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Judgment
Vinod K. Sharma, J.—This petition, u/s 34 of the Arbitration and Conciliation Act, 1996, has been filed by the Petitioners to challenge the
award dated 04.12.2008 passed by the learned arbitrator.
The parties to the litigatioin entered into a Memorandum of Understanding (MOU) on 05.03.2002. The object of the MOU was to permit the
Respondent to issue cover notes and the Petitioner company was to issue regular insurance policies for one year operating from the date of issue of
cover notes.
In order to implement the MOU, the Respondent No. 1 herein deposited a sum of Rs. 8,00,000/-(Rupees Eight Lakhs only) to cover the
premium for the policies to be issued by the Petitioner. The Respondent thereafter deposited further sums from time to time to cover premium
payable to the insurance policies in the future. The Petitioner deputed staff members at the office of the Respondent finance company, to issue
policies on the basis of cover notes. In December 2004, the Petitioner company informed the Respondent that account of Respondent did not
have sufficient cash to meet the premium with respect to 750 cover notes, issued by the Respondent. The Respondent was accordingly asked to
deposit a sum of Rs. 25,00,000/-(Rupees Twenty Five Lakhs only) and also furnish indemnity bond to cover insurance policies, issued by the
Respondent.
The parties agreed to cancel the MOU with effect from 15.03.2005. By cancelling the MOU, it was stipulated therein that the Respondent will
not utilize the cover note with effect from 15.03.2005 and return the unutilized cover notes with indemnity to the Petitioner.
The parties also agreed to reconcile the account within one month of the date of cancellation of the MOU.
In terms of the deed of cancellation, on 27.06.2005, the Petitioner company confirmed the credit balance on 31.03.2005, to be Rs.
1,91,02,499/-(Rupees One Crore Ninety One Lakhs Two Thousand and Four Hundred Ninety Nine only). Thereafter on 30.06.2006, the
Petitioner company confirmed the credit balance of Respondent to be Rs. 173.41 lakhs. In the process of reconciliation, it was pointed out by the
Petitioner company that the total cover note books, issued to the Respondent was 514, out of which, Respondent had accounted only for 500
cover notes. The Respondent was accordingly directed to return the remaining 14 cover note books. This was complied with by the Respondent.
On 15.06.2005, the insurance company asked for return of 149 cover note leaves, which was said to be not available in the cover note books.
It is not disputed that this direction was also complied with. The Respondent company accordingly asked for return of amount due and
outstanding.
In view of the dispute having arisen between the parties, the Respondent thereafter approached the Hon''ble Chief Justice u/s 11 of the
Arbitration and Conciliation Act, for appointment of an Arbitrator. The Hon''ble Mr. Justice R. Balasubramanian (Retd.), was appointed as the
Sole Arbitrator. The claimant filed a claim petition claiming under eight heads, which read as under:
i) Under Claim No. 1, the claimant / first Respondent herein prayed for a decree for a sum of Rs. 173.41 lakhs with interest @ 24% p.a. with
effect from 15.03.2005 till date of payment, the amount which was said to be lying to the credit of the Respondent.
ii) Under Claim No. 2, the Respondent herein sought refund of Rs. 25 lakhs deposited as additional deposit along with interest @ 24; p.a.
iii)Under Claim No. 3A, claim for Rs. 82,75,405/-(Rupees Eighty Two Lakhs Seventy Five Thousand and Four Hundred Five only) along with
interest @ 24% was claimed on account of premium paid for 766 policies, which were cancelled.
iv)Under Claim No. 3B, the Respondent herein also claimed a sum of Rs. 81.86 lakhs along with interest @ 24% p.a. for refund of amount
debited with 687 cover notes, issued either for a fresh policy or for renewal, as no policies were issued against cover notes.
v) Under Claim No. 3C, the claimant / first Respondent herein asked for cancellation of 302 insurance policies and refund of premium of Rs.
31.68 lakhs, as the request for cancellation was accepted, but no refund was given. The interest of this amount was also claimed @ 24% p.a.
vi)Under Claim No. 4, the Respondent prayed for a decree for a sum of Rs. 91.40 lakhs along with service tax, said to have been adjusted as
difference in premium for a short period and pro-rata premium collected for the same same policy for the balance period. The deduction was said
to be contrary to tariff condition GR11 and therefore, is only an after-thought. This amount was debited after the dispute had arisen between the
parties.
vii)Under Claim No. 5, damage to the tune of Rs. 3 crores along with interest @ 24% was claimed.
viii)Under Claim No. 6, a sum of Rs. 1 crore was claimed as loss of profit on account of Petitioner company having not paid money due to the
Respondent herein.
ix)Under Claim No. 7, the claimant submitted the work sheet quantifying the interest payable on the various sums claimed by the claimant.
x) Under Claim No. 8, the Respondent herein claimed the cost of arbitration.
