Telangana High Court
M/S. Om Hydro Power Limited vs The New India Assurance Co. Ltd., on 6 November, 2024
Author: K. Lakshman
Bench: K. Lakshman
IN THE HIGH COURT FOR THE STATE OF TELANGANA
AT: HYDERABAD
CORAM:
* HON'BLE SRI JUSTICE K. LAKSHMAN
+ARBITRATION APPLICATION No.1 OF 2024
% Delivered on: 06-11-2024
Between:
# M/s. Om Hydro Power Limited, rep.by its Director
Mrs. B. Lakshmi Shruti Reddy .. Applicant
Vs.
$ The New India Assurance Co. Ltd.,
Basheerbagh, Hyderabad, rep.by its Senior
Divisional Manager. .. Respondent
! For Applicant : Mr. V. Yadu Krishna Sainath
^ For Respondent : Mr. Krishna C.V. Grandhi,
Ld. Sr. Counsel, representing
Mr. M. Ramu
< Gist :
> Head Note :
? Cases Referred :
1. (2018) 6 SCC 534
2. (1976) 1 SCC 943
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KL,J
Arb.Appl.No.1 of 2024
HON'BLE SRI JUSTICE K. LAKSHMAN
ARBITRATION APPLICATION No.1 OF 2024
ORDER:
Heard Mr. V. Yadu Krishna Sainath, learned counsel for the applicant and Mr. Krishna C.V. Grandhi, learned Senior Counsel representing Mr. M. Ramu, learned counsel or the respondent.
2. The present Arbitration Application is filed under Section - 11 (5) and (6) of the Arbitration and Conciliation Act, 1996 (hereinafter 'the Act, 1996') for appointment of an arbitrator to resolve the disputes between the parties.
3. CONTENTIONS OF THE APPLICANT:
i) Applicant, a Public Limited Company engaged in Hydro Electric Power Generation, obtained an Industrial All Risk Insurance with respondent vide Policy No.61220011180600000003 covering the period of 17.05.2018 to 16.05.2019 for a sum insured Rs.1,75,85,00,000/-.
ii) The policy is an Industrial All Risks Insurance Policy and covers the properties pertaining to Hydro Electric Project properties of 3 KL,J Arb.Appl.No.1 of 2024 the applicant situated at Bundla Village, Palamur District, Himachal Pradesh State.
iii) The policy has two parts i.e., i) the material damage section (Section I) which provides against all risks; ii) Business Interruption Section II provides cover again Fire Loss of profits.
iv) The properties covered under the policy are civil works of Rs.1,08,00,000/-, plant and machinery and other accessories worth Rs.47,00,00,000/-, roads worth Rs.12,00,00,000/-, transmission lines worth Rs.8,00,00,000/-, stores and spares worth Rs.85,00,000/-
making a total of Rs.1,75,85,00,000/-.
v) The applicant suffered damage due to flash floods/cloud burst on 23.09.2018. The said fact was intimated to the respondent and claim has been preferred for the loss suffered by the applicant. The respondent appointed M/s. Protocol Insurance Surveyors & Loss Assessors Private Limited, Delhi, for assessment of the loss suffered by the applicant.
vi) The Surveyors have assessed the loss and submitted their survey reports to the respondent under Section - I i.e., material 4 KL,J Arb.Appl.No.1 of 2024 damage as well as Section - II i.e., Business Interruption loss separately. The respondent arranged on Account payment of Rs.2.50 Crores under material damage claim. The respondent also settled the claim under Business Interruption Section of the Policy (Section II) for Rs.1,03,02,634/- on 01.10.2019.
