United India Insurance Company Ltd. vs K. Sarvabhauman and Others

Chitra Venkataraman, J.—This Original Petition is at the instance of the Insurance Company against the order of the Arbitral Tribunal dated

27.6.2000.

On the basis of the award, the claimant, fourth respondent herein, made an application before the Tribunal seeking an additional award. On the

petitioner''s part too, an application was filed u/s 33 of the Arbitration and Conciliation Act, 1996, for a direction that in the light of the decision of

the Apex Court reported in National Insurance Co. Ltd. Vs. Sujir Ganesh Nayak and Co. and another, and H.P. Horticultural Produce Marketing

and Processing Corporation Ltd. Vs. United India Insurance Company Ltd. and Another, , the arbitral award dated 27.6.2000 had to be set aside

on the ground of limitation.

By award dated 26.9.2000, the Arbitral Tribunal passed the additional award in the claimant/fourth respondent''s application for rectification,

granting the prayer. However, as regards the petition filed by the petitioner herein seeking an interpretation on the terms of the agreement, the said

claim was rejected by the Tribunal.

The only issue raised challenging the award herein in this petition is on the issue of limitation on the claim. The fourth respondent herein carried

on business in leather. The fourth respondent had a factory and manufacturing unit at Katpadi and a godown in Chennai. The fourth respondent

went in for financial assistance with the fifth respondent herein and in terms of the same, the fourth respondent went in for fire insurance of the

building, stock in trade and other materials with the petitioner herein. The Master policy taken by the fourth respondent was for the period from

1.11.1986 to 1.11.1987 for a sum of Rs. 28,12,000/-. The fourth respondent suffered two fire accidents, the first accident on 26.12.1986 in the

godown and the second accident on 10.1.1987 in the manufacturing unit. Immediately thereupon, the fourth respondent raised his claim on

07.01.1987 for a sum of Rs. 15,70,700/- and the second claim on 17.1.1987 for a sum of Rs. 2,03,800/-, totalling to a sum of Rs. 17,14,500/-.

Admittedly, based on the claim thus made by the fourth respondent, the petitioner engaged the surveyor to inspect the premises to assess the

damage, who recommended compensation. This is marked as a document under Ex. A6 dated 10.1.1987 and Ex.A9 dated 4.3.1987.

While the matter stood thus, there was a criminal prosecution in S.C. No. 75 of 1988, relating to the death of one Vijayakumar in the fire

accident. By judgment dated 22nd November 1990, the criminal Court acquitted the fourth respondent. The petitioner''s officials were examined

as witnesses therein. P.W.17 - Srinivasan of the petitioner company, Senior Divisional Officer, deposed on behalf of the petitioner. In the course of

examination, the said witness marked Ex.P7. The claim form was filed by the fourth respondent seeking compensation and Ex.P9 as regards the

survey conducted by the surveyor engaged by the petitioner. They also marked Ex.A8, xerox copy of the independent policy. It is not denied by

the parties herein that the policy was with the Bank with whom the first respondent had financial transaction.

Keeping aside all these facts, it is seen from the records that the fourth respondent herein filed a suit in C.S. No. 259 of 1990 against the

petitioner herein before this Court seeking a decree for a sum of Rs. 17,13,800/- as compensation due and payable in respect of the fire accident

that took place on 26.12.1986 and the second accident on 10.1.1987 in terms of the master policy issued by the petitioner herein with interest at

18% per annum from 26.12.1986 to 20.12.1989. The said suit was filed in the year 1989 before this Court. During the pendency of the suit, the

fourth respondent took out an application in Application No. 3314 of 1999 to go before the arbitral Tribunal for settlement of the claim. By order

dated 18.11.1999, this Court directed that the dispute be resolved by a panel of three named Arbitrators and the award was to be filed before this

Court within a period of three months by the Arbitrators. The fourth respondent laid his claim for a sum of Rs. 17,13,800/- towards compensation.