Thus, the total sum claimed by the claimant was to the tune of Rs. 13,51,95,037/-with interest @ 24% p.a. with effect from 15.03.2005 till
15.02.2008 with pendatile and future interest
The main defence to the claim raised by the claimant was that the Respondent had committed breach of obligation, as the cover notes were
issued without ensuring adequacy of premium. The stand was also taken that some of the cover notes were anti-dated, which resulted in number of
claims, being filed against the Petitioner company. The amount claimed were said to be beyond the scope of arbitration, as in the petition filed u/s
11, the amount in dispute is stated to be Rs. 454.41 lakhs.
On merits, the stand of the Petitioner company was that the credit of the applicant was never admitted at any point of time, as neither the
Respondent nor the Petitioner company ever sat together and reconciled the accounts. The stand was also taken that the reconciliation for want of
details had become a difficult task. It was also the case set up by the Petitioner that as against Rs. 173.41 lakhs shown to be the balance as on
30.03.2006, a sum of Rs. 2,08,998/-(Rupees Two Lakhs Eight Thousand Nine Hundred Ninety Eight only) was adjusted being the difference in
service tax, charged at revised rate of service tax. After adjustment of the amount, the credit balance of the Respondent was only Rs.
1,68,69,890/-, which was subject to further accounting. Against this credit balance, the Petitioner claimed that a sum of Rs. 1,00,72,152/-was
recoverable, as the difference in premium debited for 1814 policies and another sum of Rs. 27,819/-, being the different in premium debited from
01.07.2006 to 31.12.2006.
The case of the Petitioner was that after adjustment, only Rs. 67,69,919/-alone was available as balance, out of this amount, another sum of
Rs. 27,38,024/-was to be adjusted along with another amount of Rs. 1,03,71,774/-.
On reconciliation, it was found the Petitioner was to recover a sum of Rs. 36,01,855/-. The Petitioner company justified the claim of Rs. 25
lakhs, as additional deposit and indemnity bond to meet the payment premium, as deposit with the Petitioner, was in adequate, to meet any further
claim.
It was claimed that there was a breach of Section 64VB of the Motor Vehicles Act, as the cover notes were issued without adequate
premium. The insurance company justified the claim on the ground that the Petitioner company was exposed to several claims under cancelled
cover notes due to non-availability of premium. The defence however was that 801 cover notes, were cancelled on a specified date followed by
issuance of fresh policies of insurance. In order to achieve this object, the Petitioner had to spend money towards postal and other charges, which
resulted in loss to the tune of Rs. 10,00,000/-(Rupees Ten Lakhs only) to the Petitioner company.
The defence to the claims raised under 3A, 3B and 3C, was that in case any refund on account of cancellation of policies was found due, it
had to be paid to the owner of the vehicle and not to the Respondent.
It was also case that though request for cancellation was received from the Respondent, it was not possible without request from the holder of
the policy, the claims were accordingly disputed.
The main defence was that even assuming that refund of premium was permissible, then also entire premium was not to be refunded, and only
the portions for unutilized period could be claimed. The claims under 3A, 3B and 3C were said to be not sustainable. The claim No. 4 was said to
be contrary to India Motor Tariff Provisions. It was stated in the defence that the Respondent was continuously violating the MOU, as the cover
notes were issued without providing for adequate deposit amount.
The claim Nos. 5 & 6 were said to be unsustainable in law and beyond scope of arbitration clause. That the Petitioner was reckless in issuing
cover notes without sufficient deposit amount, which was in violation of the MOU. Furthermore, the Petitioner was completely prejudiced by the
act of the Respondent. As already referred to above, the claim was said to be beyond the scope of reference. Under claim No. 7, payment of
interest was denied. Similarly, liability to pay cost was also disputed under claim No. 8.
On the pleadings referred to above, the Hon''ble Arbitrator framed the following issues:
(a) Whether the claimant is entitled to Rs. 173.41 lakhs as on 30.06.2006 as per letter Ex.C.15 issued by the Insurance Company?