vii) After completion of reinstatement of damaged property, the Surveyors submitted their final survey report to the respondent. Thereafter, the respondent released its settlement intimation for Rs.1,54,54,967/- which is the difference in the Net assessed loss amount of Rs.4,04,54,967/- less the amount of On Account payment of Rs.2.50 Crores already paid. The applicant wanted to know the details of assessment since the amount offered for settlement of the claim is much less than the amount incurred and claimed Rs.7,96,07,113/-. The respondent provided the details by giving copies of survey reports and correspondence exchanged between the Surveyor and the respondent. After perusing the same, the applicant came to know from the surveyor's report that the Surveyors have assessed the land as Rs.5,49,93,116/- before deduction of excess as per the policy. The excess under the policy being 5% of the claim 5 KL,J Arb.Appl.No.1 of 2024 amount, the net claim amount payable by the Insurer would be Rs.5,22,43,460/- towards indemnity of the loss suffered by the applicant. It also appears that the respondent had asked the Surveyors to submit an addendum report reducing an amount of Rs.1,24,08,940/- (which is a portion of expenditure incurred by the applicant towards removal of debris) from the amount assessed by them vide their final survey report.
viii) The applicant addressed a letter dated 10.08.2022 to the respondent informing that the assessment revised is much lesser than the expenditure amount incurred. The applicant also informed the respondent that it is not agreeable for amount indicated in the Settlement Intimation Voucher released by the respondent as full and final and further requested the respondent to look into the matter and release a fresh Settlement Intimation Voucher. The respondent released another settlement intimation voucher for Rs.4,04,54,967/- subject to deduction of Rs.2.50 Crores being the amount paid on Account without considering the letter dated 10.08.2022 addressed by the applicant to review the claim. The applicant returned the settlement intimation voucher to the respondent mentioning as 'part 6 KL,J Arb.Appl.No.1 of 2024 payment' on it vide letter dated 10.10.2022, wherein the applicant had informed that the short fall/difference of amount of Rs.1,17,88,493/- had to be paid by the respondent along with interest @ 12% per annum and also invoked arbitration clause nominating Mr. N.S.R. Chandra Prasad, Ex-Chairman-cum-Managing Director of M/s. National Insurance Company Limited, as sole arbitrator to settle the quantum dispute by way of arbitration.
ix) Vide reply dated 30.11.2022, the respondent refused to admit that there is any quantum dispute and further refused to settle the dispute by way of arbitration. Vide letter dated 22.02.2022, the applicant informed the respondent that their conduct is contrary to the provisions of the Arbitration and Conciliation Act, 1996 (for short 'Act, 1996'). Thus, according to the applicant, there are disputes between the applicant and the respondent which are arbitrable in nature. Thereafter, the applicant filed the present application to appoint sole arbitrator to adjudicate disputes between the applicant and the respondent.
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KL,J Arb.Appl.No.1 of 2024
4. CONTENTIONS OF THE RESPONDENT:
i) Respondent filed counter admitting that the applicant obtained the policy for the period from 17.05.2018 to 16.05.2019.
The applicant is disputing the difference in quantum of loss pertaining to removal of external/foreign debris where the liability was not admissible by the respondent, the parties are bound by the arbitration clause, wherein, if the respondent is not accepting the liability, dispute cannot be referred to the arbitrator. Reliance was also placed on the principle laid down by the Hon'ble Supreme Court in M/s. Oriental Insurance Company Limited v. Narbheram Power and Steel Pvt. Ltd. 1.
ii) Owing to the loss incurred by the applicant in the flash floods/cloud burst that occurred on 23.09.2018 at the applicant's Himachal Pradesh site, the respondent have appointed M/s. Protocol Insurance Surveyors & Loss Assessors Private Limited, Delhi, for conducting a survey assessing the loss. The respondent has made on account payment of Rs.2.50 Crores under material damage claim and Rs.1,03,02,634/- under business interruption section without the 1 . (2018) 6 SCC 534 8 KL,J Arb.Appl.No.1 of 2024 preliminary assessment to the applicant herein considering the huge losses that the applicant had incurred, so that the applicant can cover the initial damages.
