Shah Sponge & Power Limited vs M/S Oriental Insurance Co. ...
2022 Latest Caselaw 4324 Jhar

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   IN THE HIGH COURT OF JHARKHAND AT RANCHI

                 Arbitration Application No. 28 of 2021
Shah Sponge & Power Limited, having its Registered Office at 7-Grant Lane
Ganapati Chambers, Room no. 310, Cabin no. 5, Kolkata-700012 (West
Bengal), and Administrative office at Holding no. 18, 2 nd Floor, Padmalaya
Building, Ram Mandir Shop Area, P.O. & P.S. Bistupur, Jamshedpur-
831001 (Jharkhand), through one of it's Directors, namely Satya Nand Jha,
aged about 36 years, son of Sri Punya Nand Jha, resident of Flat No.1D, 1 st
Floor, Sri Vatika Apartment, Cheshire Home Road, Dipatoli, P.O. Bariatu,
P.S. Dipatoli, District-Ranchi.
                                                            ... ... Applicant
                                  Versus
M/s Oriental Insurance Co. Limited, through its Branch Manager, Mango
Branch, having its office at Arjun Tower, Mango Main Road, Town
Jamshedpur, P.O. and P.S. Mango, District East Singhbhum (Jharkhand).
                                             ... ... Opposite Party/Respondent
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CORAM: HON'BLE MR. JUSTICE SUJIT NARAYAN PRASAD

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For the Applicant     : Mr. Krishanu Ray, Advocate
For the Opp. Party    : Mr. Manish Kumar, Advocate
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08/Dated: 21 October, 2022

1. This application has been filed under Section 11(6) of the Arbitration

and Conciliation Act, 1996 (hereinafter referred to as the Act, 1996)

seeking direction for appointment of sole Arbitrator so as to make

reference of the dispute arisen between the parties for its adjudication.

2. The brief facts of the case, as has been enumerated in the instant

arbitration application, read as under:

The petitioner/applicant, namely, Shah Sponge & Power

Limited having its office at 7-Grant Lane Ganapati Chambers, Room no.

310, Cabin no. 5, Kolkata-700012 (West Bengal), and Administrative

office at Holding no. 18, 2nd Floor, Padmalaya Building, Ram Mandir

Shop Area, P.O. & P.S. Bistupur, Jamshedpur-831001 (Jharkhand),

made a proposal/request for premium quote in respect of IAR and

Marine Open Policy to the opposite party-Insurance Company.

It further appears from the pleadings made in the arbitration

application that after receiving the policy the applicant/petitioner found

that the sum assured against MLOP was Rs.5,10,00,000/- as against the

proposal for Rs.15,10,00,000/-, as such, the applicant/petitioner

immediately made an application on 26.07.2017 requesting therein to

provide endorsement with the actual proposed amount at the earliest.

But, the opposite party did not respond to the applicant/petitioner's

application and also no action has been taken.

The applicant/petitioner since suffered machinery breakdown

loss of Rs.1,66,65,264/- and business interruption loss of

Rs.4,38,95,731/-. The applicant/petitioner in consequence of such loss,

made claim of Rs.6,05,60,995/- as per the terms and conditions of the

policy on 24.12.2019.

It is the case of the applicant/petitioner that the opposite party

had settled the machinery breakdown loss for an amount of

Rs.1,09,65,000/- but, the claim for business interruption was rejected

stating that the claim is falling under deductibles. The

applicant/petitioner has disputed the aforesaid stand of the opposite party

on the ground that the sum insured was wrongly captured in the policy

and the loss assessment was not done as per the terms and conditions of

the policy. The applicant/petitioner has also raised objection vide letter

dated 22.02.2021 requesting therein to send break-up of admissible claim

to understand the settlement amount.

As such, request has again been made vide letter dated

09.04.2021 wherein the report of the surveyor has also been asked for.

