01Facts
The respondent, a manufacturer of steel and aluminum products, obtained an "Industrial All Risk Policy" from the petitioner for the period 13.01.2017 to 12.01.2018, covering fire and Business Interruption Loss (BIL)
pp. 1-2On 27.09.2017, a fire occurred in the respondent’s new unit
p. 2The petitioner’s first surveyor assessed the loss at ₹13,31,13,073, later submitting addendums
p. 2Dissatisfied with the methodology—specifically the calculation of the "Standard Turnover" and "Rate of Gross Profit" (GPR)—the petitioner appointed a second surveyor under Section 64 UM of the Insurance Act, 1938, who assessed the BIL at ₹3,84,80,892
p. 2The respondent initiated arbitration. The arbitrator set aside the second surveyor’s report as invalid for lack of reasons and awarded the amount assessed by the first surveyor
p. 3The petitioner challenged this award under Section 34 of the Arbitration & Conciliation Act, 1996, alleging the award ignored contractual terms
pp. 3-402Issues
i.1. Whether the appointment of the second surveyor was invalid due to a lack of recorded reasons or failure to provide a hearing
p. 6ii.2. Whether the first surveyor’s methodology for calculating the Rate of Gross Profit (GPR) was in accordance with the terms of the insurance policy
p. 7, 9iii.3. Whether the arbitral award was perverse for allowing a claim that exceeded the specific terms of the contract
p. 1103Law Applied
Section 34 of the Arbitration & Conciliation Act, 1996, regarding the setting aside of awards that are perverse or go beyond contractual terms
p. 11Section 64 UM of the Insurance Act, 1938, which empowers insurers to appoint a second surveyor
p. 6Sri Venkateswara Syndicate v. Oriental Insurance Company Ltd. & Ors. (2009) 8 SCC 507, which holds that a second surveyor cannot be appointed as a matter of course without valid reasons
p. 6The principle that an arbitrator is a creature of the contract and cannot grant relief contrary to the express terms of the agreement
p. 11Provisions in the judgment · 2 · Linked ones open on LawLens
Arbitration and Conciliation Act, 1996 Section 21Section 34
04Reasoning
The court found that the arbitrator erred in fact by stating no reasons existed for the second surveyor's appointment; a departmental note dated 16.10.2019 clearly outlined objections to the first surveyor's methodology
pp. 6-7Regarding the BIL assessment, the court noted that Section II of the policy explicitly defined GPR as the rate earned during the financial year immediately preceding the date of loss
p. 10The first surveyor, however, calculated a "trend-adjusted" GPR of 31.64% based on the current financial year (2017-18) rather than the preceding year (2016-17)
p. 10While the policy allowed "trend adjustments" for "Standard Turnover," no such flexibility was provided for the GPR
pp. 10-11The court reasoned that by accepting a report that used a calculation method expressly forbidden or unsupported by the policy, the arbitrator went beyond the terms of the contract
p. 11Such a departure from contractual terms constitutes perversity, warranting interference under Section 34
p. 1105Holding
The court held that the arbitrator’s decision to ignore the reasoned appointment of the second surveyor and accept a GPR calculation that violated the express terms of the policy was unsustainable
p. 11The court answered the issues by stating that the award was perverse for granting a claim beyond the contract's scope
p. 11The High Court set aside the arbitral award dated 10.02.2023 and allowed the petition
p. 11Original Court PDF
The Oriental Insurance Company Ltd.vsJindal India Limited
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