iii) After completion of the reinstatement, the respondent has released a settlement voucher of Rs.4,04,54,967/- after paying of Rs.1,54,54,967/- which was signed by the applicant with remarks part payment. The applicant is disputing the quantum of settlement i.e., difference in the quantum being Rs.1,24,08,940/- on gross loss, which is the difference between the amount paid to the applicant after completion of reinstatement and on account payment by the respondent.
iv) The deductions and settlements made by the Surveyor have been explained by the surveyor in his assessment report. The surveyor has deducted the external debris and only considered the debris that was in the premises of the applicant as given in the policy. Therefore, there are no disputes between the applicant and the respondent, much less arbitral disputes. The said fact was informed to the applicant vide reply dated 30.11.2022. Even then, the applicant filed the present application.
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KL,J Arb.Appl.No.1 of 2024
5. REPLY BY THE APPLICANT TO THE COUNTER:
i) The respondent is only trying to confuse and avoid the payment of amount to it.
ii) A reading of clause - 12 reflects that any difference as to the quantum shall be referred to the arbitrator. The respondent did not deny the liability under the policy in toto. It is only part of liability.
The principle laid down in Narbheram Power and Steel Pvt. Ltd.1 does not apply to the facts of the present case.
6. ANALYSIS AND FINDING OF THE COURT:
i) In view of the aforesaid rival contentions, it is clear that there is no dispute that the applicant had obtained the aforesaid policy covering the period from 17.05.2018 to 16.05.2019 for the sum insured of Rs.1,75,85,00,000/-. It is an Industrial All Risk Insurance Policy. There is also no dispute that the applicant suffered damage due to flash floods/cloud burst on 23.09.2018 and the said fact was informed to the respondent, which in turn appointed M/s. Protocol Insurance Surveyors & Loss Assessors Private Limited, Delhi, for assessment of the loss suffered by the applicant. The said Company 10 KL,J Arb.Appl.No.1 of 2024 has submitted its report to the respondent under Section I - material damage as well as Section II - Business Interruption Loss separately.
ii) It is also not in dispute that the respondent arranged an amount of Rs.2.50 Crores on account payment to the applicant. After completion of reinstatement of damaged property, the surveyors submitted their final report to the respondent which in turn released its settlement intimation voucher for Rs.1,54,54,967/-, which is the difference in the net assessed loss amount of Rs.4,04,54,967/- less the amount on account payment of Rs.2.50 Crores already paid. Thus, according to the applicant, the respondent is due and liable to pay an amount of Rs.1,24,08,940/-, whereas, according to the respondent, it is not due and liable to pay the said amount. Thus, according to the applicant, there are disputes between the applicant and the respondent which are arbitral in nature.
iii) In the light of the aforesaid submissions, it is relevant to note that Clause - 12 of the Industrial All Risk Insurance Policy deals with 'dispute resolution' and the same is extracted as under:
"If any difference shall arise as to the quantum to be paid under this policy (liability being otherwise 11 KL,J Arb.Appl.No.1 of 2024 admitted) such difference shall independently of all other questions be referred to the decision of an arbitrator to be appointed in writing by the parties in difference, or if they cannot agree upon a single arbitrator, to the decision of two dis-interested persons as arbitrators of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party in accordance with the provision of the Arbitration Act, 1940, as amended from time to time and for the time being in force. In case either party shall refuse or fail to appoint arbitrator within two calendar months after receipt of notice in writing requiring an appointment, the other party shall be at liberty to appoint sole arbitrator and in case of disagreement between the arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings.
It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as hereinbefore provided, if the Company has disputed or not accepted liability under or in respect of this policy.12
KL,J Arb.Appl.No.1 of 2024 It is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award b such arbitrator, arbitrators or umpire of the amount of the loss or damage shall be first obtained."
