Iffco-Tokia General Insurance ... vs Gujarat Narmada Valley ...
2012 Latest Caselaw 254 Del

*       IN THE HIGH COURT OF DELHI AT NEW DELHI
#25
+                                 O.M.P. 593/2011

        IFFCO-TOKIA GENERAL INSURANCE
        COMPANY LTD                                  ..... Petitioner
                          Through: Mr. Saurav Agarwal,
                                   Mr. Trinath Tadakamalla,
                                   Ms. Tine Abrahams, Advocates.

                         versus

        GUJARAT NARMADA VALLEY
        FERTILIZERS LTD                          ..... Respondent
                        Through: Mr. Raj Shekhar Rao, Advocate.

        CORAM: JUSTICE S. MURALIDHAR

                                   ORDER

% 13.01.2012

1. A short question arises for consideration in the present case in which this

court passed a detailed order on 10th August, 2011 as follows:-

"This petition has been filed under Section 34 of the Arbitration and Conciliation Act to assail the arbitral Award dated 20.05.2011 passed by an Arbitral Tribunal consisting of Mr. Justice S.C. Agarwal (retd.), Mr. Justice S.P. Bharucha (retd.) and Mr. Justice J.K. Mehra (retd.) By the impugned award, the learned Tribunal has awarded the amount of Rs.6,30,000/- towards cost of reinstatement/relocation of the AN Melt filling station. The Petitioner has also been directed to pay interest on the said amount @ 18% p.a. w.e.f 13.10.2006 till the date of the Award. Future interest from the date of the Award, till the date of payment of the said amount, has also been granted @ 18% p.a. The arbitral Tribunal has allowed the respondents claim towards interest on the amount of Rs.8,99,78,337/- from 14.09.2005 to 29.03.2006 @ 18% p.a., on the ground that the payment of the said amount of Rs.8,99,78,337/- had been delayed by the Petitioner.The parties have been left to bear their respective costs.

The Award is assailed by the petitioner, firstly, in respect of the rate of interest awarded by the arbitral Tribunal @ 18% p.a. It is submitted that the rate of interest is high, keeping in view the prevalent rates of interest and rate of inflation at the relevant time. It is secondly contended that the period for which interest has been granted on the amount of Rs.8,99,78,337/-, i.e. from 14.09.2005 to 29.03.2006 is not justified. It is argued that, in fact, for the said period no interest should have been granted in the facts of this case. Thirdly, the submission of the Petitioner is that since the major part of the claim made by the Respondent has been rejected by the arbitral Tribunal, it ought to have awarded costs to the Petitioner for suffering the proceedings spread over fours in 46 sittings.

The submission of learned counsel for the Petitioner in relation to the award of interest on the amount of Rs.8,99,78,337/ - from 14.09.2005 to 29.03.2006 is that the Petitioner had offered the amount of Rs.8,99,78,337/- to the Respondent by its letter dated 21.09.2005 in full and final settlement of the Respondents claim. The Petitioner had demanded a standard discharge voucher from the respondent before making the payment. The Respondent, however, refused to give the signed standard discharge voucher on the ground that the respondent also had a claim under the local authorities clause. Learned counsel submits that the said claim under the local authorities clause for Rs.9.34 crores has been rejected by the arbitral Tribunal. He submits that, therefore, there was no justification for the Respondent not to sign the standard discharge voucher and accept the payment of Rs.8,99,78,337/- when offered by the Petitioner on 21.09.2005.

I am not inclined to accept this submission of the Petitioner. The Petitioner cannot insist that the policy holder should sign the standard discharge voucher before accepting the amount that the insurance company is willing to pay. If the insured has larger claim, he cannot be bound down and his rights cannot be curtailed by the insurance company by insisting that the offered amount should be accepted in full and final settlement of all his claims the policy holders. Whether or not the larger claim of the policy holder is justified, has no relevance in this regard. Merely because the larger claim of the policy holder may have been rejected later on in arbitration proceedings, is no ground

to contend that the insistence for the standard discharge voucher, when it was made, was justified. There is no illegality, much less patent illegality in the award of interest on the delay on account of non release of Rs.8,99,78,337/- from 14.09.2005 to 29.03.2006.

