M/S Bansal Brothers vs M/S National Insurance Co. Ltd.
2009 Latest Caselaw 3559 Del

*      IN THE HIGH COURT OF DELHI AT NEW DELHI
3.
+      ARB.A. 30/2008

       M/S BANSAL BROTHERS                          ..... Applicant
                      Through: Mr. M.A. Niyazi, Mr. Manish Kumar,
                      Advocates

                     versus


       M/S NATIONAL INSURANCE CO. LTD.              ..... Respondent
                       Through: Mr. Yash Mishra, Adv.

        CORAM:
        HON'BLE THE CHIEF JUSTICE

                           ORDER

% 04.09.2009

The applicant is a proprietorship concern. The respondent is an

insurance company whose services were availed of by the applicant for

the purpose of cash insurance. In 2004, on the request of the

applicant, the respondent issued two policies, one for Rs.5 Crores and

the other for Rs.2.5 Crores. On 17th January, 2005, when the

employees of the applicant were carrying the cash amounting to

Rs.10.22 Lakhs to the bank, the same was looted in broad day light

robbery. One of the employees of the applicant was shot dead in the

incident. Immediately police was called and an FIR in this regard was

also lodged on the same day by the applicant. An intimation in this

regard was also given to the respondent's local office on the same day

which was duly acknowledged.

2. The applicant on 7th March, 2005, wrote a letter to the

respondent requesting them to settle the claim as early as possible. A

copy of the FIR was also sent along with the claim. The applicant again

wrote the letter dated 31st May, 2005 along with a declaration under

both the insurance policies separately. Thereafter, the applicant wrote

several letters, to which the respondent did not reply. After about

more than five months of the incident, the respondent appointed one

Sh. L.D. Arora as the Surveyor/Investigator to assess the loss incurred

by the applicant. According to the applicant, he fully cooperated with

the Surveyor and submitted all the relevant documents to him.

However, for the next six months from the date of appointment of the

surveyor, the applicant did not hear anything from the respondent

office with regard to the settlement of its claims or about the report of

the surveyor. The applicant also wrote letters dated 1.12.2005,

7.12.2005 and 24.12.2005 to the respondent, but the respondent failed

to respond to the said letters. In the meantime, in connection with the

robbery, the police arrested the accused and sealed/seized the bank

account of the mother of one of the accused in which Rs.9 Lakhs were

discovered to be lying. The surveyor appears to have submitted his

report dated 13.12.2005, whereby he admitted the claim of the

applicant upto Rs.3 Lakhs under Policy No. 7600278 and had also given

an observation that the claim may be decided only after identification

of the accused and recovery of the lost amount. The applicant claimed

that thereafter the applicant approached the officers of the respondent

several times, but the respondent kept on asking the applicant to get

the said amount released from the court. Finally, vide letter dated

27.11.2006, the respondent informed the applicant that the

respondent has approved a claim of Rs.3 Lakhs only whereas the total

claim of the applicant was of Rs.9 lakhs and the loss incurred by it was

of Rs.10.22 Lakhs. It appears that thereafter, the amount of Rs.3

Lakhs was released in favour of the applicant upon the applicant's

signing certain documents as required by the respondent - Insurance

Company. In letter dated 9.12.2006, a protest was made that the

applicant is entitled to release of the balance amount.

3. As the disputes arose between the parties, the applicant invoked

the arbitration clause by notice dated 15.6.2007. The respondent by

its reply dated 25.6.2007 refused the existence of any such policy

having an arbitration clause. The respondent also stated in its reply

that the amount paid to the applicant is towards full and final payment

of its claim. The applicant has, therefore, filed the present application

under Section 11(6) of the Act for appointment of an arbitrator in terms

of Clause 8 of the Contract. In the petition, the applicant has, inter

alia, contended:

