M/S. Cos Board Industries Ltd vs New India Assurance Co. Ltd
2023 Latest Caselaw 5191 Ori

                     IN THE HIGH COURT OF ORISSA AT CUTTACK

                                   ARBP No. 35 of 2022

              M/s. COS Board Industries Ltd.             ....             Petitioner


                                             -versus-
              New India Assurance Co. Ltd.               ....       Opposite Party

             Advocates appeared in the case:

              For Petitioner             :         Mr. Sidhant Dwibedi, Advocate

              For Opposite Party         :               Mr. Bomi Patel, Advocate


                        CORAM:
                        THE CHIEF JUSTICE

                                         ORDER

Order No.                               05.05.2023
            Dr. S. Muralidhar, CJ.

06. 1. This application by COS Board Industries Limited under Section 11(6) of the Arbitration and Conciliation Act, 1996 ('Act') seeks the appointment of an Arbitrator to adjudicate the disputes between the Petitioner and the Opposite Party-New India Assurance Co. Ltd. arising out of an insurance agreement for standard fire and special perils under policy dated 3rd April, 2019.

2. The Petitioner is stated to be a company engaged in the production of various paper products. It is stated that the Petitioner underwent a Corporate Insolvency Resolution Process (CIRP) resulting in the change of the management of the Petitioner. By an order dated 16th December, 2019 in CP (IB) No.44/CTB/2019, the National Company Law Tribunal (NCLT), Cuttack Bench, Cuttack

admitted an application filed by one of the operational creditors under Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016 (IBC) and appointed an Interim Resolution Professional (IRP). While this process was in progress, the IRP approached the NCLT for releasing a sum of Rs.15.57crores for which an insurance claim had been lodged by the Petitioner with the Opposite Party under the aforementioned policy as a result of the losses and damages suffered in the cyclone 'FANI'.

3. By an order dated 13th July, 2020 the NCLT directed the Opposite Party to expeditiously determine the claim of the Petitioner preferably within ten days of the receipt of documents called for by it from the Resolution Professional (RP) appointed by the NCLT for the Petitioner as part of the CIRP.

4. The case of the Opposite Party is that the aforementioned claim was approved for sum of Rs.3,94,09,424/- for which an e-mail was sent by the Opposite Party to the RP on 13th November, 2020. In the above e-mail, the Opposite Party informed the RP on account of the dues owed to it at the time of renewal of the policy, a sum of Rs.33,04,000/- was required to be collected from the Petitioner towards premium and that this amount would be deducted from the final loss settlement amount. Some correspondence was exchanged and by e-mail dated 4th December, 2020 the RP wrote to the Opposite Party providing the signed and executed Settlement Intimation Voucher (SIV), a cancelled cheque and bank details for processing the payment. The relevant portion of the SIV sent by the RP to the Opposite Party reads as under:

"Received from the New India Assurance Company Limited, the sum of Rs 3.94,09,424/- (Rupees Three Crores Ninety Four Lakh Nine Thousand Four Hundred and Twenty Four Only) which we agree to accept as full and final payment for our claim upon the company, under the policy no. 61020011190100000007 pertaining to date of loss 04/05/2019 towards damage to building, plant &machinery and stocks due to cyclone 'Fani' at Cos board Industries Ltd., Phase II, New Industrial Estate, Jagatpur, Ordisha-754021.

Deduction towards claims experience loading on premium of renewal policy - Rs. 33, 04,000/-

Net amount now being received ~Rs.3, 61, 05,424/-"

5. It is stated that after further deducting a sum of Rs.42,565/- towards 'reinstatement premium under the terms of the policy', on 24th December, 2020 the final amount of Rs.3,60,62,859/- was paid by the Opposite Party to the Petitioner. According to the Opposite Party, the SIV issued by the RP on 4th December, 2020 was without any protest, objection or demurer and this absolved the Opposite Party from any further liability under the policy. All of this was during the CIRP and within the powers of the RP under Section 23 (2) of the IBC.

6. On 8th February, 2021 a letter was sent by the Lawyer acting on behalf of the Petitioner to the Opposite Party inter alia claiming that the Petitioner had 'duressfully acceded' to the 'high handed settlement amount' and that the Committee of Creditors (COC) "in their recent proceeding took decision for challenging your unlawful and arbitrary reduction of the claim amount and other consequential claims arising out of your coercive action before the Arbitration Tribunal...". The Petitioner now claimed a sum of

Rs.11,53,87,576/- towards "amount of unpaid Actual loss" and a host of other heads of claim including Rs.35crores towards 'loss of goodwill, mental agony, bad debt etc.'

7. On 25th March, 2021 another letter was sent by the Petitioner through its lawyer to the Opposite Party seeking the appointment of an Arbitrator in terms of Clause 19.1 of the Insurance contract.