(b) Whether the claimant is entitled to return of the indemnity deposit of Rs. 25 lakhs from the Defendant?
(c) Whether the claimant is entitled to refund of premium arising out of cancellation of 1755 insurance policies and if so, for what amount?
(d) Whether the Insurance Company is entitled to debit the claimant by Rs. 1,00,72,152/-including service tax towards 1814 insurance policies
claimed for by them?
(e) If the insurer is entitled for the above claim, whether the formula applied by them is in accordance with Indian Motor Tariff?
(f) Whether the counter claim made by the Insurance Company for Rs. 36,01,855/-is maintainable both in law and on facts?
(g) Whether the claimant is entitled to interest for deprivation of refund money due on time?
(h) To what other reliefs the parties are entitled to?
In the proceedings dated 12.09.2008, the deliberation was held with regard to procedure to be adopted in conducting the arbitral
proceedings, wherein, it was agreed that the CPC need not necessarily be followed. Both the counsels agreed that there was no scope to lead any
oral evidence at all. However, in the course of the proceedings, if a need arose to lead evidence, on any particular fact or issue, then with the leave
of this tribunal, parties could be permitted to lead oral evidence. It was also agreed that if the tribunal directed the parties to lead oral evidence on
any issue, then parties will lead the oral evidence also.
The reference to proceedings is made as in the award. It has been recorded that the parties to the dispute had agreed that they will not lead in
any oral evidence, and that the Tribunal should decide the dispute on the documents made available by the parties.
The Hon''ble Arbitrator decided all the issues together and took note of documentary evidence lead by the respective parties specially the
MOU as also the cancellation of previous MOU.
The Hon''ble Arbitrator under claim No. 1, i.e. refund of Rs. 173.41 lakhs recorded the finding that in Para-19 of the written statement, the
insurance company affirmed the position of the balance outstanding to the credit of the Respondent company. It was on appreciation of pleading
that the Hon''ble Arbitrator recorded the finding that the credit balance indicated was available to the credit of the Respondent in the cash premium
deposit account. In view of the admission of credit in favour of the Respondent, the Hon''ble Arbitrator considered the legality of the deductions
claimed by the insurance company. A deduction of Rs. 2,08,998/-(Rupees Two Lakhs Eight Thousand Nine Hundred Ninety Eight only) as
difference in service tax collected and payable as per the revised rate of service tax, was rejected on the ground that there no pleadings or
documentary evidence to show when the service tax was revised, what was the service tax originally levied and collected and what remained to be
collected.
The Hon''ble Arbitrator also held that the service tax is levied on the person, who provides service, therefore, service tax was payable by the
Petitioner or the beneficiary i.e. the policy holder. The Hon''ble Tribunal held that the Respondent did not come into picture at all. The Hon''ble
Arbitrator held that even if service tax is recoverable, it was to be recovered from the insured, as nothing was stipulated in the MOU that the
Respondent was liable either for the service tax or to pay the enhanced service tax.
Service tax was held to be not part of the premium, but was in addition to the premium. The adjustment of service tax was held to be not
sustainable. It was further held that there was no material placed in support of this claim by the insurance company.
Similarly, the claim of the insurance company for Rs. 1,00,72,152/-as the difference in premium debited for 1814 policies, was not accepted
for the reason that if the insurance company had collected lesser premium, than the actual premium payable on such policies, was to be collected
from the insured and not from the Petitioner. It was also held that there were no materials on record showing that the Respondent had agreed to
bind themselves for such shortage in any of the documents.
The Hon''ble Arbitrator held that to the policy of insurance, the contracting parties are the insurance company and the insured whereas the
claimant does not come into picture. The Hon''ble Arbitrator held, that the facts on record proved that Petitioner company had unilaterally acted, in
issuing such policies and for the wrong committed by it, the liability could not be fixed on the Respondent.
The plea of adjustment of Rs. 1,00,72,152/-was decided against Petitioner. The adjustment of Rs. 27,819/-as difference of premium was also
rejected on this account. The Hon''ble Arbitrator held that on account of disallowing of the deductions, a sum of Rs. 1,70,78,888/-is due and
payable as shown in the credit balance as on. 30.06.2006.
28 The Hon''ble Arbitrator also held that besides these, the Petitioner made seven more adjustments, amounting to Rs. 1,03,71,774/-These entries
were on account of reversal of credit entries earlier given.