According to the applicant/petitioner, Clause 12 of the policy contains

the arbitration clause, as such, he has made a request by giving an

application as contained in letter dated 20.05.2021 in terms of Section 21

of the Act, 1996. The applicant/petitioner, in the backdrop of the

aforesaid fact has filed the instant arbitration application invoking the

jurisdiction of this Court conferred under Section 11(6) of the Act, 1996.

3. This Court has heard the learned counsel for the applicant/petitioner and

issued notice upon the opposite party as would appear from order dated

27.06.2022. In pursuance thereof, the opposite party has put its

appearance through its counsel, namely, Mr. Manish Kumar. Counter

affidavit has been filed in objection to the averment made in the

application dated 05.09.2022 and 18.10.2022. The stand inter alia has

been taken in both the affidavits that the claim which is the subject

matter of the dispute is inconsistent with the admissibility of claim since

the cause of loss and the extent of damage is covered by the policy

issued by operating office. The internal accidental damage resulting in

breakdown of Turbo Generator (TG Set) Make Toyao Denki Power

Systems with capacity 1875 KVA (15MW) is the cause of loss due to

which the Stator and Rotor of the Generator was found to have suffered

major damage. The admissibility of the claim has been confirmed by the

surveyor. It has further been stated that the sum insured under the policy

is subject to underinsurance as detailed in the survey report.

The opposite party has taken the stand that, however, the claim

pertaining to sustaining business loss is also the subject matter of policy

but as per the report of the surveyor since the aforesaid claim has been

repudiated by the opposite party-Insurance Company and as such, there

is no such basis of the claim pertaining to business loss which is being

claimed to be sustained by the applicant/petitioner.

4. The learned counsel for the applicant/petitioner, in response to the

submission on repudiation, has raised objection by agitating the point

that there is no such decision to that effect as is being submitted by the

learned counsel for the opposite party.

5. This Court, on the last date of hearing, has adjourned the matter granting

time to the opposite party to bring on record the order of repudiation, if

any so far as it relates to business loss.

6. An affidavit to that effect has been filed on 18.10.2022 on behalf of the

opposite party but no such order of repudiation has been filed, however,

the claim as was submitted by the applicant/petitioner has been appended

to the aforesaid affidavit in order to demonstrate that the claim which

was made by the applicant/petitioner pertains in two parts, first for

breakdown of machinery and second pertains to sustaining business loss.

7. It has orally been submitted by the learned counsel for the opposite party

that there is no order of repudiation of the claim but the opposite party

since has acted upon on the report of the surveyor who has denied the

claim of the applicant/petitioner so far as it relates to sustaining business

loss and as such, the same will be treated to be repudiation of the claim.

8. This Court has heard the learned counsel for the parties, considered the

relevant documents appended in the instant application. The application

since has been filed under Section 11(6) of the Act, 1996, therefore, this

Court, before coming to the conclusion as to whether the instant

application is maintainable on the ground of arbitrability of the dispute,

deems it fit and proper to refer the condition of the policy which contains

a condition to refer the dispute before the arbitrator for

adjudication/settlement of the dispute.

It appears from Clause -12 of the policy as contained in

Annexure-2 to the application that if any difference shall arise as to the

quantum to be paid under this policy (liability being otherwise 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, of 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. For ready reference, the

aforesaid condition is being referred as under:

"12. If any difference shall arise as to the quantum to be paid under this policy (liability being otherwise 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, of 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 hereinabove provided, if the Company has disputed or not accepted liability under or in respect of this policy. 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 or umpire of the amount of the loss or damage shall be first obtained.

9. It is, thus, evident after going through the condition stipulated under

Clause 12 of the policy that in case of any difference pertaining to

quantum to be paid under the policy if the liability is not admitted, the

parties have been given right to appoint arbitrator.

