The New India Assurance Co. Ltd vs M/S. Soosree Plastic Industries ...
2022 Latest Caselaw 2367 Ori

             IN THE HIGH COURT OF ORISSA AT CUTTACK

                             ARBA No.14 Of 2010
                            (Through hybrid mode)

        The New India Assurance Co. Ltd.        ....           Appellants
        and others
                                                  Mr. S.S. Rao, Advocate
                                              Mr. S.K. Sarangi, Advocate

                                   -versus-

        M/s. Soosree Plastic Industries Pvt.    ....          Respondent

Ltd.

Mr. Milan Kanungo, Senior Advocate Mr. Soumya Ranjan Mohanty, Advocate

CORAM: JUSTICE ARINDAM SINHA Order ORDER No. 26.04.2022

44. 1. Mr. Rao, learned advocate appears on behalf of appellants and

submits, by impugned judgment dated 27th February, 2010 his clients'

challenge to the award was rejected. He refers to record of

submissions in order dated 13th January, 2017, made by coordinate

Bench. Three points were noted. Firstly, appointment of the arbitrator

was itself illegal. Secondly, the claim was barred by limitation and

thirdly, amount awarded is exorbitantly excessive. Court observes that

challenge to the award may not be sustained on the third point, on

exorbitance. That would be matter of merits and cannot be gone into

under section 34, Arbitration and Conciliation Act, 1996.

// 2 //

2. On the first point Mr. Rao submits, condition no.13 in the

contract was the arbitration agreement clause. Appointment of sole

arbitrator was to be in writing by the parties, failing which the party

invoking arbitration would appoint one arbitrator and the other party,

the other. The two appointees were to appoint the third

arbitrator/umpire. This was not done. Instead, the reference was on

appointment of arbitrator, in the manner ruled by the arbitrator on his

jurisdiction, saying that agreement of parties was recorded by the

Consumer Forum, as a consequence of which the consumer complaint

proceeding was dropped.

3. The arbitration clause in the insurance policy was extracted and

supplied to Court in a note filed by appellants. The clause is

reproduced below.

"If any dispute or 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 a sole arbitrator to be appointed in writing by parties to or if they cannot agree upon a single arbitrator within 30 days of any party invoking arbitrator, comprising of the two arbitrators one to be appointed by each of the parties to the dispute/difference and the third arbitrator to be appointed by such two arbitrators and arbitrations shall be conducted under and in

// 3 //

accordance with the provisions of Arbitration and Conciliation Act, 1996."

4. Mr. Rao reiterates, there was arbitration agreement between the

parties regarding appointment of arbitrator. The arbitrator was not

appointed in accordance therewith. Sub-clause (v) under clause (a) in

sub-section (2) of section 34, Arbitration and Conciliation Act, 1996

provides for setting aside of the award on ground, inter alia,

composition of the arbitral Tribunal was not in accordance with the

agreement of the parties. He submits, respondent chose to go to the

forum with its cause. On the respondent abandoning the same in the

forum, the complaint was disposed of as dropped, on being withdrawn.

Appointment of arbitrator through the forum was not the agreement of

the parties. As such, the agreed procedure for appointment of arbitrator

was not resorted to in the appointment of the sole arbitrator. On that

ground alone the award should be set aside.

5. Without prejudice to his above submissions Mr. Rao submits,

even if it is accepted that his client participated in the making of

aforesaid consent order dated 29th April, 2003, the next step for

respondent, to have appointment of arbitrator, ought to have been by

writing executed both by it and his client. The agreed procedure

required the same. Not having done so or if respondent had

apprehension that even after aforesaid consent order, his client would

// 4 //

not join in appointment of the arbitrator, respondent ought to have

moved the Chief Justice by request for appointment of arbitrator

under sub-section (6) in section 11. The Consumer Forum did not

have jurisdiction, authority or power to appoint arbitrator. In every

way looked at, the appointment offends both agreed and statutory

procedures provided for the purpose.

6. He relies on judgment of the Supreme Court in Jagdish

Chander v. Ramesh Chander reported in (2007) 5 SCC 719, clause

(iv) under paragraph-8, reproduced below.