So far as the award on costs is concerned, in my view, since the arbitral Tribunal has partly awarded certain amount to the Respondent, the award made on costs does not call for interference.

Issue notice to the Respondent limited to the aspect of the rate of interest awarded by the arbitral Tribunal returnable on 01.09.2011.

At this stage, learned counsel for the Petitioner states that the petitioner shall pay the interest on the amount of Rs.8,99,78,337/- @ 9% p.a. without prejudice to the rights and contentions of the parties. The Petitioner is free to do so."

2. Thereafter on 1st September, 2011 this Court recorded that learned

counsel for the Petitioner had tendered in Court two cheques aggregating to

a sum of Rs.52,54,587/-. This constituted payment of 9% simple interest on

the sum of Rs. 8,99,78,337 from 14th September 2005 to 29th March 2006.

This was accepted by the Respondent without prejudice to its rights and

contentions.

3. Mr. Saurav Agarwal, learned counsel for the Petitioner submitted that

the background facts were to be considered for appreciating its plea that the

Arbitral Tribunal ('Tribunal') had awarded an excessive rate of simple

interest @ 18% per annum. He pointed out that the Tribunal in fact had

entirely rejected the Respondent's claim in the sum of Rs. 10.49 crores

under the Local Authority Clause (`LAC') pertaining to the relocation of

the AN Melt Filling station, after the accident happened on 14th October,

2003. The Respondent's claim for the consequential loss of profits, till the

unit was relocated was also rejected. It was held that there were in fact no

directions issued in this regard by the local authority. The relocation was

done by the Respondent on its own. It is submitted that the only claim of

the Respondent that was entertained by the Tribunal was in relation to the

material damage to the unit. The Tribunal noted that the Petitioner had

made periodical payments to the Respondent. Rs.10 crores was paid on

30th October 2003, Rs.10 crores on 19th January 2004 Rs.10 crores on 30th

June 2004 and Rs.6.50 crores on 27th December 2004. Mr. Agarwal

submitted that it was only after the Respondent completed reinstatement of

the damaged property on 13th October 2005 that the exact extent of damage

could be assessed. Moreover, the claim itself could not have been

processed till the final report of the Surveyor was submitted. After the final

report of the Surveyor was submitted on 14th September 2005 the Petitioner

wrote to the Respondent on 21st September 2005 enclosing the discharge

voucher. In its reply dated 1st December 2005 to the said letter, the

Respondent reiterated its right to make a claim under the LAC. This

prompted the Petitioner to issue a letter dated 12th January 2006 to the

Respondent refusing to accept the standard discharge voucher with

conditions. By its letter dated 20th January 2006 the Respondent refused to

sign the discharge voucher without conditions. Thereafter on 29th March

2006 the Petitioner made payment of the balance amount of Rs. 28.99

crores to the Respondent. It was submitted that in the above circumstances

there was no justification for the Tribunal to have awarded simple interest

at 18% per annum on the sum of Rs. 8.99 crores from 14th September 2005

till 29th March 2006.

4. Referring to the decisions of the Supreme Court in Krishna Bhagya Jal

Nigam Limited v. C. Harischandra Reddy (2007) 2 SCC 720, State of

Rajasthan v. Ferro Concerete Construction (P) Ltd. (2009) 12 SCC 1 and

Rajendra Construction Company v. Maharashtra Housing & Area

Development Authority (2005) 6 SCC 678, it is submitted by Mr. Agarwal

that the Supreme Court held 18% interest to be excessive and invariably

reduced the rate of simple interest to 9% or even less. Even in McDermott

International Inc v. Burn Standard Co. Ltd. (2006) 11 SCC 181 the

Supreme Court awarded interest at the rate of 7.5%. In Rajasthan State

Road Transport Corporation v. Indag Rubber Limited (2006) 7 SCC 700

the Supreme Court reduced the rate of interest from 12% to 6% per annum.

It is submitted that the interest at 18% in the present case amounted to

Rs.86,97,084/- which was, in the circumstances, a substantial sum. The

Tribunal had not given any reasons for its decision in this regard.

Alternatively, it is submitted that interest should be directed only for the

period beginning from 1st December 2005 when the signed discharge

voucher was sent to the Petitioner and upon receipt of which alone payment

could have been made.