8. Thereafter, the present petition was filed in which notice was issued by this Court on 8th July, 2022. Pursuant thereto, the Opposite Party has filed a reply on 29th September, 2022 inter alia claiming that there has been 'accord and satisfaction', as a result of the SIV issued by the RP without objection or demurer. In other words, it is contended by the Opposite Party that in view of the full and final settlement of the insurance claim in the manner indicated hereinbefore, the Petitioner cannot seek the appointment of an Arbitrator.

9. A rejoinder has been filed on 4th May, 2023 by the Petitioner where inter alia it was contended that the SIV had been issued "under financial duress and coercion" since the RP "was under tremendous pressure to complete the CIRP process within the time frame provided under law". Reference was made to the minutes of the 8th Committee of the COC held on 27th November, 2020 the relevant portion of which reads thus:

"Conclusion- as per CoC Members

i) RP has authorized to sign the Settlement letter full and final payment for Cos Board Industries Ltd. Insurance claim, under policy no.61020011190100000007, pertaining to date of loss 04//05/2019 towards damage to building, plant & machinery and stocks due to cyclone

'Fani' at Cos Board Industries Ltd., Phase II, New Industrial Estate, Jagatpur, Odisha-754021 Rs.3, 94, 09,424/-. And a deduction of Premium Loading Charge Amounting of Rs. 33,04,000/. the final Amount will be Rs- Rs.3,61,05,424/- for getting the sanctioned claim amount, with THE NEW INDIA ASSURANCE CO. LTD.

ii) RP has to appoint experts to get opinion and reconcile, review the claim to find out the justified claim amount and loading charged by THE NEW INDIA ASSURANCE CO. LTD. If any unfair valuation or unjust made by Insurance Company has to report CoC for further Proceedings.

Resolution:

The Below Resolution Passed by members of CoC with 100% of Voting Right of the Cosmos Co-Op Bank Ltd. In the meeting "RESOLVED THAT the members of the Committee of Creditors be and is hereby agreed and accepted as full and final payment for the Insurance claim of the Corporate Debtor, under policy no.

61020011190100000007, with THE NEW INDIA ASSURANCE CO. LTD. pertaining to date of loss 04//05/2019 towards damage to building, plant & machinery and stocks due to cyclone 'Fani' at Cos Board Industries Ltd., Phase II, New Industrial Estate, Jagatpur, Odisha-754021 Rs.3,94,09,424/- And a deduction of Premium Loading Charge Amounting of Rs.33,04,000/. The final Amount is Rs.3,61,05,424/-.

"RESOLVED FURTHER THAT, Mr. Umesh Chandra Sahoo, Resolution Professional of the Cos Board Industries Ltd. appointed by the Committee of Creditors be and Is hereby authorized to do all such acts, deeds and things as may be considered necessary to give effect to the above resolution."

10. Mr. Sidhant Dwibedi, learned counsel appearing for the Petitioner, submitted that the SIV could not be treated as a full and

final settlement of the claims of the Petitioner against the Opposite Party. Relying on the judgments in National Insurance Company Limited v. Boghara Polyfab Pvt. Ltd. (2009) 1 SCC 267 and Union of India v. Master Construction Company (2011) 12 SCC 349 he submitted that even a dispute as regards 'accord and satisfaction', should by examined only by the Arbitral Tribunal.

11. On the other hand, Mr. Bomi Patel, learned counsel appearing for the Opposite Party, referred to the recent decision in NTPC Ltd. v. SPML Infra Ltd. 2023 SCC OnLine SC 389 where after realizing all decisions on the point including the decision of the 3- Judge Bench of the Supreme Court in Vidya Drolia v. Durga Trading Corporation (2021) 2 SCC 1, the Supreme Court expostulated the theory of 'limited scrutiny, through the eye of the needle' regarding non-arbitrability of a claim. He submitted that in the present case, with the position regarding 'accord and satisfaction' being unambiguous and the claim now raised by the Petitioner being an afterthought, this Court should decline the prayer of the Petitioner for the appointment of an Arbitrator.

12. The above submissions have been considered. The existence of the arbitration clause in the policy is not in dispute. What is in dispute, however, is whether as contended by the Petitioner, the RP appointed by the NCLT was under any 'duress' or 'coercion' to accept the SIV and whether in fact the COC had in its 8th Meeting, held on 27th November, 2020 decided to reopen the claim?

13. The decision arrived at by the COC at its meeting held on 27th November, 2020 has been extracted hereinbefore. While it

acknowledged that the final amount of settlement would be Rs.3,61,05,424/- and authorized the RP to do "all such acts, deeds and things as may be considered necessary to give effect to the above resolution", it decided to "appoint experts to get opinion and reconcile, review the claim" to find out the justified claim amount. If there was any 'unfair valuation' or 'unjust' settlement of the claim by the insurance company, the RP had to report it to the COC for further proceedings.

