National Insurance Company Ltd. v. Beardsell Ltd.

IN THE HIGH COURT OF JUDICATURE AT MADRASDated: 03.09.2009Coram:The Honourable Mr.Justice M.CHOCKALINGAMandThe Honourable Mr.Justice R.SUBBIAHOriginal Side Appeal No.249 of 2009and M.P.No.1 of 2009National Insurance Company Ltd.,No.66, 1st Floor,Greams Road,Chennai-600 006rep.by its Sr.Divisional Manager,Mr.J.Subbaraman ..Appellant/Petitioner..vs..1. Beardsell Ltd., 47, Greams Road, Chennai-600 006.2. S.Emmanuel Jeyaraj3. R.Swaminathan4. M.A.Ananth ..Respondents/RespondentsOriginal Side Appeal filed under Order XXXVI Rule 1 of OriginalSide Rules read with Clause 15 of Letters Patent, against the orderand decree dated 17.04.2009 passed by a learned single Judge of thisCourt in O.P.No.674 of 2008.For Appellant : Mr.P.B.Sampath KumarFor Respondents : Mr.A.P.S.Kasthuri Rangan for R1JUDGMENT(Judgment of the Court was delivered by M.CHOCKALINGAM, J.,)Challenge is made to an order of dismissal made by the learnedsingle Judge of this Court in O.P.No.674 of 2008, whereby the awarddated 26.07.2008 made by the majority members of the ArbitralTribunal was confirmed.2. Short facts necessary for the disposal of the appeal can bestated as follows: https://hcservices.ecourts.gov.in/hcservices/ The appellant/petitioner insurance company issued two StandardFire and Special Perils policies valid for the period from 01.01.2005to 31.12.2005. The first policy covered various stocks, including rawmaterials, finished goods, semi finished goods, etc. lying in 13different places, while the latter covered the building, plant andmachinery at the first respondent's factory premises at Thane,Mumbai. The policies value are Rs.2,63,05,000/- and Rs.5,38,39,500/-respectively. Due to heavy rain on 26th July, 2005, the 1st respondentsuffered damage to its plant and machinery, stocks and materials.Hence, the 1st respondent notified the loss to theappellant/petitioner insurance company, in turn, the insurancecompany appointed M/s.Protocol surveyors and Engineers PrivateLimited, to inspect, verify and assess the damage that could haveoccurred. An interim report was filed on 18.10.2005 and a finalreport on 23.09.2006. The said surveyor assessed the net liability ofthe appellant at Rs.49,38,118/-. The stock declaration statement forthe month of June, 2005, disclosed only the value of the stock atThane in the factory premises at Rs.10,40,000/-. Hence, the 1strespondent sent a letter on 04.10.2005 to the appellant under Ex.C-12stating that they had mentioned the stock of the finished goods alonein the monthly stock declaration statement without including the rawmaterials and finished goods. It was due to mistake that the rawmaterials and finished goods were also covered under the policy andhence, a revised statement for the period February, 2005 to July,2005, showing the stock value as Rs.70,58,598/- was to be consideredfor payment. The insurance company sent a letter on 10.10.2005 to theSurveyor, as could be seen under Ex.R-2, that the revised declarationstatement might be reckoned. The Surveyor found that the reviseddeclaration and bank's statement containing the details of the stockof the raw materials and finished goods for the month of June, 2005were found to be tallied with the revised statement of the 1strespondent. The surveyor's interim report under Ex.R-9 dated18.10.2005 and the final report under Ex.R-6 dated 23.09.2006 arealso confirmed the same. The appellant offered Rs.3,31,010/- asagainst the claim assessed at Rs.29,04,669/- by its letter dated29.08.2007 towards the loss of damage to stocks on the ground thatthe declaration of stock prior to the date of occurrence of the loss,showed a discrepancy of the stocks actually available on the date ofoccurrence was noticed. The appellant made a payment ofRs.11,08,325/- towards the damage to the building, plant andmachinery as seen under Ex.C-3. Under Ex.C-1 dated 29.08.2007, theappellant insurance company offered to pay Rs.3,31,010/- in full andfinal statement of the claim, which brought forth the reply from the1st respondent on 08.10.2007 that the 1st respondent was not ready toaccept the same. Hence, the arbitration clause was invoked Theclaimant appointed three Arbitrators.3. The Arbitral Tribunal framed 9 issues. On enquiry, themajority of two granting the relief to the 1st respondent to the https://hcservices.ecourts.gov.in/hcservices/ tune of Rs.25,02,982/- in full and final settlement of the claim withsimple interest at 12% per annum from 01.01.2007 on Rs.3,31,010/- upto 31.12.2007 and on the sum of Rs.25,02,982/- from 01.01.2007 up tothe date of award and on 18% on Rs.25,02,982/- from the date of theaward till satisfaction. Aggrieved over the same, the appellant filedthe original petition for setting aside the award.4. The learned single Judge, on scrutiny of the materials and onhearing the submissions made, took a view that it is not a fit case,where the Court could interfere with the award or find any reason toset aside the same and hence, dismissed the original petition. Hence,the appeal has arisen at the instance of the appellant insurancecompany.5. Advancing the arguments on behalf of the appellant, thelearned counsel would submit that the terms and conditions prescribedby the Tariff Advisory Committee form part and parcel of the policy;that it has got a binding effect; that the learned single Judge hasalso held that when the clause was part and parcel of the policy, thesame was binding on both sides; that once the contents of the TariffAdvisory Committee report form part and parcel of the policy, thenany violation of the policy conditions would be invalid; that anyviolation of such conditions should have been construed as ultravires, especially when the report stated that any breach should bedealt with as per the relevant provisions of the Income Tax Act,1938; that the 2nd and 4th respondents herein had prejudged the issuebefore them in favour of the claimant and had applied the pluralityof illogical assumptions to justify the same; that they have alsoshown over indulgence and assumed facts which were not in existenceat all; that the stock value was revised on 04.10.2005 after theoccurrence of the accident on 26.07.2005; that there was no provisionin the policy for filing revised declaration even if there was a bonafide mistake; that if it was allowed that will go against the verybase of the declaration in the policy; that if a declaration wasallowed to be revised for whatever reason the very meaning ofdeclaration, the stocks would lose its effect and it could be variedat any time according the convenience of the parties. 