(iv) But mere use of the word 'arbitration' or 'arbitrator' in a clause will not make it an arbitration agreement, if it requires or contemplates a further or fresh consent of the parties for reference to arbitration. For example, use of words such as "parties can, if they so desire, refer their disputes to arbitration" or "in the event of any dispute, the parties may also agree to refer the same to arbitration" or "if any disputes arise between the parties, they should consider settlement by arbitration" in a clause relating to settlement of disputes, indicate that the clause is not intended to be an arbitration agreement. Similarly, a clause which states that "if the parties so decide, the disputes shall be referred to arbitration" or "any disputes between parties, if they so agree, shall be referred to arbitration" is not an arbitration

// 5 //

agreement. Such clauses merely indicate a desire or hope to have the disputes settled by arbitration, or a tentative arrangement to explore arbitration as a mode of settlement if and when a dispute arises. Such clauses require the parties to arrive at a further agreement to go to arbitration, as and when the disputes arise. Any agreement or clause in an agreement requiring or contemplating a further consent or consensus before a reference to arbitration, is not an arbitration agreement, but an agreement to enter into an arbitration agreement in future."

He submits, purported consent order of the forum can at best be said to

be an agreement to abide by the agreed procedure.

7. He submits further, claims of respondent were also barred by

agreement term under clause 6(ii) of the policy. The clause is

reproduced below.

"In no case whatsoever shall the company be liable for any loss or damage after the expiration of 12 months from the happening of the loss of damage unless the claim is the subject of pending action of arbitration it being expressly agreed and declared that if the company shall disclaim the liability for any claim hereunder and such claim shall not within 12 calendar months from the date of disclaimer have been made the subject matter of a suit in a Court of law then the claim shall for all purpose be deemed

// 6 //

to have been abandoned and shall not thereafter be recoverable hereunder."

His client, by letter dated 19th December, 2001 finally settled the claim

and respondent, within 12 calendar months thereafter, did not make

claim nor was arbitration reference commenced. The term, binding the

parties in the situation, was that no claim whatsoever would be

entertained after lapse of 12 calendar months. The arbitrator could not

have gone beyond four corners of this condition, to award. As such the

award is in conflict with mandate in section 28 and therefore against

public policy and was liable to and should have been set aside under

section 34.

8. Mr. Kanungo, learned senior advocate appears on behalf of

respondent and draws attention to the consumer complaint to submit, it

was made on deficiency of service, occasioned by appellants not

having appointed arbitrator in terms of arbitration agreement in the

policy. He refers to the prayers, reproduced below.

"In the light of the above facts and circumstances, the petitioner humbly prays that your Honour be graciously pleased to direct the opposite parties that.

(a) A sum of Rs.3,00,000/- be paid to the petitioner by opposite parties for deficiency in service as contemplated under (i), (ii), (iii) and (iv);

       (b)     The opposite parties be directed to pay

                                   // 7 //

Rs.2,40,584/- to the petitioner which the petitioner is to accept UNDER PROTEST and WITHOUT PREJUDICE to its rights;

(c) The opposite-parties be directed to pay Rs.2,70,440/- to the petitioner-company alongwith interest @ 25% per annum;

(d) This Hon'ble Forum may direct the difference regarding quantum to be paid to petitioner under the insurance policy to Hon'ble Justice S.K. Mohanty for adjudication of the same;"

He submits, on 19th December, 2001 appellants had made purported

offer of settling the claim at Rs.2,40,584/-. His client disputed the

settlement and immediately by letter dated 26th December, 2001

nominated arbitrator for reference of the disputes. There was no

response from appellants. In the circumstances, his client lodged

Consumer Dispute Case no.28 of 2002 on additional claim of

deficiency in service regarding appointment of arbitrator. He lays

emphasis on the complaint, as directed at deficiency of service in that

aspect, evidenced from prayers made therein. Before the forum,

appellants indicated willingness to refer the disputes to arbitration.

Their only assertion was there should be change of personnel, its

suggested retired Judge, to be arbitrator. Accordingly, on 29th April,

2003 the consumer case was disposed of. Text of the order is

reproduced below.

