lesser sum towards settlement of the insurance claim though the insured may be entitled for a much higher sum as per the policy is highly probable. Therefore, there is a possibility that by coercion and duress, the insurer may have made the insured to sign the discharge voucher accepting a lesser sum than what they are legally entitled as per the terms and conditions of the insurance policy. Whether the petitioner had signed the discharged voucher, voluntarily or under duress, cannot be adjudicated by this Court while deciding an application under Section 11 of the Arbitration and Conciliation Act, 1996 as the said issue can only be adjudicated by the arbitrator.
27.In general, a mere plea of fraud, coercion, duress or undue influence is insufficient; the party raising such an allegation must establish the same. The question that has arisen in this regard is whether the courts, when appointing an arbitrator, should delve into this controversy or leave it for the arbitral tribunal to determine. In the https://www.mhc.tn.gov.in/judis 21/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 context of insurance claims, especially when an application under Section 11 of the Arbitration and Conciliation Act 1996 has been preferred, it is common for the court only to examine the existence of the arbitration agreement and appoint the arbitral tribunal. On the other hand, in a regular commercial dispute, accord and satisfaction can be posed as a strong defence by a party contesting arbitration and the same can be used to deter arbitral proceedings by seeking a preliminary adjudication on jurisdiction. However, the scope of judicial intervention in a commercial dispute, when exercising the powers set out under Section 11 of the Arbitration and Conciliation Act 1996, with respect to such a question remains to be determined affirmatively.
28.One question remains: what factors should be considered to establish whether the doctrine of accord and satisfaction applies in the context of obtaining consent via fraud, coercion or undue influence. The courts have stated that there is no standard or rule of thumb to establish a prima facie case, which leaves room for speculation and varies greatly across the courts. With varying standards in certain jurisdictions, it is easy for frivolous claims to be accepted in some courts and genuine claims be rejected in others, rendering this mechanism futile. A https://www.mhc.tn.gov.in/judis 22/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 semblance of criteria or a threshold should be introduced to ensure consistency and greater effectiveness. Some points of consideration for establishing a prima facie case could be:
•a) establishing the existence of unequal bargaining power, with one party having distinctly more power, and that the discharge voucher or settlement agreement was executed in favour of this party;
•b) the circumstances and stand taken by the party executing the discharge voucher or settlement agreement around the time of its execution – for instance, whether:
c) the party showed any reluctance or provided any counteroffer;
•d) the party reached out after the document had been executed; or •e) time elapsed between execution and the institution of the claim; •f) in cases of insurance claims, examining the difference between the settlement amount and the amount claimed, alongside the amount mentioned in the final surveyor's report, can serve as a material factor in addition to the surrounding facts; and •g) determining whether the applicant has suffered financial duress and, if so, to what extent and whether it was of such a nature that it could affect its decision-making ability and force it to succumb to the pressure.
29.The jurisprudence regarding judicial involvement through Section 11 of the Arbitration and Conciliation Act 1996 is long and https://www.mhc.tn.gov.in/judis 23/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 complex. While the current legal position set out in Mayavati Trading is good with respect to institutional arbitration and reigning in judicial involvement, with respect to disputes regarding the existence of an arbitration agreement or clause in light of the doctrine of accord and satisfaction, it remains to be seen what the efficacy of a declaration, discharge voucher or settlement agreement would be and how the courts should really evaluate these. Due to Mayavati Trading, the courts cannot delve into whether accord and satisfaction has taken place legitimately and, accordingly, whether an arbitration agreement is valid.
30.On the other hand, if Boghara Polyfab and Patel Engineering were followed, although Section 11 is administrative in nature, if the courts get into validity and allow extensive trials to take place every time, despite the existence of such documents, this calls into question the significance of a discharge voucher or settlement agreement. While an entire segment of genuine applicants being left out is not a preferable option, neither is applicants being stuck in this vicious circle. This issue is unique to the doctrine of accord and satisfaction. https://www.mhc.tn.gov.in/judis 24/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023
31.To ensure minimal judicial intervention alongside the primacy of institutional arbitration, the best recourse to this issue can be found in the 246th Report of the Law Commission, which recommends minimal judicial intervention and a prima facie threshold for applications under Section 11(6A). Further, instead of allowing extensive trials, a short yet reasonable period should be introduced to examine applications and either dismiss them or refer the dispute to arbitration. The threshold for making out a prima facie case could include:
•a) a determination of the parties' bargaining power; •b) an examination of the circumstances which led to the discharge of the contract; and •c) an assessment of past transactions between the parties.