"The Respondent Insurance Company is explicit from its letter dated 27.11.2006 put a condition precedent of submitting indemnity bond, letter of subrogation and full & final settlement voucher for releasing the amount of Rs.3 Lacs to the applicant. The applicant was compelled to sign those documents by the respondent company in order to get Rs.3 Lacs. The respondent company practiced undue influence upon the applicant and coerced the applicant to sign full and final settlement vouchers etc. as condition precedent for releasing the said amount. The applicant who was already facing financial hardship because of the dacoity of more than Rs.10 Lacs in the above stated compelling circumstances signed vouchers etc. The respondent company's earlier letter dated 07.02.2006 wherein they had asked the applicant to withdraw from the Court the entire money seized by the police from the accused itself shows that they admitted the entire claim of the applicant. However, with malafide intention compelled the applicant to accept Rs.3 Lacs as full and final settlement which was nothing but undue influence and coercion on the part of the respondent company upon the applicant. The applicant immediately informed the respondent that the said amount of Rs.3 Lacs was not acceptable to it towards full and final settlement and was received by the applicant without prejudice. In order to lodge its protest the applicant wrote a letter dated 09.12.2006

requesting the respondent to release the balance amount."

4. In opposing the arbitration application, the respondent Insurance

Company contends that the applicant has accepted the amount as full

and final settlement of all its claims towards the respondent and,

therefore, it is not now open to the applicant to approach this Court for

appointment of an arbitrator for the settlement of dues which already

stood settled on account of payment of Rs.3 Lakhs. It is further

contended that in view of the settlement, the contract stood

discharged and there is no occasion to refer the claim to the

arbitration. It is further contended that the dispute is also not

referable to the arbitration inasmuch as it is not a dispute regarding

quantum of amount payable but rather it is a dispute of determining

the validity of the settlement and the receipt of money in consideration

thereof as per the final settlement. It is submitted that in view of the

dispute not being about of quantum, as the quantum stands

determined, is not referable to the arbitration.

5. The short question that falls for my consideration is when the

allegations of undue influence and coercion are made in regard to the

payment made in discharge of settlement, would it be appropriate for

the Chief Justice/his designate to decide the issue. This question fell

for consideration before a two-Judge Bench of the Supreme Court in

National Insurance Co. Ltd. v. Boghara Polyfab Private Limited,

(2009) 1 SCC 267, where the Bench held that when a respondent

contends that the dispute is not arbitrable on account of discharge of

the contract under a settlement agreement or discharge voucher or

no-claim certificate, and the claimant contends that it was obtained by

fraud, coercion or undue influence etc., the issue will have to be

decided either by the Chief Justice/his designate in the proceedings

under Section 11 of the Act or by the Arbitral Tribunal as directed by

the order under Section 11 of the Act and a claim for arbitration cannot

be rejected merely on the ground that a settlement agreement or

discharge voucher had been executed by the claimant, when its

validity is disputed by the claimants. The Bench, after considering the

consequences of a discharge of contract by an agreement signed by

both the parties or by execution of a full and final discharge

voucher/receipt by one of the parties and also a discharge by "accord

and satisfaction", proceeded to observe:

"29. It is thus clear that the arbitration agreement contained in a contract cannot be invoked to seek reference of any dispute to arbitration, in the following circumstances, when the contract is discharged on account of performance, or accord and satisfaction, or mutual agreement, and the same is reduced to writing (and signed by both the parties or by the party seeking arbitration):

(a) Where the obligations under a contract are fully performed and discharge of the contract by performance is acknowledged by a full and final discharge voucher/receipt, nothing survives in regard to such discharged contract;

(b) Where the parties to the contract, by mutual agreement, accept performance of altered, modified and substituted obligations and confirm in writing the discharge of contract by performance of the altered, modified or substituted obligations;

(c) Where the parties to a contract, by mutual agreement, absolve each other from performance of their respective obligations (either on account of frustration or otherwise) and consequently cancel the agreement and confirm that there are no outstanding claims or disputes."

6. The Bench then observed:

42. We thus find that the cases referred to fall under two categories. The cases relied on by the appellant are of one category where the court after considering the facts, found that there was a full and final settlement resulting in accord and satisfaction, and there was no substance in the allegations of coercion/ undue influence. Consequently, this Court held that there could be no reference of any dispute to arbitration. The decisions in Nav Bharat, 1995 Supp (3) SCC 83 and Nathani Steels 1995 Supp (3) SCC 324 are cases falling under this category where there were bilateral negotiated settlements of pending disputes, such settlements having been reduced to writing either in the presence of witnesses or otherwise. P.K. Ramaiah 1994 Supp (3) SCC 126 is a case where the contract was performed and there was a full and final settlement and satisfaction resulting in discharge of the contract. It also falls under this category.

