ADVERTISEMENT
Bombay High Court
United India Insurance Company Limited vs Upl Limited on 22 April, 2026
2026:BHC-OS:10324
Neeta Sawant CARBP-10809-2024
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMMERCIAL ARBITRATION PETITION (L) NO. 10809 OF 2024
WITH
INTERIM APPLICATION (L) NO. 11225 OF 2024
WITH
INTERIM APPLICATION (L) NO. 11117 OF 2024
United India Insurance
Company Limited ....PETITIONER/APPLICANT
VERSUS
UPL Limited .... RESPONDENT
Mr. Sharan Jagtiani, Senior Advocate with Ms. Surbhi Agarwal & Ms.
Netra Haldankar i/b Dhruve Liladhar & Co., for the Petitioner/ Applicant.
Mr. Shiraz Rustomjee, Senior Advocate with Ms. Shreya Parikh, Mr.
Archit Jayakar, Ms. Pooja Yadav, Mr. Mihir Kakade & Mr. Kshitij Abbhi i/b
Jayakar & Partners, for the Respondent.
CORAM : SANDEEP V. MARNE, J.
Reserved On : 1 April, 2026.
Pronounced On: 22 April 2026.
Judgment :
1) When a Gas Turbine Engine is damaged due to an accident
and the insured is required to get the Engine overhauled and raises a
claim towards the overhauling expenses and the insurer sanctions only
the expenses for accidental repairs, whether the dispute relating to non-
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payment of balance claim is a dispute of 'quantum' or dispute of 'liability'
is the issue that this Court is tasked upon to decide in the present
Petition. To paraphrase, whether it is permissible for the insurer to
segregate the claim in respect of the damage to the Engine into 'repairs
claim' and 'overhaul claim' and take a stand that mere payment for the
former claim does not amount to acceptance of liability in respect of the
latter claim, making the latter claim non-arbitrable? The issue arises in
the light of typical clause in the Insurance Policy providing for arbitration
only in respect of disputes involving quantum and not in respect of those
for which the liability is not expressly admitted.
2) Petitioner-Insurance Company has filed the present petition
under Section 34 of the Arbitration and Conciliation Act, 1996
(Arbitration Act) challenging the arbitral Award dated 8 December 2023
passed by the learned sole Arbitrator. The Tribunal has treated the claim
of the Respondent as a single indivisible claim and has held that since the
claim is partially awarded, the dispute relates to 'quantum' and not to
'liability'. The Tribunal has further held that the accident was the
proximate cause of overhauling of the Gas Turbine Engine. By the
impugned Award, the Tribunal has awarded a sum of Rs.41,98,12,970/- in
favour of the Respondent along with simple interest @ 12% p.a. on the
entire awarded amount from the date of the award. The Tribunal has also
awarded costs of arbitration of Rs. 2 crores in favour of the Respondent.
3) This is the second round of arbitration after the previous
award by the Three Member Arbitral Tribunal was set aside by this Court.
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FACTS
4) Petitioner is a public limited and nationalised general
insurance company incorporated in the year 1938 under the Companies
Act, 1913. Respondent, who was previously known as United Phosphorus
Limited, is a Public Limited Company incorporated in the year 1985 and is
engaged in the business of agrochemicals such as pesticides. Respondent
is also a successor in interest of its erstwhile subsidiary of Search Chem
Industries Ltd. (SCIL) which has merged into the Respondent.
5) On 22 February 2001, SCIL purchased Industrial All Risk
Policy to insure its Captive Power Plant which was installed by the
Respondent in its factory at Jhagadia, Gujarat. The Power Plant used a Gas
Turbine Engine bearing No. 185-195 (GT Engine) which was
manufactured by GE Packard Power Inc. (GE). The policy was valid from
22 February 2001 to 21 February 2002 and covered (i) material damage
with the sum insured of Rs.156,00,00,000/- and (ii) business interruption
with the sum insured of Rs.11,71,31,000/-
6) The Industrial All Risk Policy included exclusion causes
under which the policy did not cover damage to the property incurred by
latent defect, gradual deterioration, distortion or wear and tear. The
policy also did not include coverage in respect of the damage caused
inter-alia by corrosion, rusting, etc. Clause 12 of the insurance policy
included agreement for arbitration in respect of the disputes relating to
quantum to be paid under the policy where the liability is otherwise
admitted. However, where the company disputed or not accepted the
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liability under or in respect of the policy, the disputes were not agreed to
be referred to arbitration.