Admittedly herein, the condition stipulates for appointment of

arbitrator in case of any difference of quantum to be paid under the

policy. The applicant/petitioner has raised the issue about his claim in

two parts, first for breakdown of machinery and second pertains to

sustaining business loss due to breakdown of machinery.

10. It has not been disputed by the opposite party as would appear from the

pleadings made in the affidavit filed on its behalf that the policy is in two

parts. Further, it has also not been disputed what is the meaning of

quantum, whether quantum means only a part of loss sustained due to

machinery breakdown or the quantum includes the loss sustained in

business due to breakdown in machinery.

It is also not in dispute that the terms and conditions of the

policy has not been complied with by the applicant/petitioner and the

entire machinery is governed under the aforesaid policy. The only

dispute which is to be adjudicated is as to whether the

applicant/petitioner is entitled for any claim leading to loss sustained in

business due to machinery breakdown or not?

11. The applicant/petitioner, on that cause, has raised the claim before the

opposite party-Insurance Company. First claim pertaining to the

breakdown in machinery has been settled and the amount has been paid

and the said fact is admitted by both the parties but, the claim pertaining

to loss in business due to machinery breakdown comes under the

difference pertaining to quantum or not is the sole dispute to be

adjudicated.

12. Learned counsel for the opposite party has not raised the issue that the

claim which is the subject matter of adjudication is not arbitrable rather

the argument has been advanced that the applicant/petitioner is not

entitled for such claim, therefore, the matter not be referred before the

arbitrator.

13. Position of law is well settled as has been settled in Vidya Drolia & Ors

Vs. Durga Trading Corporation, (2021) 2 SCC 1 wherein at paragraph-

77, the Hon'ble Apex Court had dealt with the arbitrability of the dispute

which is to be adjudicated by the sole arbitrator has laid down the

proposition that in case of institution of criminal case issue will be said

to non-arbitrabale as they relate to sovereign functions of the State.

Further, violation of criminal law is offences against the State not just

against the victim. Further, matrimonial disputes relating to the

dissolution of marriage, restitution of conjugal rights etc. are not

arbitrable as they fall within the ambit of sovereign functions and do not

have any commercial and economic value. For ready reference,

paragraph 77 of the judgment is quoted hereunder as:

"77. Applying the above principles to determine non-arbitrability, it is apparent that insolvency or intracompany disputes have to be addressed by a centralised forum, be the court or a special forum, which would be more efficient and has complete jurisdiction to efficaciously and fully dispose of the entire matter. They are also actions in rem. Similarly, grant and issue of patents and registration of trade marks are exclusive matters falling within the sovereign or government functions and have erga omnes effect. Such grants confer monopoly rights. They are non-arbitrable.

Criminal cases again are not arbitrable as they relate to sovereign functions of the State. Further, violations of criminal law are offences against the State and not just against the victim. Matrimonial disputes

relating to the dissolution of marriage, restitution of conjugal rights, etc. are not arbitrable as they fall within the ambit of sovereign functions and do not have any commercial and economic value. The decisions have erga omnes effect. Matters relating to probate, testamentary matter, etc. are actions in rem and are a declaration to the world at large and hence are non-arbitrable."

Further, at paragraph 78, the effect of allegation of fraud has

been taken into consideration and by doing so it has been laid down that

the allegation of fraud can be made a subject matter of arbitration when

they relate to a civil dispute. This is subject to the caveat that fraud,

which would vitiate and invalidate the arbitration clause, is an aspect

relating to non-arbitrability.

For ready reference, paragraph 78 of the judgment is quoted

hereunder as:

"78. In view of the aforesaid discussions, we overrule the ratio in N. Radhakrishnan [N. Radhakrishnan v. Maestro Engineers, (2010) 1 SCC 72 : (2010) 1 SCC (Civ) 12] inter alia observing that allegations of fraud can (sic cannot) be made a subject-matter of arbitration when they relate to a civil dispute. This is subject to the caveat that fraud, which would vitiate and invalidate the arbitration clause, is an aspect relating to non- arbitrability. We have also set aside the Full Bench decision of the Delhi High Court in HDFC Bank Ltd. [HDFC Bank Ltd. v. Satpal Singh Bakshi, 2012 SCC OnLine Del 4815 : (2013) 134 DRJ 566] which holds that the disputes which are to be adjudicated by the DRT under the DRT Act are arbitrable. They are non-arbitrable."