6. Added further the learned counsel that entertaining andratifying a revision of declaration of the value of stock after thedate of occurrence would open the flood gates wherein every otherinsured had one reason or other to ratify the declaration after thedate of occurrence rendering the very purpose of the declaration inthe policy redendant; that the learned Judge failed to consider thesubmission of the appellant that the dissenting award of the ArbitralTribunal which pointed out that adjudicating the revised declarationwould amount to 'Ex-gratia award in arbitration'; that theappointment of investigator and the consequent finding that there wasa bona fide dispute would not in any way make the appellant insurance https://hcservices.ecourts.gov.in/hcservices/ company liable for payment of claim, especially when the appellantproved beyond doubt that any such variations would amount toviolating the Insurance Act; that the investigator appointed toascertain the bona fide and if the report had found that there was nobona fide, the entire claim would have been repudiated; that thedeclaration was a one time event and if the privilege of revision ofthe declaration was given, especially after the occurrence of theevent, it might be lied the rights and obligations of the partieswhich were originally formulated; that any deviation or violationcontrary to the prescriptions of the Tariff Advisory Committee wasillegal and ultra vires and nobody can ratify or approve anydeviation or violations; that the ratification was not communicatedto the other parties and hence it will not be binding in law; thatthe clauses contained in the agreement were clear and unambiguous andthe parties have not chosen to provide for any contingencies andthus, the Arbitral Tribunal erred in travelling beyond the scope ofthe Insurance Agreement and that the 1st defendant has attempted tounjust enrichment and it should not be upheld. Added further thelearned counsel that the interest rate awarded by the Tribunal wasexcessive and this was not also considered by the learned singleJudge.7. Learned counsel for the 1st respondent put forth hissubmissions in his sincere attempt of sustaining the award and alsothe order of the learned single Judge.8. The Court has paid its anxious consideration on thesubmission made by the learned counsel on either side and also thematerials available.9. Admittedly, the 1st respondent had taken two policies coveringbuilding, plant and machinery as well as stocks finished, semifinished and the raw materials in his factory at Thane. The policyamounts in respect of both the polices were paid by the 1strespondent. The payment admittedly would include for the rawmaterials, semi finished goods and finished goods. The 1st respondent,who suffered damage to its plant, machinery, stocks and materials dueto the heavy rain on 26.07.205, putforth its claim. The appellantinsurance company appointed its Surveyor referred to above to assessthe loss and damage. A final report was also filed on 23.09.2006following an interim report on 18.10.2005. In the final report, thedamage and loss were assessed to Rs.49,38,118/-. It is also not incontroversy that the 1st respondent, while had made a stockdeclaration statement for the month of June 2005, showed the value ofthe stock in the factory premises as Rs.10,40,000/- and thereafter,sent Ex.C-12 letter that the earlier declaration was pertaining tothe stock of finished goods only in the monthly stock declaration butit did not include the raw materials and finished goods and hence, https://hcservices.ecourts.gov.in/hcservices/ placed a revised statement containing the period February 2005 toJuly 2005, showing the stock value as Rs.70,58,598/-. 10. The main contention raised by the appellant insurancecompany before the learned single Judge as a bone of contention toset aside the award and equally here also is that once thedeclaration was made as to the value of the damage, then the insuredshould not be allowed to make a revised declaration. If allowed, itwould be a violation of the contents of the Tariff Advisory Committeereport and also against the provisions of the Insurance Act, 1938.This contention was negatived by the learned single Judge. In theconsidered opinion of the Court, that was a correct view taken by thelearned single Judge. Needless to say, the policy taken by the 1strespondent was contractual and the terms found therein would bebinding other parties. In the instant case, after the originaldeclaration was made, a revised declaration was made by the 1strespondent on 04.10.2005. It was clearly mentioned therein that inthe original declaration, by oversight, the value of the rawmaterials and finished goods covered under the policies were omittedand hence, there arose the necessity for the revised statementcovering for the period from February, 2005 to July, 2005. On receiptof the revised