United India Insurance Co. Ltd. vs Shivalik Agro Chemical

Sarojnei Saksena, J.—Defendant-appellant has assailed lower Court''s order dated September 21, 1993, whereby its petition filed u/s 34 of the Arbitration Act, 1940 (in short, the Act) was dismissed.

Brief facts of the case are that the plaintiff is manufacturer of pesticides/insecticides etc. having its factory at Mohali and one of its branch office is at Parkash Cinema, opposite Railway Road, Amritsar. The plaintiff took a policy of Rs. 40 lacs covering the fire risk of the stock lying at the said complex at Amritsar from the defendant. The period of the policy covering the risk was from November 1, 1990 to October 31, 1991. On the intervening night of 24th and 25th November, 1990, there was a bomb blast in the premises of the said complex and the stock lying therein was all burnt and destroyed. The plaintiff got Daily Dairy Report recorded at Police Station, Civil Lines, Amritsar, on November 20, 1990, on the basis of which FIR was also registered. By letters dated December 6, 1990 and December 17, 1990, the plaintiff informed the defendant-appellant of the said occurrence, asking the defendant to appoint the surveyors to assess the loss occurred due to fire. The defendant-appellant appointed two surveyors, Shri Sumant Sood of Amritsar and Messers Mehta Padamsey Surveyors Private Limited, Delhi, to assess the loss. The Surveyors inspected the site, assessed the loss and sent their report to the defendant-appellant. When the surveyors were holding deliberations they were in constant touch with the plaintiff. Finally they submitted their report assessing the loss at Rs. 1,71,282/-. By letter dated June 2, 1993, the defendant-appellant informed the plaintiff that his claim is settled at Rs. 1,71,282/- and a discharge voucher of Rs. 1,68,872/- was sent after deducting Rs. 2500/- as excess as per policy condition from the assessed amount of loss. Before that on April 4, 1992, the plaintiff sent a legal notice to the defendant-appellant, which was duly replied. On May 24, 1993, the plaintiff filed this suit for recovery of Rs. 36,40,350/- against the defendant.

Defendant-appellant received the notice of the suit and immediately filed a petition u/s 34 of the Act praying that in view of condition No. 13 of the insurance policy, the suit be stayed and the matter be referred to arbitration for resolving the dispute. By the impugned order, the said petition was dismissed.

A preliminary objection is raised by the respondent''s learned counsel that the civil suit is under progress. Plaintiffs whole of the evidence is recorded. Even defendant''s one witness is examined and the case is now adjourned for recording the statement of another witness of the defendant. Thus, according to him, now the defendant-appellant cannot press its petition u/s 34 of the Act since it is actively taking part in the progress of the suit.

Repelling the above contention, defendant-appellant''s learned counsel drew my attention to the orders passed by this Court on October 13, 1993, and May 4, 1995, and he contended that the defendant-appellant prayed for stay of the proceedings but G.C. Garg, J. instead of granting stay order observed on October 13, 1993, that "If, in the meantime, written statement is filed, it shall be without prejudice to the rights of the petitioner". He contended that as per this order defendant-appellant filed written statement and participated in the trial. On May 4, 1995, also G.C. Garg, J. passed the following order while admitting the appeal:

"Admitted. To be listed for final hearing in the third week of July 1995. Passing of the final order is stayed."

Thus, under the orders of this Court the defendant-appellant was participating in the progress of the suit. If it would not have filed written statement, plaintiff''s suit would have been decreed ex parte. If it would not have cross-examined the plaintiffs witnesses and would not have adduced evidence on its behalf, its right to adduce evidence would have been closed by the lower Court and the suit would have been decreed. Under those compelling circumstances, it had to take part in the proceedings, but according to the learned counsel, this cannot affect defendant''s rights to pursue its remedy which is available to it u/s 34 of the Act.

Defendant-appellant''s learned counsel, relying on Gousia Javed and another Vs. Jagdish Pershad Associates, ; Gaya Electric Supply Co. Ltd. Vs. The State of Bihar, and A. Sankarasadasivam and Another Vs. A. Kumaravel and Others, , submitted that as there is a specific term in the insurance policy that if any difference 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 an arbitrator. He assiduously argued that the difference arose so far as the quantum of damages is concerned. The plaintiff was claiming Rs. 25 lacs for the said loss, while the defendant-appellant was trying to assess the actual loss suffered by the plaintiff. With that object it appointed two surveyors initially one after the other and even as per their joint report they recommended the loss at Rs. 1,71,282/-. The plaintiff was not satisfied with this report. He made further request that another surveyor be appointed. Considering this request Messrs J.M. Sharma and Company, New Delhi, were appointed surveyor jointly to reexamine the issue, but they also assessed the loss at Rs. 1,71,282/-. Defendant-appellant was not disputing its liability under the insurance policy, but was only trying to assess the loss sustained by the plaintiff. He submitted that obviously right from the very beginning, there was a dispute between the parties with regard to the quantum of damages. Thus, according to him, the lower Court has wrongly rejected the petition filed u/s 34 of the Act.

