Telangana High Court
M/S. Om Hydro Power Limited vs The New India Assurance Co. Ltd., on 6 November, 2024
Author: K. Lakshman
Bench: K. Lakshman
IN THE HIGH COURT FOR THE STATE OF TELANGANA
AT: HYDERABAD
CORAM:
* HON'BLE SRI JUSTICE K. LAKSHMAN
+ARBITRATION APPLICATION No.1 OF 2024
% Delivered on: 06-11-2024
Between:
# M/s. Om Hydro Power Limited, rep.by its Director
Mrs. B. Lakshmi Shruti Reddy .. Applicant
Vs.
$ The New India Assurance Co. Ltd.,
Basheerbagh, Hyderabad, rep.by its Senior
Divisional Manager. .. Respondent
! For Applicant : Mr. V. Yadu Krishna Sainath
^ For Respondent : Mr. Krishna C.V. Grandhi,
Ld. Sr. Counsel, representing
Mr. M. Ramu
< Gist :
> Head Note :
? Cases Referred :
1. (2018) 6 SCC 534
2. (1976) 1 SCC 943
2
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Arb.Appl.No.1 of 2024
HON'BLE SRI JUSTICE K. LAKSHMAN
ARBITRATION APPLICATION No.1 OF 2024
ORDER:
Heard Mr. V. Yadu Krishna Sainath, learned counsel for the
applicant and Mr. Krishna C.V. Grandhi, learned Senior Counsel
representing Mr. M. Ramu, learned counsel or the respondent.
2. The present Arbitration Application is filed under Section -
11 (5) and (6) of the Arbitration and Conciliation Act, 1996
(hereinafter 'the Act, 1996') for appointment of an arbitrator to
resolve the disputes between the parties.
3. CONTENTIONS OF THE APPLICANT:
i) Applicant, a Public Limited Company engaged in Hydro
Electric Power Generation, obtained an Industrial All Risk Insurance
with respondent vide Policy No.61220011180600000003 covering the
period of 17.05.2018 to 16.05.2019 for a sum insured
Rs.1,75,85,00,000/-.
ii) The policy is an Industrial All Risks Insurance Policy and
covers the properties pertaining to Hydro Electric Project properties of
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the applicant situated at Bundla Village, Palamur District, Himachal
Pradesh State.
iii) The policy has two parts i.e., i) the material damage section
(Section I) which provides against all risks; ii) Business Interruption
Section II provides cover again Fire Loss of profits.
iv) The properties covered under the policy are civil works of
Rs.1,08,00,000/-, plant and machinery and other accessories worth
Rs.47,00,00,000/-, roads worth Rs.12,00,00,000/-, transmission lines
worth Rs.8,00,00,000/-, stores and spares worth Rs.85,00,000/-
making a total of Rs.1,75,85,00,000/-.
v) The applicant suffered damage due to flash floods/cloud
burst on 23.09.2018. The said fact was intimated to the respondent
and claim has been preferred for the loss suffered by the applicant.
The respondent appointed M/s. Protocol Insurance Surveyors & Loss
Assessors Private Limited, Delhi, for assessment of the loss suffered
by the applicant.
vi) The Surveyors have assessed the loss and submitted their
survey reports to the respondent under Section - I i.e., material
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damage as well as Section - II i.e., Business Interruption loss
separately. The respondent arranged on Account payment of Rs.2.50
Crores under material damage claim. The respondent also settled the
claim under Business Interruption Section of the Policy (Section II)
for Rs.1,03,02,634/- on 01.10.2019.
vii) After completion of reinstatement of damaged property, the
Surveyors submitted their final survey report to the respondent.
Thereafter, the respondent released its settlement intimation for
Rs.1,54,54,967/- which is the difference in the Net assessed loss
amount of Rs.4,04,54,967/- less the amount of On Account payment
of Rs.2.50 Crores already paid. The applicant wanted to know the
details of assessment since the amount offered for settlement of the
claim is much less than the amount incurred and claimed
Rs.7,96,07,113/-. The respondent provided the details by giving
copies of survey reports and correspondence exchanged between the
Surveyor and the respondent. After perusing the same, the applicant
came to know from the surveyor's report that the Surveyors have
assessed the land as Rs.5,49,93,116/- before deduction of excess as
per the policy. The excess under the policy being 5% of the claim
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amount, the net claim amount payable by the Insurer would be
Rs.5,22,43,460/- towards indemnity of the loss suffered by the
applicant. It also appears that the respondent had asked the Surveyors
to submit an addendum report reducing an amount of Rs.1,24,08,940/-
(which is a portion of expenditure incurred by the applicant towards
removal of debris) from the amount assessed by them vide their final
survey report.