7) In April 2001, there was an oil leakage in the hot section area
of the GT Engine which was decommissioned and sent for repairs. The
problem was found in the 4B bearing and a new 4B bearing was installed
whereafter the GT Engine was reinstalled sometime in June 2001 and
commissioned. Those repairs were carried out at the Air India Workshop.
The Petitioner honored the claims for such repairs. On 15 September
2001, the GT Engine started to have issues. A metal chip detector
installed in the Oil Sump-B showed a fluctuating resistance reading
between 160 to 300 ohms as against the normal level of 500 ohms. The
fluctuations continued for about an hour before the resistance returned to
the optimum levels. At around 10.49 a.m., on 16 September 2001, the
metal chip detector sounded an alarm and again fluctuations were noticed
in the resistance. Another alarm was sounded at 12.20 a.m. on the same
day whereafter the GT Engine tripped for about 16 seconds. A Borescope
Inspection of the GT Engine was carried out on 16 September 2001 by
General Electric Energy Plant Operations LLP, (GEEPO) a subsidiary of GE
and operation and maintenance contractor of the Respondent, which
showed that the Sump-B was not in good order and the 4B bearing cage
was broken. Upon being informed about the incident, Petitioner
appointed Bhatawedekar & Co. and Mehta & Padamsey Pvt. Ltd. as its
joint surveyors.
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8) On the basis of borescope inspection and in consultation
with GEEPO, the Petitioner decided to send the GT Engine to
manufacturer's facility at Houston, Texas USA. On 16 October 2001, the
GT Engine reached GE facility for inspection. On 19 October 2001 and 22
October 2001, GE issued reports. According to the Petitioner, the issues
reported by GE included observations of corrosion, discoloration, reddish
yellow rust, etc in diverse components of the GT Engine over and above
the Sump-B. On 30 October 2001, the GE recommended that the GT
Engine be overhauled. Petitioner appointed M/s. McLarens Toplis as its
surveyors in the USA. The US Surveyors informed the Petitioner of GE's
recommendations for complete overhaul of the GT Engine.
9) In the above backdrop, the Petitioner issued letters dated 5
December 2001 and 18 December 2001 to the Respondent recommending
complete overhaul of the GT Engine. In the letter dated 18 December
2001, Petitioners communicated that if the GT Engine was not overhauled
as recommended by GE, future claims were eminent which would cause
problem at the time of underwriting of the risk.
10) On 6/7 December 2001, the GT Engine was reassembled and
taken for testing after the GE completed limited repairs to Sump-B.
During testing, it was found that the GT Engine was still not working
properly and heavy vibrations were noticed. GE recommended 3 options
to the Respondent, (i) attend only rotating parts of the High Pressure
Compressor (HPC) and High Pressure Turbine (HPT), (ii) attend to the
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repairs of the stator and rotors of both HPC and HPT, (iii) HPC, HPT, LPC
and LPT and all assemblers should be inspected and repaired by
completing the overhaul of the GT Engine. On 24 December 2001,
Respondent wrote to the Petitioner conveying its intention to go for
complete overhauling of the GT Engine. On 27 December 2001, Petitioner
clarified to the Respondent that the overhauling costs would not fall
within the purview of the policy and that Petitioner's liability would only
extend to the actual damage directly caused to the GT Engine by the
incident. The Respondent communicated its intention to go ahead with
complete overhaul of the GT Engine by letter dated 28 December 2001. In
response, Petitioner issued a letter on 25 January 2002 reiterating that the
expenses claimed towards costs of overhauling were not payable.
Respondent once again stated that they would be claiming costs of
overhauling and repairs from the Petitioner vide letter dated 4 February
2002. On 17 February 2002, Respondent wrote to the joint surveyors
enclosing its claim bill towards material damage in the sum of
Rs.24,02,15,358/-. On 26 March 2002, the GT Engine was successfully
tested post the completion of repairs. The US surveyors issued its survey
report on 23 April 2002 regarding GT Engine and the repairs carried out.