The petitioner herein resisted the claim stating that the claim was hit by limitation. Before the Arbitral Tribunal, two issues were raised which are

as follows:

(i) Whether the claim is barred by limitation?

(ii) What amount is due to the claimant on account of the fires on 26.12.1986 and 10.1.1987?

The Arbitral Tribunal pointed out that Ex.A1 is the xerox copy of the first page of the master insurance policy issued by the Insurance Company

for the period 1.11.1986 to 1.11.1987. The xerox copy of the schedule, in so far as it related to the fourth respondent, covered the fourth

respondent''s buildings, machinery and stock at Chennai and Katpadi of a total value of Rs. 28,12,000/-. Admittedly, the entire policy in original

was not produced either by the petitioner or by the respondents. The Tribunal pointed out that even though on an application by the fourth

respondent an order was passed directing the fifth respondent Bank to produce the same, the Bank, however, did not produce it. On an

application taken by the petitioner before this Court in Application No. 3749 of 2001 in this O.P., under order dated 25.4.2002, this Court

directed the Bank to produce the original of the insurance policy and the same is now before this Court.

Be that as it may, the Tribunal referred to the admitted fact as regards the fire accidents, one in the godown at Chennai and the other in the

tannery at Katpadi on 26.12.1986 and 10.1.1987 respectively and to the evidence of R.W.1, the surveyor appointed by the petitioner, who

deposed about his visit to the tannery to find out the cause of the fire. As to the plea of limitation, the Arbitral Tribunal agreed with the contention

of the fourth respondent that Article 44(b) of the Limitation Act would apply in respect of insurance claims and rejected the plea of the petitioner

that the claim was hit by limitation in view of Article 137 of the Limitation Act, that the fourth respondent had not lodged the claim within three

years of the damage suffered. Learned Arbitrators held that Ex.A1, the policy produced, was only a xerox copy of the first page of the policy with

the photocopy of the schedule and not the original policy. Hence, the claim of the petitioner that the claim should have been made within three

years of the fire accident as per the conditions of the policy was rejected.

Learned Arbitrators further pointed out to the decision reported in The Food Corporation of India Vs. The New India Assurance Co. Ltd.

and others, that the contract restricting the period of limitation provided under the Limitation Act would be void u/s 28 of the Contract Act. Hence,

the claim was held to be within the period of limitation. It must be noted herein that the relief granted to the first respondent herein before the

Arbitral Tribunal fixing the compensation is not seriously disputed before this Court.

The only issue argued by the learned Counsel appearing for the petitioner is on the question on limitation. Even though learned Counsel

appearing for the fourth respondent questioned the maintainability of the claim of the petitioner in the O.P. before this Court u/s 34 of the

Arbitration and Conciliation Act, 1996, as regards summoning the original policy from the Bank, yet she submitted that even going by the clauses

therein, the claim is within the period of limitation specified in the contract and hence no exception could be taken to the decision of the Arbitral

Tribunal.

Learned Counsel appearing for the petitioner placed reliance on the decision of the Apex Court reported in National Insurance Co. Ltd. Vs.

Sujir Ganesh Nayak and Co. and another, as well as 2009 (1) CPJ 1 (SC) (H.P. State Forest Company Ltd. v. United India insurance Co. Ltd.)

and submitted by making particular reference to paragraph 10 that going by the contractual terms under Clause 18, if a claim is not raised within 12

months from the date of the loss, the Insurance Company could not be held liable. In the judgment reported in 2009 (1) CPJ 1 (SC) (H.P. State

Forest Company Ltd. v. United India insurance Co. Ltd.), the Apex Court considered the contractual provisions with reference to Section 25 of

the Indian Contract Act. In the circumstances, he submitted that the award is illegal and contrary to the provisions of the Act and hence liable to be

set aside.