The Hon''ble Arbitrator found that there was no pleading or proof, as to why the credit entries were reversed. A finding was recorded that the
credit entries could not be altered unilaterally without notice to the Respondent. Similarly entries regarding excess brokerage paid was rejected on
the ground that it was to be recovered from the broker not from the Respondent.
The entry of Rs. 10 lakhs towards postal expenses in communicating the cancellation of cover notes to the insured as well as to the statutory
authorities, was rejected for want of proof of expenditure incurred. Similarly the entry of Rs. 10 lakhs towards the expenses of investigation of
documents, postal expenses and administrative expenses was rejected for want of proof of expenditure incurred.
It was also held by the Hon''ble Arbitrator that no justification for claim was pleaded or proved. The debit entry of Rs. 6,00,000/-(Rupees Six
lakhs only) paid to surveyors for professional services was also rejected, as the surveyors were unilaterally appointed by the claimant by exceeding
its authority. Otherwise also, there was no proof of payment to surveyors. The other entry of Rs. 50,00,000/-(Rupees Fifty Lakhs only) was also
not accepted. The Hon''ble Arbitrator also rejected the counter claim on the ground that the Petitioner failed to establish that it was entitled to any
adjustment. Under claim No. 1, a sum of Rs. 1,70,78,888/-with interest @ 18% p.a from 16.04.2005, i.e. the date fixed under the cancellation,
was awarded. The claim of refund of indemnity deposit of Rs. 25 lakhs was also allowed, which was deposited to cover up future claims under the
cover notes, issued by the claimant without adequate premium, as under the indemnity bond, the Respondent had undertaken to meet against any
such claims, and till date no such claims were shown to have been raised against Petitioner.
The Hon''ble Arbitrator also noticed that there was nothing on record as to whether Rs. 25 lakhs was adjusted to meet any such claims.
Liberty was, however, granted to the Petitioner to proceed against Respondent, if any such claim arose in future. The Hon''ble Arbitrator thus held
that there was no justification to withhold the amount for such a long period. The Hon''ble Arbitrator rejected the claim of Rs. 50,00,000/-(Rupees
Fifty Lakhs only) also on this ground.
Under Claim No. 3A, the Respondent claimed a sum of Rs. 82,75,405/-(Rupees Eighty Two Lakhs Seventy Five Thousand Four Hundred
and Five only) on account of premium paid on 766 policies, which were cancelled. The Claim 3B was for a sum of Rs. 81,85,588/-(Rupees Eighty
One Lakhs Eighty Five Thousand and Five Hundred Eighty Eight only), i.e. the premium collected for 687 policies, which were not issued and the
claim No. 3C was for a sum of Rs. 31.68 lakhs, being the premium paid for 302 policies, which already stood cancelled. Thus, claim was based
on the fact that 766 policies were returned for cancellation and the premium paid was to be refunded to the Respondent and, that a sum of Rs.
81.86 lakhs was debited from the cash deposit account of the Respondent for issuing 687 policies, which had not been issued. Whereas, a sum of
Rs. 31.58 lakhs was claimed, being the premium paid on 302 policies, which stood cancelled.
The claim was contested on the plea that 766 policies, which were given for cancellation, were not yet cancelled, and, that some of these
policies were still enforceable and cancellation was not carried out for want of necessary documents, so as to delete it from the record. It is also
the stand of the Petitioner, that some of the policies, which were requested to be cancelled, were found to be not genuine, as the insured could not
be located. The claim under 3C, i.e. refund of policies, which stood cancelled, was objected to on the ground that it was not disclosed in
application, moved u/s 11 of the Arbitration and Conciliation Act.
The Hon''ble Arbitrator noticed that the parties did not lead any oral evidence, except to rely on the pleadings and documents, enclosed by
each one. The stand of the Petitioner company that letter dated 01.09.2006, be read as part of pleading and treated as reply to the claim, raised
by the claimant under Claim No. 3. The Respondent on the other hand also had lead no evidence and relied on letter dated 02.09.2005 and letter
dated 28.07.2006.
The Hon''ble Arbitrator, on appreciation of documentary evidence came to the conclusion that the letter dated 01.09.2006 was in fact reply to
the letter dated 28.07.2006 of the Respondent. This was replied by the Respondent vide letter dated 20.09.2006 along with notice.
