Bangalore District Court
M/S Cdm Smith India Private Limited vs National Insurance Company Limited on 7 January, 2025
KABC170029532023
IN THE COURT OF LXXXIV ADDL. CITY CIVIL AND
SESSIONS JUDGE (CCH-85) (COMMERCIAL COURT),
BENGALURU
DATED THIS THE 7th DAY OF JANUARY 2025
PRESENT
SRI.RAMAKANT CHAVAN,
B.Com., LL.B.(Spl)
LXXXIV ADDL. CITY CIVIL & SESSIONS JUDGE,
BENGALURU.
Com.O.S.No.1389/2023
PLAINTIFF:
M/s CDM Smith India Pvt. Ltd.,
Previously known as Wilber Smith Associates,
A company incorporated under the
provisions of the Companies Act, 1956
Having its Regd. office at
No.3, 2nd Floor, Shivalaya Arcade,
Sanjay Nagar Main Road, RMV II Stage
Bengaluru - 560 094
Rep. by its Authorized Representative
Mr. S. N. Suradev Prasad
(By Smt.Prerna Ponappa, Adv.)
AND
DEFENDANT:
National Insurance Company Ltd.,
A company incorporated under the
provisions of the Companies Act, 1956
Having its Regd. office at
No.3, Middleton Street, PB. No.9229,
Kolkata - 700 071
2 Com.O.S.No.1389/2023
Also having its divisional office at
Div. Off I, No.72, III Floor,
Mission Road, Unity Building Annexure
Bengaluru - 560 027
Rep. by its Authorized Representative
(By Sri.I.S.Devaiah, Adv.)
Date of Institution 04.12.2023
Nature of suit For recovery of money
Date of First Case 27.05.2024
Management Hearing
Date of commencement of 01.06.2024
recording of evidence
Date on which judgment
07.01.2025
pronounced
Time taken for disposal Years Months Days
1) From the date of First Case 00 07 11
Management Hearing
2) Total duration 01 01 03
LXXXIV Addl. City Civil & Sessions Judge
(CCH-85) Commercial Court, Bengaluru
JUDGMENT
This is a suit filed by the plaintiff against the defendant for recovery of INR 32,67,82,349/- in terms of Insurance Policies and cost.
3 Com.O.S.No.1389/20232. Brief facts of the plaintiff's case are that, the plaintiff, previously known as Infrastructure & Technology Consultants India Pvt. Ltd. and Wilber Smith Associates Pvt. Ltd., is a private limited company engaged in the business of providing consultancy services for design and engineering work to private companies, public sector undertakings and governmental organizations. The plaintiff is known for its benchmark quality standard, uncompromising business ethos and customer centric approach in all spheres of its business. The defendant is a public limited company engaged in the business of providing general insurance in different sectors of the economy to various entities.
It is further pleaded that, the plaintiff had obtained a professional indemnity policy from the defendant for INR 20.00 Crores in the year 2012 (effective from 10.03.2012 to 09.03.2013) to insure the plaintiff in the event any losses/damages arose on account of breach of any professional duty, error and/or omission committed during the period of insurance for any project undertaken by the plaintiff in India. The said police was renewed in 2013 (effective from 10.03.2013 to 09.03.2014), thereafter it was renewed for INR 30.00 Crores in March 2014 (effective from 10.03.2014 to 09.03.2015). Again renewed for INR 40.00 Crores in March 2015 (effective from 10.03.2015 to 09.03.2016). Thereafter, renewed for a period of 2016-17 (effective from 10.03.2016 to 09.03.2017 for INR 65.00 Crores. As per the practice, the policy was renewed for the years 2017-18, 2018-19, 2019-20 and 2020-21 for INR 65.00 Crores.
4 Com.O.S.No.1389/2023The policies from 2012-2021 are hereinafter referred to as "Insurance Policies". The plaintiff has made full and timely payment of the agreed premium amounts under the Insurance Policies. The dispute arises from the defendant's contumacious object failure to indemnify the plaintiff as mandated under the relevant Insurance Policies for the claim that arose from consultancy services ("Project") that the plaintiff was to provide for Kerala State Transport Project ("KSTP").
It is further pleaded that, as part of the plaintiff's services in India, the plaintiff participated in a tender floated by the KSTP in relation to updating certain road networks in the State of Kerala under a World Bank financed project. The proposed update was part of Phase-II of KSTP's project with the World Bank in the State of Kerala, with Phase-I having been undertaken in the year 2001 through another entity, namely M/s Louis Berger International Inc., USA. As part of KSTP Phase-I, around 254 kilometer roads were upgraded with the assistance of funding from the World Bank. Thereafter, the World Bank agreed to fund KSTP for taking up Phase-II roads with a project cost of INR 1356 Crores and it became necessary to update the detailed Project Report that was prepared in the year 2002. For the purposes of this update, a consultant was sought as per the procurement procedures of the World Bank. The plaintiff was selected for these purposes and an agreement was entered into on 23.01.2012 between the plaintiff and KSTP (Agreement). The scope of work of the plaintiff was accordingly set to be very narrow and limited 5 Com.O.S.No.1389/2023 and restricted only to updating previously existing engineering designs and reports. The intention of both parties was that the overall key professional input for the assignment would be completed in approximately 18 months from the date of the Agreement.
It is further pleaded that, on 25.01.2016, KSTP issued a show cause notice to the plaintiff as to why legal steps ought not to be taken against the plaintiff for allegedly having failed to perform its duties under the Agreement. Thereafter, on 15.03.2016, KSTP informed the plaintiff that it would initiate arbitration proceedings against the plaintiff. On 31.03.2017, KSTP filed a petition seeking appointment of an arbitrator U/Sec.11 of the A&C Act, 1996. By order of the Hon'ble High Court of Kerala, Justice (Retd.) N. R. Balakrishnan, Former Judge of the High Court of Kerala, was appointed as the Sole Arbitrator on 17.01.2018.
It is further pleaded that, KSTP filed its statement of claim and sought an amount of INR 255,62,14,155 with interest of 18% p.a. from 25.01.2016 till the date of realization and a future interest of 12%. The plaintiff filed its statement of defence and counter claim of INR 44,47,546 with an interest of 24% p.a. After hearing both parties, the Sole Arbitrator passed an award on 20.02.2020 directing the plaintiff to pay a sum of INR 19,87,39,926 to KSTP and directed KSTP to pay a sum of INR 18,49,800 to KSTP. Accordingly, the plaintiff was liable to pay INR 6 Com.O.S.No.1389/2023 19,68,89,126 with interest thereon of 9% p.a. from 31.03.2017 till realization and a further amount of Rs.18,34,378 as costs to KSTP (Award). Even the plaintiff has regularly updated the defendant of the arbitration proceedings, including at the time of issuance of award. During this time, the defendant has never contested or denied the applicability of the insurance policy to the Project or the claim that culminated into the Award.
It is further pleaded that, in terms of the 2012 and subsequent policies, the Project was covered as having arisen within the period of insurance. This is reinforce by the fact that the defendant by its letter dated 09.03.2016 to the plaintiff certified that the Project was covered under the policy. Accordingly, the insurance policy was renewed from time to time on this understanding, and assurance and representation by the defendant. On that basis, it was understood and agreed by both parties that the Project would be covered under the Insurance policies including any claim that may arise under the project i.e. the Award.
It is further pleaded that, in compliance with the Insurance Policies, the plaintiff as soon as reasonably practicable, issued a written notice to the defendant on 24.11.2016 informing the defendant about, KSTP's show cause notice and initiation of arbitration letters, copy of the contract and additional works letters entered into between KSTP and the plaintiff and notice dated 24.11.2016 directing KSTP to directly raise the claim with 7 Com.O.S.No.1389/2023 the defendant. Thereafter, the plaintiff repeatedly followed up with the defendant seeking instructions on how to proceed in relation to the claim made by KSTP by way of emails dated 07.12.2016, 08.12.2016 and 14.12.2016. In response thereto, the defendant issued a letter on 16.02.2017 stating that, the insurance claim file was closed as no claim was preferred. On 30.06.2017, the plaintiff issued an email to the defendant enclosing an application U/Sec.11 of the Arbitration and Conciliation Act filed by KSTP before the Hon'ble High Court of Kerala while seeking instructions on the way forward. This application was resent on 13.07.2017 by way of a follow up email while reiterating the request for instructions. Subsequently, on 26.07.2018 the plaintiff issued an email to the defendant stating that the Hon'ble High Court of Kerala had appointed the sole arbitrator and that the arbitration proceedings had commenced. The plaintiff provided an update on the hearings that had taken place and also sought instructions from the defendant on the way forward. The plaintiff had consistently sought for instructions on availing the benefit of the policy taken with the defendant only to be met by silence and non cooperation.
It is further pleaded that, on 18.09.2018 the plaintiff issued an email to the defendant attaching the draft of the statement of defence that the plaintiff proposed to file in the arbitration proceedings. Under the agreement that was entered into between the plaintiff and KSTP, the plaintiff was responsible for obtaining insurance coverage, which the plaintiff had duly done 8 Com.O.S.No.1389/2023 from the defendant. As an insurance police had been obtained, the liability that arose from the agreement was covered and to be borne by the defendant. Through this email, the plaintiff also shared the application that was filed to implead the defendant as a respondent in the arbitration proceedings. On 03.10.2018, the application to implead the defendant was rejected by the sole arbitrator. This decision of the sole arbitrator was also communicated to the defendant by email dated 12.10.2018. Thereafter, on 27.02.2019 the plaintiff issued yet another email to the defendant on the status of the proceedings. The plaintiff through this email also shared certain documents in relation to the arbitration proceedings and informed the defendant that the award in the arbitration was expected by October 2019. Once the award was passed by the Sole Arbitrator, the plaintiff would have the option of accepting the award and passing on the claim to the defendant, or alternatively challenging the same based on any inputs that may be issued by the defendant.
