NEW INDIA ASS. CO. LTD vs. GENUS POWER INF. LTD

Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 10784 OF 2014 @ SPECIAL LEAVE PETITION (CIVIL) NO.24652 OF 2013 NEW INDIA ASSURANCE COMPANY LTD …. Appellant Versus GENUS POWER INFRASTRUCTURE LTD. …. Respondent J U D G M E N T Uday U. Lalit, J. 1. Leave granted. This appeal challenges the order dated 30.05.2013 passed by the High Court of Delhi in Arbitration Petition No.212 of 2011 JUDGMENT appointing an arbitrator to adjudicate the disputes between the present parties. 2. The respondent has a manufacturing unit for which it had purchased a Standard Fire and Special Perils Policy (‘policy’ for short) from the appellant on 17.04.2009, which policy was for a period of one year and the total sum assured was Rs.91 crores and 10 lacs only. On 29.10.2009 Page 1 2 there was a fire explosion in the adjoining Indian Oil Corporation Terminal causing extensive damage to the manufacturing unit of the respondent. On being notified, the appellant appointed a category “A” Licensed Surveyor

1938 to assess the damage. In the assessment of the respondent and as per the claim lodged by it, the loss caused to its plant and machinery, buildings fixtures and furnitures and stocks was to the tune of Rs.28.79 crores. It appears that the Surveyor submitted his final report on 27.07.2010 and assessed the loss at Rs.6,09,77,406/-. It is contended by the appellant but denied by the respondent that the final survey report was duly communicated to the respondent on 01.11.2010. 3. On 11.03.2011 the respondent signed a detailed letter of subrogation which was on a stamp paper, accepting Rs.5,96,08,179/- in full JUDGMENT and final settlement of its claim under the policy and the relevant portion of said letter dated 11.03.2011 was to the following effect: To, New India Assurance Co. Ltd. Regional Office Nehru Place, Tonk Road, Jaipur Dear Sir, Page 2 3 That in consideration of claim amount of Rs.5,96,08,179 (Rupees Five Crores Nintey Six Lakhs Eight Thousand One Hundred Seventy Nine only) (herein after referred as “Claim amount”) as full and final settlement amount of our claim No.330203/11/10/01/00100001 arising under policy

area Jaipur (herein after referred as “Factory Premises”) due to fire that took place in IOC Terminal on 29-10-2009, we hereby subrogate our rights on behalf of M/S Genus Power Infrastructures Limited Jaipur (herein after referred as “Insured”) in favour of New India Assurance Co. Ltd. (herein after referred as “Insurer”) as under:- 1) That we the Insured hereby subrogate all the rights and remedies (to the extent provided by aforesaid contract of Insurance and under the General law and further any other Law enforceable consequence to the above loss) against the RIICO, Indian Oil Corporation, Govt. of Rajasthan, other insurance company or any other agency/authority of Govt. of Rajasthan, semi Govt. etc. whom so ever is liable in respect whereof in favour of the Insurer regarding Fire accident taken place on 29-10-2009 in IOC terminal in Sitapura Industrial Area, Jaipur and claim arises under “Policy” covering fire loss of Insured factory in “Factory Premises” in favour of the “Insurer”. 2) That we the Insured further assign and transfer all rights to Insurer to recover the claim amount or any part thereof from RIICO, Indian Oil Corporation, Govt. of Rajasthan, other insurance company or any other agency/authority of Govt. of Rajasthan, semi Govt. etc. who so ever is liable. 3) That we the Insured further assign and transfer all rights to agitate the Claim before the RIICO, Indian Oil Corporation, Govt. of Rajasthan, other insurance company or any other agency/authority of Govt. of Rajasthan, semi Govt. etc. who so ever is liable to pay the compensation/claim. The Insurer JUDGMENT Page 3 4