Taking note of the rival contentions of the parties, the contractual clause, which has been a subject matter of discussion, hence, needs to be

looked at. Clause 18 of the insurance policy states that if a difference arises as to the compensation to be paid under the policy, such difference

shall, independent of all questions, be referred to the decision of the Arbitrator to be appointed in writing, by the parties. Clause 19, dealing with

limitation on the compensation, reads as follows:

In no case whatsoever shall the Company be liable for any loss or damage after the expiration of 12 months from the happening of the loss or

damage unless the claim is the subject of pending action of arbitration. It being expressly agreed and declared that if the company shall disclaim

liability for any claim hereunder and such claim shall not within 12 calender months from the date of the disclaimer have been made the subject

matter of a suit in a court of law when the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable

hereunder.

Going by Clause 19, one can see that an insured has to come before the Insurance company within 12 months from the happening of the loss

or damage and unless the said claim is made within a period of 12 months, the further right of the claimant to proceed against for damages does not

survive any longer.

It is seen from the said clause that beyond the expiry of the 12 months period on the happening of the loss or damages, unless and until the

claim is the subject of pending action or arbitration, the Insurance Company shall not, in any manner, be liable for any claim. The contractual

provision thus put a bar by way of limitation for the other party to proceed further with the action. But once a party makes a claim within the period

of 12 months against the Insurance Company, it is for the Insurance Company to act further on this. But if no such claim had been made within

twelve months, the claimant would lose his rights.

As far as the present case is concerned, admittedly, immediately on the lodging of the complaint on the first of the fire accidents on 26.12.1986

and for the second fire accident on 10.1.1987, the fourth respondent made a claim on 17.1.1987. The petitioner herein had, in fact, set in motion

its course of action in directing the surveyor - R.W.1 for inspection of the premises. The evidence also substantiates the case of the fourth

respondent about the Insurance Company moving forward on the claim petition made by the fourth respondent. The evidence herein also supports

the fact that the Insurance Company did act on the claim made by the fourth respondent herein. The evidence of the petitioner''s representative

before the Criminal Court also speaks on the action taken by the petitioner in engaging the services of the surveyor for assessing the damage as

well as the cause for the damage. In the background of the said facts, it is seen that the decision of the Apex Court reported in 2009 (1) CPJ 1

(SC) (H.P. State Forest Company Ltd. v. United India insurance Co. Ltd.), is distinguishable; as such, no reliance could be placed by the

petitioner on the said decision.

A reading of the judgment of the Apex Court reported in 2009 (1) CPJ 1 (SC) (H.P. State Forest Company Ltd. v. United India insurance

Co. Ltd.) shows that the insured therein suffered loss on account of heavy rains. This was sometime in September, 1988. The insured made claim

before the Insurance Company, which, however, rejected the same. It is seen that after prolonged negotiations, some additional premium was

paid. It was stated that having accepted the said premium, the Insurance Company refused to make good the loss. A notice was issued on 7th

May 1992 followed by another notice on 7th December 1992. The claim was repudiated in the communication dated 24th December 1982 from

the Insurance Company. In the background of the said facts, the Apex Court pointed out that the claim of the insured that the Insurance Company

admitted its liability impliedly was not correct, as the surveyors had been appointed on the persistent demand of the claimant and the premium

taken thereafter was only to make good the deficiency in the premium that had been paid for the policy for a period of two months. In the

background of all these, the Apex Court pointed out that as on the date of flood, there was no insurance policy in existence or any commitment on

behalf of the Insurance Company to make the payment. In the background of the said facts, the Apex Court considered the claim of the Insurance

Company as to the relevancy of Section 28 of the Indian Contract Act, citing Condition No. 19 which is no different from what is now relied on by

the petitioner. The Apex Court pointed out ""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."" The Supreme Court pointed out on facts that there was 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.

The Apex Court further pointed out that the said Clauses are normally found in the insurance contract for the reason that undue delay in

preferring a claim may open up possibilities of false claims, which might be difficult of verification with reasonable exactitude, since memories might

have faded by then and even ground situations might have changed. Lapse of time in such cases might prove to be quite costly to the insurer. If the

claim is not made within the stipulated period, the right thus would stand extinguished. Such a clause would not be hit by Section 28 of the Indian

Contract Act.