The respondent''s learned counsel, relying on Uttar Pradesh Co-operative Federation Ltd. Vs. Sunder Brothers of Delhi, and Ramji Dayawala and Sons (P) Ltd. Vs. Invest Import, , contended that once judicial discretion has been exercised by the lower Court in favour of the plaintiff, which by no stretch of imagination can be said to be perverse, the appellate Court would not ordinarily substitute its discretion in place of the discretion exercised by the trial Court. Granting or refusing to grant stay is a matter within the discretion of the Court and if after considering the relevant pleadings and facts of the case discretion is exercised by the lower Court, the appellate Court should be loathe to interfere in the exercise of such discretion.

The respondent''s learned counsel also contended that the suit was filed on May 24, 1993. On this very date summons were ordered to be served on the defendant and on May 28, 1993, notice of this civil suit was served on the defendant. Before that the plaintiff gave a legal notice to the defendant-appellant on April 4, 1992. After receiving notice of the civil suit, the defendant-appellant sent letter dated June 2, 1993, whereby for the first time it admitted its liability under the contract and settled the plaintiff''s claim for Rs. 1,71,282/-. Thus, according to him, the Court below has rightly held that dispute must exist on the date of the suit. As the dispute about the claim of damages was raised for the first time on June 2, 1993, the suit filed on May 24, 1993, could not be stayed u/s 34 of the Act. In support of this contention, he placed reliance on Rachappa Gurudappa Bijapur Vs. Gurudiddappa Nurandappa and Others, and National Research Development Corp. of India v. Bhupal Mining Works 1973 PLR 27.

The respondent''s learned counsel, relying on Messers Prem Nath Pran Nath v. Amba Parshad AIR 1941 Lah 64, contended that proceedings commence when summons of the suit is served on the defendant. His last contention is that Arbitration Act is now repealed by Ordinance which is published in the Gazette of India on January 16, 1996, and, therefore, on this count also petition u/s 34 of the Act cannot be allowed.

No doubt, Arbitration Act, 1940, is repealed by Ordinance No. 8 of 1996 promulgated by the President of India dated January 16, 1996. Under its Section 85(1) Arbitration Act, 1940, stands repealed, but its Sub-clause (2) (a) provides that" the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Ordinance came into force unless otherwise agreed by the parties but this Ordinance shall apply in relation to arbitral proceedings which commenced on or after this Ordinance comes into force." The defendant-appellant filed petition u/s 34 of the Act immediately after receiving notice of this civil suit on May 28, 1993. If at that time this petition would have been decided by the lower Court, arbitration proceedings would have been initiated much before the promulgation of this Ordinance. Hence, the defendant has got a vested right in getting the matter decided by an arbitrator. By repealing the Arbitration Act, 1940, by the said Ordinance, this vested right of the defendant appellant cannot be taken away. (For principle see Commissioner of Income Tax, Bangalore Vs. Smt. R. Sharadamma, .

These facts are not disputed before me that the plaintiff-respondent obtained the insurance policy which contains an arbitration clause, which is reproduced in the grounds of appeal. It is also not disputed by the defendant-appellant that on the night intervening 24th and 25th November, 1990, there was a bomb blast in the premises of the plaintiff situate at Parkash Cinema, opposite Railway Road, Amritsar, and the plaintiff suffered losses. Vide letters dated December 6, 1990 and December 17, 1990, the plaintiff informed the defendant of this blast and consequent loss and claimed damages. Defendant-appellant appointed Messrs Mehta Padamsey Surveyors Private Limited, New Delhi, and Shri Sumant Sood of Amritsar to assess the loss. These surveyors after inspecting the spot and considering various other aspects and documents of the plaintiff, recommended the loss at Rs. 1,71,282/- vide their report submitted in October 1991. The plaintiff disputed these recommendations and furnished further documents on January 27, 1992, for consideration. In this letter dated dated June 2, 1994 (copy of which is on record) the defendant-appellant has admitted that in the meantime pursuant to the discussions held in the Head Office of the plaintiff, the plaintiff asked for appointment of another surveyor by letter dated May 7, 1992. The defendant''s Headquarters agreed to review the matter through appointment of another surveyor for any possible betterment of the quantum of loss admissible/payable within the framework of policy conditions. Accordingly Messrs J.M. Sharma and Company, New Delhi, was appointed to jointly reexamine the issue as to whether a different light can be thrown into this matter. The surveyors submitted their report. After considering all the aspects of the plaintiff''s claim, the defendant-appellant informed the plaintiff through letter dated June 2, 1993, that the competent authority has decided to settle plaintiff''s claim for Rs. 1,71,282/- fully and finally, as has been recommended by the surveyors against plaintiff''s claim for Rs. 36,75,901/- and accordingly discharge voucher for Rs. 1,68,872/- was appended with this letter. Before this letter the defendant-appellant never gave any letter to the plaintiff admitting its liability under the policy of insurance to pay the damages. Till then they were just appointing one surveyor or the other to assess the losses. What were the terms of reference to the surveyors is not disclosed anywhere in the petition or in the grounds of appeal.