Invoking the said clause, the applicant has issued a notice dated 10.10.2022 nominating Mr. N.S.R. Chandra Prasad, Ex-Chairman- cum-Managing Director of M/s. National Insurance Company Limited, as sole arbitrator and the respondent vide reply dated 30.11.2022 rejected for the said proposal.
iv) In the light of the above, it is relevant to note the principle laid down by the Apex Court in Narbheram Power and Steel Pvt. Ltd.1. In the said case, M/s. Narbheram Power and Steel Pvt. Ltd., had entered into a Fire Industrial all Risk Policy with M/s. Oriental Insurance Company Limited. The said company suffered damage due to cyclone, named 'Phailin' and the damage estimated at Rs.3,93,36,224/-. Intimation was given to the Insurance Company, which appointed a surveyor, who in turn submitted its report. There is exchange of communication between the said Company and the Insurance Company. The said M/s. Narbheram Power and Steel Pvt. 13
KL,J Arb.Appl.No.1 of 2024 Ltd., had invoked the arbitration clause and proposed an arbitrator. The Insurance Company replied stating that the claim made by the applicant therein was repudiated and declined to refer the dispute to the arbitration. The arbitration clause in the said agreement is extracted below:
"13. If any dispute or difference shall arise as to the quantum to be paid under this policy (liability being otherwise admitted) such difference shall independently of all questions be referred to the decision of a sole arbitrator to be appointed in writing by the parties to or if they cannot agree upon a single arbitrator within 30 days of any party invoking arbitration, the same shall be referred to a panel of three arbitrator, comprising of two arbitrators, one to be appointed by each of the parties to the dispute/difference and the third arbitrator to be appointed by such two arbitrators and arbitration shall be conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996.
It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as hereinbefore provided, if the Company has disputed or not accepted liability under or in respect of this policy.14
KL,J Arb.Appl.No.1 of 2024 It is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator/arbitrators of the amount of the loss or damage shall be first obtained."
Then, M/s. Narbheram Power and Steel Pvt. Ltd., had approached the High Court seeking appointment of an Arbitrator, and the High Court in turn allowed the said application and appointed an Arbitrator to adjudicate the disputes between the said Company and Insurance Company. Assailing the said order, the Insurance Company approached the Apex Court. Referring to the said clause and the disputes therein and also the principle laid down by it in earlier judgments, the Apex Court held that the natural corollary of the said propositions is that the parties are bound by the clauses enumerated in the policy and the court does not transplant any equity to the same by rewriting a clause. The Court can interpret such stipulations in the agreement. It is because they relate to commercial transactions and the principle of unconscionability of the terms and conditions because of the lack of bargaining power 15 KL,J Arb.Appl.No.1 of 2024 does not arise. The said principle comes into play in a different sphere.
v) The Apex Court also considered the rejection of claim by the Insurance Company on the following reasons:
a) Alleged loss of imported coal is clearly an inventory shortage.
b) There was no actual loss of stock in process.
c) The damage to the sponge iron is due to inherent vice.
d) The loss towards building/sheds etc. are exaggerated to cover insured maintenance.
e) As there is no material damage thus business interruption loss does not triggered."
On consideration of the said aspects and arbitration clause, the Apex Court held that disputation squarely comes within Part - II of Clause -
13. The said Part of the Clause clearly spells out that the parties have agreed and understood that no differences and disputes shall be referable to arbitration if the company has disputed or not accepted the liability. The communication ascribes reasons for not accepting the claim at all. It is nothing else but denial of liability by the insurer in toto. It is not a disputation pertaining to quantum.