// 8 //

"Heard Mr. Kanungo and Mr. Parija. Both parties agreed that the matter may be decided by the Arbitrator Justice P.K. Mohanty, a Retired Judge of the Orissa High Court. Since the parties want to go in for arbitration, we have no reason to retain the case with us. Accordingly the matter is dropped as withdrawn."

9. He submits, the arbitrator and thereafter the Court below relied

on judgment of the Supreme Court in B.S.N.L. v. Subash Chandra

Kanchan reported in (2006) 8 SCC 279. He relies on paragraphs 12

and 16 (Manupatra print). The paragraphs are reproduced below.

"12. The contract entered into by and between the parties was subject to the provisions contained in the 1996 Act.

Although in terms of the arbitration agreement contained in Clause 25 of the contract, ordinarily the arbitrator appointed by the Managing Director should act as arbitral tribunal in respect of the disputes and differences between the parties to the contract; in this case, the Appellants must be held to have waived their right as they consented to the appointment of Shri Bhattacharya as an arbitral tribunal. The High Court having appointed the arbitral tribunal on consent, it is, in our opinion, not open to the Appellants now to contend that no such concession was made.

     xx                   xx                  xx            xx

                                    // 9 //

"16. Furthermore, in terms of Order III, Rule 1 of the Code of Civil Procedure, a litigant is represented by an advocate. A concession made by such an advocate is binding on the party whom he represents. If it is binding on the parties, again subject to just exceptions, they cannot at a later stage resile therefrom. The matter may, however, be different if a concession is made on a question of law. A wrong concession on legal question may not be binding upon his client. Here, however, despite the stand taken by the Appellant in its written statement before the High Court the learned Advocate consented to appointment of a person as an arbitrator by the High Court in exercise of its jurisdiction under Section 11 of the 1996 Act, in our considered view, the same should not be permitted to be resiled from. A person may have a legal right but if the same is waived, enforcement thereof cannot be insisted.

He submits, there was clear waiver on part of appellants regarding

agreed procedure of both parties joining in writing to appoint sole

arbitrator.

10. On contention of his client's claim having stood extinguished

by the policy term, he reiterates his reliance on aforesaid sequence of

events to show that the dispute arose on purported settlement made

by appellants and his client had immediately sought reference, which

culminated in appointment of the arbitrator on aforesaid concession

order dated 29th April, 2003 of the forum.

// 10 //

11. Regarding the additional submission made on behalf of

appellants Mr. Kanungo submits, this contention of agreed procedure

having failed and therefore, appointment was to be made under sub-

section (6) in section 11 was never urged, neither before the

arbitrator in the section 16 challenge nor before the Court below. It is

for the first time in appeal, this contention. It is to be rejected. He

submits further, the agreement by said consent order is an agreement,

further to the agreed procedure and thereafter acted upon. The

Consumer Forum did not itself appoint the arbitrator. It only

recorded the parties' agreement.

12. The arbitration agreement between the parties required them to

appoint sole arbitrator in writing. If they could not agree upon a

single arbitrator within 30 days on any party invoking, there were to

be two arbitrators, one to be appointed by each of the parties and

thereafter the appointees to appoint third arbitrator, was agreed

procedure. The sequence of events show that the claim was made as

arising out of damage caused by super cyclone. On 19th December,

2001, appellants sought to settle the claim at Rs.2,40,584/-. This

cannot be seen as a repudiation, to attract the extinguishing of claims

clause. Nevertheless, soon after on 26th December, 2001, respondent

nominated the retired Judge, in terms of the arbitration agreement. In

the situation, appellants had option of either accepting respondent's

// 11 //

nominee as arbitrator, to enter into the disputes or appoint another

person as its nominee arbitrator. Appellants did not respond to the

nomination. Above omission on part of appellants was claimed by

respondent to be deficiency in service, for approaching the forum. In

the forum there was order dated 29th April, 2003, made on consent,

text of which stands reproduced above.