It is further pleaded that, on 20.02.2020 the award was passed. The plaintiff on 05.03.2020 issued a letter intimating the defendant of the award, and requesting that the claim under the insurance policy be taken up on to priority. Thereafter, a representative of the plaintiff met with the office of the defendant and sought for instructions to avail the benefit of the claim. The defendant never contested or denied coverage of the policy on the plaintiff's claim or its liability to pay the Award. Accordingly and pursuant to the meeting with officers of the defendant, the 9 Com.O.S.No.1389/2023 plaintiff resent the arbitral award and agreements with KSTP by way of emails dated 10.03.2020. The plaintiff in one of the emails dated 10.03.2020 also requested for confirmation of the claim to be made in writing, and for the claim to be taken on top priority. The defendant has neither denied not disputed the plaintiff's email by providing any response. On 12.06.2020 the plaintiff issued a notice to the defendant to take immediate steps to indemnify the plaintiff. Thereafter, between 17.06.2020 to 22.06.2020 the plaintiff resent several documents including but not limited to KSTP's application seeking appointment of arbitrator, the plaintiff's statement of defence in the arbitration proceedings, KSTP's applications and pleadings in the arbitration proceedings, plaintiff's application seeking to implead the defendant in the arbitration. The defendant responded to the plaintiff on 07.07.2020 informing that all the documents pertaining to the claim had been forwarded to its regional office and was being assessed. The plaintiff in further exercise of its diligence, followed up by way of email dated 22.07.2020.
It is further pleaded that, by way of email dated 04.08.2020, the defendant requested an update from the plaintiff on the decision of the Arbitrator on the plaintiff's application seeking to implead NIC as a party. The defendant also posed a query regarding the legal recourse taken by the plaintiff till date against the arbitration award. The defendant was already duly informed every development in the present matter, including the decision of the learned Arbitrator regrading the application 10 Com.O.S.No.1389/2023 seeking to implead NIC by way of email dated 12.10.2018. In this regard, the plaintiff even had another meeting with the office of the defendant on 06.08.2020 to discuss the status of the claim and to provide any documents that might have been required by the defendant. By way of an email dated 07.08.2020, the defendant has acknowledged the meeting held on 06.08.2020 and informed that the plaintiff's claim is under active consideration at the Head office, and that soon an update on the same will be issued. Additionally, the defendant by way of email dated 07.08.2020 also posted some queries and sought some details regarding the arbitration proceedings, to which the plaintiff categorically responded and provided all requested documents by way of email dated 12.08.2020.
It is further pleaded that, the defendant repeatedly asked the plaintiff for documents that had already been made available to the defendant, and at every instance the plaintiff complied and reissued the documents. Another such instance was the requisition made by the defendant to the plaintiff on 27.08.2020 for the pleadings in the arbitration proceedings and any related correspondence. In response, the plaintiff resent the requested documents by way of email dated 29.08.2020 and 31.08.2020. Thereafter on 01.09.2020 the defendant again sought the plaintiff's signed statement of defence and other documents related to the arbitration proceedings which were duly resent by the plaintiff on the same day. When things stood thus, the plaintiff received an email from the defendant dated 08.09.2020 11 Com.O.S.No.1389/2023 stating for the first time that the claim may be barred by limitation, that claim was still being considered and reviewed and seeking certain documents relating to the claim. Despite having shared these documents previously, during the course of the arbitration, in response, the plaintiff issued an email on 11.09.2020 and as good measure and goods practice, shared all documents sought for by the defendant. After continued communication between the parties, the plaintiff was shocked and dismayed to, thereafter, received a notice dated 16.10.2020 from the defendant rejecting the claim of the plaintiff on untenable, false and baseless grounds (Claim Rejection Notice). The said notice categorically denied the plaintiff's claim while stating that the claim was 'barred as per the laws of limitation', that the claim allegedly fell within certain exclusion under the insurance policy and that the plaintiff failed to comply with certain conditions of the contract. On 18.01.2021 the plaintiff received a demand letter dated 18.12.2020 issued by KSTP calling upon the plaintiff to comply with the terms of the Insurance Policies.
It is further pleaded that, in response to the Claim Rejection Notice, the plaintiff issued a detailed letter/response to the defendant on 28.01.2021 controverting to the several baseless grounds raised by the defendant for the first time in its claim rejection notice. By way of response, the plaintiff explained the validity of its claim in detail while pointing out several factual inaccuracies baseless assumptions, and prejudicial interpretations 12 Com.O.S.No.1389/2023 in the claim rejection notice. The plaintiff also brought the demand letter dated 18.12.2020 issued by the KSTP to the defendant's notice. The plaintiff once again called upon the defendant to comply with the terms of the Insurance Policies. However, the illegalities of the defendant continued unabated, which was evidenced in its reply to the response to the claim rejection notice vide letter dated 23.01.2021 received by the plaintiff on 01.03.2021. The defendant in its letter dated 23.01.2021 claims that, a letter dated 21.01.2021 was issued by the plaintiff. However, no such letter was issued by the plaintiff to the defendant. The defendant, for the first time, on 16.10.2020 communicated its untenable stance to the plaintiff, and repudiated the claim made. As evidenced by the series of communications, the defendant was not only kept promptly informed of the arbitration proceedings and the legal steps taken, but, was requested on several occasions to provide inputs/instructions on the steps to be taken during the arbitration proceedings. The defendant had accepted and communicated with the plaintiff without demur regarding the claim. The plaintiff was in constant contact with the office of the defendant to ensure that every development was within the defendant's knowledge. It has never been the contention of the defendant that the project would not be included in the Insurance Policies. In fact, the defendant has issued the letter dated 08.03.2016 specially stating that the project is covered under the policies.
13 Com.O.S.No.1389/2023It is further pleaded that, KSTP's claim arose on 25.01.2016 when KSTP raised disputes with the plaintiff. As required under Clause 10.1 of the Insurance Policies, the plaintiff informed the defendant of the same as soon as reasonably practicable. There is no question of there being no claim at the time when the show cause notice dated 25.01.2016 was issued. Purely because the amount could not be determined at the time when the arbitration was initiated does not imply that a claim could not be made. It is a settled position of law that an indemnity policy can be acted upon on the happening of an insured event, even if the loss/amount payable cannot be determined or be able to determined. The defendant was aware that a claim was made by KSTP in 2016 and was thereafter kept informed of the arbitral proceedings. However, the loss occurred and could be quantified only when the Award was passed, i.e. on 20.02.2020. The plaintiff's duty to inform the defendant of the claim dated 25.01.2016 as per the Insurance Policies is distinct from the loss/quantifiability of such claim which was on 20.02.2020.
It is further pleaded that, the plaintiff has taken painstaking efforts to keep the defendant informed and involved in the arbitration proceedings. From the issuance of the arbitration notice, to appointment of the arbitrator, filing of the statement of defence and impleading application, orders passed on the applications, evidence, arguments, the passing of the Award and demand notices issued by KSTP to the plaintiff, the plaintiff has kept the defendant in the know of the claim and on several 14 Com.O.S.No.1389/2023 occasions has sought instructions and guidance from the defendant. This was to no avail, as the defendant either remained incommunicado or unhelpful. The defendant has failed to communicate its demur, disagreement or rejection of the claim/involvement in the arbitration proceedings. The plaintiff was, therefore, constrained to proceed with the arbitration proceedings with no input, instructions or guidance from the defendant. The defendant having slept on its rights, having failed to communicate with the plaintiff is now attempting to saddle the plaintiff with a liability from which it was insured, in order to escape its duty and liability under the Insurance Policies.
It is further pleaded that, the defendant's act of repudiating and rejecting the plaintiff's claim is wholly illegal and unsustainable in law and fact. The failure of the defendant to act on its right to participate in the arbitration proceedings, the liability arising from which would be payable by the defendant, or to deny any liability when it ought to have done so, cannot be evaded by imposing such a liability on the plaintiff. The defendant raised no objections to the plaintiff's statement of objections or impleading application, nor raised any objections during discussions/meetings with the plaintiff. It is apparent that the defendant's claim Rejection Notice is an afterthought, and is contrary to documents, contemporaneous correspondence and understanding between the parties. The defendant is, therefore, liable to pay a sum of INR 19,68,89,126 along with interest at the rate of 9% p.a. from 31.03.2017 till the date of realization 15 Com.O.S.No.1389/2023 and a sum of INR 18,34,378. The defendant, is therefore, liable to pay a sum of INR 32,67,82,349 as on date. Hence, the plaintiff is constrained to file this suit.
3. After service of summons, the defendant has put its appearance through its counsel and filed written statement. The defendant has denied most of the plaint averments. It is further stated that the suit is not maintainable and liable to be dismissed in limine. The present dispute alleged between the parties does not constitute a "commercial dispute" as defined under the Commercial Courts Act.