The Hon''ble Arbitrator considered this letter, on which reliance was placed, and recorded that letter dated 28.07.2006 contained tabular
statement, giving details of claim Nos. 3A, 3B and 3C and the amount due under each head. The Respondent also enclosed with this letter, the
details of policies, including payment, voucher number, its date and premium date, which was duly acknowledged by the Petitioner.
The receipt of the letter, which was disputed stood acknowledged. Letter dated 01.09.2006 was also replied by the Respondent on
20.09.2006, which was also acknowledged, wherein, various claims were explained. The explanation submitted by the insurance company, after
six months thereafter, was not accepted by the Respondent.
The Hon''ble Arbitrator, on appreciation of documentary evidence, referred to above, came to the conclusion that once the receipt of 1755
policies, sent by the Respondent, was accepted, then burden shifted to the Petitioner, to show how the claim was not maintainable. It was held that
in view of the position explained, it was the insurance company to lead oral evidence to prove as to how these policies were dealt with.
The Hon''ble Arbitrator held that the Respondent discharged its burden by establishing the return of policies and also proved that the policies
were cancelled due to double insurance coverage. The amount claimed i.e. Rs. 1,94,69,120/-(Rupees One Crore Ninety Four Lakhs Sixty Nine
Thousand One Hundred Twenty only) was duly acknowledged by the Petitioner.
The Hon''ble Tribunal held that the reply sent to the Petitioners was disputed by the Respondent. The Hon''ble Arbitrator held that there was
evidence by way of letters that the Petitioner had debited twice for 687 policies and came to the conclusion that a sum of Rs. 81.86 lakhs was due
under double entry.
The Hon''ble Tribunal further held that mere explanation, which was proved, could not be taken to be proved. It was thus held that no notice
was issued by the Petitioner, disputing the claim even though receipt of policies was duly admitted.
The Hon''ble Tribunal also rejected the plea that the claim was not competent having not been raised before the Hon''ble Chief Justice, for the
reason that, u/s 11 of the Arbitration and Conciliation Act, the only requirement was to show the existence of a contract and existence of
arbitration clause in the said contract and dispute under the contract, and details were not required to be given, as it was not the reference, but it is
only a procedure for appointment of an Arbitrator. The Hon''ble Arbitrator, thus, held that there was no bar to raise the claim, which was not part
of application u/s 11 of the Act.
The Hon''ble Tribunal, on appreciation of documentary evidence with regard to submission of policies, came to the conclusion that the
Respondent had successfully proved its claim. The defence of insurance company that only portion of the remaining period of the insurance policy
could only be refunded, was rejected for want of evidence to show the unexpired period of each policy, which was cancelled.
Consequently, a decree was passed in favour of the Respondent and against the Petitioner for a sum of Rs. 82.75 lakhs, Rs. 81.86 lakhs and
Rs. 31.58 lakhs respectively with interest @ 18% p.a. from 16.04.2005 till the date of payment.
As earlier observed, the Hon''ble Tribunal held that as the outstanding claim was admitted and, in defence adjustment was claimed, it was for
the insurance company to justify the adjustment. The stand of the Petitioner was that the policies were not governed by GR11 and GR12 of India
Motor Tariff.
The Hon''ble Tribunal held that even for the sake of argument, it is taken that the Petitioner was entitled to recover certain amount for expired
period, still the question would be from whom to recover. The Hon''ble Arbitrator came to the conclusion that this could be recovered from the
insured and not from the Respondent.
The claim Nos. 5 & 6 were rejected.
The Hon''ble Arbitrator, accordingly, passed the following award in favour of the Respondent.
(a) There shall be a decree in favour of the claimant for a sum of Rs. 1,70,78,888/-with interest at 18% p.a. from 16.04.2005 till the date of
payment.
(b) There shall be a decree in favour of the claimant for a sum of Rs. 25 lakhs together with interest at 18% p.a. thereon from 16.04.2005 till the
date of payment.
(c) There shall be a decree in favour of the claimant for a sum of Rs. 1,96,28,993/-made up of the amounts claimed under claim Nos. 3A, 3B and
3C together with interest at 18% p.a. from 16.04.2005 till the date of payment.
(d) Inasmuch as the adjustment of Rs. 1,00,72,152/-, being the difference of premium due on 1814 policies with service tax, is concerned, though
the adjustment is found to be illegal, no monetary relief is granted to the claimant under claim No. 4.
(e) Claim Nos. 5 and 6 are rejected.
