2008 Supreme(SC) 1393

2008(6) Supreme 725
SUPREME COURT OF INDIA
R.V. Raveendran and Lokeshwar Singh Panta, JJ.
National Insurance Co. Ltd. — Appellant
versus
M/s. Boghara Polyfab Pvt. Ltd. — Respondents
Civil Appeal No. 5733 of 2008
(Arising out of SLP [C] No.12056 of 2007)
Decided on : 18-09-2008

Important Point
Procedure requiring the claimant to issue an undated receipt (acknowledging receipt of a sum smaller than his claim) in full and final settlement, as a condition for releasing an admitted lesser amount, is unfair, irregular and illegal and requires to be deprecated.

Headnote:(a) Arbitration and Conciliation Act, 1996 – Section 16(1) – General principles to determine when the arbitration agreements operate or do not operate restated. (Paras 13 and 28)

        (1960)1 SCR 493; (1974)1 SCC 141; AIR 1968 SC 522; (1996)1 SCC 54; – Relied upon.

        (b) Arbitration and Conciliation Act, 1996 – Section 11 – Duty of the Chief Justice or his designate defined in SBP & Co. case. (Para 17)

        (2005)8 SCC 618 – Relied upon.

        (c) Arbitration and Conciliation Act, 1996 – Section 11 – When a respondent contends that the dispute is not arbitrable on account of discharge of the contract under a settlement agreement or discharge voucher or no-claim certificate, and the claimant contends that it was obtained by fraud, coercion or under influence, the issue will have to be decided either by the Chief Justice/his designate in the proceedings under section 11 of the Act or by the arbitral Tribunal as directed by the order under section 11 of the Act – A claim for arbitration cannot be rejected merely or solely on the ground that a settlement agreement or discharge voucher had been executed by the claimant, if its validity is disputed by the claimant. (Para 18)

        (d) Arbitration and Conciliation Act, 1996 – Section 11 – Whether the contract has been discharged by performance or not is a mixed question of fact and law, and if there is a dispute in regard to that question, that is arbitrable – If the party who has executed the discharge agreement or discharge voucher, alleges that the execution of such discharge agreement or voucher was on account of fraud/coercion/undue influence practiced by the other party and is able to establish the same, then obviously the discharge of the contract by such agreement/voucher is rendered void and cannot be acted upon – Consequently, any dispute raised by such party would be arbitrable. (Para 19)

        41 IA 142; (1974)1 SCC 141; (1982)1 SCC 625; (1988)3 SCC 76; (2000)10 SCC 178; (2006)13 SCC 475 – Relied upon.

        (2004)2 SCC 663 – Referred.

        1994 Supp (3) SCC 83; 1994 Supp (3) SCC 126; 1995 Supp (3) SCC 324 – Distinguished.

        (e) Arbitration and Conciliation Act, 1996 – Section 20 – Circumstances under which an arbitration agreement cannot be invoked to seek reference stated. (Para 21)

        (f) Arbitration and Conciliation Act, 1996 – Section 11 – Procedure requiring the claimant to issue an undated receipt (acknowledging receipt of a sum smaller than his claim) in full and final settlement, as a condition for releasing an admitted lesser amount, is unfair, irregular and illegal and requires to be deprecated. (Paras 26)

        (1999)6 SCC 400; (2006)8 SCC 156; (2008)5 SCC 400; (1986)3 SCC 156 – Relied upon.

       Facts of the case :

        1. The respondent (Insured) obtained a standard Fire and Special Perils (with a floater) Policy from the appellant (‘Insurer’) to cover its goods in its godowns situated at Surat for the period 4.8.2003 to 3.8.2004. The sum insured was Rs. Three crores, subsequently increased to Rs. Six crores.

        2. The respondent alleged that the additional endorsement cover issued by the appellant was for 69 days, that is from 27.5.2004 to 3.8.2004. The appellant alleged that the additional endorsement cover was for a period of 60 days from 27.5.2004 to 26.7.2004.

        3. On 5.8.2004, the respondent reported loss/damage to their stocks on account of heavy rains and flooding which took place on 2/3.8.2004 and made a claim in that behalf. The surveyor submitted a preliminary report dated 14.8.2004 followed by a final survey report dated 6.12.2004 according to which the net assessed loss (payable to respondent) was finally re-worked as Rs.2,34,01,740/-.

        4. The respondent alleged that the appellant forced the respondent to accept a lower settlement; that the appellant informed the respondent that unless and until the respondent issued an undated ‘Discharge voucher-in-advance’ (in the prescribed form) acknowledging receipt of Rs.2,33,94,964/- in full and final settlement, no amount would be released towards the claim; that in that behalf, the appellant sent the format of the discharge voucher to be signed by respondent on 21.3.2006; that on account of the non-release of the claim, it was in a dire financial condition and it had no alternative but to yield to the coercion and pressure applied by the appellant; that therefore the respondent signed and gave the said discharge voucher, undated, as required by the insurer during the last week of March, 2006. The payment was released by the appellant only after receiving the said discharge-voucher.

        5. Simultaneously, the respondent lodged a complaint dated 24.3.2006 with the Insurance Regulatory and Development Authority

        6. The respondent also issued a legal notice dated 27.5.2006. By the said notice, the respondent demanded the difference amount with interest at the rate of 12% per annum from 6.12.2004 (date of final survey report) till the date of payment.

        7. The respondent also informed the appellant that if payment was not so made within 15 days, the notice should be treated as notice invoking arbitration. The appellant by its reply dated 2.8.2006, rejected the said demand.

        8. In view of appellant’s refusal to agree for arbitration, the respondent filed an application under section 11 of the Arbitration & Conciliation Act, 1996 in the Bombay High Court.

        9. The learned Chief Justice of the Bombay High Court exercising power under section 11 of the Act, allowed the petition.

       Finding of the Court :

        The impugned judgment dos not warrant interference.

       Result : Appeal dismissed.