Madras High Court
United India Insurance Co. Ltd vs Continental Warehousing ... on 27 September, 2021
O.P.No.603, 920 of 2015
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Dated 27.09.2021
CORAM:
THE HONOURABLE MR.JUSTICE N. SATHISH KUMAR
Original Petition Nos.603 and 920 of 2015
In O.P.No.603 of 2015
United India Insurance Co. Ltd.,
No.70, NSC Bose Road, Sowcarpet,
Chennai 600 079. ... Petitioner
Vs.
1. Continental Warehousing Corporation
(Nhava Seva) Ltd., Container Freight Station,
NDR Estates, GNT Road, Kanakkanchatram,
Madhavaram, Chennai 600 110.
2. Commissioner of Customs, Customs House,
No.60, Rajaji Salai, Chennai 600 001.
3. Mr.Manivannan R.Rajan,
Sole Arbitrator, No.8, III Floor,
Bharathan Towers, Old No.973, New.No.36,
Lakshmanaswamy Salai, K.K. Nagar,
Chennai 600 078. .... Respondents
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O.P.No.603, 920 of 2015
In O.P.No.920 of 2015
M/s Continental Warehousing Corporation
(Nhavaseva) Ltd., Container Freight Station,
represented by its Manager, Mr.S.Gnanavelu,
NDR Estates GNT Road, Kanakanchatram,
Madhavaram, Chennai 600 110. ... Petitioner
Vs.
1. United India Insurance Co. Ltd.,
No.70, NSC Bose Road, Sowcarpet,
Chennai 600 079.
2. Commissioner of Customs, Customs House,
No.60, Rajaji Salai, Chennai 600 001.
3. Mr.Manivannan R.Rajan,
Project Technical and Risk Management
Consultant, Insurance Surveyor,
Sole Arbitrator, A-3, 3rd Floor, Vignesh Villa,
No.56, 7th Avenue, Ashok Nagar,
Chennai 600 083. .... Respondents
PRAYER in O.P.No.603 of 2015 : Petition filed under Section 34 of
Arbitration and Conciliation Act, 1996 to set aside the award dated
7.3.2015 made in Arb.Cl.N.1 of 2014 by the third respondent under
Standard Fire & Special Perils Policy Nos.010804/11/10/14/00000148,
149 & 151.
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O.P.No.603, 920 of 2015
PRAYER in O.P.No.920 of 2015 : Petition filed under Section 34 of
Arbitration and Conciliation Act, 1996 to (i) set aside the award dated
7.3.2015 passed by the third respondent in the above proceedings (ii)
remit the matter for fresh arbitration, (iii) order costs of the petition.
O.P.No.603 of 2015
For petitioner : Mr.M.B.Raghavan
For respondents : Mr.K.Bijai Sundar for R1
Mr.V.Sundareswaran for R2
No appearance for R3
O.P.No.920 of 2015
For petitioner : Mr.K.Bijai Sundar
For respondents : Mr.M.B.Raghavan for R1
Mr.V.Sundareswaran for R2
No appearance for R3
COMMON ORDER
The original petition in O.P.No.603 of 2015 has been filed by the
Insurer, challenging the Award passed by the Sole Arbitrator dated
07.03.2015, directing the Insurer to pay 20% of the Customs Duty.
Similarly, the original petition in O.P.No.920 of 2015 has been filed by
the Insured, challenging the same portion of the Award passed by the
Sole Arbitrator by disallowing the remaining 80% of the Customs Duty.
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O.P.No.603, 920 of 2015
Hence, this court is inclined to dispose of both the original petitions by
passing the common order.
2. For the sake of convenience, the petitioner in O.P.No.603 of
2015 is called as Insurer and the first respondent in the above O.P is
called as Insured.
3. The brief facts leading to file these original petitions is as
follows.
The first respondent (Insured) operates public bonded
Warehouses and the second respondent issued license to them under
the provisions of the Customs Act, 1962. The Insured availed an
insurance policy namely " Standard Fire & Special Perils Policy " for
the materials stored in a Public Bonded Warehouse for the period from
30.05.2010 to 29.05.2011, in the name of Commissioner of Customs,
the second respondent herein, and the first respondent have the control
and custody of such bonded goods.
3.1. As the bonded goods were destroyed in a fire accident that
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O.P.No.603, 920 of 2015
occurred on 14.04.2011, the Insurer appointed a Surveyor to assess the
value of the goods. The surveyor submitted his final report dated
05.04.2013 and the loss was assessed as follows.
i) Value of the destroyed goods - Rs.22,00,43,770/-
ii) Customs Duty - Rs. 5,29,99,026/-
----------------------
Total - Rs.27,30,42,796/-
---------------------
According to the Insurer, in the light of the nature of insurance,
coverage being provided only for the " Value of goods " and not for "
Customs Duty " and statutorily, no Duty is chargeable on such goods,
which are destroyed before any clearance order and where the owner
had abandoned by issuing NOC. Finally, the Insurer admitted the claim
for a sum of Rs.20,02,95,579/-. as indicated below and offered
settlement.
a] Value of Goods ... Rs.22,00,43,770
b] Duty (already paid) ... Rs. 2,69,882
---------------------
.... Rs.22,03,13,652
Less: Salvage ... Rs. 2,19,91,297
----------------------
Total ... Rs.19,83,22,355
Add: Removal of
Debris (1% of claim) ... Rs. 19,83,224
Less: Excess ... Rs. 10,000
---------------------
Net Loss payable ... Rs.20,02,95,579
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O.P.No.603, 920 of 2015
----------------------
3.2. The contention of the Insurer is that they released various
payments and totally paid a sum of Rs.19,59,06,237/- to the Insured.
