United India Fire And General ... vs The Amravati District Central ...
2008 Latest Caselaw 40 Bom

JUDGMENT

C.L. Pangarkar, J.

1. This is an appeal against the order passed by the Civil Judge (Sr.Dn.), Amravati, whereby he passed a decree in terms of the award passed by the Arbitrator.

2. The facts giving rise to this appeal are as follows The appellant is an Insurance Company and the respondent is a Co-operative Bank. The respondent-bank entered into a contract of insurance with the appellant. Insurance Company for a period of one year commencing from 1st July, 1976 to 1st July, 1977. The total sum insured was Rs. 6,00,000/-(basic cover) in addition to Rs. 9,00,000/-. The appellant -insurance company issued a policy in favour of the respondent. The branch at Dhamangaon was also included in the contract. It was agreed that there will be a fixed cash in hand limit of Rs. 4,00,000/-maximum and Rs. 2,00,000/-minimum. The names of the employees working at Dhamangaon were also communicated to the Company. On 28/2/1977, Special Auditor of the bank carried out an audit of the Dhamangaon Branch. It was found that there was a misappropriation of sum of Rs. 3,58,000/-. The matter was reported to the policy. The copy of the report to Police was sent to the appellant-company. The respondent also laid a claim of Rs. 3,58,000/-. After protracted correspondence, the appellant Insurance Company agreed to pay Rs. 29,000/-, since there was a dispute with regard to the sum recoverable under Insurance. As per the agreement, the matter was referred to Arbitrator Shri P.B. Thakre a retired Additional District Judge. Shri Thakre passed an award. An application was, therefore, moved to civil court for passing a decree in terms of the award. The award was passed ex parte. However, the appellant resisted the application before the Civil Judge (Sr.Dn.) and contended that the award as passed by the Arbitrator is not correct and proper. It was contended that the Arbitrator has misconducted himself. It was also contended that he had failed to consider the ratio laid down in Central Bank of India v. New India Asurance Co. Ltd. and has wrongly interpreted the excess clause in the policy. It is the contention of the appellant that it was agreed as per the excess clause that each and every item loss is to be considered separately and the act of the Arbitrator in clubbing together all sums misappropriated was not proper. Inspite of this, the learned Civil Judge (Sr.Dn.) passed a decree in terms of the award. Being aggrieved by that, this appeal has been preferred.

3. I have heard Mr.Thakur, Advocate for the appellant and Mr.Ghurde, Advocate for the respondent.

4. Following points arise for my consideration and I am recording my findings thereon.

i) Whether the Arbitrator has misconducted himself?.... Yes.

ii) What order.... The matter needs to be remanded to Arbitrator.

5. The first contention that was raised on behalf of the respondent is that the award can be set aside only on the grounds as given in Section 30 of the Arbitration Act, 1940, Section 30 of the Act reads thus

30. Grounds for setting aside awards. An award shall not be set aside except on one or more of the following grounds, namely:

(a) that an arbitrator or umpire has misconducted himself or the proceedings;

(b) that an award has been made after the issue of an order by the Court superseding the arbitration or after arbitration proceedings have become invalid under Section 35;

(c) that an award has been improperly procured or is otherwise invalid.

6. Shri Ghurde, learned Counsel for the respondent, submits that the appellant has not made out any of the grounds as envisaged by Section 30 of the Act and therefore, lower court has rightly passed a decree in terms of the award. Shri Thakur, learned Counsel for the appellant, on the other hand submits that the case squarely falls in Clause (a) of Section 30 of the Act. According to him, the Arbitrator has wrongly interpreted the excess clause and has even ignored the decision of this Court, which squarely applies to the facts of this case and by not applying the said decision, it could be said that the Arbitrator misconducted himself. It would, therefore, be necessary to see if the clause could be interpreted as is interpreted by the Arbitrator and whether the decision as was cited before him covers the case at hand.

7. The clause of which the interpretation is required reads thus Insured : name : The Amravati distt.Central Co-op.Bank Ltd. Head Address : Head Office Camp, Road, Amravati.