Thus issues (a), (b) and (c) are answered in favour of the claimant on the lines indicated earlier. Issue (d) is answered against the Respondent and
in view of the finding on issue (d), issue (e) does not arise for consideration. Issue (f) is answered against the Respondent and issue (g) is answered
in favour of the claimant.
(26) Having regard to the totality of the circumstances available in this case, the nature of dispute and the steps that were forced to be taken by the
claimant, I award costs quantified at Rs. 5 lakhs to the claimant. The Respondent will bear their own costs.
Mr. N. Vijaya Raghavan, learned Counsel appearing on behalf of the Petitioners challenged the impugned award, by contending that the award
suffers from error apparent on the face of record being contrary to the statutory provisions of law, thus, is against public policy.
The contention of the learned Counsel for the Petitioners was that the Hon''ble Arbitrator ignored the basic law that service tax was part and
parcel of the premium, therefore, it was incumbent on the Respondent to pay revised service tax. That the Hon''ble Arbitrator wrongly held that the
deduction was not permissible.
On consideration, I find no force in this contention of the learned Counsel for the Petitioner. The reading of the finding by the Hon''ble
Arbitrator, shows that the deduction was rejected for the reason that the Petitioner had failed to bring anything on record, showing revision of
service tax and the date from which it is operative. The reason was also that in case any amount was payable, then it was to be recovered from the
beneficiary or from the service provider. The Respondent was merely acting as an agent on behalf of the Petitioner to issue cover notes.
The reasoning is well founded, which cannot be said to be contrary to the statutory provisions of law, nor it is open to this Court to take
contrary view, as the findings cannot be said to be perverse.
Learned Counsel for the Petitioners also challenged the award on the ground, that while rejecting the deduction, the Hon''ble Arbitrator failed
to see the relationship of the parties.
The contention of the learned Counsel for the Petitioner was that under the MOU, it was the Respondent, who was to collect the premium,
and issue cover notes only on receipt of complete premium, as under the provision of Motor Vehicle Act, no policy can be issued without receipt
of premium, therefore, award passed by the Hon''ble Arbitrator is against the public policy.
This contention again deserves to be noticed to be rejected.
The reason for rejection of deduction was, that except for taking stand that deduction was made for want of adequate premium. The Petitioner had
failed to plead or prove or justify this deduction, and had also failed to prove as to how the liability could be fixed on the Respondent.
Learned Counsel for the Petitioners vehemently controverted claim No. 3A, 3B and 3C, primarily on the ground, that it was not open to the
claimant to seek refund without proving cancellation of policies and in any case, refund could only be for the unexpired period of the policy, and
not the whole amount, paid towards premium.
This contention again deserves to be rejected. The finding recorded by the Hon''ble Arbitrator, cannot be said to be perverse or contrary to
law, specially when it is not in dispute that the Petitioner had not lead any evidence or proof with regard to unexpired period of the policies. On the
other hand, the Petitioner admitted the receipt of policies for cancellation, some of which were cancelled or not issued.
It is also vehemently contended by the learned Counsel for the Petitioner that in this case, the Hon''ble Arbitrator committed breach of
principles of natural justice, as it gave no opportunity to the Petitioner to lead evidence, in view of the fact that parties have agreed that no evidence
was lead and the parties were only to rely on documentary evidence. The contention of the learned Counsel for the Petitioner, therefore, was that
in view of the settlement of the procedure, it was not open to the Hon''ble Arbitrator to reject the defence of the Petitioners for want of oral
evidence.
This contention is totally misconceived. The procedure agreed to be adopted is noticed in the earlier part of the judgment, which shows that the
parties had agreed to rely upon the documentary evidence, however, liberty was also given to either of the parties to lead oral evidence, with the
permission of the arbitral tribunal. It was also left open to the arbitral tribunal to direct any party to lead evidence. Nothing has been brought on
record to show that the Petitioner ever sought for permission to lead evidence to prove its defence.
It is not open to the Petitioner now to claim that oral evidence was not permitted. The award cannot be said to be against the principles of
natural justice, as contended.
Finally, learned Counsel for the Petitioners challenged the grant of interests @ 18% p.a. on the amount claimed, by contending that though the
Hon''ble Arbitrator is competent to grant interests @ 18%, no evidence in support of claim of interest was led in the present case. Keeping in view
the commercial business being carried out by the Petitioners, it was not open to the Hon''ble Arbitrator to have granted interest @ 18% p.a.