Further, at paragraph 82 issue of non-arbitrability has been dealt

with and it has been stated that issue of non-arbitrability can be raised at

three stages; firstly before the court on an application for reference under

Section 11 or for stay of the pending judicial proceedings and reference

under Section 8 of the Arbitration Act; secondly, before the Arbitral

Tribunal during the course of the arbitration proceedings; or thirdly,

before the court at the stage of the challenge to the award or its

enforcement.

For ready reference, paragraph 82 of the judgment is quoted

hereunder as:

"82. Issue of non-arbitrability can be raised at three stages. First, before the court on an application for reference under Section 11 or for stay of pending judicial proceedings and reference under Section 8 of the Arbitration Act; secondly, before the Arbitral Tribunal during the course of the arbitration proceedings; or thirdly, before the court at the stage of the challenge to the award or its enforcement. Therefore, the question -- "Who decides non-arbitrability?" and, in particular, the jurisdiction of the court at the first look stage, that is, the referral stage."

Again, the Hon'ble Supreme Court has laid down at paragraph

147.4 that most jurisdiction accept and require prima facie review by the

court on non-arbitrability aspects at the referral stage.

But, herein, no such reason is available and that is not the case

of the opposite party, therefore, according to the considered view of this

Court, it cannot be said to be proper that the dispute is not arbitrable

since the stand of the opposite party all along is that the

applicant/petitioner is not entitled for the claim pertaining to loss in

business due to machinery breakdown.

14. Since the contract pertains to settlement of dispute in case the dispute is

not resolved by the parties by appointing arbitrator in case of difference

arisen on the ground of quantum to be paid under the policy, therefore,

according to the considered view of this Court, the aforesaid quantum is

required to be adjudicated.

15. Admittedly, herein, the request to that effect has been made in view of

the provision of Section 21 of the Act, 1996 but no such arbitrator has

been appointed by the opposite party rather the claim shown to have

been rejected by making a communication to the applicant/petitioner.

Further, the applicant/petitioner has also sought for details of the break-

up of the quantum but no such break-up has been furnished, therefore,

the dispute pertaining to loss sustained in business due to machinery

breakdown requires adjudication.

16. This Court, on the basis of the discussion made hereinabove and after

taking into consideration the stand inter alia taken by the opposite party-

Insurance Company, is of the view that whatever objection is being

made is of merit and not the arbitrability of the dispute.

17. This Court, therefore, is of the considered view that since the issue of

arbitrability is not an issue, as such, this application is required to be

allowed. Accordingly, the instant application stands allowed.

18. This Court, has sought for suggestion from the learned counsel for the

parties with respect to the name of the arbitrator to be appointed.

Learned counsel for the parties have submitted that any former Hon'ble

Judge of this Court may be appointed as arbitrator.

19. Accordingly, this Arbitration Application is being disposed of by

appointing Hon'ble Mr. Justice (Retd.) N. N. Tiwari, Former Judge of

the High Court of Jharkhand, presently residing at F/673, Tiwari Lane,

J.C. Road, Burdwan Compound, Ranchi as Arbitrator for resolution of

dispute.

20. Let photocopy of the entire pleadings along with copy of the entire order

sheet be sent to the learned Arbitrator by the Registry.

21. Both the parties shall co-operate in the hearing before the learned

Arbitrator and they shall not ask for any unnecessary adjournment.

22. The instant arbitration application is allowed, accordingly, disposed of.

(Sujit Narayan Prasad, J.) Saurabh/-