It is further stated that, the present suit is barred by law of limitation and deserves to be dismissed at the threshold. In terms of Article 44 of Schedule-I of the Limitation Act, the limitation period in respect of instance claims is three years from
(i) the date of occurrence causing the loss, or (ii) where the claim on the policy is denied, either partly or wholly, from the date of such denial. In the present case, the first occurrence causing the purported loss arose on 25.01.2016, when the plaintiff purportedly received the first complaint from KSTP. Therefore, the limitation period for the plaintiff to enforce any legal remedy expired as on 24.01.2019. Without prejudice to the above, additionally on 16.02.2017 the defendant addressed a letter to the plaintiff wherein the defendant informed the plaintiff that the claim file has been closed as "no claim", as no one from the office of the KSTP had made a claim within the stipulated policy period.
16 Com.O.S.No.1389/2023That being the first occasion of a denial as per (ii) above, the Three year period of limitation expired latest on 16.02.2020. Therefore, without prejudice to the policy terms and conditions as detailed below, the claim made and notified by the plaintiff under the policy, as well as the present suit are both barred by limitation.
It is further stated that, the plaintiff originally obtained a professional indemnity insurance policy from the defendant on 10.03.2012 valid upoto 09.03.2013 for a sum insured of Rs.20.00 Crores, subject to the various terms and conditions contained in the policy. The said policy came to be extended from 10.03.2013 to 09.03.2021 and expired on the same day. By way of subsequent events, the defendant learnt from the plaintiff that, sometime in 2012 that, by way of a Consultancy Service Agreement dated 23.01.2012. The plaintiff has inter alia agreed to update detailed engineering designs and financing option study relating to upgradation of 367 Km of State road for Kerala State Transport Project (KSTP). On or about 25.01.2016, disputes arose between the plaintiff and KSTP in respect of the discrepancies identified in the bid documents, scope of work and drawings prepared by the plaintiff. The approximate aggregate variations in costs calculated by the plaintiff was INR 119.5 Crores. Additionally, as per a show cause notice dated 25.01.2016, KSTP alleged that, (1) the plaintiff failed to perform the service as per the standard of professional and ethical competence and integrity and (ii) that the plaintiff also failed to 17 Com.O.S.No.1389/2023 adhere to the obligation and duties as per the Agreement. Accordingly, KSTP invoked arbitration to resolve the disputes.
It is further stated that, by a letter dated 24.11.2016 addressed by the Plaintiff to KSTP, the plaintiff contended that all services had been carried out with the highest standards of professional and ethical competence and integrity. Further the plaintiff contended that it had taken professional indemnity insurance, and called upon KSTP to prefer its claim, if any, against the policy coverage (sic) and requested KSTP to make a claim with the insurer of the plaintiff without resorting to any arbitration proceedings. On the same date, the plaintiff also addressed a letter to the defendant, informing and intimating the defendant, for the first time, regarding the allegations and claims made by KSTP. The plaintiff also informed the defendant that the plaintiff has intimated KSTP regarding the professional indemnity insurance coverage availed by the plaintiff and that the plaintiff has asked KSTP prefer their claim on the policy. Along with such letter communication, the plaintiff claimed to have enclosed various letters exchanged between the plaintiff and KSTP and a copy of the Agreement and requested the defendant to take the matter up through the defendant's legal cell. Since no communication was issued and no claim was made thereafter by KSTP on the policy and to the defendant, by a letter dated 16.02.2017, the defendant informed the plaintiff that, since no claim has been made by KSTP within the stipulated time frame, the claim file has been closed as 'No Claim'.
18 Com.O.S.No.1389/2023It is further stated that, thereafter, as the defendant has learnt from the records produced in these proceedings, that Justice NK Balakrishnan, Former Judge, High Court of Kerala, was appointed was the sole arbitrator by the Hon'ble High Court of Kerala vide an order dated 17.01.2018, to adjudicate the disputes between the KSTP and the plaintiff. It would appear that KSTP filed its statement of claim in the arbitration alleging, inter alia, (i) variation in quantities of design and design data in all projects during actual implementation; (ii) preparing incorrect terms of reference without considering facts and realities and not foreseeing its implications; (iii) insufficient and incorrect data supplied to topographical survey by the appropriate agency; (iv) insufficient study period allotted due to pressure from the Government. In response to the statement of claim, the plaintiff filed its statement of defence along with documents, and also preferred a counter-claim against KSTP. The plaintiff states in the plaint that, pursuant to a detailed trial, an arbitral award dated 20.02.2020 came to be passed by the Arbitrator ("Award"), inter alia, directing the Plaintiff herein to pay to KSTP a sum of Rs.19,68,89,126/- with interest thereon at 9% per annum from 31.03.2017 till the date of complete payment. Towards arriving at such calculation, it appears that the Arbitrator has adjusted the counter-claim made by the plaintiff herein. By way of the award, the plaintiff herein was also directed to pay KSTP costs amounting to Rs. 18,34,378/-.
19 Com.O.S.No.1389/2023It is further stated that, the plaintiff had purportedly, as claimed by the plaintiff, made an application to implead the Defendant herein as a party to the arbitral proceedings, which purportedly came to be rejected by the tribunal. The plaintiff has neither taken any steps to challenge such order nor has the plaintiff sought to set aside the award passed by the tribunal on this ground. Immediately upon passing the award, the plaintiff herein having suffered the award, without taking any steps to challenge the award or even consider such challenge, addressed a letter to the defendant on 05.03.2020 intimating the defendant about the passing of the award and calling upon the defendant "to attend to this claim on top priority and confirm us in writing your immediate actions in settling the award to our client." (sic). Till date, the plaintiff has taken no steps to challenge the award on any of the legally available grounds.
It is further stated that, another letter dated 12.06.2020 in terms of which the plaintiff informed the defendant that plaintiff claimed that as on 09.06.2020, the aggregate amount to be paid by the plaintiff to KSTP as per the Award was Rs.25,52,79,906/-, including the costs and the interest payable till that date. In terms of such letter, the plaintiff called upon the defendant to "tend to the Arbitration Award on top priority and indemnify the Company for the Arbitration Award, when payable." (sic). The Plaintiff further called upon the defendant to inform them within 7 days of receipt of the letter on how the defendant "would like to effect payment of the amount payable under the Arbitration 20 Com.O.S.No.1389/2023 Award.". The letter further called upon the Plaintiff to "indicate your readiness and willingness for payment of the Arbitration Award once valid demand is made by KSTP for payment of the Arbitration Award."
It is further stated that, in response to the above communication, the representatives of the plaintiff and the defendant met on 06.08.2020, pursuant to which certain specific questions and information were sought by the defendant from the plaintiff on separate occasions across August and September 2020. Thereafter, upon examining the limited documents submitted by the plaintiff, the defendant, vide its email dated 08.09.2020, conveyed its prima facie view that the claim appears to be barred by limitation. Notwithstanding the same, with a view to enabling the defendant to determine and assess the merits in detail, the defendant again sought various information from the Plaintiff. The plaintiff in turn provided a portion of the information in a random manner, as per its convenience, and claimed to have purportedly provided all other information on earlier instances, and also claimed that some other information was not available with them on account of remote working conditions due to Covid-19.
It is further stated that, finally, on the basis of the documents shared by the plaintiff, the defendant proceeded to assess the claim and finally concluded, vide its claim rejection letter dated 20.10.2020, that the claim is barred as per the laws 21 Com.O.S.No.1389/2023 of limitation, and strictly without prejudice to the said bar, the claim is also not covered under the policy. The original of the said claim rejection letter has been sent to the plaintiff by the defendant, and an office copy was retained by the defendant. It was specifically contended in the said rejection letter, insofar as limitation, that, in terms of Article 44 of Schedule-I of the Limitation Act, 1963, the limitation period in respect of insurance claims is three years from (i) the date of the occurrence causing the loss, or (ii) where the claim on the policy is denied, either partly or wholly, from the date of such denial. In the present case, the first occurrence causing the purported loss arose on 25.01.2016, when the plaintiff purportedly received the first complaint (the show cause notice) from KSTP. Therefore, the limitation period for the Plaintiff to enforce any legal remedy expired as on 24.01.2019. Without prejudice to the above, additionally, on 16.02.2017, the defendant addressed a letter to the plaintiff wherein the defendant informed the plaintiff that the claim file has been closed as "no claim", as no one from the office of the KSTP had made a claim within the stipulated policy period. That being the first occasion of a denial as per (ii) above, the 3 year period of limitation expired latest on 16.02.2020. Therefore, without prejudice to the policy terms and conditions as detailed below, the claim made and notified by the plaintiff under the policy, as well as the present suit, are both barred by limitation.
It is further stated that, Exclusion (n) - Any loss or damage and injury which has its origin in the neglect, error or ommission 22 Com.O.S.No.1389/2023 were to the retroactive dates mentioned in the schedule. The policy is a claims made policy and only responds to claims made within the policy period. The policy was taken for the period starting 10.03.2016 to 19.03.2017 with a retroactive date being 08.03.2016. The first instance of the claim made against the plaintiff under the policy was through a letter dated 25.01.2016 addressed by KSTP, wherein they have raised complaints regarding the change in original scope of work from overlay to upgradation along with error in bid documents and drawings causing huge costs. Exclusion (o) - Non complaince with technical standards commonly observed in professional practice, laid down by law or regulated by official bodies - the issue raised by KSTP vide the show cause notice dated 25.01.2016 and the subsequent notices are in the nature of breach of commonly observed standards as stipulated in the Code of Ethics published by the Engineering Council of India under Article 2. The Arbitrator has observed that, the plaintiff has not conducted the site inspection and investigation where ever necessary also failed to submit a correct DPR after proper review. The plaintiff also failed to inform KSTP of the presence of huge quantities of hard rock for excavation in the Ponjunnam - Thodupuzha reach where huge variation in quantity was observed and the Arbitrator has pointed out that, there could be no such huge variation had the respondent done by the cost on it properly and correctly.