In support of this contention, learned Counsel for the Petitioners placed reliance on the judgment of the Hon''ble Supreme Court in the case of
The United India Insurance Co. Ltd. Vs. M.K.J. Corporation, , wherein, the Hon''ble Supreme Court was pleased to lay down as under:
The next question is what rate of interest the insured-Respondent is entitled to get? In common parlance, when the insured-Respondent is
deprived of the right to enjoy his money or invest the money in business, necessarily the loss has to be compensated by way of payment of interest
by the insurance company. We are informed that as per the directions of the Government of India the Appellant-insurance company has no option
but to invest the money in the securities specified by the Government of India under which the insurance company is securing interest on investment
at the rate of 11.3% per annum. Under these circumstances, the Appellant-insurance company is liable to pay interest at 12% per annum from 1-
1-1991 till date of payment. It is then contended that as per the policy, the Respondent is entitled to consequential loss as per the independent
policy. The Commission no doubt did not give any independent reason for the same but all the claims were heard and disposed of together. Under
these circumstances, we are of the view that the claims must be deemed to have been rejected.
Mr. Vijay Narayanan, learned Senior Counsel appearing on behalf of the Respondent, in support of the award, vehemently contended that no
fault can be found with the well reasoned award, as the amount claimed by the Respondent was admitted and refund was denied on the ground of
deductions. The Hon''ble Arbitrator rightly placed burden of proof on the Petitioners to prove deduction, which it miserably failed.
Learned Senior Counsel referred to the procedure agreed to by the parties, to rebut the contention that it was not open to the Hon''ble
Arbitrator to reject the defence for want of oral evidence, as it was not permitted.
The learned Senior Counsel contended that oral evidence was not barred. As per the agreed procedure, it was open to Petitioners to lead
evidence with permission of the Hon''ble Tribunal. Therefore, it is not open now to say the principles of natural justice were violated.
This contention of the learned Senior Counsel for the Respondent already stand accepted in the proceedings part of the judgment. With regard
to claim No. 3, learned Senior Counsel contended that it was not disputed that 1755 policies were returned, therefore, no error can be found with
the findings under this heading.
It was the contention of the learned Senior Counsel that the Hon''ble Arbitrator, having passed the award on appreciation of pleading and
evidence, it cannot be challenged on the pleas raised by the Petitioners.
In support of the contention that jurisdiction of this Court to interfere with the award is limited, learned Senior Counsel placed reliance on the
judgments of the Hon''ble Supreme Court in the cases of Sumitomo Heavy Industries Limited Vs. Oil and Natural Gas Commission of India, ,
Venture Global Engineering Vs. Satyam Computer Services Ltd. and Another, , Madnani Construction Corporation (P) Ltd. Vs. Union of India
(UOI) and Others, , wherein, the Hon''ble Supreme Court has been pleased to lay down that the Arbitrator / Umpire is entitled to take the view
which he holds to be correct. The findings recorded by the Arbitral Tribunal cannot be said to be perverse, unless some relevant evidence is not
considered or certain inadmissible material is taken into consideration or is entirely against evidence.
The Hon''ble Supreme Court was pleased to lay down in case the conclusion of arbitrator are based on a possible view, Court is not expected
to interfere with the award. The Hon''ble Supreme Court was further pleased to lay down that it is not open to the Hon''ble High Courts to ignore
the factual findings recorded by the Arbitrator unless the findings are perverse.
There is force in the contention raised by the learned Senior Counsel for the Respondents. The findings recorded by the Hon''ble Arbitrator are
based on appreciation of evidence and pleadings of the parties. The view taken cannot be said to be perverse.
In order to controvert the contention of the learned Counsel for the Petitioners that interest awarded is on the higher side, learned Senior
Counsel for the Respondents contended that 18% interest is envisaged under 1996 Act and once the Arbitrator in his wisdom awarded interest, it
is open to the Hoin''ble High Court to interfere with the decision. It was contended that the judgment relied upon by the Petitioners can be said to
be in exercise of power under Article 142 of the Constitution of India, and it is not open to this Court to exercise such power in petition u/s 34 of
the Arbitration and Conciliation Act.
In support of this contention, learned Senior Counsel for the Respondent placed reliance on the judgment of the Hon''ble Supreme Court in the
case of McDermott International Inc. Vs. Burn Standard Co. Ltd. and Others, , wherein, the Hon''ble Supreme Court has been pleased to lay
down as under:
The power of the arbitrator to award interest for pre-award period, interest pendente lite and interest post-award period is not in dispute.