Plaintiff filed this suit on May 24-, 1993. On that very day the Court ordered that notice be issued to the defendant. This notice of the suit was served on the defendant-appellant on May 28, 1993. In Messers Prem Nath Pran Nath''s case (supra) it is held that proceedings within the meaning of Section 19 of the Arbitration Act commence only when the defendant is supplied with copy of plaint. Considering such an arbitration clause incorporated in .the insurance policy, in Chiranjiv Lal and Others Vs. The Tropical Insurance Co. Ltd., it is held that no stay could be ordered as the only matter which was the subject matter of arbitration was the quantum of damages, which was not disputed and not the liability to pay damages. It was specifically held therein that as there was no point of difference before the filing of the suit as to the amount of damages which the plaintiff had suffered, there was nothing to refer to arbitration. In National Research Development Cop. of India''s case (supra) also it is held that the proposition is well settled that unless the difference or dispute had arisen before the institution of a suit, no stay will be granted simply because a party raises a dispute after the suit has been instituted.

In this case it is obvious that after receiving the notice of the suit on May 28 1993, on June 2, 1993, the defendant-appellant vide its letter of this date admitted its liability to pay damages to the plaintiff and settled plaintiff''s claim for Rs. 1,71,282/-. Thus, the quantum was disputed by the defendant only on June 2, 1993. Till then roving enquiry was being made by it to assess the damages.

The authorities relied on by the defendant-appellant''s learned counsel are of little help to the appellant. In A. Sankarasadasivam''s case (supra) it is held that if existence of arbitration agreement is disputed, the Court ought to decide existence of valid agreement first. In this case even the defendant-appellant has admitted in the grounds of appeal that both the parties have relied on this insurance policy which contains, the said arbitration clause.

In Gaya Electric Supply Co. Ltd''s case (supra) the agreement executed by the parties contained an arbitration clause stating "Any difference or dispute ... over valuation as arrived at by Government and that arrived at by Company. ... shall be referred to arbitration." Considering this clause the Apex Court held that "arbitration clause conferred jurisdiction on arbitrator only to decide dispute arising on valuation of the undertaking and not all dispute arising out of the agreement or in respect of it Question relating to breach of the contract or its rescission are beyond reach of the clause."

In this case also, if before filing of the suit the defendant-appellant would have admitted its liability under the insurance policy to pay damages and would have only disputed the quantum, the matter could have been referred to arbitration. But in this case after receiving notice of the filing of the suit for the first time on June 2, 1993, the defendant-appellant admitted its liability under the contract to pay damages to the plaintiff and settled his claim at Rs. 1,71,282/-. Thus, the dispute regarding quantum arose after the institution of the suit and not before that.

In Gousia Javed''s case (supra) the parties entered into an agreement. The appellant borrowed various amounts, which were not paid as per understanding and thereafter there was an amicable settlement on the issue. An amount was settled and in discharge of said amount under the settlement the appellant executed cheques, which were dishonoured. It was held that the suit for recovery of amount covered by said settlement would be a suit based on original agreement which provided for an arbitration clause and was liable to be stayed u/s 34 pending reference of the matter to the arbitrator. In that case the defendant filed a petition u/s 34 of the Act and thereafter filed rejoinder mentioning general nature of defence. It was held that this does not amount to taking any step in the proceedings.

In Clause (ii) of para 9 of the grounds of appeal, the defendant-appellant has specifically mentioned that on the basis of the said report, the Competent authority assessed the loss suffered by the plaintiff at Rs. 1,71,282/- and the same was conveyed to the plaintiff on 2.6.1993. Further, in Clause (iii) of para 9 it is stated "that immediately when the said information is sent to the plaintiff, the arbitration clause comes into play and the only course open to the parties is to get the matter decided by appointment of arbitrator in view of the said clause in the policy." Thus, from these grounds it is apparent that the defendant-appellant itself admits that only on June 2, 1993, the dispute regarding quantum of damages was raised by the defendant while admitting its liability to pay the damages to the plaintiff. In Clause (x) of para 9 also the defendant-appellant has specifically pleaded "In fact once the claim of the plaintiff had been settled by the Insurance Company, the relevant clause dealing with the arbitration conies into play and it was the duty of the trial Court under law to stay the proceedings."

Thus, in my considered view, the dispute about quantum of damages was raised for the first time on June 2, 1993, after the filing of the suit. Therefore, the trial Court has rightly dismissed the petition filed u/s 34 of the Act.

So far as the preliminary objection is concerned, the defendant-appellant filed this appeal against the impugned order and prayed for granting stay of further proceedings pending in the trial Court, but vide order dated October 13, 1993, this Court instead of granting stay observed that if in the meantime written statement is filed, it shall be without prejudice to the rights of the appellant. Under these circumstances, the defendant-appellant participated in the proceedings, not only filed written statement but also cross-examined plaintiff''s witnesses and examined its own witness. But this fact is not relevant so far as this appeal is concerned because, as I have held above, the defendant-appellant raised the dispute about quantum of damages for the first time on June 2, 1993, after the plaintiff filed the suit on May 24, 1993. Thus, the petition filed u/s 34 of the Act could not have been allowed.

Consequently, the Appeal, being meritless, is hereby dismissed with costs, which are quantified at Rs. 1,000/-.