th In witness whereof we get our hands on this Subrogation letter on the 11 day of March 2011. For Genus Power Infrastructure ltd. Authorized Signatory Signature 4. After nearly three weeks i.e on 31.03.2011 the respondent issued a notice to the appellant stating that the discharge voucher was signed under extreme duress, coercion and undue influence exercised by the appellant who took undue advantage of the extreme financial difficulties of the respondent. The respondent further sought to appoint its nominee arbitrator. JUDGMENT On 21.04.2011 the appellant replied that there was no arbitrable dispute which existed between the parties inasmuch as the respondent had voluntary signed the letter of subrogation and had accepted payment in full and final settlement of its claim. In the meantime on 05.04.2011 the respondent had filed a petition under section 11 of the Arbitration and Conciliation Act, 1996 (The ‘Act’ for short) before the High Court of Delhi alleging that it had accepted the payment as stated above because of extreme financial Page 4 5 difficulty, duress and coercion. On 10.05.2013 the High Court after recording rival submissions of the parties adjourned the matter which was then taken up on 30.05.2013 when the High Court observed;

In that view of the matter the High Court proceeded to appoint a sole arbitrator to adjudicate the disputes between the parties. 5. The aforesaid order dated 30.05.2013 is the subject matter of challenge in the present appeal. Appearing for the appellant Mr. Gaurab Banerji, learned Senior Advocate submitted that the letter of subrogation JUDGMENT was a detailed agreement which was finalized and signed after negotiations between the parties and in the presence of two witnesses. The amount agreed to was the amount recommended by the surveyor, reduced by the mandatory reinstatement premium payable under clause 15 of the policy and as such the settlement took place at the amount recommended by the surveyor. Placing reliance on the financial status of the respondent, it was submitted that its annual turnover is more than Rs.500 crores for last few Page 5 6 years and it was quite improbable that such a company would feel financially constrained and stand coerced as alleged, in giving discharge on receipt of Rs.5.98 crores. Mr. Krishnan Venugopal, learned Senior

respondent was under tremendous pressure owing to the complete destruction of its manufacturing unit and not being in a position to negotiate, the appellant by using its dominant position had forced the respondent to sign the discharge voucher and accept the payment as stated above. In support, reliance was placed on the decision of this court in National 1 Insurance Co. Ltd. vs. Boghara Polyfab (P) Ltd . by Mr. Venugopal. 6. The question that arises is whether the discharge in the present case upon acceptance of compensation and signing of subrogation letter was not voluntary and whether the claimant was subjected to compulsion or coercion JUDGMENT and as such could validly invoke the jurisdiction under Section 11 of the Act. The law on the point is clear from following decisions of this court. In National Insurance Co. Ltd. vs. Boghara Polyfab Pvt. Ltd . in paras 26 and 51 it was stated as under:- “26. When we refer to a discharge of contract by an agreement signed by both the parties or by execution of a full and final discharge voucher/receipt by one of the parties, we refer to an agreement or discharge voucher 1 2009(1) SCC 267 Page 6 7

51. The Chief Justice/his designate exercising jurisdiction under Section 11 of the Act will consider whether there was really accord and satisfaction or discharge of contract by performance. If the answer is in the affirmative, he will refuse to refer the dispute to arbitration. On the other hand, if the Chief Justice/his designate comes to the conclusion that the full and final settlement receipt or discharge voucher was the result of any fraud/coercion/undue influence, he will have to hold that there was no discharge of the contract and consequently, refer the dispute to arbitration. Alternatively, where the Chief Justice/his designate is satisfied prima facie that the discharge voucher was not issued voluntarily and the claimant was under some compulsion or coercion, and that the matter deserved detailed consideration, he may instead of deciding the issue himself, refer the matter to the Arbitral Tribunal with a specific direction that the said question should be decided in the first instance.” JUDGMENT 7. In the decision rendered in Union of India vs. Master Construction 2 Co. this court observed as under: “18. In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no-claim certificate has been obtained by fraud, coercion, duress or undue influence 2 (2011) 12 SCC 349 Page 7 8 and the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the