It is further stated that, the Arbitrator has awarded 8% over the head charges on account of variation in quantity in respect of 23 Com.O.S.No.1389/2023 Six packages which comes to Rs.13,12,20,447/- along with the amount payable to the Civil Contractor at Rs.6,75,18,179/-. The award against the plaintiff is clearly for variation in quantities and revised BOQ rates.
It is further stated that, the Exclusion (r) - arising from exceeding higher estimated from not adhering to deadlines in completing the construction of project or part thereof and from defective accounts or control of accounts - as per the pleadings in the arbitral proceedings and as per the award passed, it is evident and undisputed that, there was a total delay of 425 days for which extensions were sought by the plaintiff to complete the project on multiple occasions and the extension of time alone amounted to 327% of the original time of completion. The Exclusion (s) - Inadequate quantities / qualities or arranging or handling supply of material - the award records that, huge variations in the quantities and design data were found during the actual implementation, eventually causing significant financial process to KSTP. The variation in the packages, multiple extensions sought by the plaintiff to rectify the defect evidence that, the plaintiff has not handle the quantities and materials efficiently, and as required under the terms of reference of the Agreement with KSTP. Exclusion (p) Ownership and loss due to delay - delay in completion of project and submission of DPR was attributed to both the plaintiff and KSTP and losses due to delay is an exclusion under the policy. The award amount included the amount payable to the Civil contractor at Rs.6,75,18,179/-.
24 Com.O.S.No.1389/2023It is further stated and pointed out towards the Clause No.10.1 and 10.2 of the Policy. While the claim was notified by the plaintiff within the policy period, the act leading to the claim arose prior to the policy period and retroactive date. The claim is therefore, not covered. Also pointed out towards the Clause No.2 of the policy.
It is further stated that, the defendant rejected the claim on the ground that, the claim is barred by limitation, bar under the law of limitation, the plaintiff's claim is not covered under the policy. The plaintiff, instead of immediately responding to the same, addressed another communication to the defendant on 18.12.2020, calling upon the defendant to make payment of the award amount to the KSTP urgently and without fail. It is pertinent to state that, the plaintiff has till date not taken any steps to challenge or seek setting aside of the award, the said award has attained finality.
After amendment, at para No.48, it is further pleaded that, in terms of Clause No.10.12 of the policy, if the defendant insurance company disclaims liability to the insured for any claim under the policy and such claim is not made the subject matter of the suit in a court of law within 12 calendar months from the date of the disclaimer, then the claim shall, for all purposes be deemed to have been abandoned and shall not thereafter be recoverable under the policy. Even assuming for the purposes of arguments without admitting the validity and coverage of the 25 Com.O.S.No.1389/2023 claim of the plaintiff under the policy, the plaintiff has not filed the suit on hand, within the time stipulated under the policy and has resultantly abandoned the claim as per the terms of the policy and the claim is not recoverable under the policy. Hence, prays for dismissal of the suit.
4. The plaintiff has also filed rejoinder denying most of the defence raised by the defendant in its written statement. Hence, prays for decree the suit.
5. Based on the above, this court has framed the following:
ISSUES
1. Whether the plaintiff proves that the defendant is liable to indemnify under the relevant Professional Indemnity Policies taken, for the claim raised by KSTP under Arbitral Award dated 20.02.2020?
2. Whether the defendant proves the existence and veracity of letter issued to the plaintiff dated 20.10.2020?
3. Whether the defendant proves that the plaintiff has failed to fulfill the obligations under the Professional Indemnity Policies?
4. Whether the defendant further proves that the claim made by the plaintiff is not covered under the policy?
5. Whether the suit is barred by law of limitation?26 Com.O.S.No.1389/2023
6. Whether the plaintiff is entitled for the reliefs sought?
7. What order or decree?
ADDITIONAL ISSUE Whether the claim made by the plaintiff is barred under Clause 10.12 of the Policy?
6. To prove the case, the plaintiff's Director is examined as PW1 and got marked some documents at Ex.P1 to P47. The authorized representative of the defendant is examined as DW1 and produced the documents at Ex.D1 and D2.
7. The learned counsel for the parties have submitted their written arguments.
8. My findings on the above issues are:
Issue No.1: In the affirmative Issue No.2: In the negative Issue No.3: In the negative Issue No.4: In the negative Issue No.5: In the negative Issue No.6: Partly in the affirmative Additional Issue: In the negative Issue No.7: As per the final order for the following 27 Com.O.S.No.1389/2023 REASONS
9. Issue Nos.1 to 4: The burden of proving Issue No.1 lies on the plaintiff company. The burden of proving the Issue Nos.2 to 4 lies on the defendant. To avoid the repetition of facts and evidence, i have taken up these issues for a common discussion. The plaintiff's Director has filed his affidavit and he is examined as PW1. He has narrated the contents of the plaint in his affidavit and also further affidavit. He has produced some documents at Ex.P1 to P47 i.e. Insurance policies, letters, Show Cause Notice, emails, certified copy of Board Resolution, Insurance Regulatory and Development Authority Regulations, 2002, Repudiation letters, power of attorney, Certificate of Incorporation, Name change certificate, Notices, Award passed by the Sole Arbitrator, Demand letter, Non starter report etc.
10. In the cross examination of PW1, it is forthcoming that, the Ex.P13 is executed by the Director of the plaintiff company. The Ex.P46 also executed by the Director of the plaintiff company. He has admitted that, there is an Agreement between the plaintiff company and Kerala State Transport Project (KSTP), but, it is not produced. The plaintiff has not issued any reply to Ex.P16 i.e. notice dated 25.01.2016. The plaintiff also not issued any reply to Ex.P17 i.e. communication dated 15.03.2016. He has admitted that, the first communication by KSTP made an allegation against the plaintiff company as per 28 Com.O.S.No.1389/2023 Ex.P16. The plaintiff had received notice regarding arbitration from KSTP.
11. In his further cross examination, it is forthcoming that, before entering into the Agreement with KSTP, the plaintiff had not informed the same to the defendant. The plaintiff company had not given any information regarding the terms and conditions of the Agreement and liability and obligation till 2016. It is also admitted by PW1 during his cross examination. The claim means damages sought by the KSTP, it includes delay, additional cost involved. The Ex.P28 is an award passed by the Arbitrator. The claim was made by KSTP against the plaintiff company. The plaintiff company made claim against the defendant on 24.11.2016, when the plaintiff company sent an intimation letter to the Insurance Company with respect to the claim made by the KSTP. The Ex.P20 is only an intimation and not the claim. The plaintiff company has not admitted any liability for any claim made by KSTP.
12. It is further forthcoming that, the plaintiff company did not challenged the Ex.P10. The plaintiff has not challenged the order passed in arbitration proceedings in respect of impleading the defendant. There are no documents in writing apart from the statement. The plaintiff company intimated the defendant the intention of client KSTP during November 2016 as per Ex.P19. There was another claim intimation with the amount claimed by the client in the month of February 2020 as per Ex.P11. The 29 Com.O.S.No.1389/2023 plaintiff company did not take any approval from the defendant before accepting the award. He has admitted that, as per Clause No.10.2 of Ex.P5, before making any admission, the plaintiff has to take the written consent from the defendant. There is no clause in Ex.P5 requesting the defendant company to support the plaintiff, it is claim against third party. There is no clause in Ex.P5 that requires the defendant to take over the plaintiff's defence in any claim against the plaintiff. The plaintiff was actively functioning since October 2020 till date. There were email communications between the parties. The Ex.P1 and P9 are the claims made policy and they respond only to claims during the policy period, any claims prior to the policy period are not covered. He has denied the other suggestions.
13. The authorized representative of the defendant is examined as DW1 and produced documents at Ex.D1 and D2 i.e. copy of the Repudiation letter dated 20.10.2020 and Authorization letter dated 19.09.2024.
14. In the cross examination, it is forthcoming that, she has identified the officials signature on Ex.D1. It was forwarded to the plaintiff. She has admitted that, the policies mentioned in her affidavit at para No.9 are continued since 10.03.2012 to 09.03.2021 without any break. The Ex.P5 is the policy, but, she does not know who has signed this document. In the year 2020 arbitration award has been passed and same was informed by the plaintiff company. She has not produced any copy of the 30 Com.O.S.No.1389/2023 letter dated 05.03.2020 regarding intimation of passing the arbitral award. She has identified the Ex.P20, P39 and P35 as well as Ex.P25, P26 and P27, but, she does not know these are replied or not.