13. Appellants' contention is that the claim before the forum stood

withdrawn. For ascertaining scope of the complaint, reference to

prayers made therein will show that a sum of Rs.3,00,000/- was

claimed by respondent for deficiency of service. Further direction

prayed for was for appellants to pay Rs.2,40,584/-, which respondent

would accept under protest and still further direction regarding

quantum to be paid under the insurance policy, to be referred to

respondent's nominated arbitrator for adjudication. There was an yet

further prayer for direction upon appellants to pay Rs.2,70,440/- on

account of refund of premium paid for subsequent year, since

respondent wanted to insure itself with some other insurance

company. It appears from said consent order dated 29th April, 2003

that respondent gave up prayers (a), (b) and (c), to only take direction

on prayer (d). Consideration for giving up the prayers appears to be

appellants' consent to refer the disputes to another retired Judge,

suggested by it.

// 12 //

14. From above analysis it is clear that the extinction clause

cannot be made applicable to the facts and circumstances. As

aforesaid there was no repudiation. On top of that there was omission

on part of appellants to act in terms of agreed procedure in the

agreement regarding adjudication of disputes by arbitration. Thirdly,

in consideration of respondent forgoing prayers (a), (b) and (c),

appellants imposed their nominee as sole arbitrator, for the disputes

to be referred. In the premises, it cannot be said that agreed

procedure was not followed in appointment of the tribunal.

15. Jagdish Chander (supra) is clearly not applicable inasmuch

as policy clause 13 providing for arbitration between parties is not an

agreement to agree to refer. It is a clear agreement regarding

procedure for appointment of sole arbitrator or panel of arbitrators

consisting of three members. The consent order must be seen as the

writing of the parties, by which they appointed the sole arbitrator.

Otherwise, B.S.N.L. (supra) clearly applies in fixing appellants of

having waived their right to contend that appointment of sole

arbitrator could only be by writing of both the parties. Appellants, as

aforesaid, themselves did not adhere to the agreed procedure,

specific enforcement of which is main plank of their challenge to the

award. Not having indicated willingness to submit to the reference of

the arbitrator nominated by respondent, appellants also did not

// 13 //

signify their dissent by appointing their own nominee. Appellants

were in breach of the procedure for appointment. This stood

remedied by appellants in conceding to said order dated 29th April,

2003, made by the forum, in the circumstances aforesaid.

16. The additional point taken by appellants, regarding authority

of the forum to have appointed arbitrator, has been successfully met

by respondent in contending that the forum simply recorded

agreement between the parties to refer disputes to the arbitrator

nominated by appellants. Disputes referred were, as aforesaid,

described in prayer (d) made before the forum. So far as request

under sub-section (6) of section 11 is concerned, keeping in mind

respondent's submission that this is a belated contention, appellants

may have not accepted the reference to arbitration by record in said

consent order and instead of submitting to the reference, could have

themselves made request under sub-section (6) of section 11 on

contention that agreed procedure for appointment had failed. This

appellants did not do. It, therefore, can be lawfully presumed that

appellants consciously conceded to referring disputes to the person

nominated by themselves as arbitrator. There is nothing in aforesaid

consent order of the forum, which goes to show that the forum

exercised either jurisdiction, authority or power to appoint the

arbitrator.

// 14 //

17. Court finds that challenge of appellants to the award on the

two grounds, firstly, on agreed procedure having been breached or

not followed in appointment of arbitrator and secondly, the

extinction clause having operated to extinguish claims of respondent,

are grounds without merit. On the third ground of exorbitance, which

Court has already indicated as would require entering upon merits of

the claim, query was made and Mr. Kanungo submitted that

aggregate cover was for Rs.2,55,00,000/-. Principal amount awarded

was Rs.1,97,96,406/-. The principal amount awarded is well within

the aggregate cover and there is nothing shocking or it does not

shock the conscience of Court, considering that the claim was on

account of damage caused by super cyclone and Mr. Kanungo's

further submission that the stocks were earlier valued/assessed by

appellants at Rs.1,03,00,000/-, machinery and accessories at

Rs.96,00,000/- and building, ultimately at Rs.10,51,000/-.

18. For reasons aforesaid Court does not find merit in the appeal.

Impugned judgment is confirmed.

19. The appeal is dismissed.

(Arindam Sinha) Judge Sks