19. It cannot be overlooked that the cost of arbitration is quite huge—most of the time, it runs into six and seven figures. It may not be proper to burden a party, who contends that the dispute is not arbitrable on account of discharge of contract, with huge cost of arbitration merely because plea of fraud, coercion, duress or undue influence has been taken by the claimant. A bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up such a plea must prima facie establish the same by placing material before the Chief Justice/his designate. If the Chief Justice/his designate finds some merit in the allegation of fraud, coercion, duress or undue influence, he may decide the same or leave it to be decided by the Arbitral Tribunal. On the other hand, if such plea is found to be an afterthought, make-believe or lacking in credibility, the matter must be set at rest then and there. JUDGMENT 22. The above certificates leave no manner of doubt that upon receipt of the payment, there has been full and final settlement of the contractor’s claim under the contract. That the payment of final bill was made to the contractor on 19-6-2000 is not in dispute. After receipt of the payment on 19-6-2000, no grievance was raised or lodged by the contractor immediately. The authority concerned, thereafter, released the bank guarantee in the sum of Rs 21,00,000 on 12-7-2000. It was then that on that day itself, the contractor lodged further claims.” Page 8 9 8. It is therefore clear that a bald plea of fraud, coercion, duress or undue influence is not enough and the party who sets up a plea, must prime facie establish the same by placing material before the Chief Justice/his designate.

need to be considered, which were to the following effect:- “(g) That the said surveyor, in connivance with the Respondent Company, in order to make the Respondent Company escape its full liability of compensating the Petitioner of such huge loss, acted in a biased manner, adopted coercion undue influence and duress methods of assessing the loss and forced the Petitioner to sign certain documents including the Claim Form. The Respondent Company also denied the just claim of the Petitioner by their acts of omission and commission and by exercising coercion and undue influence and made the Petitioner Company sign certain documents, including a pre- prepared discharge voucher for the said amount in advance, which the Petitioner Company were forced to do so in the period of extreme financial difficulty which prevailed during the said period. As stated aforesaid, the Petitioner Company was forced to sign several documents including a letter accepting the loss amounting to Rs.6,09,55,406/- and settle the claim of Rs.5,96,08,179/- as against the actual loss amount of Rs.28,79,08,116/- against the interest of the petitioner company. The said letter and the aforesaid pre-prepared discharge voucher stated that the petitioner had accepted the claim amount in full and final settlement and thus, forced the petitioner company to unilateral acceptance the same. The petitioner company was forced to sign the said document under duress and coercion by the Respondent Company. The Respondent Company further threatened the petitioner Company to accept the said amount in full and final or the Respondent Company will not pay any amount toward the fire policy. It was JUDGMENT Page 9 1 under such compelling circumstances that the petitioner company was forced and under duress was made to sign the acceptance letter.”

Given the fact that there was no protest or demur raised around the time or soon after the letter of subrogation was signed, that the notice dated 31.03.2011 itself was nearly after three weeks and that the financial condition of the respondent was not so precarious that it was left with no alternative but to accept the terms as suggested, we are of the firm view that the discharge in the present case and signing of letter of subrogation were not because of exercise of any undue influence. Such discharge and signing of letter of subrogation was voluntary and free from any coercion or undue influence. In the circumstances, we hold that upon execution of the letter of JUDGMENT subrogation, there was full and final settlement of the claim. Since our answer to the question, whether there was really accord and satisfaction, is in the affirmative, in our view no arbitrable dispute existed so as to exercise power under section 11 of the Act. The High Court was not therefore justified in exercising power under Section 11 of the Act. Page 10 1 10. In the circumstances, we allow the present appeal in the aforesaid terms and set aside the order of the High Court . No order as to costs. ………………………..J. (Anil R. Dave) ………………………..J. (Uday Umesh Lalit) New Delhi, December 04, 2014 JUDGMENT Page 11