Section 31(7)(a) provides that the Arbitral Tribunal may award interest, at such rate as it deems reasonable, on the whole or any part of the
money, for the whole or any part of the period between the date on which the cause of action arose and the date on which award is made i.e. pre-
award period. This, however, is subject to the agreement as regards the rate of interest on unpaid sums between the parties. The question as to
whether interest would be paid on the whole or part of the amount or whether it should be awarded in the pre-award period would depend upon
the facts and circumstances of each case. The Arbitral Tribunal in this behalf will have to exercise its discretion as regards (i) at what rate interest
should be awarded; (ii) whether interest should be awarded on the whole or part of the 33 award money; and (iii) whether interest should be
awarded for the whole or any part of the pre-award period.
The 1996 Act provides for award of 18% interest. The arbitrator in his wisdom has granted 10% interest both for the principal amount as
also for the interim. By reason of the award, interest was awarded on the principal amount. An interest thereon was up to the date of award as also
the future interest at the rate of 18% per annum.
156 However, in some cases, this Court has resorted to exercise of its jurisdiction under Article 142 in order to do complete justice between the
parties.
157 In Pure Helium India (P) Ltd., this Court upheld the arbitration award for payment of money with interest at the rate of 18% p.a. by the
Respondent to the Appellant. However, having regard to the long lapse of time, if award is satisfied in entirety, the Respondent would have to pay
a huge amount by way of interest. With a view to do complete justice to the parties, in exercise of jurisdiction under Article 142 of the Constitution
of India, it was directed that the award shall carry interest at the rate of 6% p.a. instead and in place of 18% p.a.
Similarly in Mukand Ltd. v. Hindustan Petroleum Corpn. Ltd., while this Court confirmed the decision of the Division Bench upholding the
modified award made by the learned Single Judge, the Court reduced the interest awarded by the learned Single Judge subsequent to the decree
from 11% per annum to 71/2 % per annum observing that 71/2 % per annum would be the reasonable rate of interest that could be directed to be
paid by the Appellant to the Respondent for the period subsequent to the decree.
In this case, given the long lapse of time, it will be in furtherance of justice to reduce the rate of interest to 71/2 %.
As regards certain other contentions, in view of the fact that the same relate to pure questions of fact and appreciation of evidence, we do not
think it necessary to advert to the said contentions in the present case.
On consideration, I find that the interest awarded is on the higher side. In the case United India Insurance Co. Ltd. v. M.K.J. Corpn., (supra),
the Hon''ble Supreme Court took note of the fact that the insurance companies are under obligation to invest the fund in the securities specified by
the Government of India. Therefore, under normal circumstances, they should not be burdened with interest beyond this rate. The reading of
Section 31 of the Arbitration and Conciliation Act 34 shows that grant of interest @ 18% p.a. is not mandatory, as it is left open to the parties to
agree, that no amount of interest be granted. The Hon''ble Arbitrator, therefore, has to decide on facts and circumstances of the case to grant
interest. In McDermott International Inc. v. Burn Standard Co. Ltd., (supra), on which, reliance is placed by the learned Senior Counsel appearing
for the Respondents, the Hon''ble Supreme Court approved the decision in the case of Mukand Ltd. v. Hindustan Petroleum Corpn. Ltd.,
wherein, the decision of the Division Bench of High Court reducing interest was upheld.
The Hon''ble Supreme Court in the case of A.P. State Trading Corp. Ltd v. G.V. Malla Reddy and Co., 2011 (1) Recent Apex Judgments
129 has been pleased to lay down that in absence of any specific contract with regard to rate of interest pendenlite and future interest should not
normally exceed 9%p.a.
This Court, in exercise of powers u/s 34 of the Arbitration and Conciliation Act, can correct the perversity of the order. The grant of interest
against insurance company @ 18% p.a. in view of judgment of Hon''ble Supreme Court in the case of McDermott International Inc. v. Burn
Standard Co. Ltd., (supra), and A.P. State Trading Corp. Ltd v. G.V. Malla Reddy and Co.(supra), can be said to be perverse and outcome of
misreading Section 31 of the Arbitration and Conciliation Act.
Therefore, on the facts and circumstances of the case and specially that the Petitioner is an insurance company, the interest awarded is reduced
from 18% to 12%.
With this modification with regard to rate of interest, this Original Petition is dismissed. No costs.