viii) The applicant addressed a letter dated 10.08.2022 to the
respondent informing that the assessment revised is much lesser than
the expenditure amount incurred. The applicant also informed the
respondent that it is not agreeable for amount indicated in the
Settlement Intimation Voucher released by the respondent as full and
final and further requested the respondent to look into the matter and
release a fresh Settlement Intimation Voucher. The respondent
released another settlement intimation voucher for Rs.4,04,54,967/-
subject to deduction of Rs.2.50 Crores being the amount paid on
Account without considering the letter dated 10.08.2022 addressed by
the applicant to review the claim. The applicant returned the
settlement intimation voucher to the respondent mentioning as 'part
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payment' on it vide letter dated 10.10.2022, wherein the applicant had
informed that the short fall/difference of amount of Rs.1,17,88,493/-
had to be paid by the respondent along with interest @ 12% per
annum and also invoked arbitration clause nominating Mr. N.S.R.
Chandra Prasad, Ex-Chairman-cum-Managing Director of M/s.
National Insurance Company Limited, as sole arbitrator to settle the
quantum dispute by way of arbitration.
ix) Vide reply dated 30.11.2022, the respondent refused to
admit that there is any quantum dispute and further refused to settle
the dispute by way of arbitration. Vide letter dated 22.02.2022, the
applicant informed the respondent that their conduct is contrary to the
provisions of the Arbitration and Conciliation Act, 1996 (for short
'Act, 1996'). Thus, according to the applicant, there are disputes
between the applicant and the respondent which are arbitrable in
nature. Thereafter, the applicant filed the present application to
appoint sole arbitrator to adjudicate disputes between the applicant
and the respondent.
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4. CONTENTIONS OF THE RESPONDENT:
i) Respondent filed counter admitting that the applicant
obtained the policy for the period from 17.05.2018 to 16.05.2019.
The applicant is disputing the difference in quantum of loss pertaining
to removal of external/foreign debris where the liability was not
admissible by the respondent, the parties are bound by the arbitration
clause, wherein, if the respondent is not accepting the liability, dispute
cannot be referred to the arbitrator. Reliance was also placed on the
principle laid down by the Hon'ble Supreme Court in M/s. Oriental
Insurance Company Limited v. Narbheram Power and Steel Pvt.
Ltd. 1.
ii) Owing to the loss incurred by the applicant in the flash
floods/cloud burst that occurred on 23.09.2018 at the applicant's
Himachal Pradesh site, the respondent have appointed M/s. Protocol
Insurance Surveyors & Loss Assessors Private Limited, Delhi, for
conducting a survey assessing the loss. The respondent has made on
account payment of Rs.2.50 Crores under material damage claim and
Rs.1,03,02,634/- under business interruption section without the
. (2018) 6 SCC 534
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preliminary assessment to the applicant herein considering the huge
losses that the applicant had incurred, so that the applicant can cover
the initial damages.
iii) After completion of the reinstatement, the respondent has
released a settlement voucher of Rs.4,04,54,967/- after paying of
Rs.1,54,54,967/- which was signed by the applicant with remarks part
payment. The applicant is disputing the quantum of settlement i.e.,
difference in the quantum being Rs.1,24,08,940/- on gross loss, which
is the difference between the amount paid to the applicant after
completion of reinstatement and on account payment by the
respondent.
iv) The deductions and settlements made by the Surveyor have
been explained by the surveyor in his assessment report. The surveyor
has deducted the external debris and only considered the debris that
was in the premises of the applicant as given in the policy. Therefore,
there are no disputes between the applicant and the respondent, much
less arbitral disputes. The said fact was informed to the applicant vide
reply dated 30.11.2022. Even then, the applicant filed the present
application.
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5. REPLY BY THE APPLICANT TO THE COUNTER:
i) The respondent is only trying to confuse and avoid the
payment of amount to it.
ii) A reading of clause - 12 reflects that any difference as to the
quantum shall be referred to the arbitrator. The respondent did not
deny the liability under the policy in toto. It is only part of liability.
The principle laid down in Narbheram Power and Steel Pvt. Ltd.1
does not apply to the facts of the present case.