Date of proposal & Declaration : 28th June, 1975.

Total sum : Rs. 6,00,000/- Premium : Rs. 30,322.68 Ps. only.

Insured.

Excess : 25% on each and every claim Rs. 11,500/- or Rs. 11,500/-

whichever is higher on D.A.R.

Petro Active Date--2 years (Proviso 3) Period of Insurance : 1st July, 1975 to 1st July, 1976.

8. Shri Thakur, learned Counsel, submits that the simple reading of the clause would show that from each item of misappropriation a sum equal to 25% or Rs.11,500/-, whichever is higher, will have to be deducted. Shri Thakur, learned Counsel, submits that each item of defalcation has to be taken separately and not collectively. The words of the clause are very clear. In the instant case, the learned Arbitrator has aggregated the amount of all defalcated sums. The learned Arbitrator observed that the clause cannot be interpreted to mean each and every claim separately. The word used in the schedule in the policy is excess. The word excess has been defined as follows at three places in Law Lexicon by Ramnath Aiyyar.

Sum that a policyholder has (by agreement) to contribute to an insurance claim, e.g. on a motor insurance the policyholder may have to pay the first L 50 or L 100 (the excess) on any claim. It may be compulsory or voluntary. See also franchise policy. (Insurance).

Excess (also refer Deductibles). Agreed amount up to which no claim is paid under a Policy. (Insurance).

Excess of loss. In reinsurance, an agreement that requires the reinsurer to bear any loss over a certain stated amount. (Insurance).

It is thus clear from this that the insured is to be treated as coinsurer to agreed extent. In other words, the insured agreed to bear the loss to certain extent and above that the insurer agreed to reimburse. In the present case the insured has agreed to bear the loss to the extent of 25% on each and every claim or Rs. 11,500/ whichever may be higher vis a vis that item of defalcated sum. This excess clause has to be read along with the clauses of contingency and the proviso in the document of Policy.

9. The learned Arbitrator interprets contingency No. 4 along with proviso. Contingency No. 4 and proviso reads thus

4. By reason of the dishonest or criminal act of any Officer, Clerk or Employee of the Insured with respect to the loss of money and/or securities wherever committed and whether committed directly or in connivance with others.

Proviso-

1. Excess: The insured shall bear the amount of excess stipulated in the Schedule in respect of each and every loss if the loss is under contingencies 1,2 or 3 insured by the Policy. In respect of losses under Contingencies 4 or 5, the insured shall bear 25% of the amount of the loss or the amount of excess stipulated in the Schedule whichever is the higher.

He observes that the Contingency No. 4 is governed by Second part of the proviso and second part does not refer to each and every claim. He finds that first part of the proviso relates to contingencies No. 1 to 3 only and therefore that part cannot be applied to contingency No. 4. Shri Thakur, learned Counsel, for the appellant, contends that there is no quarrel that first part of the proviso applies to contingencies No. 1 to 3, but even if second clause in proviso is to be interpreted, one has to make reference to the schedule. He particularly invites my attention to the words excess stipulated in Schedule whichever is higher in the second part of the proviso. Having read it, it is clear that this proviso cannot be read independently. It is governed by the excess clause in the schedule. The excess clause specifies the limit for each and every claim. The fact that in Column of excess in the schedule, the words each and every claim are added though they occur in proviso, suggests that they were specifically so added for all losses. This Court in Central Bank of India v. New India Assurance Co.Ltd.) while dealing with the interpretation of the words 'each and every claim' has held as follows

13. The policy enables the insured to make a claim on discovery of loss but that only means that making or lodging of claim is postponed till the date of discovery. A right to make the claim accrues as soon as loss is suffered but its enforcement is available only on the discovery. The employee committed several acts of fraud and defalcation and each such separate act caused loss and gave distinct and separate cause of action to the Bank. It is true that all these acts of defalcation were discovered only on October, 18, 1972 but the fact of discovery on one day would not enable the Bank to claim that several acts of defalcation constitute one single or composite loss.