43. The cases relied on by the respondent fall under a different category where the court found some substance in the contention of the claimants that `no due/claim certificates', or `full and final settlement Discharge Vouchers' were insisted and taken (either in a printed format or otherwise) as a condition precedent for release of the admitted dues. Alternatively, they were cases where full and final discharge was alleged, but there were no documents confirming such discharge. Consequently, this Court held that the disputes were arbitrable.

44. None of the three cases relied on by the appellant lay down a proposition that mere execution of a full and final settlement receipt or a discharge voucher is a bar to arbitration, even when the validity thereof is challenged by the claimant on the ground of fraud, coercion or undue influence. Nor do they lay down a proposition that even if the discharge of contract is not genuine or legal, the claims cannot be referred to arbitration. In all the three cases, the court examined the facts and satisfied itself that there was accord and satisfaction or complete discharge of the contract and that there was no evidence to support the allegation of coercion/undue influence."

Xxxxxx xxxxxx xxxxxx

51. The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the arbitral tribunal with a specific direction that the said question should be decided in the first instance."

(emphasis supplied)

7. In para 52, the Bench gave some illustrations (not exhaustive) as

to when claims are arbitrable and when they are not, when discharge

of contract by accord and satisfaction are disputed amongst others.

"52. Some illustrations (not exhaustive) as to when claims are arbitrable and when they are not, when discharge of contract by accord and satisfaction are disputed, to round up the discussion on this subject are:

(i) xxxxx

(ii) xxxxx

(iii) A contractor executes the work and claims payment of say Rupees Ten Lakhs as due in terms of the contract. The employer admits the claim only for Rupees six lakhs and informs the contractor either in writing or orally that unless the contractor gives a discharge voucher in the prescribed format acknowledging receipt of Rupees Six Lakhs in full and final satisfaction of the contract, payment of the admitted amount will not be released. The contractor who is hard pressed for funds and keen to get the admitted amount released, signs on the dotted line

either in a printed form or otherwise, stating that the amount is received in full and final settlement. In such a case, the discharge is under economic duress on account of coercion employed by the employer. Obviously, the discharge voucher cannot be considered to be voluntary or as having resulted in discharge of the contract by accord and satisfaction. It will not be a bar to arbitration.

(iv) An insured makes a claim for loss suffered. The claim is neither admitted nor rejected. But the insured is informed during discussions that unless the claimant gives a full and final voucher for a specified amount (far lesser than the amount claimed by the insured), the entire claim will be rejected. Being in financial difficulties, the claimant agrees to the demand and issues an undated discharge voucher in full and final settlement. Only a few days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntary but under duress, compulsion and coercion. The coercion is subtle, but very much real. The `accord' is not by free consent. The arbitration agreement can thus be invoked to refer the disputes to arbitration.

(v) xxxxx"

8. In the present case, the claim was for Rs.9 Lakhs and several

letters in that regard were also written by the applicant to the

respondent company. Prima facie I am satisfied that the discharge

was under economic duress on account of compulsion and coercion

employed by the Insurance Company and cannot be regarded as a

discharge given by free consent. In my view, this issue requires a

detailed examination by the arbitrator who can record evidence and

ultimately decide whether there was an accord and satisfaction as

contended by the Insurance Company. Needless to say that both

parties shall be entitled to raise before the arbitrator all contentions as

permissible by law.

9. I appoint Mr. Sanjay Parekh, Advocate as the sole arbitrator to

adjudicate upon the disputes between the parties. The fee of the

arbitrator is fixed at Rs.1,00,000/- (Rupees One Lakh ony) to be shared

equally by the parties. The arbitration petition stands disposed of.

Order dasti.

CHIEF JUSTICE SEPTEMBER 04, 2009 pk