15. It is further forthcoming that, the Ex.P19 is the letter to KSTP, Ex.P20 is the second letter to KSTP on the same day. The defendant has replied the Ex.P20. It is in Ex.P10. She has not seen the Consultancy Agreement dated 23.01.2012 as mentioned in her affidavit. She has not seen the Supplementary Agreement also dated 30.05.2012. She is not sure that, as per the award there is a finding regarding extension of term of the Agreement by 425 days. The total claim made by the KSTP before the Arbitrator is Rs.255,62,14,155/-. The award passed by the Arbitrator is for Rs.19,68,89,126/-. She has also admitted that, the defendant did not participate in the arbitration proceedings and also admitted that, there is no mention in Ex.P1 to P9 that, the plaintiff company is liable to satisfy the award first before the defendant makes payments. The DW1 has also admitted that, in Ex.D1 the defendant company has not claimed that the claim made by the plaintiff falls within Exclusion (p) of the Insurance Policy. She has denied the other suggestions.
16. The learned counsel for the plaintiff has submitted his written arguments / Synopsis basing on the plaint averments, evidence of PW1, DW1 and the documents referred above. The admitted facts are, the plaintiff provides Engineering Consultancy Services and obtained a professional identity insurance policy 31 Com.O.S.No.1389/2023 from the defendant effective from 10.03.2012 and the policy was renewed without interruption till 09.03.2021. The plaintiff entered into a contract with KSTP for updating detailed engineering designs and financing options for upgrading 367 Kms of roads within the State. Despite the policy being inforce since 2012, the policy - Ex.P3 having a retro active date of 10.03.2009, while renewing the policy in March 2016, the defendant unilaterally changed the retro active date to 08.03.2016 without prior intimation to the plaintiff company and its consent, without following regulations 3 and 4 of the Insurance Regulatory and Development Authority (Protection of Policyholders interest) Regulations, 2002. The insurance policy was renewed, the defendant issued a certificate on 09.03.2016 to confirm that the KSTP project was covered by the policy as per Ex.P18. The policy and the certificate were executed by the same person. He has also drawn my attention towards the evidence of DW1 and also the documents produced on behalf of the plaintiff company.
17. It is further stated that, the plaintiff kept the defendant informed regarding the initiation of arbitration proceedings, the filing of Sec.11 petition for appointment of an Arbitrator, later, in the meantime, the policy was continued to be renewed without interruption by the defendant. The plaintiff was not provided any no claims bonus from 2017 onwards. An award was passed on 20.02.2020 as per Ex.P28, awarding KSTP a sum of Rs.19,68,89,126/- and award was immediately shared with the 32 Com.O.S.No.1389/2023 defendant on 05.03.2020 itself. The award reveals that, the claims of KSTP were for breach of contractual obligation. Since the claims were contested by the plaintiff, most claims by KSTP were rejected and the Arbitrator passed the award. The Arbitrator found that the KSTP had not proved any damages due to delay.
18. It is further stated that, on 07.07.2020, the defendant informed the plaintiff that, the claim documents had been sent to the Regional Office as per Ex.P32. Also informed the plaintiff that, its claim under consideration on 07.08.2020 as per Ex.P35 and then by way of a letter dated 16.10.2020 rejected the claim for the first time as per Ex.P41. The defendant claims that, the rejection was issued on 20.10.2020 as per Ex.D1, but, also inexplicably claims that, the letter dated 20.10.2020 was issued to the plaintiff Four days before it was written on 16.10.2020.
19. Since the defendant has denied the claim on the ground of limitation. The plaintiff company has filed this suit against the defendant to honour the Insurance Policy issued by it and indemnifies the plaintiff company for the damages as a result of the award. The plaintiff has sought a direction to the defendant to pay a sum of Rs.32,67,82,349/- in terms of the Insurance Policies and cost of the litigation.
20. He has pointed out towards the defence raised by the defendant, to avoid liability, various penalty untenable defences have been adopted by the defendant saying that, the dispute is not commercial one, pointed out towards the provisions of 33 Com.O.S.No.1389/2023 Sec.2(c)(xx) of the Commercial Courts Act. Also taken defence that, the suit of the plaintiff company is barred by limitation, the defendant had issued a letter dated 16.02.2017 closing the claim file as no claims and this was the denial of the plaintiffs' claim from when the limitation should be calculated.
21. The defendant has stated that, the claims in question pertain to the period before retro active date and hence, barred the exclusion in Clause 9(n). The defendant claims that, the delay in intimation of the show cause notice issued by KSTP bars a claim as per Clause No.10.1. The defendant also contended that, the claim is excluded vide Clause No.9(o), (r), (s) and (p) of the policy terms. The defendant has sought to take shelter claiming non compliance with Clause No.10.2.
22. It is further stated that, the defendant has failed to produce the cogent evidence available with it. While the persons involved with the claims process continued to be employed it, it choose to depose a complete stranger to the facts, who has repeatedly admitted that, she has no knowledge of the records available with the defendant and not reviewed the complete documents / records. The defendant is attempting to use the DW1's ignorance as its defence. Hence, adverse inference must be drawn against the defendant. The dispute between the parties is a commercial in nature. This court has a jurisdiction to entertain the matter. The plaintiff company has proved that, its claims are the subject matter of the insurance policies obtained 34 Com.O.S.No.1389/2023 by it from the defendant and the plaintiff company is entitled to indemnification. The plaintiff company prior to the institution of the suit, filed PIM application on 03.10.2023 and later, the present suit has been instituted on 04.12.2023. The suit of the plaintiff company is well within time. He has pointed out toward the Ex.P1 to P34 and other documents.
23. During his arguments, he has relied upon a decision reported in Tesco Marketing Pvt. Ltd. Vs Tata AIG General Insurance company Ltd. & Ors reported in (2023) 1 SCC 428, Jacob Punnen & Anr. Vs United India Insurance company Ltd. (2022) 3 SCC 655, M/s Union India Insurance Company Ltd. Vs Jai Prakash Tayal reported in 2018 SCC Online Del 7415, Union of India & Ors. Vs N. Murugesan & Ors. reported in (2022) 2 SCC 25, V.B. Nagaraju Vs Oriental Insurance Company Ltd. reported in (1996) 4 SCC 647 and Oriental Insurance Vs Sanjesh & Anr. reported in 2022 SCC Online SC 806.
24. Per contra, the learned counsel for the defendant has submitted his written arguments / Synopsis and he has pointed out towards the defense made by the defendant. He has also drawn my attention towards the evidence of PW1 and documents as well as the evidence of DW1. He has also pointed out towards the admitted facts by mentioning that, the plaintiff company obtained a professional Indemnity Errors and Omissions Policy from the defendant as per Ex.P1 on 10.03.2012, and subsequently, it was renewed on multiple successive policies till 35 Com.O.S.No.1389/2023 09.03.2021, with a total sum insured original of Rs.20.00 Crores, enhanced finally upto Rs.65.00 Crores as per Ex.P2 to P9. The plaintiff company entered into a Consultancy Service Agreement dated 23.01.2012 to provide Engineering designs for the KSTP.
25. He has also pointed out that, the dispute arose concerning the discrepancies in the project documentation, leading KSTP to initiate arbitration due to alleged professional inadequacies by the plaintiff. The KSTP addressed its first communication / show cause notice regarding discrepancies on 25.01.2016 and making a claim of Rs.119.5 Crores as per Ex.P16 followed up by another communication as per Ex.P17 dated 15.03.2016 invoking arbitration. The Ex.P20 is a letter, the plaintiff company notified the defendant of the claim made by KSTP and called upon to take up the matter through your legal cell with KSTP. The KSTP did not make a formal claim within the stipulated time frame, leading the defendant to close the claim file as no claim in the month of February 2017 as per Ex.P10. It is also an admitted fact that the arbitration proceedings were held between the plaintiff company and the KSTP, award has been passed by the learned Arbitrator as per Ex.P28 on 20.02.2020, requiring the plaintiff to pay KSTP Rs.19,68,89,126/-, includes the interest and costs and the counter claim which the plaintiff had sought. The plaintiff company attempted to implead this defendant in the arbitration proceedings, but, the application came to be rejected. It is not 36 Com.O.S.No.1389/2023 challenged by the plaintiff company, even the plaintiff has not challenged the final award also.
26. The defendant rejected the claim through a letter as per Ex.D1 dated 20.10.2020 as barred by limitation and also on account of various exclusion under the policy having been triggered. The suit is filed on 04.12.2023, it is more than Three years, since the repudiation under Ex.D1. He has pointed out towards the Clause Nos.1 to 4, 9, 10.1, 10.2, 10.3 and 10.12 of the Insurance Policy - Ex.P5. He has also pointed out towards the defence raised by the defendant in its written statement, it is clearly pleaded in para No.48(a) of the written statement. He has also pointed out towards the provisions of Sec.28 of Indian Contract Act. He has pointed out towards the exclusion (n) - any loss and / or damage and / or injury which has its origin in a neglect, error or omission prior to the retro active date mentioned in the schedule. The policy in question is a claims made policy, which only covers claims made within the policy period. The PW1 has admitted this fact during his cross examination. Hence, the plaintiff company is aware of this clause and cannot deny its applicability. The policy period was from 10.03.2016 to 09.03.2017 with a retroactive date 08.03.2016. The claim raised by KSTP is excluded from coverage under the policy, as it originates from events that occurred prior to the retro active date i.e. 08.03.2016. The claim made against the plaintiff company was show cause notice dated 25.01.2016 as per Ex.P16, wherein the KSTP raised complaints regarding the 37 Com.O.S.No.1389/2023 change in the scope of the work, errors in bid documents. He has also drawn the attention of the cross examination of PW1.
