UNITED INDIA INSURANCE CO. LTD. versus ANTIQUE ART EXPORTS PVT. LTD. on 28 March 2019

1. Leave granted.

2. These appeals have been filed by the Insurance Companyassailing the order dated 30[th] May, 2017 passed by the High Court ofDelhi appointing an Arbitrator in exercise of power under Section 11(6)of the Arbitration and Conciliation Act, 1996(hereinafter being referredto as “the Act”) to adjudicate the dispute between the parties.

3. The facts in brief manifest from the record and relevant for thepresent purpose are that the respondent claimant was running its factorysituated at 78, Kilo Mile Stone, Karhans Village, Main GT Road,Samalakha, Panipat and purchased two Standard Fire and Special PerilsPolicies dated 29[th] June, 2013 and 10[th] October, 2013. On 25[th] September,2013 and thereafter on 25[th] October, 2013, a fire took place in the factoryon account of a short circuit as claimed by the respondent claimant. Theappellant Company on receipt of the information appointed M/s. ProtocolSurveyors & Engineers Pvt. Ltd. as surveyors and also appointed theirinvestigator to submit the fact finding report. After the report wassubmitted by the authorised surveyor, the appellant Company sent an e-mail to the respondent with an intimation that it has approved its claimfor an amount of Rs. 2,81,44,413/- on account of fire dated 25[th] October,2013 towards full and final settlement with complete details of the amountcomputed. The extract of the e-mail sent by the appellant Company tothe respondent has been placed on record at Annexure P-2 in Civil Appealarising out of SLP(C ) No. 23956 of 2017 and is reproduced as under:- “From: [REDACTED]: Thursday, May 05, 2016 1:23 PMTo: Vimal Singh CC: [REDACTED]; [REDACTED]; [REDACTED]

Subject: Fire Claim dated 25.10.2013

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ASir/Madam,

This is to inform you that the Competent Authority has approvedyour claim for an amount of Rs. 2,81,44,413/- (building Rs.88,18,691 P & M Rs. 7,32,382 FFF Rs. 3,61,049 FinishedGoods, Rs. 1,95,66,389 Fire Fighting Ex. Rs. 59,000 Cost of DebrisBRemoval Rs. 88,187 Total Rs. 2,96,25,698)

Less Excess 5% Rs. 14,81,285 = Rs. 2,81,44,413) of loss dated25.10.2013 (Claim No. 0407001113C101515001)

In order to release the payment we require following from yourend.

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1. Confirmation from the concerned bank “Indian Overseas Bank,Defence Colony Branch.

Through mail that in which Account the payment has to be madethrough NEFT.

D2. Deposit Re-instatement premium of Rs.19100/-

3. Fire Fighting expenses bills in original

4. Debris Removal bills in original.

5. Full and final settlement discharge voucher for Rs. 2,81,44,413/- duly endorsed by the bank also without any Subjectivity.

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Please furnish.

JaiprakashDivisional ManagerUnited India Insurance Company LimitedF10203, IIIrd Floor, Jamuna House,Padam Singh Road New Delhi-110005

Mobile : [REDACTED]

Phone : 28755967, 28755419

[REDACTED]”G

4. On the same date, i.e. 5[th] May, 2016, the respondent sent areply accepting the computation and provided the desired details withfinal discharge voucher and details of the bank account in which thepayment was to be credited. The extract of the e-mail and the dischargevoucher sent by the respondent is reproduced hereunder:- H

UNITED INDIA INSURANCE CO. LTD.v. ANTIQUE ARTEXPORTS PVT. LTD. [RASTOGI, J.]

“ANTIQUE ART

Exports Pvt. Ltd.

(A Govt. of India Recognized Export House)

PANIPAT OFFICE: 78 K.M. Stone, G.T. Road, karhans Village,Tehsil Samalkha, Panipat-132103(INDIA)

T:0091-180-3003300 (100 Lines), F: 0091-180-3003311

E:[REDACTED], :www.antiqueartexports.com The Divisional ManagerUnited India Insurance Co. Ltd.10203, 3[rd] Floor, Jamuna HousePadam Singh RoadKarol Bagh, New Delhi.

05.05.2016

Kind Attn: Mr. Jaiprakash

Subject : Fire Claim dated 25.10.2013

Dear Sir,

We are in receipt of your email of today’s date, wherein youhave asked to furnish certain documents/information for doingthe needful at your end. Accordingly, we are submitting herewithdesired information/documents for your necessary action.