vi) The Apex Court further held that it is not concerned with regard to whether the policy was void or not as the same was not 16 KL,J Arb.Appl.No.1 of 2024 raised by the insurer. The insurance-company has, on facts, repudiated the claim by denying to accept the liability on the basis of the aforesaid reasons. No inference can be drawn that there is some kind of dispute with regard to quantification. It is a denial to indemnify the loss as claimed by the respondent. Such a situation, according to us, falls on all fours within the concept of denial of disputes and non-acceptance of liability. It is not one of the arbitration clauses which can be interpreted in a way that denial of a claim would itself amount to dispute and, therefore, it has to be referred to arbitration. The parties are bound by the terms and conditions agreed under the policy and the arbitration clause contained in it. It is not a case where mere allegation of fraud is leaned upon to avoid the arbitration. It is not a situation where a stand is taken that certain claims pertain to excepted matters and are, hence, not arbitrable. The language used in the second part is absolutely categorical and unequivocal inasmuch as it stipulates that it is clearly agreed and understood that no difference or disputes shall be referable to arbitration if the company has disputed or not accepted the liability. The High Court has fallen into grave error by expressing the opinion 17 KL,J Arb.Appl.No.1 of 2024 that there is incongruity between Part - II and Part - III. The said analysis runs contra to the principles laid down in the three-Judge Bench decision in The Vulcan Insurance Co. Ltd. v. Maharaj Singh 2. Therefore, the only remedy which the respondent can take recourse to is to institute a civil suit for mitigation of the grievances. If a civil suit is filed within two months hence, the benefit of Section - 14 of the Limitation Act, 1963 will enure to its benefit.
vii) As discussed above, the arbitration clause in Narbheram Power and Steel Pvt. Ltd.1 and the arbitration clause in the present case is verbatim same. In the present case, according to the respondent, it has settled the claim for a net of Rs.4,04,54,967/- after deducting an amount of Rs.1,24,08,940/- disallowed by the Surveyor from the gross amount of the claim. The said deduction amount will not result in the form of quantum dispute. As per condition No.12 of the Policy, the said dispute can be referable only if the quantum alone is in dispute and the liability being otherwise accepted. The claim of the applicant for Rs.1,17,88,493/- (Rs.1,24,08,940/- less excess) cannot be inferred as quantum dispute. The amount of 2 . (1976) 1 SCC 943 18 KL,J Arb.Appl.No.1 of 2024 Rs.1,24,08,940/- was deducted as not allowed as the said amount represents the expenditure towards removal of external foreign debris, which is neither covered in the policy nor admissible. The dispute is regarding the liability of the quantum and, therefore, there are no disputes between the applicant and the respondent, much less arbitral dispute.
viii) Mr. V. Yadu Krishna Sainath, learned counsel for the applicant, would contend that in Narbheram Power and Steel Pvt. Ltd.1, the claim was repudiate. In the present case, there is no repudiation, and it is only denial of the claim made by the respondent. Therefore, it is apt to note that 'repudiation' means rejection or renunciation of a duty or an obligation. In the present case also, the respondent rejected the claim of the applicant vide letter dated 18.10.2022. Therefore, the facts of the present case and the facts of the case in Narbheram Power and Steel Pvt. Ltd.1 are one and the same and the arbitration clause is also verbatim same. In the light of the same, the contention of learned counsel for the applicant that the facts of the present case are different to the facts the case in Narbheram Power and Steel Pvt. Ltd.1 is untenable. 19
KL,J Arb.Appl.No.1 of 2024
7. CONCLUSION:
i) As discussed above, in the present case also, the respondent denied the liability itself. It has specifically mentioned the reasons in its reply dated 30.11.2022. In the light of the same and also considering the principle laid down by the Apex Court in Narbheram Power and Steel Pvt. Ltd.1, this Court is of the considered view that since the respondent disputed the very liability itself, it is not within the purview of Clause - 12 of the Insurance Policy, it is not an arbitral dispute, the applicant is not entitled for appointment of an Arbitrator.
The present Arbitration Application fails and the same is liable to be dismissed.
ii) The present Arbitration Application is accordingly dismissed. In the circumstances of the case, there shall be no order as to costs.
As a sequel thereto, miscellaneous applications, if any, pending in the Arbitration Application shall stand closed.
_________________ K. LAKSHMAN, J 6th November, 2024 Note: L.R. copy be marked.
(B/O.) Mgr