32.In the case on hand, the bargaining power of the respondent insurance company is much higher than that of the petitioner, the insured, who is anxiously awaiting the settlement of its insurance claim. Both the parties are unequal. The respondent, being the insurer, is always having an upper hand over the petitioner, who is the insured. A huge insurance claim has been raised by the petitioner against the respondent. https://www.mhc.tn.gov.in/judis 25/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 The respondent has paid Rs.39.05 crores towards full and final settlement of the petitioner's insurance claim. The petitioner has also signed the discharge receipt as well as the discharge voucher few days before the actual payment. The petitioner had informed the respondent prior to the signing of the discharge voucher that erroneously, the respondent had made two deductibles instead of one and they had also informed the respondent that the adjudication made by the respondent is erroneous. The petitioner claims that only by duress and coercion, they had to sign the discharge voucher agreeing to receive a lesser sum from the respondent towards insurance claim. According to the petitioner, if the discharge voucher was not signed by them, the respondent would not have paid the sum of Rs.39.05 Crores to the petitioner. Being an insurance company, which has insured the petitioner, in case the petitioner suffers loss on account of the calamities for which insurance coverage was given is certainly having a superior bargaining power over the petitioner as the petitioner (insured) is always in many cases is at the mercy of the insurer for settlement of its insurance claim involving a huge sum. Though the respondent may contend that being a Public Sector Oil Corporation, a decision to accept the offer of settlement given https://www.mhc.tn.gov.in/judis 26/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 by the respondent would have been taken only pursuant to a Board Resolution and therefore, the accord and satisfaction letter cannot be questioned, this Court is of the considered view that the said contention will have to be rejected since if the same is accepted, it is highly probable that the respondent would not have been paid even the admitted sum of Rs.39.05 Crores. In the instant case, out of the admitted sum, a sum of Rs.2.59 crores was paid by the respondent to the petitioner only on 18.09.2023 and the balance claim made by the petitioner against the respondent subsequent to the signing of the discharge voucher is for a much lesser sum when compared to the admitted sum and any normal prudent person would have definitely signed the discharge voucher for a lesser sum though his claim is for a higher sum in order to enable him to receive the admitted amount. The bargaining power of the respondent over the petitioner is much higher considering the nature of the contract and the quantum of claim made by the petitioner against the respondent.
33.The Honourable Supreme Court in the case of Oriental Insurance Company Limited Vs. Dicitex Furnishing Limited reported in 2020 (4) SCC 621 also makes it clear that while https://www.mhc.tn.gov.in/judis 27/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 adjudicating whether the dispute is arbitrable or not, this Court will have to be prima facie convinced about the genuineness or credibility of the plea of coercion. The Hon'ble Supreme Court has held that it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive (arbitration) proceedings. The Hon'ble Supreme Court has also made it clear that if the Court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right even to approach the Civil Court.
34.The Honourable Supreme Court in the case of Vidya Drolia vs. Durga Trading Corporation reported in 2021 (2) SCC 1 does not differ from Mayavati Trading Private Limited referred to supra and in Vidya Drolia, the Hon'ble Supreme Court also dealt with the scope of interference of the Court under Section 11 of the Arbitration and Conciliation Act. The Honourable Supreme Court has clarified that https://www.mhc.tn.gov.in/judis 28/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 disputed and debatable question of facts cannot be decided under Section 11 and it is only in case where exfacie, it is found that the dispute is not arbitrable, the Court can refuse arbitration.