1. We have already requested our bank to confirm account details,in which payment has to be made through NEFT. Hopefully, youmust have received the same directly from Bank on your email.

2. Regarding re-instatement premium of Rs.19100/-, we requestyou to deduct the same from claim payment.

3. Original Fire Fighting expenses bills are submitted herewith fordoing the needful at your end.

4. Regarding Debris Removal Bills in original, we are enclosingherewith separate letter and contents of the same are self-explanatory. This payment is to be released at later date as perour letter.

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A5. Full and final settlement discharge voucher for Rs.2,81,44,413/-duly endorsed by the bank is attached for doing the needful atyour end.

While hoping that you will find above information/ documents inline of your requirement, we look forward to have the immediateBtransfer of payment of our claim to our bank.

A line of confirmation in this regard will be highly appreciated.

Thanking you

Yours faithfully,

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For Antique Art Exports Pvt. Ltd.

Ashok Jain

Chairman”

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“ANTIQUE ART

Exports Pvt. Ltd.

(A Govt. of India Recognized Export House)

PANIPAT OFFICE: 78 K.M. Stone, G.T. Road, karhans Village,Tehsil Samalkha, Panipat-132103(INDIA)

E T:0091-180-3003300 (100 Lines), F: 0091-180-3003311

E:[REDACTED], :www.antiqueartexports.com 05.05.2016

Full and Final Settlement Discharge Voucher F

We, Antique Art Exports Pvt. Ltd., 78 KM Stone, Karhans Village,Tehsil Samalkha, Panipat-132103, Haryana do hereby acceptpayment of Rs.2,81,44,413/-(Rupees Two Crore Eighty One LacsFourty Four Thousand and Four Hundred Thirteen only) as fulland final settlement against our fire claim No.:0407001113GC101515001 of loss dated 25.10.2013 without any subjectivity.

For Antique Art Exports Pvt. Ltd.

Sd/-

Ashok Jain Chairman”

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5. Civil Appeal arising out of SLP(C ) No. 23963 of 2017 dealswith the fire taken place on 25[th] September, 2013. It is not disputedbetween the parties that the facts are similar except that the claim wassettled for Rs. 2,20,36,840/-.

6. Indisputedly, both the claims were accepted by the respondentwithout any demur or protest, and after full and final settlement anddischarge of claim in reference to both the claims of the incident dated25[th] September, 2013 and 25[th] October, 2013, the respondent later throughe-mail dt. 11[th] July, 2016 desired certain details and reports with a breakup of computation including copy of the preliminary survey report etc.and there was no whisper that any coercion or undue influence, etc.was used by the appellant company. The e-mail was replied by theappellant on 20[th] July, 2016 giving all details as desired by the respondent.Thereafter on 27[th] July, 2016 for the first time nearly almost after 11weeks of the receipt of claim and full and final discharge, respondentclaimed that fraud, coercion and undue influence was exercised and hewas forced to sign on the dotted lines without furnishing any prima facieevidence in support thereof. In furtherance, application came to be filedbefore the High Court on 11[th] January, 2017 under Section 11(6) of theArbitration and Conciliation Act, 1996(hereinafter being referred to as“the Act”) inter alia that the insurer coerced and forced the respondentto sign on dotted lines on a pre-signed discharge voucher and claimedfor appointment of an Arbitrator.

7. The appellant Insurance Company in their reply refuted suchallegations and further stated that the respondent had signed a letter ofsubrogation in accepting the payment in full and final settlement of itsclaim. Discharge Voucher was sent without any demur or protest andnothing further survives and no arbitral dispute subsists for adjudicationand so far as the allegation levelled that the insurer has coerced and putundue force upon the respondent to sign on dotted lines on a pre-signedstandard discharged paper is concerned, there is no prima faciedocumentary evidence placed on record except the letter dated 27[th]July, 2016 which was sent for the first time after almost more than 11weeks of the claim being settled and the application for appointment ofArbitrator is ill founded and deserves to be rejected.

8. The High Court taking note of the rival contentions of the partiesand of sub-section (6A) of Section 11 of the Act which has been introduced A

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Aby virtue of Amendment Act, 2015 observed that once there is existenceof arbitration agreement, acceptance of the payment disbursed by theappellant company, whether it was under coercion or undue influence, isa matter to be examined by the Arbitrator and accordingly proceeded toappoint the sole arbitrator to adjudicate the dispute between the parties.