On 30 April 2002, Respondent purchased another storage and erection
policy from the Petitioner for erection of the GT Engine in its captive
power plant at Gujarat by paying premium of Rs.11,58,697/-
11) On 10 May 2002, the joint surveyors issued their first interim
report. In May/June 2002, the GT Engine was dispatched from Houston,
Texas and it resumed its normal functioning at Respondent's captive
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power plant on 13 June 2002. On 25 July 2002, Respondent revised its
claim bill for material damage by reducing the same from
Rs.24,02,15,358/- to Rs.16,71,61,286/-. It also raised its claim bill for
business interruption loss for sum of Rs.5,27,83,000/-. On 1 February
2003, second interim report and final survey report was issued by the joint
surveyors. The joint surveyors assessed Respondent's claim by
considering the business interruption loss and material damage
attributable only to the damage arising out of the incident and not in the
context of the overhaul claim. According to the joint surveyors, the
breakdown was caused as a result of the incident which necessitated
repairs to Sump-B and repairs that would have corrected transient
vibrations noticed during the testing on 6/7 December 2001. On 20 March
2003, Respondent submitted a revised claim bill for loss of profit in the
sum of Rs.8,23,08,525/- based on the audited balance sheet and gross
profit ratio on the basis of the trend of Naphtha price.
12) On 18 December 2003, Petitioner sent the Settlement
Intimation Voucher (SIV) to the Respondent by which Petitioner offered
to pay total of Rs.7,69,69,369/- as full and final discharge of Respondent's
claim falling within the policy. The amount included Rs.5,01,41,230/-
towards material damage and Rs.2,68,28,139/- towards loss of business
profits. Petitioner accepted the voucher under protest on 19 December
2003. Petitioner accordingly issued cheque of Rs.7,69,69,369/- to the
Respondent on 29 December 2003.
13) Thus disputes and differences arose between the Petitioner
and Respondent over the balance amount of Respondent's claim.
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Respondent accordingly initiated arbitration on the basis of arbitration
agreement set out at Clause 12 of the policy. The disputes and difference
were referred to arbitration before the Three Member Arbitral Tribunal.
On 14 September 2012, the Arbitral Tribunal delivered award which was
not unanimous. The majority award dismissed Respondent's claim on the
ground that amount of Rs.7,69,69,369/- was accepted by the Respondent
in full and final satisfaction of its claim and that such acceptance
amounted to a complete discharge. It was also held that Petitioner was
not liable to pay overhaul costs and was liable to pay only for the damage
caused by the incident. In a separate minority award, Respondent was
held entitled to entire balance amount of Rs. 17,03,49,393/-
14) The majority award was challenged by the Respondent before
this Court under Section 34 of the Arbitration Act. This Court set aside
the majority award by order dated 15 February 2019 holding inter-alia that
the conclusion of Arbitral Tribunal about acceptance of Rs.7,69,69,369/-
amounting to complete discharge was contrary to the admitted records of
the case and was an impossible view. The majority award was also set
aside on the ground that it did not discuss the extensive evidence led on
merits by the Petitioner and the Respondent.
15) Upon setting aside of the majority award in the first
arbitration, Respondents once again invoked arbitration on 28 January
2020. Parties jointly appointed learned sole Arbitrator (Mr. Justice R.M.
Lodha, former Chief Justice of India) and Arbitral Tribunal was thus
constituted on 5 February 2020. Respondent filed its Statement Of Claim
before the Tribunal on 30 June 2020 claiming Rs. 69,52,41,839/- with
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interest as well as costs of first round of arbitration. Petitioner filed
application under Section 16 of the Arbitration Act contending that
determination of issue of Petitioner's liability to pay for overhauling costs
was not arbitrable since the same did not concern quantum under Section
12 of the policy and contended that Respondent's acceptance of
Rs.7,69,69,369/- amounted to complete accord and satisfaction. The
Arbitral Tribunal however deferred adjudication of Section 16 application
and directed the same to be heard after leading of evidence by the parties.
Section 16 application was thus heard at the final hearing stage.
16) At the end of the arbitral proceedings, the Tribunal has
passed final Award dated 8 December 2023 holding inter-alia that the
disputes in the subject arbitration pertained only to quantum and not to
liability. The Tribunal has rejected Petitioner's objections and has partly
allowed Respondent's claim including the claim towards business
interruption losses and awarded total sum of Rs.43,98,12,970/- which
includes an amount of Rs.41,98,12,970/- towards claim and Rs.2 crores
towards costs. The Tribunal has also granted post award interest @ 12%
p.a. from the date of the award.