27. He has further stated that, non compliance of conditions president and information rights by the plaintiff company. Delay in intimation, failure to obtain prior written consent under clause No.10.2. The plaintiff admitted to KSTP's claim by its letter dated 24.11.2016 as per Ex.P19 requesting KSTP to "proceed to make a claim with our insurer". The PW1 has admitted that, as per Clause No.10.2 of Ex.P5, before making any admission, the plaintiff has to take written consent from the defendant. There is no clause in Ex.P5 requiring the defendant to support the plaintiff it is claim against third parties. No consent was obtained by the plaintiff company from the defendant before making this admission. As per Clause No.2 of Ex.P7, the policy which explicitly states that, indemnity applies only to claims arising from losses or damages during the policy period, the alleged act was committed within the same period. Furthermore, Sub-Clause(b) categorically excludes liability or claims related to acts committed before the retro active date mentioned in the policy schedule. The rejection of the claim was duly communicated to the plaintiff company as per letter dated 20.10.2020 - Ex.D1. The plaintiff company has not able to prove its claim as sought in the suit. The suit claim is barred by limitation.
38 Com.O.S.No.1389/202328. During his arguments, he has replied upon the decisions reported in (1994) 3 SCC 324 Food Corporation of India Vs New India Assurance Co.
Ltd. & Ors.
"8. From the agreement it is clear that it does not contain any clause which could be said to be contrary to Section 28 of the Contract Act nor it imposes any restriction to file a suit within six months from the date of determination of the contract as claimed by the company and held by the High Court. What was agreed was that the appellant would not have any right under this bond after the expiry of six months from the date of the termination of the contract. This cannot be construed as curtailing the normal period of limitation provided for filing of the suit. If it is construed so it may run the risk of being violative of Section 28 of the Contract Act. It only puts embargo on the right of the appellant to make its claim known not later than six months from the date of termination of contract. It is in keeping with the principle which has been explained in English decisions and by our own court that the insurance companies should not be kept in dark for long and they must be apprised of their liabilities immediately both for facility and certainty."
(1997) 4 SCC 366 National Insurance Co. Ltd. Vs Sujir Ganesh Nayak & Co. & Anr.
"15. Sahai, J. who wrote a separate but concurring judgment extracted the clause of the Fidelity Insurance Guarantee (which we have extracted earlier) and then posed the question 'what does it mean? What is the impact of Section 28 of the Contract act on such clause? pointing out the said section 28 was a departure from the English law (there is no such statutory bar in English law) the learned Judge observation that:39 Com.O.S.No.1389/2023
"Even though the phraseology of section 28 is explicit and strikes at the very root by declaring any agreement curtailing the normal statutory period of limitation to be void the courts have been influended by the distinction drawn by English Courts in extinction of right by agreement and curtailment of limitation".
Referring to the language of the various terms of the agreement, the learned judge holds in paragraph 8 thus:
"From the agreement i is clear that it does not contain any clause which could be said to be contrary to Section 28 of the Contract Act nor it impose any restriction t file a suit within six months from he date of determination of the contract as claimed by the company and held by the High Court. What was agreed was that the appellant would not have any right under this bond after the expiry of six months from the date of the termination of the contract. This cannot be construed as curtailing the normal period of limitation provided for filing of the suit. If it is construed so it may run the risk of being violative of Section 28 of the Contract Act. It only puts embargo on the right of the appellant to make its claim known not later of contract. It is in keeping with the principle with has been explained in English decisions and by our own court that the insurance companies should not be kept in dark for long and they must be apprised of their liabilities immediately both for facility and certainty. The High Court erroneously construed it as giving up the right of enforceability of its claim after six months."
"16. From the case law referred to above the legal position that emerges is that an agreement which in effect seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by law would be void as offending section 28 of the Contract Act. That is because such a an agreement would seek to restrict the party from enforcing his right in Court after the period prescribed under the 40 Com.O.S.No.1389/2023 agreement expires even though the period prescribed by law for the enforcement of his right has yet not expired. But there could be agreements which do not seek to curtail the time for enforcement of the right but which provides for the forfeiture or waiver of the right itself if no action is commenced with in the period stipulated by the agreement. Such a clause in the agreement would not fall within the mischief of section 28 of the Contract Act. To put it differently, curtailment of the period of limitation is not permissible in view of Section 28 but extinction of the right itself unless exercised within a specified time is permissible and can be enforced. If the policy of insurance provides that if a claim is made and rejected and no action is commenced within the time stated in the policy, the benefits flowing from the policy shall stand extinguished and any subsequent action would be time barred. Such a clause would fall outside the scope of Section 28 of the Contract Act. This, in Brief, seems to be the settled legal position. We may now apply it to the facts of this case."
(2009) 2 SCC 252 Himachal Pradesh State Forest Company Ltd. Vs United India Assurance Company Ltd.
"8. In Sujir Nayak's case, this Court was called upon to consider condition 19 of the policy which was in the following terms:
"Condition 19. - In no case whatever shall the company be liable for any loss or damage after the expiration of 12 months from the happening of loss or the damage unless the claim is the subject of pending action or arbitration."
While construing this provision vis-`-vis Section 28 of the Contract Act and the cases cited above and several other cases, in addition, this is what the Court ultimately concluded:
41 Com.O.S.No.1389/2023"16. From the case-law referred to above the legal position that emerges is that an agreement which in effect seeks to curtail the period of limitation and prescribes a shorter period than that prescribed by law would be void as offending Section 28 of the Contract Act. That is because such an agreement would seek to restrict the party from enforcing his right in Court after the period prescribed under the agreement expires even though the period prescribed by law for the enforcement of his right has yet not expired. But there could be agreements which do not seek to curtail the time for enforcement of the right but which provide for the forfeiture or waiver of the right itself if no action is commenced within the period stipulated by the agreement. Such a clause in the agreement would not fall within the mischief of Section 28 of the Contract Act. To put it differently, curtailment of the period of limitation is not permissible in view of Section 28 but extinction of the right itself unless exercised within a specified time is permissible and can be enforced. If the policy of insurance provides that if a claim is made and rejected and no action is commenced within the time stated in the policy, the benefits flowing from the policy shall stand extinguished and any subsequent action would be time-barred. Such a clause would fall outside the scope of Section 28 of the Contract Act. This, in brief, seems to be the settled legal position. We may now apply it to the facts of this case.
19. The clause before this Court in Food Corpn. case extracted hereinbefore can instantly be compared with the clause in the present case. The contract in that case said that the right shall stand extinguished after six months from the termination of the contract. The clause was found valid because it did not proceed to say that to keep the right alive the suit was also required to be filed within six months. Accordingly, it was interpreted to mean that the right was required to be asserted during that period by making a claim to the Insurance Company. It was therefore held that the clause extinguished the right itself and was therefore not hit by Section 28 of the Contract Act. Such clauses are generally found in insurance contracts for the reason that undue delay in preferring a claim may open up possibilities of false claims which may be difficult of verification with reasonable exactitude since memories may have faded by then and even 42 Com.O.S.No.1389/2023 ground situation may have changed. Lapse of time in such cases may prove to be quite costly to the insurer and therefore it would not be surprising that the insurer would insist that if the claim is not made within a stipulated period, the right itself would stand extinguished. Such a clause would not be hit by Section 28 of the Contract Act.
21. Clause 19 in terms said that in no case would the insurer be liable for any loss or damage after the expiration of twelve months from the happening of loss or damage unless the claim is subject of any pending action or arbitration. Here the claim was not subject to any action or arbitration proceedings. The clause says that if the claim is not pressed within twelve months from the happening of any loss or damage, the Insurance Company shall cease to be liable. There is no dispute that no claim was made nor was any arbitration proceeding pending during the said period of twelve months. The clause therefore has the effect of extinguishing the right itself and consequently the liability also. Notice the facts of the present case. The Insurance Company was informed about the strike by the letter of 28-4- 1977 and by letter dated 10-5-1977. The insured was informed that under the policy it had no liability. This was reiterated by letter dated 22-9- 1977. Even so more than twelve months thereafter on 25-10-1978 the notice of demand was issued and the suit was filed on 2-6-1980. It is precisely to avoid such delays and to discourage such belated claims that such insurance policies contain a clause like clause 19. That is for the reason that if the claims are preferred with promptitude they can be easily verified and settled but if it is the other way round, we do not think it would be possible for the insurer to verify the same since evidence may not be fully and completely available and memories may have faded. The forfeiture clause 12 also provides that if the claim is made but rejected, an action or suit must be commenced within three months after such rejection; failing which all benefits under the policy would stand forfeited. So, looked at from any point of view, the suit appears to be filed after the right stood extinguished. That is the reason why in Vulcan Insurance case while interpreting a clause couched in similar terms this Court said:43 Com.O.S.No.1389/2023
"23) .........It has been repeatedly held that such a clause is not hit by Section 28 of the Contract Act."
Even if the observations made are in the nature of obiter dicta we think they proceed on a correct reading of the clause."
In the light of the fact that Food Corporation's case has been considered in Sujir Nayak's case, no further argument remains in the present matter, as Clause 6(ii) and Condition 19 are, in their essence, pari materia."
(2016) 9 SCC 720 Union of India & Anr. Vs INDUSIND Bank Ltd. & Anr.