Curtailment of the period of limitation is not normally permissible in terms of Section 28 of the Indian Contract Act. The contract clause

prescribing a right to be exercised within a specified time and if not exercised resulting in the extinguishment of the right is a permissible one and can

be enforced. Consequently, if a policy of insurance provides for a claim to be made within a particular period, it shall stand extinguished by the

completion of such time and any subsequent action would be clearly barred. Such a clause is outside the scope of Section 28 of the Indian

Contract Act and hence not hit by the provisions of the Indian Contract Act.

The decision of the Apex Court as to the effect of Clause 19 of the insurance policy applies to the facts herein too where the very same clause

figures in. On the admitted position that the petitioner had, in fact, acted as per Clause 19 of the policy, as rightly pointed out by the learned

Counsel for the petitioner and the claimant/fourth respondent thus setting in motion the arbitration proceedings by appointing the surveyor, it is

difficult to hold that the claim is hit by limitation. Hence, rightly, the Tribunal granted the claim on the aspect that the first respondent had made his

claim within the time as per Clause 19. In the circumstances, the award cannot be attacked on the ground of limitation.

Learned Counsel appearing for the petitioner, however, submitted that except for making the claim, there was no progress from the side of the

4th respondent herein, and hence the said claim is barred by limitation as per Clause 19 of the contract. I do not accept the logic in the said

submission. The said Clause No. 19 does not contemplate a settlement of the claim within the period of 12 months. On the other hand, the said

clause contemplates making of a claim within a period of 12 months from the happening of the loss or damage thus initiating action towards that

end. Consequently, the claim is not barred by limitation. If for reasons best known to the petitioner, the claim made within a period of 12 months

from the date of loss is not touched or acted upon, one cannot plead limitation taking advantage of their inaction to defeat the claim of the insured.

The conduct of the Insurance Company thus cannot prejudice the claimant. In the circumstances, in fairness to the claim of the fourth respondent,

when the claimant had made the claim within a period of 12 months, even assuming that the Insurance Company had not acted so far for grant of

any relief to the claimant, the same cannot be put against the claimant for any relief to be granted. In the circumstances, even applying the law

declared by the Apex Court on the facts herein, I do not find any justification in accepting the plea of the petitioner that the decision squarely

covers the issue and hence the award has to be set aside.

Learned Counsel appearing for the petitioner pointed out that after the receipt of the claim, even as early as 1992, the Insurance Company had

expressed its acceptance to the claim partially and had called upon the Bank to return the voucher duly discharged for settling the claim. The letters

dated 16.3.1992 and 28.2.1992 clearly indicate the conduct of the petitioner in accepting the damage to the materials. Even assuming that to a

limited extent only the Insurance Company had agreed, still, the claim is within the period of limitation. Following the order passed in C.S. No. 259

of 1990 dated 18th November 1999 directing the parties to go before the named Arbitrator, who shall decide the dispute and file the award within

three months from the date of the order, the petitioner filed the claim petition on 6.1.2000. It may be seen that the accident occurred on

26.12.1986 at Chennai and on 10.1.1987 at Katpadi. The first respondent submitted the claim on 7.1.1987 and 17.1.1987 respectively. On

12.11.1989, the first respondent sent a notice. In the meantime, the petitioner''s assessors visited the premises to arrive at the value, which,

however, was found to be grossly low and hence was objected to by the first respondent. There was no reply sent by the petitioners to the letter

dated 12.11.1989. This led to the petitioner filing a suit in C.S. No. 259 of 1990 on 19.12.1989. Hence, going by Clause 19 that the first

respondent had made a claim which is a subject of pending action before the expiration of 12 months from the happening of the loss, the

proceedings initiated are saved by limitation. Consequently, I do not find any justification to disturb the award on the aspect of limitation. As

already pointed out, the delay is not attributable to the petitioner and hence, the award stands confirmed and the Original Petition dismissed. There

are no merits in the Original Petition and I have no hesitation in confirming the award.