35.In the instant case, though the petitioner had submitted a consent letter dated 25.11.2019 with the respondent agreeing to receive a sum of Rs.39.05 Crores towards full and final settlement, they have immediately sent one more communication to the respondent, stating that the consent letter was obtained under duress. It is also to be noted that the payment was released by the respondent only after the petitioner had signed the discharge vouchers, thus, there is a reasonable apprehension that the discharge vouchers were a pre-condition to the release of payments. Thus, element of coercion cannot be ruled out. Moreover, the Insurance Regulatory and Development Authority (IRDA) circulars do not preclude the petitioner from claiming revised payments, even after signing and receiving a discharge voucher. When there are disputed questions of fact involved with regard to duress and coercion, necessarily only an arbitrator can adjudicate on the disputed question of facts. https://www.mhc.tn.gov.in/judis 29/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023
36.The issue of "accord and satisfaction" is an issue which necessarily involves determination of facts and therefore, it can only be decided by the arbitrator. Insurance Regulatory and Development Authority (IRDA) circulars also provides that discharge vouchers cannot preclude the party from claiming higher compensation. The scope of judicial interference under Section 11 of the Arbitration and Conciliation Act is very limited and the Court cannot decide disputed and debatable question of facts.
37.The question of "accord and satisfaction", when there are disputed questions of facts cannot be determined by a Court while deciding an application under Section 11 of the Arbitration and Conciliation Act. Only in cases where there is no doubt, whatsoever, that "accord and satisfaction" has been voluntarily given, this Court can accept the contention of the respondent that the dispute is not arbitrable.
38.In NTPC Ltd. Vs. SPML Infra Ltd. reported in 2023 SCC Online SC 389 case relied upon by the learned Senior counsel for the https://www.mhc.tn.gov.in/judis 30/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 respondent, for raising objections to the filing of this petition under Section 11 of the Arbitration and Conciliation Act 1996, is not applicable to the facts of the instant case. The Honourable Supreme Court in the said decision was considering a settlement entered into between the parties before a Court of law and not a discharge voucher issued by the insured to the insurer that is disputed as in the present case. The Honourable Supreme Court held that the eye of the needle test must be adopted while appointing an arbitrator under Section 11 of the Arbitration and Conciliation Act. The Honourable Supreme Court would further hold that only in exceptional circumstances, the claims are manifestly and exfacie non arbitrable when the Courts refuse to appoint an arbitrator. In the case on hand, the quantum of the amount due under the policies has been contested by both the parties and is a dispute that ought to be referred to the arbitrator. In any event, the arbitrator once appointed by this Court has the power to adjudicate under Section 16 of the Arbitration and Conciliation Act.
39.According to the respondent, the disputes raised by the petitioner relates to interpretation of clause 6.12 of the policy and https://www.mhc.tn.gov.in/judis 31/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 examination of facts to see if there was coercion. According to them, unlike a dispute relating to valuation or surveyor's report, both these disputes do not relate to "quantum" but to the liability of the respondent to pay the amount. In support of their stand, learned senior counsel for the respondent, relied upon a decision of the Honourable Supreme Court in the case of Oriental Insurance Company Limited Vs. M/s Narbheram Power and Steel Pvt. Ltd. reported in 2018 (6) SCC 534.
40.Clause 6.11 of the respective policies contains the arbitration clause invoked by the petitioner on 18.02.2022 which is extracted hereunder:
"6.11. If any dispute shall arise as to the quantum to be paid under this policy (liability being otherwise admitted) such difference shall independently of all other questions be referred to the decision of a sole arbitrator to be appointed in writing by the parties to or if they cannot agree upon a single arbitrator within 30 days of any party invoking arbitration, the same shall be referred to a panel of three arbitrators, comprising of two arbitrators, one to be appointed by each of the parties to the dispute / difference and the third https://www.mhc.tn.gov.in/judis 32/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 arbitrator to be appointed by such two arbitrators and arbitration shall be conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996."
41.The dispute pertains to the quantum of amount payable to the petitioner i.e., whether the amount of Rs.39.05 Crores alone was payable to the petitioner as contended by the respondent or a sum in excess of that amount was payable as contended by the petitioner. According to the petitioner, as per the Insurance policies only one deductible is permissible. But, according to the respondent, there shall be two deductibles, while adjudicating the claims.
42.Section 11 (6A) of the Arbitration and Conciliation Act reads as follows:
"(6A) The Supreme Court or, as the case may be, the High Court, while considering any application under sub-section (4) or sub-section (5) or sub-section (6), shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement. "
https://www.mhc.tn.gov.in/judis 33/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023
43.In the case on hand, the following are the undisputed facts:
a) The existence of an arbitration clause in the Insurance Policies;
b) The incident occurred triggering the claim by the petitioner in terms of the policies;
c) The respondent while processing the claim adopted two deductibles instead of one deductible as claimed by the respondent thereby releasing only Rs.39.06 Crores instead of Rs.41.05 Crores;
d) A dispute was raised on the quantum, viz., Rs.5 Crores (deductible) and the interest on the monies withheld;
e) The respondent paid the admitted sum of Rs.2.59 Crores to the petitioner only on 18.09.2023 during the pendency of this petition;
f) The petitioner invoked the arbitration clause and has referred the dispute to the arbitration;
g) The respondent failed to appoint its nominee arbitrator.