6. ANALYSIS AND FINDING OF THE COURT:
i) In view of the aforesaid rival contentions, it is clear that there
is no dispute that the applicant had obtained the aforesaid policy
covering the period from 17.05.2018 to 16.05.2019 for the sum
insured of Rs.1,75,85,00,000/-. It is an Industrial All Risk Insurance
Policy. There is also no dispute that the applicant suffered damage
due to flash floods/cloud burst on 23.09.2018 and the said fact was
informed to the respondent, which in turn appointed M/s. Protocol
Insurance Surveyors & Loss Assessors Private Limited, Delhi, for
assessment of the loss suffered by the applicant. The said Company
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has submitted its report to the respondent under Section I - material
damage as well as Section II - Business Interruption Loss separately.
ii) It is also not in dispute that the respondent arranged an
amount of Rs.2.50 Crores on account payment to the applicant. After
completion of reinstatement of damaged property, the surveyors
submitted their final report to the respondent which in turn released its
settlement intimation voucher for Rs.1,54,54,967/-, which is the
difference in the net assessed loss amount of Rs.4,04,54,967/- less the
amount on account payment of Rs.2.50 Crores already paid. Thus,
according to the applicant, the respondent is due and liable to pay an
amount of Rs.1,24,08,940/-, whereas, according to the respondent, it is
not due and liable to pay the said amount. Thus, according to the
applicant, there are disputes between the applicant and the respondent
which are arbitral in nature.
iii) In the light of the aforesaid submissions, it is relevant to
note that Clause - 12 of the Industrial All Risk Insurance Policy deals
with 'dispute resolution' and the same is extracted as under:
"If any difference shall arise as to the quantum to
be paid under this policy (liability being otherwise
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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, or 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 hereinbefore provided, if the
Company has disputed or not accepted liability
under or in respect of this policy.
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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 b
such arbitrator, arbitrators or umpire of the amount
of the loss or damage shall be first obtained."
Invoking the said clause, the applicant has issued a notice dated
10.10.2022 nominating Mr. N.S.R. Chandra Prasad, Ex-Chairman-
cum-Managing Director of M/s. National Insurance Company
Limited, as sole arbitrator and the respondent vide reply dated
30.11.2022 rejected for the said proposal.
iv) In the light of the above, it is relevant to note the principle
laid down by the Apex Court in Narbheram Power and Steel Pvt.
Ltd.1. In the said case, M/s. Narbheram Power and Steel Pvt. Ltd.,
had entered into a Fire Industrial all Risk Policy with M/s. Oriental
Insurance Company Limited. The said company suffered damage due
to cyclone, named 'Phailin' and the damage estimated at
Rs.3,93,36,224/-. Intimation was given to the Insurance Company,
which appointed a surveyor, who in turn submitted its report. There is
exchange of communication between the said Company and the
Insurance Company. The said M/s. Narbheram Power and Steel Pvt.
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Ltd., had invoked the arbitration clause and proposed an arbitrator.
The Insurance Company replied stating that the claim made by the
applicant therein was repudiated and declined to refer the dispute to
the arbitration. The arbitration clause in the said agreement is
extracted below:
"13. 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 questions be referred to the
decision of a sole arbitrator to be appointed in
writing by the parties to or if they cannot agree
upon a single arbitrator within 30 days of any party
invoking arbitration, the same shall be referred to a
panel of three arbitrator, comprising of 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 arbitration shall be conducted under and in
accordance with the provisions of the Arbitration
and Conciliation Act, 1996.
It is clearly agreed and understood that no
difference or dispute shall be referable to
arbitration as hereinbefore provided, if the
Company has disputed or not accepted liability
under or in respect of this policy.
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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 of the amount of the loss
or damage shall be first obtained."
Then, M/s. Narbheram Power and Steel Pvt. Ltd., had approached the
High Court seeking appointment of an Arbitrator, and the High Court
in turn allowed the said application and appointed an Arbitrator to
adjudicate the disputes between the said Company and Insurance
Company. Assailing the said order, the Insurance Company
approached the Apex Court. Referring to the said clause and the
disputes therein and also the principle laid down by it in earlier
judgments, the Apex Court held that the natural corollary of the said
propositions is that the parties are bound by the clauses
enumerated in the policy and the court does not transplant any
equity to the same by rewriting a clause. The Court can interpret
such stipulations in the agreement. It is because they relate to
commercial transactions and the principle of unconscionability of
the terms and conditions because of the lack of bargaining power
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does not arise. The said principle comes into play in a different
sphere.
v) The Apex Court also considered the rejection of claim by the
Insurance Company on the following reasons:
a) Alleged loss of imported coal is clearly an inventory shortage.
b) There was no actual loss of stock in process.
c) The damage to the sponge iron is due to inherent vice.
d) The loss towards building/sheds etc. are exaggerated to cover insured
maintenance.
e) As there is no material damage thus business interruption loss does not
triggered."