declaration, the appellant insurance company directedits Surveyor to reckon the revised declaration with the bank'sstatement. Accordingly, the Surveyor of the insurance company foundthat the revised declaration and the bank's statement in respect ofthe stocks of the raw materials and finished goods were tallied andhas given two reports on 18.10.2005 under Ex.R9 and on 23.09.2006under Ex.R-6. At this juncture, the Court is able to notice that theinsurance company have acted positively by asking its Surveyor to acton the revised statement. Had the intention of the insurance companynot to accept the revised declaration as it contended before thelearned single Judge and also before this Court, it should haverejected the revised statement itself, but not done so. On thecontrary, it has asked its Surveyor to proceed further and obtainedtwo receipts. It is pertinent to point out that the insurance companyhas not acted on the revised statement, but reserved its right toobject the same without prejudice to its right of denying thecontents of the report. The appointment of the Surveyor with adirection to act on the revised report should have been only toverify whether there was any wrong declaration made by the claimantand whether it was made bona fide or mala fide. The surveyor’s reportmade it evident that there was no breach of warranty or policyconditions by the claimant. The letter of the appellant dated11.07.2006 would indicate that the insurance company had elected anddecided not to treat the case as one of under-declarations,warranting invocation of condition No.44 of the declaration clause. 11. It is also an admitted position that the premium for theperiod 2004-2005 would include in respect of raw materials and https://hcservices.ecourts.gov.in/hcservices/ finished goods, which was covered under the policy. There was noattempt made by the insurance company to refund any part of thepremium for the year 2004-2005. All would clearly indicate that theinsurance company had elected to waive condition No.4 of thedeclaration clause and hence, it is too late for the insurancecompany to raise such a contention that the revised declaration wasrepugnant to the terms of the agreement. The contention put forth bythe learned counsel for the appellant that there was no provision inthe policy for final revised declaration, if there was a bona fidemistake. This contention cannot be countenanced. Nowhere the policystated that a revised declaration should not be made. Thus, thepolicy does not stipulate whether a revised declaration could be madeor could not be made. Under such a situation, the Court has lookedinto the conduct of the parties. In the instant case, there was arevised declaration made and the same was received by the appellantinsurance company and, in turn, it asked its Surveyors to makeassessment on the basis of the revised declaration for the materialscovered in the revised statement and obtained two reports. On thebasis of the revised declaration, the appellant has received premiumon the policy during the relevant period. As such, it cannot now beallowed to say that the revised declaration was against the terms ofthe policy taken by the party. Under such circumstances, thecontentions put foward by the learned counsel for the appellant wereduly considered by the learned single Judge and has arrived at thecorrect conclusion that such contentions cannot be countenanced. 12. In so far as the question of interest is concerned, it willbe more apt and appropriate to reproduce sub-section 7 of section 31of the Arbitration and Conciliation Act, which speaks about thepayment of interest, as follows:"7(a) Unless otherwise agreed by the parties, where andin so far as an arbitral award is for the payment of money,the arbitral tribunal may include in the sum for which theaward is made interest, at such rate as it deems reasonable,on the whole or any part of the money, for the whole or anypart of the period between the date on which the cause ofaction arose and the date on which the award is made.(b) A sum directed to be paid by a arbitral award shall,unless the award otherwise directs, carry interest at therate of eighteen per centum per annum from the date of theaward to the date of payment".13. Regarding the payment of interest, the Apex Court in CivilAppeal No.4197 of 2009 (M/s.Sayeed Ahemd & Co., ..vs.. State of U.P.& Ors.) has held as follows: https://hcservices.ecourts.gov.in/hcservices/ "18. ....As noticed above, clause(b) of sub-section (7) ofsection 31 of the Act provides that if the award does nototherwise direct, the amount awarded shall carry interest asdirected by the award and in the absence of any provision of18% per annum..."Hence, the interest awarded by the Arbitral Tribunal at 12% per annumtill the date of award cannot be disturbed and the 18% subsequentinterest is also reasonable and hence, that part of the award hasalso to be sustained. 14. As rightly pointed out by the learned single Judge, in theabsence of any error, which is against the provisions of law orpolicy, the award could not be interfered with and that there was noreason or ground noticed by the Court to take any other view than theone taken by the majority of the members of the Arbitral Tribunal inrespect of the revised declaration. Hence, the order of the learnedsingle Judge has got to be sustained. Accordingly, the appeal fails and is dismissed, leaving theparties to bear their costs. Consequently, connected M.P.is closed. Sd/- Asst.Registrar/true copy/ Sub Asst.RegistrarglToThe Sub Assistant Registrar,Original Side, High Court, Madras.+1 cc to Mr.P.B.Sampathkumar, Advocate, SR.No.44573+1 cc to M/s.Sampathkumar & Associates, Advocate, SR.No.44175 Judgment in O.S.A.No.249 of 2009RL {CO}TP/6.10.2009.