"36. Considering that the respondents' first argument has been accepted by us, we do not think it necessary to go into the finer details of the second argument and as to whether the aforesaid clauses in the bank guarantee would be hit by Section 28(b) after the 1997 amendment. It may only be noticed, in passing, that Parliament has to a large extent redressed any grievance that may arise qua bank guarantees in particular, by adding an exception (iii) by an amendment made to Section 28 in 2012 with effect from 18.1.2013. Since we are not directly concerned with this amendment, suffice it to say that stipulations like the present would pass muster after 2013 if the specified period is not less than one year from the date of occurring or non-occurring of a specified event for extinguishment or discharge of a party from liability. The appeals are, therefore, dismissed with no order as to costs."
(2009) 5 SCC 599 Vikram Greentech India Ltd. & Anr. Vs New India Assurance Company Ltd.
"16. An insurance contract, is a species of commercial transactions and must be construed like any other contract to its own terms and by itself. In a contract of insurance, 44 Com.O.S.No.1389/2023 there is requirement of uberimma fides i.e. good faith on the part of the insured. Except that, in other respects, there is no difference between a contract of insurance and any other contract.
17. The four essentials of a contract of insurance are,
(i) the definition of the risk, (ii) the duration of the risk, (iii) the premium and (iv) the amount of insurance. Since upon issuance of insurance policy, the insurer undertakes to indemnify the loss suffered by the insured on account of risks covered by the insurance policy, its terms have to be strictly construed to determine the extent of liability of the insurer.
18. The endeavour of the court must always be to interpret the words in which the contract is expressed by the parties. The court while construing the terms of policy is not expected to venture into extra liberalism that may result in re-writing the contract or substituting the terms which were not intended by the parties. The insured cannot claim anything more than what is covered by the insurance policy.
[General Assurance Society Ltd. Vs. Chandumull Jain and another 1, Oriental Insurance Co. Ltd. Vs. Sony Cheriyan2 and United India Insurance Co. Ltd. Vs. Harchand Rai Chandan Lal3]"
(2020) 18 SCC 376 Bajaj Allianz General Insurance Company Ltd. & Anr. Vs State of Madhya Pradesh "16. The provisions of an insurance contract must be imparted a reasonable business like meaning bearing in mind the intention conveyed by the words used in the policy document. Insurance policies should be construed according to the principles of construction generally applicable to commercial and consumer contracts. The court must interpret the words in which the contract is expressed by the parties and not embark upon making a new contract for the parties. A reasonable construction must therefore be given to each clause in order to give effect to the plain and obvious intention of the parties as ascertainable from the whole instrument. The liability of the insurer cannot extend 45 Com.O.S.No.1389/2023 to more than what is covered by the insurance policy. In order to determine whether the claim falls within the limits specified by the policy, it is necessary to define exactly what the policy covered and to identify the occurrence of a stated event or the accident prior to the expiry of the policy. Hence, while considering the rival submissions, it is necessary to preface our analysis with the provisions of the policy."
29. After going through the written arguments / synopsis submitted by both the parties, I have also gone through the evidence and pleadings of the parties. The admitted facts are, the plaintiff company provides Engineer Consultancy Services, it had obtained a professional indemnity insurance policy from the defendant dated 10.03.2012, as per Ex.P1 and the policy was renewed without interruption till 09.03.2021. The another admitted fact is that, the plaintiff company entered into a contract with Kerala State Transport Project - KSTP. One more admitted fact is that, the learned Arbitrator has passed an award as per Ex.P28 dated 20.02.2020.
30. I have gone through the documents produced on behalf of the plaintiff company. The Ex.P1 is the Insurance Policy which is an admitted document, the period is from 10.03.2012 to 09.03.2013, the Ex.P2 to P9 are also the Insurance Policies for the period from 10.03.2013 to 09.03.2014, 10.03.2014 to 09.03.2015, 10.03.2015 to 09.03.2016, 10.03.2016 to 09.03.2017, 10.03.2017 to 09.03.2018, 10.03.2018 to 09.03.2019, 10.03.2019 to 09.03.2020 and 10.03.2020 to 09.03.2021.
46 Com.O.S.No.1389/202331. The Ex.P10 is the letter dated 16.02.2017 issued by the defendant, Ex.P11 is letter dated 05.03.2020 issued by the plaintiff company to the defendant and Ex.P16 is the show cause notice issued by KSTP to the plaintiff company dated 25.01.2016, the Ex.P18 is the certificate dated 09.03.2016 issued by the defendant to the plaintiff company, Ex.P19 is the letter dated 24.11.2016 to the plaintiff company by the KSTP, the Ex.P20 is the letter dated 24.11.2016 to the defendant issued by the plaintiff company. The Ex.P21 to P27 are the email communications from the plaintiff company to the defendant. Admittedly, the Ex.P28 is the award. The Ex.P32 and P35 are also the email communications between the plaintiff company and the defendant. The Ex.P41 is the repudiation letter dated 16.10.2020 to the plaintiff company by the defendant. Ex.P47 is the copy of the Board Resolution.
32. By going through these documents, it is clear that, the plaintiff company had intimated to the defendant since presentation of the petition U/Sec.11 of the Arbitration and Conciliation Act before the Hon'ble High Court of Kerala for appointment of an Arbitrator. No doubt, the plaintiff company made an attempt to implead the defendant in the arbitration proceedings, but, the application came to be rejected. The plaintiff company has not challenged the award, as urged by the defendant. The question of challenging the award passed by the learned Arbitrator and challenging the order passed in the arbitral proceedings regarding rejection of the application filed for 47 Com.O.S.No.1389/2023 impleading the defendant, these are not come in the way of the plaintiff company to initiate proceedings for recovery of the benefits under the Insurance Policies. There is no doubt regarding issuance of insurance policy in the year 2012, later, renewed from time to time. After going through these Ex.P1 to P9, these policies are continued since 2012 March to March 2021.
33. I have also gone through the evidence of DW1, he has admitted regarding issuance of Ex.P1 to P9. It is without break. I have gone through the conditions mentioned in the policy - Ex.P2. Clause No.10.2 reads - "No admission offer promise or payment shall be made or given by or on behalf of the insured without the written consent of the Company." The special condition mentioned in Ex.P2, P3 and other policies reads -
"Limit of indemnity any One accident - any one year will be at 1:1 sum insured of Rs.30.00 Crores, previous policy.....". Hence, after going through this special condition, goes to show that since 2012 the policy is continued and the sum assured was also increased yearly, admittedly, it was Rs.20.00 Crores at the initial stage and gone upto Rs.65.00 Crores, which is also not in dispute.
34. By going through the conditions of the policy, sum assured as well as the pleadings of the parties, the policy has been taken by the plaintiff company was to insure the plaintiff company, in the event of any losses or damages arose on account of the breach of any professional duty, error and / or 48 Com.O.S.No.1389/2023 omission committed during the period of insurance for any project undertaken by the plaintiff company in India. It is not the case of the defendant that, the proceedings were not informed by the plaintiff company. After going through the several communications between the plaintiff company and the defendant through letter correspondence, email communications, it is clear and as stated supra, the plaintiff company had intimated each and every stage since initiation of Sec.11 petition for appointment of an Arbitrator. By going through these communications between the parties, it is well within the knowledge of the defendant regarding the claim petition filed by KSTP against the plaintiff company herein. Therefore, it cannot be said that, the defendant is not liable to indemnify the policy.
35. After going through the Ex.P28 i.e. award passed by the learned Arbitrator, the claim petition was filed by Project Director KSTP against the plaintiff company herein. The claim was made by the claimant for Rs.119.5 Crores. The learned Arbitrator has awarded a sum of Rs.19,68,89,126/- with interest at 9% p.a. from 31.03.2017 till the date of payment. I have also gone through the award passed by the learned Arbitrator.
36. The claim petition was filed in respect of the project which costs of Rs.1356 Crores. After considering the evidence and documents produced before him, the learned Arbitrator has passed the award as per Ex.P28 on 20.02.2020.
49 Com.O.S.No.1389/202337. I have also gone through the evidence of PW1 and DW1 and also documents referred above. I have also gone through the decisions relied upon by the learned counsel for the plaintiff company. The principles laid down in these decisions are well founded. These decisions come to the aid of the plaintiff company. In regard to evidence of the parties is concerned, the defendant has not adduced the evidence of the responsible person by name Yalim Habib who was initially listed as witness. Subsequently, the DW1 has adduced her evidence, she has shown her ignorance. After going through the evidence of DW1, it shows that, she is not fully acquainted with the facts of the case.
38. I have also gone through the Clause Nos.1, 2, 4, 9(n),
(o), (p), (r) and (s), 10.1, 10.2, 10.3 and 10.12 of Ex.P5. The clause No.10.1 reads - "The insured shall give written notice to the company as soon as seasonably practicable of any claims made against the insured (or any specific event or circumstances that may give rise to a claim being made against the insured) and which forms the subject of indemnity under this policy and shall give all such additional information as the Company may require. Even claim, Writ, summons or process and all documents relating to the event shall be forwarded to the Company immediately, they are received by the insured". Clause No.2 reads - "The indemnity applies only to claims arising out of losses and / or damages during the period of insurance first made in writing against the insured during the Policy Period and Insured is indemnified in accordance with Operative clause for 50 Com.O.S.No.1389/2023 any breach of Professional duty by reason of any negligent act, error or omission, whenever, wherever committed or alleged to have been committed during the period of insurance ........"