5. In reply Mr. Raj Shekhar Rao, learned counsel for the Respondent, first

submitted that this Court lacked the territorial jurisdiction to entertain the

present petition. Relying upon the decision in GE Countrywide Consumer

Financial Services Ltd. v. Surjit Singh Bhatia 129 (2006) DLT 393, it is

submitted that the mere fact that the arbitral proceedings took place in

Delhi was not relevant for the purposes of Section 34 of the Act. What was

relevant was the subject matter of the arbitration. In the instant case, the

agreement between the parties was entered into in Gujarat; the Respondent

was located in Gujarat; the policy issued to it was in Gujarat and the claim

was made and payments received in Gujarat. On merits, it is submitted that

the Tribunal took into account all the relevant factors and awarded 18%

simple interest on Rs. 8.99 crores for the short period from 14th September

2005 to 29th March 2006. The Surveyor in fact delays the release of the

final report as regards material damage although it was ready in April- May

2005 itself. This was because discussions were being held to persuade the

Respondent to withdraw its claim under the LAC. It is further submitted

that the Petitioner was not justified in making the payment in respect of the

material damage conditional upon the Respondent agreeing to withdraw the

claim under the LAC. There was no patent illegality in the impugned

Award warranting interference by this Court under Section 34 of the Act.

6. It requires to be noted that the plea of the Respondent as regards the

territorial jurisdiction of this Court has not in fact been raised by it in the

reply to the present petition. The Respondent cannot be permitted to raise it

at this stage.

7. The only question that requires to be determined is whether the Tribunal

was justified in awarding the Respondent simple interest @ 18% per annum

on the sum of Rs.8.99 crores for the period from 14th September, 2005 to

29th March, 2006.

8. As already observed in the order dated 10th August 2011, the Petitioner

was not justified in insisting upon the Respondent giving up its claim under

the LAC as a condition for making payment in respect of the material

damage for which there was a report by the Surveyor and which report was

accepted by the Petitioner. The Tribunal has in the impugned Award given

detailed reasons for awarding simple interest at 18% per annum. It accepted

the case of the Petitioner that it could not be held liable for payment of

interest for a period earlier to 14th September 2005 without submission of

the final report of the Surveyor. The Respondent's claim for compound

interest @ 18% per annum was rejected by the Tribunal. It was awarded

only simple interest.

9. The decisions cited by the learned counsel for the Petitioner relate to

payment of interest either pendent lite or post-Award and for much longer

periods, and at a stage when the arbitral proceedings had stretched over

several years. In the present case, the period for which interest has been

awarded is a short one of over six months. Secondly, although the

Surveyor's report on material damage was admittedly ready in April-May

2005, and on the basis of which the Respondent claimed interest from 1st

May 2005 onwards, the Tribunal granted interest only from 14th September,

2005 which was the actual date of submission of the final report of the

Surveyor. Thirdly, the fact that the Petitioner accepted the final report of

the Surveyor is not in dispute. It needlessly imposed the condition that the

Respondent had to give up its claim under the LAC Clause. This was

unnecessary and led to the avoidable delay in the Petitioner making

payment of the sum of Rs. 8.99 crores to the Respondent. This, therefore,

was of the Petitioner's own making. The Petitioner could well have made

the payment of the claim concerning material damage forthwith on 14th

September 2005 itself without conditions. The award of interest from that

date, and not 1st December 2005 cannot be said to be arbitrary or irrational.

The rate of 18% per annum cannot per se said to be excessive. The bank

loan interest rates in commercial transactions are even higher. They are

invariably compounded. The award of interest by the Tribunal, in the

circumstances, cannot be said to be so arbitrary as to bring it within the

parameters of 'patent illegality' or 'opposed to the public policy of India'

requiring interference under Section 34 of the Act.

10. For the aforementioned reasons, no ground is made out for interfering

with the impugned Award even as regards the rate of interest awarded by

the Tribunal. The petition is accordingly, dismissed. Consequently, it is

directed that the Petitioner will make payment to the Petitioner of the

balance amount towards interest in terms of the impugned Award within a

period of eight weeks with the interest being calculated up to the date of

payment.

S. MURALIDHAR, J.

JANUARY 13, 2012 pkv