14. It is not in dispute that neither the RP nor the new management of the Petitioner which took over at the end of the CIRP, appointed any expert to get an opinion on whether the amount for which the claim had been settled by the Opposite Party insurance company was 'unfair' or 'unjust'. This Court repeatedly asked Mr. Dwibedi, learned counsel for the Petitioner about the contention raised in para 10 of his letter issued to the Opposite Party on behalf of the Petitioner on 8th February, 2021 that "the COC in their recent proceeding took decision for challenging your unlawful and arbitrary reduction of the claim amount...". He was unable to inform the Court at which meeting the COC took such a decision. Since the SIV was sent by the RP to the Opposite Party on 4th December, 2020 in terms of the authorization given by the COC at the meeting held on 27th November 2020, such further meeting of the COC, if at all, should have taken place between 27th November, 2020 and 8th February, 2021 on which date the aforementioned letter was sent by the lawyer for the Petitioner to the Opposite Party.

15. Mr. Dwibedi was candid that he did not have the minutes of any such meeting. He was also unable to dispute the fact that no expert was appointed by the RP, as decided by the COC at the aforesaid meeting, to review the claim to find out whether the amount for which it was settled by the Opposite Party was unfair or unjust. In other words, the very process for reopening the claim as decided by the COC was not activated.

16. In these circumstances, the mere claim that the RP was under 'duress' or was 'coerced' into accepting the SIV cannot be countenanced. It is an entirely different matter that there is no affidavit of the RP or for that matter the COC to substantiate such a contention now advanced by the Petitioner only to justify the invocation of the arbitration clause.

17. In NTPC Ltd. v. SPML Infra Ltd. (supra), the Supreme Court explained in paras 25 to 28 read as under:

"25. Eye of the Needle: The above-referred precedents crystallise the position of law that the pre-referral jurisdiction of the courts under Section 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement. These are matters which require a thorough examination by the referral court. The secondary inquiry that may arise at the reference stage itself is with respect to the non- arbitrability of the dispute.

26. As a general rule and a principle, the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the referral court may reject claims which are manifestly and ex-facie non-

arbitrable. Explaining this position, flowing from the principles laid down in Vidya Drolia (supra), this Court in a subsequent decision in Nortel Networks (supra) held:

"45.1 ...While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute..."

27. The standard of scrutiny to examine the non- arbitrability of a claim is only prima facie. Referral courts must not undertake a full review of the contested facts; they must only be confined to a primary first review and let facts speak for themselves. This also requires the courts to examine whether the assertion on arbitrability is bona fide or not. The prima facie scrutiny of the facts must lead to a clear conclusion that there is not even a vestige of doubt that the claim is non- arbitrable. On the other hand, even if there is the slightest doubt, the rule is to refer the dispute to arbitration.

28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the referral court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. It has been termed as a legitimate interference by courts to refuse reference in order to prevent wastage of public and private resources. Further, as noted in Vidya Drolia (supra), if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court. Therefore, this Court or a High Court, as the case may be, while exercising jurisdiction under Section 11(6) of the Act, is not expected to act mechanically merely to deliver a purported dispute raised by an

applicant at the doors of the chosen arbitrator, as explained in DLF Home Developers Limited v. Rajapura Homes Pvt. Ltd."

18. In the present case, it will be recalled that the signed SIV was sent by the RP to the Opposite Party on 4th December, 2020. For nearly two months thereafter, there was no whisper of it having been sent under duress or coercion. Suddenly, on 10th February, 2021 a letter was issued by the lawyer for the Petitioner, and not the RP, claiming that the SIV had been sent under 'duress'. This indeed appears to be an afterthought only to somehow keep the claim alive. To this Court, it does not appear to be a 'bonafide' contention, particularly, since the very process put in place by the COC in its 8th Meeting held on 27th November, 2020 to test the fairness of the settlement amount, was not activated by the Petitioner. The factual foundation for sustaining the renewed claim does not exist and, therefore, the Court is not satisfied that there is any arbitrable claim requiring adjudication for which an Arbitrator has to be appointed by this Court.

19. Consequently, the Court is not satisfied that the Petitioner has made out a case for the appointment of an Arbitrator under Section 11(6) of the Act. The arbitration petition is dismissed but in the circumstances with no order as to costs.

(Dr. S. Muralidhar) Chief Justice S. Behera

SUMANTA Digitally signed by SUMANTA BEHERA

BEHERA Date: 2023.05.08 10:56:55 +05'30'