B9. Shri Vineet Malhotra, learned counsel for the appellant submitsthat once the claim was settled and the claimant received compensationand issued a discharge voucher in full and final settlement of its claim,there was a discharge of the contract by accord and satisfaction. As aresult, neither any contract nor any claim survived. It was also contendedthat having received the payment under the said discharge voucherCwithout any demur or protest, it was not open for the respondent after 11weeks of the receipt of the claim and full and final discharge, to raise avoice that the discharge was obtained under coercion and undue influencewithout furnishing any prima facie evidence in support thereof and placedreliance of the judgment of this Court inNew India Assurance CompanyDLimitedVs. Genus Power Infrastructure Limited 2015(2) SCC 424which according to him is almost on the same set of facts andcircumstances.

10. Learned counsel for the appellant further submits that sub-section (6A) of Section 11 of the Act has been introduced by AmendmentEAct, 2015 with a limited purpose for expediting the arbitral disputes in atime bound manner provided there is a prima facie arbitral claim/disputesubsist under the arbitral agreement for adjudication by the Arbitrator.In the instant case, as there was no arbitral dispute subsisting after theclaim being finally settled with consent of the parties with due accordand satisfaction, Section 11(6) was not available to be invoked by theFrespondent in raising a dispute after more than 11 weeks of the settlementof the claim to the satisfaction of the parties.

11. Per Contra, Shri Dhruv Mehta, learned senior counsel for therespondent submitted that he is not disputing as far as the settlement ofthe claims are concerned but his objection is that the respondent was notGin a bargaining position and being in financial stress, he had no option butto accept the claim on the dotted lines settled by the appellant in anarbitrary manner leaving no choice and mere acceptance in the givencircumstances will not take away the right of the respondent to establishthat it was not voluntary but under undue influence and coercion and H

since there is a clause of arbitration in the agreement, it will be for theArbitrator to examine as to whether the acceptance of the claim by therespondent has been voluntary or under undue influence or coercion andin the given circumstances, no error has been committed by appointingthe Arbitrator under the impugned judgment.

12. The existence of an arbitration clause in the contract ofinsurance is not in dispute. The question does arise whether the dischargein the present case upon acceptance of the compensation and signing ofthe discharge letter was voluntary or under coercion or undue influenceand the respondent was justified in invoking Section 11(6) of the Act. Itis true that execution of full and final agreement, receipt or a dischargevoucher in itself cannot be a bar to arbitration and it has been observedby this Court in National Insurance Company Limited Vs. BogharaPolyfab Private Limited2009(1) SCC 267 at para 44 as under:- “44. None of the three cases relied on by the appellant lay downa proposition that mere execution of a full and final settlementreceipt or a Discharge Voucher is a bar to arbitration, even whenthe validity thereof is challenged by the claimant on the ground offraud, coercion or undue influence. Nor do they lay down aproposition that even if the discharge of contract is not genuine orlegal, the claims cannot be referred to arbitration. In all the threecases, the Court examined the facts and satisfied itself that therewas accord and satisfaction or complete discharge of the contractand that there was no evidence to support the allegation of coercion/undue influence.”

13. It further laid down the illustrations as to when claims arearbitrable and when they are not. This may be illustrative (not exhaustive)but beneficial for the authorities in taking a decision as to whether in agiven situation where no claim/discharge voucher has been furnishedwhat will be its legal effect and still there is any arbitral dispute subsiststo be examined by the arbitrator in the given facts and circumstancesand held in para 52 ofNational Insurance Co. Ltd. Vs. Boghara PolyfabPrivate Limited(supra) as follows:- “52. Some illustrations (not exhaustive) as to when claims arearbitrable and when they are not, when discharge of contract byaccord and satisfaction are disputed, to round up the discussionon this subject are:

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(i) A claim is referred to a conciliation or a pre-litigation Lok Adalat.The parties negotiate and arrive at a settlement. The terms ofsettlement are drawn up and signed by both the parties and attestedby the conciliator or the members of the Lok Adalat. Aftersettlement by way of accord and satisfaction, there can be noreference to arbitration.

(ii) A claimant makes several claims. The admitted or undisputedclaims are paid. Thereafter negotiations are held for settlementof the disputed claims resulting in an agreement in writing settlingall the pending claims and disputes. On such settlement, the amountagreed is paid and the contractor also issues a discharge voucher/no-claim certificate/full and final receipt. After the contract isdischarged by such accord and satisfaction, neither the contractnor any dispute survives for consideration. There cannot be anyreference of any dispute to arbitration thereafter.