17) Aggrieved by the Award dated 8 December 2023, the
Petitioner has filed the present petition under Section 34 of the
Arbitration Act. By order dated 5 February 2025, this Court permitted the
Petitioner to deposit the awarded amount along with interest upto 5
February 2023 and subject to deposit being made, execution of the Award
was stayed. Accordingly, the Petitioner has deposited an amount of Rs.
50,14,10,885/- on 5 March 2025. There is delay of 19 days in filing the
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present Petition, for condonation of which Petitioner has filed I.A.(L) No.
11117 of 2024. Considering the averments in the interim application and
the length of delay, in my view same deserves to be condoned. The delay
is accordingly condoned.
18) With the consent of the learned counsel appearing for
parties, the petition is taken up for final hearing. Accordingly, I have
heard extensive submissions canvassed by the learned counsel appearing
for the parties.
SUBMISSIONS
19) Mr. Jagtiani the learned Senior Advocate appearing for
Petitioner would submit that the impugned award distorts the arbitration
agreement contained in Clause 12 of the policy to hold that the dispute
between the parties pertained only to quantum and was therefore
arbitrable. That Clause 12 confines arbitration to cases only where there is
difference as to quantum to be paid under the policy and where the
liability is otherwise admitted. That both conditions must be cumulatively
satisfied. That second part of Clause 12 reinforces this by providing that
no difference or dispute shall be referable to arbitration if the insurer has
disputed or not accepted liability under or in respect of the policy. That
the fundamental interpretation of arbitration agreement is that there has
to be admission of liability and that the dispute cannot be submitted to
arbitration if the liability has been disputed or not accepted under the
policy. That this aspect is completely ignored by the Arbitral Tribunal and
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the standard which has been applied by the Tribunal is that Petitioner's
absence of repudiation or denial of liability renders the dispute arbitrable.
20) Mr. Jagtiani further submits that award relies on letters dated
5 and 18 December 2001 regarding overhauling of GT Engine without
appreciating that nothing in those letters amounted to admission or
acceptance of liability of overhauling costs. Those letters were issued
prior to raising of any claim for overhauling of GT Engine and were issued
at the time when Respondent's own decision was to undertake limited
repairs to address the incident dated 16 September 2001. That Petitioner
denied liability to pay overhauling by letters 27 December 2001 and 25
January 2002. That once the liability for overhauling claim was denied,
the dispute ceased to be the one of mere quantum for it to be arbitrable.
He relies on judgment of English Court in New Hampshire Insurance
Company Versus. Strabag Bau AG 1. That Respondent's argument to
negate letters dated 27 December 2001 and 25 January 2002 that they
have been issued before raising of claim is completely incorrect as
Respondent in its letter dated 24 December 2001 had clearly referred to a
"claim". That mere absence of claim bill at that stage was irrelevant since
there was a claim in the form of Respondent's letter dated 27 December
2001. That itemization of overhauling cost of GT Engine in letter dated 24
December 2001 is identical to claim bill dated 17 February 2002. That
therefore Arbitral Tribunal's finding that Respondent's claim was not
repudiated is patently erroneous and perverse.
1 1990 ILPR 334
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21) Mr. Jagtiani further submits that the Petitioner itself
maintained a clear distinction between incident claim and overhauling
claim. That GE's letter dated 15 January 2002 to the Respondent uses the
term 'rebuild the engine' signifying overhauling. That from Petitioner's
standpoint, incident claim and overhaul claim arose from distinct legal
obligations, one that was admitted and another that was not. The
payment under settlement intimation voucher is of only that part of claim
for which liability was always accepted. For the remaining, the liability for
overhaul claim was expressly denied.
22) Mr. Jagtiani further submits that liability is a legal obligation
and under the policy, the claims may involve distinct legal obligations.
That insurer may treat them distinctly either because of time at which
they arise or separate coverage for equipment or nature of claim being
only partly covered. That in each case where there was no admission or
acceptance of liability, the claim was not arbitrable in respect of that part.