14. The passage clearly brings out the distinction between the fact of loss and its discovery. The mere fact that several acts of defalcation, were discovered on one day would not lead to the conclusion that several losses under different acts could be treated as one composite loss.

16. The question involves the construction of word 'claim' in Endorsement (c) or Excess Clause. The word is of common occurrence in the field of insurance and may mean either the right to make a claim or an assertion of a right. The plain object of the clause, as stated earlier, is to exempt the insurance company from the liability to pay small claims which the Bank has to bear itself. The word, claim in this clause means the occurrence of a state of facts which justified a claim on insurer and does not mean the assertion of a claim on company. In other words, in my judgment, the operation of the Excess Clause is determined by the facts which give rise to the claim and not by the form in which the claim is asserted. The view I am taking finds support in judgment of Mr. Justice Mac Nair reported in (1960) 2 Lloyd's Rep. 241 in the case of Australia and New Zealand Bank Ltd v. Colonial and Eagle Wharves Ltd. : Boag (Third Party)

18. Mr. Thakkar attempted to distinguish these authorities by submitting that in Excess Clause in both the case the expression used is 'each and every loss' and not each and every claim. In view of my finding that word 'claim' is used in the policy merely to connote an occurrence of fact giving rise to the claim, the submission of Mr. Thakkar deserves to be repelled. In accordance with the objects and interpretation of the terms and conditions of the policy, in my judgment, the Bank is liable to be considered as co-insurer to the extent of 25% subject to minimum excess of Rs. 25000/- in respect of each loss sustained by each set of defalcation by its employee, and it is not permissible to aggregate the total loss for working out of Excess Clause.

24. Accordingly, in my judgment, the Excess Clause in the Policy does not envisage a claim for the payment of totality of the losses sustained by criminal acts of Wadia but envisages the deduction of 25% subject to a minimum of Rs. 25,000/-from each of the amounts defalcated by Wadia. The plaintiff Bank, in my judgment, in the circumstances of the case, is entitled to claim from the defendants Insurance Company a sum of Rupees 3,63,267.16 only. My answers to the questions raised in the originating summons are:

(B) Yes.

(C) The plaintiffs are entitled to claim Rs. 3,63,267.16 only.

In the circumstances of the case, there will be no order as to costs. In this case, this Court has interpreted the same clause in the above manner. There is no scope in the instant case at hand to interpret the said clause differently. In this case, it appears from the record placed before the Arbitrator that the employee had opened the accounts in the name of several persons by forging their signatures. He made false entries of credit in their accounts and withdrew those sums by cheques. For example, between 16/2/1976 to 24/1/1977, he took credit entries in the account in the name of Gokulchand Purohit and withdrew those sums by cheque. In fact, therefore, each credit and debit entry would be a separate item of claim, although it is clear that total sum defalcated in this account is Rs. 44,209/-. The Arbitrator was, therefore, bound to consider each sum of credit and debit in respect of each account of the persons whose names are mentioned in the Arbitrator's report separately. Therefore, each item will have to be considered separately. Each item means each defalcated sum and not aggregate in respect of each account or the total (aggregate) sum defalcated at Dhamangaon Branch. The Arbitrator will have to consider the liability of insurance Company bearing in mind the excess clause. This cannot now be done at the appellate stage and particularly in the appeal. This having not been done, it would now be required to be done and for that only recourse available is to remit the matter back to the Arbitrator by setting aside the Award. Hence, the following order.

The appeal is allowed.

The judgment and decree as passed by the court below is set aside.

The award passed by the Arbitrator is also set aside.

The Arbitrator shall now decide the dispute between the parties afresh by offering opportunity to both the parties to lead evidence and submit their statements before the Arbitrator, if they so desire. If the learned Arbitrator who decided the dispute is reluctant to do so now, the parties will be at liberty to approach this Court for appointment of Arbitrator after giving notice to the other side.

The Arbitrator shall now consider each item of defalcation separately. Separate means a separate sum defalcated by each separate transaction.

The parties shall appear before the Arbitrator on 17/3/2008.