(iii) A contractor executes the work and claims payment of sayrupees ten lakhs as due in terms of the contract. The employeradmits the claim only for rupees six lakhs and informs thecontractor either in writing or orally that unless the contractorgives a discharge voucher in the prescribed format acknowledgingreceipt of rupees six lakhs in full and final satisfaction of thecontract, payment of the admitted amount will not be released.The contractor who is hard-pressed for funds and keen to get theadmitted amount released, signs on the dotted line either in a printedform or otherwise, stating that the amount is received in full andfinal settlement. In such a case, the discharge is under economicduress on account of coercion employed by the employer.Obviously, the discharge voucher cannot be considered to bevoluntary or as having resulted in discharge of the contract byaccord and satisfaction. It will not be a bar to arbitration.

(iv) An insured makes a claim for loss suffered. The claim isneither admitted nor rejected. But the insured is informed duringdiscussions that unless the claimant gives a full and final voucherfor a specified amount (far lesser than the amount claimed by theinsured), the entire claim will be rejected. Being in financialdifficulties, the claimant agrees to the demand and issues anundated discharge voucher in full and final settlement. Only afew days thereafter, the admitted amount mentioned in the voucher is paid. The accord and satisfaction in such a case is not voluntarybut under duress, compulsion and coercion. The coercion is subtle,but very much real. The “accord” is not by free consent. Thearbitration agreement can thus be invoked to refer the disputes toarbitration.

(v) A claimant makes a claim for a huge sum, by way of damages.The respondent disputes the claim. The claimant who is keen tohave a settlement and avoid litigation, voluntarily reduces the claimand requests for settlement. The respondent agrees and settlesthe claim and obtains a full and final discharge voucher. Hereeven if the claimant might have agreed for settlement due tofinancial compulsions and commercial pressure or economicduress, the decision was his free choice. There was no threat,coercion or compulsion by the respondent. Therefore, the accordand satisfaction is binding and valid and there cannot be anysubsequent claim or reference to arbitration.”

14. It is true that there cannot be a rule of thumb and each casehas to be looked into on its own facts and circumstances, taking note ofthe broad principles, it was observed by this Court in Union of Indiaand OthersVs. Master Construction Co.2011(12) SCC 349 at para 18as under:-

“18. In our opinion, there is no rule of the absolute kind. In a casewhere the claimant contends that a discharge voucher or no-claimcertificate has been obtained by fraud, coercion, duress or undueinfluence and the other side contests the correctness thereof, theChief Justice/his designate must look into this aspect to find out atleast, prima facie, whether or not the dispute is bona fide andgenuine. Where the dispute raised by the claimant with regard tovalidity of the discharge voucher or no-claim certificate orsettlement agreement, prima facie, appears to be lacking incredibility, there may not be a necessity to refer the dispute forarbitration at all.”

15. From the proposition which has been laid down by this Court,what reveals is that a mere plea of fraud, coercion or undue influence initself is not enough and the party who alleged is under obligation to primafacie establish the same by placing satisfactory material on record beforethe Chief Justice or his Designate to exercise power under Section 11(6)

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Aof the Act, which has been considered by this Court in New IndiaAssurance Company Ltd. case (supra)as follows:- “9. It is therefore clear that a bald plea of fraud, coercion, duressor undue influence is not enough and the party who sets up a plea,must prima facie establish the same by placing material beforethe Chief Justice/his designate…..”

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16. In the instant case averment was made for the first time after11 weeks of the settlement of claim & release of discharge voucher inthe petition filed by the respondent seeking appointment of Arbitrator ofundue influence/coercion being used by the appellant in signing the paperson dotted lines is reproduced as under:- C

“xiii. It is stated that the Respondent occupying a bargaining positionas an Insurer coerced and forced the Petitioner to sign on dottedlines on a Pre-signed Standard Discharge Voucher. The petitionerfacing severe financial distress gave in to the pressure tactics ofthe Respondent and was made to sign a purported DischargeVoucher dated 24.06.2016 for an amount of Rs. 2,20,36,840/-(Rupees Two Crore Twenty Lakhs Thirty Six Thousand, EightHundred Forty Only) as against the Claim of Rs. 5,12,49,241/-(Rupees Five Crore Twelve Lakhs Forty Nine Thousand TwoHundred Forty One Only) as a pre-condition for release of money.

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xvii. It is stated that Petitioner vide its Letter dated 27.07.2016rescinded the purported Discharge Voucher as illegal and void asit was forced on coerced into signing the same in the face ofextreme financial duress. The petitioner vide the said letter dated27.07.2016 called upon the Respondent to pay the balance amountof Rs. 2,92,12,401/- (Rupees Two Crore Ninety Two Lakhs TwelveThousand Four Hundred and One Only) on account of loss sufferedby the petitioner as result of fire. The petitioner also claimed aninterest @ 18% per annum from the date of incident as well as onthe paid amount till date of payment i.e. up to 06.07.2016.”