On consideration of the said aspects and arbitration clause, the Apex
Court held that disputation squarely comes within Part - II of Clause -
13. The said Part of the Clause clearly spells out that the parties have
agreed and understood that no differences and disputes shall be
referable to arbitration if the company has disputed or not accepted the
liability. The communication ascribes reasons for not accepting the
claim at all. It is nothing else but denial of liability by the insurer in
toto. It is not a disputation pertaining to quantum.
vi) The Apex Court further held that it is not concerned with
regard to whether the policy was void or not as the same was not
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raised by the insurer. The insurance-company has, on facts,
repudiated the claim by denying to accept the liability on the basis of
the aforesaid reasons. No inference can be drawn that there is some
kind of dispute with regard to quantification. It is a denial to
indemnify the loss as claimed by the respondent. Such a situation,
according to us, falls on all fours within the concept of denial of
disputes and non-acceptance of liability. It is not one of the
arbitration clauses which can be interpreted in a way that denial of a
claim would itself amount to dispute and, therefore, it has to be
referred to arbitration. The parties are bound by the terms and
conditions agreed under the policy and the arbitration clause contained
in it. It is not a case where mere allegation of fraud is leaned upon to
avoid the arbitration. It is not a situation where a stand is taken that
certain claims pertain to excepted matters and are, hence, not
arbitrable. The language used in the second part is absolutely
categorical and unequivocal inasmuch as it stipulates that it is clearly
agreed and understood that no difference or disputes shall be referable
to arbitration if the company has disputed or not accepted the liability.
The High Court has fallen into grave error by expressing the opinion
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that there is incongruity between Part - II and Part - III. The said
analysis runs contra to the principles laid down in the three-Judge
Bench decision in The Vulcan Insurance Co. Ltd. v. Maharaj
Singh 2. Therefore, the only remedy which the respondent can take
recourse to is to institute a civil suit for mitigation of the grievances.
If a civil suit is filed within two months hence, the benefit of Section -
14 of the Limitation Act, 1963 will enure to its benefit.
vii) As discussed above, the arbitration clause in Narbheram
Power and Steel Pvt. Ltd.1 and the arbitration clause in the present
case is verbatim same. In the present case, according to the
respondent, it has settled the claim for a net of Rs.4,04,54,967/- after
deducting an amount of Rs.1,24,08,940/- disallowed by the Surveyor
from the gross amount of the claim. The said deduction amount will
not result in the form of quantum dispute. As per condition No.12 of
the Policy, the said dispute can be referable only if the quantum alone
is in dispute and the liability being otherwise accepted. The claim of
the applicant for Rs.1,17,88,493/- (Rs.1,24,08,940/- less excess)
cannot be inferred as quantum dispute. The amount of
. (1976) 1 SCC 943
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Rs.1,24,08,940/- was deducted as not allowed as the said amount
represents the expenditure towards removal of external foreign debris,
which is neither covered in the policy nor admissible. The dispute is
regarding the liability of the quantum and, therefore, there are no
disputes between the applicant and the respondent, much less arbitral
dispute.
viii) Mr. V. Yadu Krishna Sainath, learned counsel for the
applicant, would contend that in Narbheram Power and Steel Pvt.
Ltd.1, the claim was repudiate. In the present case, there is no
repudiation, and it is only denial of the claim made by the respondent.
Therefore, it is apt to note that 'repudiation' means rejection or
renunciation of a duty or an obligation. In the present case also, the
respondent rejected the claim of the applicant vide letter dated
18.10.2022. Therefore, the facts of the present case and the facts of
the case in Narbheram Power and Steel Pvt. Ltd.1 are one and the
same and the arbitration clause is also verbatim same. In the light of
the same, the contention of learned counsel for the applicant that the
facts of the present case are different to the facts the case in
Narbheram Power and Steel Pvt. Ltd.1 is untenable.
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7. CONCLUSION:
i) As discussed above, in the present case also, the respondent
denied the liability itself. It has specifically mentioned the reasons in
its reply dated 30.11.2022. In the light of the same and also
considering the principle laid down by the Apex Court in Narbheram
Power and Steel Pvt. Ltd.1, this Court is of the considered view that
since the respondent disputed the very liability itself, it is not within
the purview of Clause - 12 of the Insurance Policy, it is not an arbitral
dispute, the applicant is not entitled for appointment of an Arbitrator.
The present Arbitration Application fails and the same is liable to be
dismissed.
ii) The present Arbitration Application is accordingly
dismissed. In the circumstances of the case, there shall be no order
as to costs.
As a sequel thereto, miscellaneous applications, if any, pending
in the Arbitration Application shall stand closed.
_________________
K. LAKSHMAN, J
6th November, 2024
Note: L.R. copy be marked.
(B/O.) Mgr