44.As observed earlier, in this Court's recent decision in the case of M/s.National Federation of Farmers Procurement Processing and Retailing Cooperatives of India Limited Vs. M/s.NLC India Limited in https://www.mhc.tn.gov.in/judis 34/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 Arb.O.P.(Com.Div.) No.302 of 2023 and O.A.No.267 of 2023 dated 11.09.2023 by following the decisions of the Honourable Supreme Court has held that this Court is only required to take only a prima facie view on the issue of arbitrability and not a final view, as the arbitral tribunal is empowered to decide this issue under Section 16 of the Arbitration and Conciliation Act. Whenever a doubt arises as to whether there exists a valid arbitration agreement between the parties, the parties will have to be referred to arbitration under Section 11 of the Arbitration and Conciliation Act, 1996. All debatable questions of fact with regard to the existence of valid arbitration agreement are left open for the arbitral tribunal to adjudicate under Section 16 of the Arbitration and Conciliation Act, 1996. It is also to be noted that even the admitted sum of Rs.2.59 Crores has been paid by the respondent to the petitioner belatedly, that too only a few days back and the question of payment of interest for the said belated payment is also a dispute, which the petitioner is raising.
45. The decision rendered by the Orissa High Court dated 05.05.2023 in ARBP.No.35 of 2022 in the case of M/s.COS Board https://www.mhc.tn.gov.in/judis 35/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 Industries Ltd. Vs. New India Assurance Co. Ltd. has no applicability to the facts of the instant case as in the instant case, the petitioner had even prior to the issuance of the discharge voucher had claimed that under the policies, there can be only one deductible and even immediately after signing the discharge voucher the petitioner claims that they had communicated to the respondent that the discharge voucher was obtained by the respondent under duress. In the Orissa High Court decision, it is not clear as to whether the insured had objected to the assessment made by the insurer even prior to the settlement of the claim by the insurer for a lesser sum.
46. While deciding an application under Section 11 of the Arbitration and Conciliation Act, 1996, there can only be a limited scrutiny of the dispute. On a prima facie consideration, this Court finds that there is an arbitral dispute between the parties. Hence, this Court will have to necessarily appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996. But, however, the respondent is always having the right to file an application under Section 16 of the Arbitration and Conciliation Act, questioning the arbitrability of the dispute once again, https://www.mhc.tn.gov.in/judis 36/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 as the arbitrator is the final arbiter with regard to the arbitrability of the dispute.
47.For the foregoing reasons, these petitions are allowed by issuing the following directions:
(a) Hon'ble Mr.Justice V.Ramasubramanian, Former Judge of the Supreme Court, having office at No.12, TP Scheme Road, RA Puram, Chennai - 600 028 (Mobile No. 96180 99696) is appointed as the sole Arbitrator to adjudicate the dispute between the petitioner and the respondent arising out of the Insurance policies viz., Insurance policy Nos.1216652117048448 and 1216652117051161 dated 01.12.2015 and 01.01.2016 respectively;
(b) The Arbitrator shall be paid his remuneration / fees either as per the mutual agreement between the parties or as per the 4th schedule of the Arbitration and Conciliation Act, 1996;
(c) Both the parties shall equally share the arbitrator's fees;
(d) The Arbitrator shall conduct the arbitration in accordance with the provisions of the Arbitration and Conciliation Act, 1996 and shall https://www.mhc.tn.gov.in/judis 37/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 complete the arbitration within the specified time as prescribed under the said Act.
29.09.2023 Index: Yes/ No Speaking order / Non speaking order Neutral citation : Yes / No ab/vga https://www.mhc.tn.gov.in/judis 38/39 Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 ABDUL QUDDHOSE, J.
ab/vga Pre-delivery order in Arb.O.P.(Com.Div) Nos.231 and 232 of 2023 29.09.2023 https://www.mhc.tn.gov.in/judis 39/39