However, the Insured claimed to pay the Customs Duty also, as per the
Surveyor Report. Therefore, by consent of both the Insurer and the
Insured, the dispute was referred to the sole Arbitrator, the third
respondent herein.
3.3. On the basis of the pleadings raised by both the parties, the
learned Arbitrator framed the following issues.
1. Whether the claimant is entitled for any further amount towards
the loss claimed other than the duty amount and if so, to what
amount?
2. Whether the respondent is liable for the customs duty portion of
the claim?
3. Whether the claimant is entitled to any interest and if so, on what
amount and for what period?
4. To what relief?
3.4. Having framed issues and perused the materials, the learned
Arbitrator finally arrived at conclusion and passed the Award directing
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O.P.No.603, 920 of 2015
the Insurer to pay the following amounts to the Insured.
1. Balance amount towards value of goods .. Rs. 43,89,342/-
2. Customs Duty .. Rs.1,05,45,829/-
3. Interest .. Rs. 24,80,952/-
--------------------
Total .. Rs.1,74,16,123/-
--------------------
Feeling aggrieved that the Arbitrator directed the Insurer to pay 20% of
the Customs Duty and disallowed the remaining portion of 80%, the
Insurer as well as the Insured have filed the present original petitions.
4. The learned Arbitrator, while arriving at Rs.1,05,45,829/-
towards Customs Duty, has stated as " to strike a balance, instead of as
a mean or median, the Tribunal feels that it may suffice to pass an
award for 20% of the Rs.5,27,29,144/- (5,29,99,026 - 2,69,882) being
Rs.1,05,45,829/- towards Customs Duty.
5. The learned counsel for the Insurer submitted that as per the
policy, the Customs Duty on the destroyed goods fell within the insuring
clause " Value of goods" and it has been already paid by the Insurer. He
further submitted that when the goods were destroyed before being
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O.P.No.603, 920 of 2015
cleared, there can be no claim for Customs Duty, since Section 23 of the
Customs Act, mandates remission and the Law itself abandons the Duty.
Therefore, the findings of the Arbitrator, by invoking Principles of
Equity, directing the Insurer to pay the discretionary amount of 20%
towards 'Customs Duty' is contrary to law and is perverse.
6. The learned counsel appearing for the Insured (first
respondent) submitted that the Arbitrator has erred in awarding only
20% towards 'Customs Duty' and disallowed the remaining 80%, based
on the Principles of Equity and hence, such findings has to be set aside.
7. The learned counsel appearing for the Insurer as well as the
Insured submitted that the Arbitrator has passed the Award based on the
equitable grounds, which cannot be sustained in the eye of law and it is
contrary to the Proviso to Section 28(2) of the Arbitration and
Conciliation Act. Further, the learned Arbitrator has not taken note of
Section 23 of the Customs Act to find out, whether the Customs Duty
has to be paid or not on the destroyed goods. Therefore, it is submitted
that the Award directing the Insurer to pay 20% of the Customs Duty
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O.P.No.603, 920 of 2015
and rejecting 80% on equitable grounds is against the Fundamental
Policy of India.
8. As rightly pointed out by both the counsels, the Arbitrator in
his judgment at paragraph 147, has fixed the liability on the Insurer to
pay 20% of the Customs Duty and disallowed the remaining 80% of the
Customs Duty, mainly on the ground of Principles of Equity and not on
the basis of Law or Contract. Therefore, passing such Award, based on
the Principles of Equity is arbitrary and perverse. Section 28(2) of the
Arbitration and Conciliation Act makes it clear that unless the parties
agreed, the Award cannot be on the basis of equitable principles.
Further, learned Arbitrator has not discussed Section 23 of the Customs
Act, which deals with the "Remission of Duty on lost, destroyed or
abandoned goods". The learned Arbitrator not even discussed whether
the goods were totally destroyed or salvaged, to invoke Section 23 for
exemption of Customs Duty.
9. Such view of the matter, without expressing any opinion on
merits in this context, particularly Section 23 of the Customs Act, this
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O.P.No.603, 920 of 2015
court is of the view that the Award passed by the Arbitrator is against
the substantial law of India and it is nothing but perversity. The entire
Award passed by the Arbitrator is based on the equitable principles.
Accordingly, the Award passed by the Arbitrator in respect of Customs
Duty alone is set aside. In respect of other aspects, there is no dispute
between the parties.
10. Accordingly, both the original petitions in O.P.Nos.603 of
2015 and 920 of 2015 are allowed and the Award passed by the
Arbitrator dated 07.03.2015 is set aside, with regard to the Customs
Duty alone and for the same, the parties are at liberty to initiate
Arbitration Proceedings, as per Law, particularly, Section 23 of the
Customs Act and connected judicial proceedings in this aspect. No
costs.
27.09.2021
Index : Yes / No
Internet: Yes
Speaking/non speaking order
mst
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O.P.No.603, 920 of 2015
N. SATHISH KUMAR, J.
mst
O.P.Nos.603, 920 of 2015
27.09.2021
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