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17. It is true that there cannot be a rule of its kind that mereallegation of discharge voucher or no claim certificate being obtained byfraud/coercion/undue influence practised by other party in itself issufficient for appointment of the arbitrator unless the claimant who allegesthat execution of the discharge agreement or no claim certificate was H

obtained on account of fraud/coercion/undue influence practised by theother party is able to produce prima facie evidence to substantiate thesame, the correctness thereof may be open for the Chief Justice/hisDesignate to look into this aspect to find out at least prima facie whetherthe dispute is bonafide and genuine in taking a decision to invoke Section11(6) of the Act.

18. In the instant case, the facts are not in dispute that for the twoincidents of fire on 25[th] September, 2013 and 25[th] October, 2013, theappellant Company based on the Surveyor’s report sent e-mails on 5[th]May, 2016 & 24[th] June, 2016 for settlement of the claims for both thefires dated 25[th] September, 2013 and 25[th] October, 2013 which wasresponded by the respondent through e-mail on the same date itselfproviding all the necessary information to the Regional Office of theCompany and also issued the discharge voucher in full & final settlementwith accord and satisfaction. Thereafter, on 12[th] July, 2016, therespondent desired certain information with details that too was furnishedand for the first time on 27[th] July, 2016, it took a U-turn and raised avoice of undue influence/coercion being used by the appellant statingthat being in financial distress left with no option than to proceed to signon the dotted lines. As observed, the phrase in itself is not sufficientunless there is a prima facie evidence to establish the allegation ofcoercion/undue influence, which is completely missing in the instant case.

19. In the given facts and circumstances, we are satisfied that thedischarge and signing the letter of subrogation was not because of anyundue influence or coercion as being claimed by the respondent and wefind no difficulty to hold that upon execution of the letter of subrogation,the claim was settled with due accord and satisfaction leaving no arbitraldispute to be examined by an Arbitrator to be appointed under Section11(6) of the Act.

20. The submission of the learned counsel for the respondent thatafter insertion of sub-section (6A) to Section 11 of Amendment Act,2015 the jurisdiction of this Court is denuded and the limited mandate ofthe Court is to examine the factum of existence of an arbitration andrelied on the judgment in Duro Felguera S.A.Vs. Gangavaram PortLimited2017(9) SCC 729. The exposition in this decision is a generalobservation about the effect of the amended provisions which came tobe examined under reference to six arbitrable agreements (five A

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Aagreements for works and one corporate guarantee) and each agreementcontains a provision for arbitration and there was serious dispute betweenthe parties in reference to constitution of Arbitral Tribunal whether therehas to be Arbitral Tribunal pertaining to each agreement. In the factsand circumstances, this Court took note of sub-section (6A) introducedby Amendment Act, 2015 to Section 11 of the Act and in that contextBobserved that the preliminary disputes are to be examined by the arbitratorand are not for the Court to be examined within the limited scope availablefor appointment of arbitrator under Section 11(6) of the Act. Suffice itto say that appointment of an arbitrator is a judicial power and is not amere administrative function leaving some degree of judicial interventionCwhen it comes to the question to examine the existence of a prima faciearbitration agreement, it is always necessary to ensure that the disputeresolution process does not become unnecessarily protracted.

21. In the instant case, prima facie no dispute subsisted after thedischarge voucher being signed by the respondent without any demur orDprotest and claim being finally settled with accord and satisfaction andafter 11 weeks of the settlement of claim a letter was sent on 27[th] July,2016 for the first time raising a voice in the form of protest that thedischarge voucher was signed under undue influence and coercion withno supportive prima facie evidence being placed on record in absencethereof, it must follow that the claim had been settled with accord andEsatisfaction leaving no arbitral dispute subsisting under the agreement tobe referred to the Arbitrator for adjudication.

22. In our considered view, the High Court has committed amanifest error in passing the impugned order and adopting a mechanicalprocess in appointing the Arbitrator without any supportive evidence onFrecord to prima facie substantiate that an arbitral dispute subsisted underthe agreement which needed to be referred to the arbitrator foradjudication.

23. Consequently, the appeals are allowed and the order passedby the High Court is accordingly set aside. No costs.G

24. Pending application(s), if any, also stand disposed of.

Devika Gujral

Appeals allowed.

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