39. Clause No.10.3 - "The Company will have the right but, in no case the obligation to take over and conduct in the name of the insured the defence of any claims and will have full discretion, in the conduct of any proceedings and in the settlement of any claim and having taken over the defence of any claim may relinquish the same. All amounts expended by the Company in the defence, settlement or payment of any claim will reduce the limits of indemnity specified in the Schedule of the Policy."
40. Since, the defendant has issued the insurance policy/s, and same are continued from the year 2012 to 2021. It is admittedly, taken for indemnify the loss or damages in the event of carrying out the work arose on account of breach of any professional duty, error and / or omission committed during the period of insurance for any project undertaken by the plaintiff company in India. Admittedly, the project undertaken by the plaintiff with Kerala State Transport Project - KSTP. The plaintiff company is able to prove the Issue No.1 that, the defendant is liable to indemnify under the Professional Indemnity Policies by producing cogent evidence. On the other hand, I am of the opinion that, the defendant has failed to prove that the plaintiff company has failed to fulfill the obligations under these 51 Com.O.S.No.1389/2023 Professional Indemnity policies and also failed to prove that, the claim made by the plaintiff company is not covered under the policy/s. Accordingly, I answer the Issue No.1 in the affirmative and Issue Nos.2 to 4 in the negative.
41. Issue No.5 and Additional Issue: These are regarding point of limitation under the provisions of Limitation Act, 1963 and Clause No.10.12 of the Policy - Ex.P5. The defendant has taken the defence that, the suit claim of the plaintiff company is barred by limitation. Admittedly, the suit is filed on 04.12.2023, according to the defendant, the suit is filed after Three years since the repudiation under Ex.D1. I have also gone through the documents produced on behalf of the defendant. The Ex.D1 is dated 20.10.2020 written by the defendant in favour of the plaintiff company. It is mentioned in this notice that, the claim is barred as per the law of limitation and the claim is not covered under the policy. I have also gone through the same. Consultancy Service Agreement dated 23.01.2012 and the first policy as per Ex.P1 is dated 10.03.2012 to 09.03.2013. The Ex.D1 also shows that, Article 44 of Limitation Act, 1963 is applicable, the legal remedy of the plaintiff company arose on 25.01.2016 and expired on 24.01.2019. But, admittedly, the Policy under Ex.P1 is of the year 2012 and it is continued till 2021, as mentioned in Ex.P1 to P9. The Ex.P42 letter dated 18.12.2020 by KSTP to the plaintiff shows claiming the award amount. The Ex.P43 is the letter issued on behalf of the defendant to the plaintiff company dated 52 Com.O.S.No.1389/2023 23.01.2021. The Policy No.602000491510000053 (Policy) number is also mentioned and it remains unchanged. But, the defendant reserved its right to amend the grounds.
42. I have also gone through the provisions of Article 44 of the Limitation Act - "(b) On a policy of insurance when the sum insured is payable after proof of the loss has been given to or received by the insurers - Three years - The date of the occurrence causing the loss, or where the claim on the policy is denied, either partly or wholly, the date of such denial." I have also gone through Clause No.10.12 of Policy of Ex.P5 reads - "It is also hereby further expressly agreed and declared that, if the Company shall disclaim liability to the insured for any claim hereunder and such claim shall not within 12 calendar months from the date of such disclaimer have been made the subject matter of suit in a court of Law, then the claim shall for all the purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder."
43. The learned counsel for the plaintiff company has also pointed out towards the provisions of Sec.28 of the Contract Act. He has also relied upon a decision reported in Oriental Insurance Vs Sanjesh & Anr. reported in 2022 SCC Online 806, the Hon'ble Apex Court has correct the position and Clause No.10.12 is void. I have also gone through this decision also and the clause No.10.12 of Ex.P5. Since the policies are continued from the year 2012 to 2021 and prior to institution of the suit, the plaintiff 53 Com.O.S.No.1389/2023 company had initiated PIM No.2446/2023 on 03.10.2023 and non starter report has been issued on 21.11.2023 / 23.11.2023. On 04.12.2024, the suit has been filed. By considering the facts and conditions of the insurance policy/s, the claim made by the plaintiff company is not barred by law of limitation. Accordingly, I answer the Issue No.5 and Additional Issue in the negative.
44. Issue No.6: The plaintiff company has sought recovery of amount of Rs.32,67,82,349/- which includes the award amount of Rs.19,68,89,126/- and interest thereon at 9% p.a. from 31.03.2017 as well as Rs.18,34,378/- (50% of the stamp value + Arbitrator's fees and Stenographer fee). The Insurance company is liable to pay the interest at the bank rate. The learned Arbitrator has awarded 9% interest on the awarded amount. The plaintiff company has also included the cost of the litigation of Rs.18,34,378/- before the learned Arbitrator. But, it is not liable for the said amount. Accordingly, the plaintiff company is entitled for Rs.32,49,47,971/- (Rs.32,67,82,349 - Rs.18,34,378). Accordingly, I answer the Issue No.6 partly in the affirmative.
45. Issue No.7: In the result, I pass the following :
ORDER Suit of the plaintiff company is decreed in part with cost.54 Com.O.S.No.1389/2023
The plaintiff company is entitled for Rs.32,49,47,971/- from the defendant.
The defendant is directed to pay the amount as ordered within Four months from the date of this order.
Draw decree accordingly.
Issue copy of the judgment to the parties through email as provided U/Or. XX Rule 1 of CPC if email ID is furnished.
(Dictated to the Stenographer typed by her directly on the computer, corrected and then pronounced by me in the open court on this the 7th day of January 2025) (RAMAKANT CHAVAN) LXXXIV Addl. City Civil & Sessions Judge, (CCH-85) Commercial Court, Bengaluru.
ANNEXURE List of witnesses examined for the plaintiff:
PW1 S. N. Suradev Prasad List of documents marked for the plaintiff:
Insurance Policy taken by the plaintiff with the Ex.P1 defendant from 10.03.2012 to 09.03.2013 Insurance Policy taken by the plaintiff with the Ex.P2 defendant from 10.03.2013 to 09.03.2014 Insurance Policy taken by the plaintiff with the Ex.P3 defendant from 10.03.2014 to 09.03.2015 55 Com.O.S.No.1389/2023 Insurance Policy taken by the plaintiff with the Ex.P4 defendant from 10.03.2015 to 09.03.2016 Insurance Policy taken by the plaintiff with the Ex.P5 defendant from 10.03.2016 to 09.03.2017 Insurance Policy taken by the plaintiff with the Ex.P6 defendant from 10.03.2017 to 09.03.2018 Insurance Policy taken by the plaintiff with the Ex.P7 defendant from 10.03.2018 to 09.03.2019 Insurance Policy taken by the plaintiff with the Ex.P8 defendant from 10.03.2019 to 09.03.2020 Insurance Policy taken by the plaintiff with the Ex.P9 defendant from 10.03.2020 to 09.03.2021 Ex.P10 Letter dated 16.02.2017 Ex.P11 Letter dated 05.03.2020 Ex.P12 Copy of the letter dated 28.01.2021 Ex.P13 Power of Attorney dated 31.03.2023 Ex.P14 Copy of Certificate of Incorporation Ex.P15 Copy of Name change certificate Ex.P16 Copy of notice dated 25.1.2016 by KSTP Ex.P17 Copy of communication dated 15.03.2016 Ex.P18 Copy of letter dated 09.03.2016 by the defendant Ex.P19 Copy of letter dated 24.11.2016 by the plaintiff Ex.P20 Copy of letter dated 24.11.2016 by the plaintiff Copy of email communications by the plaintiff to the Ex.P21-P27 defendant 56 Com.O.S.No.1389/2023 Copy of the award dated 20.02.2020 in Ex.P28 ARC.31/2017 Ex.P29 Copy of Email communication Ex.P30 Copy of notice dated 12.06.2020 Ex.P31 Copy of email communication Copy of email trail with emails issued between the Ex.P32 plaintiff and the defendant Copy of email issued by the plaintiff to the Ex.P33 defendant Copy of email issued by the defendant to the Ex.P34-P35 plaintiff Copy of email issued by the plaintiff to the Ex.P36 defendant Email trail showing emails dated 27.08.2020 to Ex.P37 31.08.2020 Email trail showing correspondence between the Ex.P38 plaintiff and the defendant Email issued by the defendant to the plaintiff dated Ex.P39 08.09.2020 Email issued by the plaintiff to the defendant dated Ex.P40 11.09.2020 Copy of notice dated 16.10.2020 by the defendant Ex.P41 to the plaintiff Copy of Demand Notice dated 18.12.2020 issued by Ex.P42 KSTP to the plaintiff Copy of letter dated 23.01.2021 by the defendant Ex.P43 to the plaintiff Ex.P44 Non starter report issued by the DLSA, Bengaluru 57 Com.O.S.No.1389/2023 Ex.P45 Certificate U/Sec.65B of the Indian Evidence Act Ex.P46 Power of attorney dated 10.06.2024 Certified copy of Board Resolution dated Ex.P47 22.08.2024 List of witnesses examined for the defendant:
DW1 Ipsita Sinha
List of documents marked for the defendant:
Ex.D1 Copy of the Repudiation letter dated 20.10.2020
Ex.D2 Authorization letter dated 19.09.2024
(RAMAKANT CHAVAN)
LXXXIV Addl. City Civil & Sessions Judge,
(CCH-85) Commercial Court, Bengaluru.