23) Mr. Jagtiani further submits that the award suffers from
another legal perversity as it draws wholly unsustainable conclusion from
the two interim survey reports by the joint surveyors to suggest that
Respondent's claim was admissible under the policy as a singular claim
arising out of the incident. That none of the two reports give any
suggestion of admissibility of Respondent's claim arising out of the
incident. He takes me through both the interim reports in support of his
contention that the survey assessment was limited by surveyors only to
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Option 1 and that therefore admissibility was in respect of the claim
covered by Option 1 only.
24) Mr. Jagtiani further submits that while interpreting similar
arbitration clause, Courts have repeatedly held that an insurer can always
reject liability in respect of part of the claim and that mere sanction of
part of claim does not mean that there is dispute relating to quantum in
respect of that part for which liability itself is disputed. In support of his
contention, he relies on following judgments:
1) United India Insurance Company Limited and Another Versus.
Hyundai Engineering And Construction Company Limited And Others 2
2) Oriental Insurance Company Limited Versus. Narbheram Power And
Steel Private Limited 3
3) The Vulcan Insurance co. Ltd. Versus. Maharaj Singh and Another4
4) M/s. Mallak Specialties Pvt. Ltd. Versus. The New India Assurance
Co. Ltd. 5
5) Sanghi Industries Ltd. Versus. United India Insurance Company
Limited6
6) Kohinoor Steel Pvt. Ltd. Versus. Bajaj Allianz Insurance Company 7
7) Metal Crafts Engineering Pvt. Ltd. Versus. National Insurance
Company Limited and another 8
8) New India Assurance Co. Ltd. Versus. M/s. Ampoules and Vails
Manufacturing Co. Ltd. 9
9) Ec Wheels India Private Limited Versus. Shriram General Insurance
Company Limited 10
2 2018 17 SCC 607
3 2018 6 SCC 534
4 1976 1 SCC 943
5 CARAP No. 65 Of 2022 decided on 30 November 2022
6 2013 SCC Online Guj 5732
7 2011 SCC Online Cal 3252
8 2011 SCC Online Cal 1929
9 2018 SCC Online Bom 5845
10 2025 SCC Online Cal 4267
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10) D.C. Bars Limited and another Versus. QIC Europe limited 11
25) About merits of the award, Mr. Jagtiani submits that there is
perversity in findings of the Arbitral Tribunal while holding that accident
was proximate cause for overhauling of GT Engine. That Arbitral Tribunal
has conflated two distinct issues of excluded causes and the accident
being the proximate cause of overhauling. That the finding on one issue
cannot support the findings on the other. That excluded causes would
entail that the claim is not covered by the policy at all. That even if it is
assumed arguendo that the claim falls outside the excluded causes, the
Tribunal was required to record clear and independent findings for
holding that the accident was the proximate cause for overhauling. That
on the issue of proximate cause, the Tribunal has merely recorded a vague
finding in para 153 of award about availability of ample material on record
including various letters/communication of GE, McLarens Toplis and the
letters of the Respondent. However, none of the said material indicates
accident as proximate cause of overhauling of the GT Engine. The
Tribunal itself has not identified letters/reports or communications which
purportedly establish the incident as the proximate cause for overhauling.
That this finding is completely perverse. Mr. Jagtiani takes me through
letters and communications of GE, McLarens Toplis report as well as
letters of Respondent to demonstrate that none of them state, in any
manner, that the accident was proximate cause of overhauling. He
submits that the ratio of the judgment of the Apex Court in OPG Power
Generations Private Limited Versus. Enexio Power Solution India
11 2023 EWHC 245 COMM
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Private Limited 12 cannot be invoked in the present case for upholding an
unreasoned award. That new documents referred to by Respondent during
final hearing of petition cannot be relied upon to fill any gaps of
Respondent's case by misapplying the ratio of the judgment in OPG
Power Generations Private Limited. That on the contrary, the
contemporaneous documents and reports consistently establish that
overhauling was not carried out on account of the incident.
26) Mr. Jagtiani further submits that Tribunal applied
inconsistent evidentiary standards while dealing with GE documents.
That it has disregarded GE Reports suggesting rust, corrosion, oxidation,
wear and tear and other pre-existing conditions on the ground of
Petitioner not leading oral evidence of GE personnel. However, on the
other hand, the Tribunal relies on various letters/communications of GE
to conclude that the incident was proximate cause of overhauling.
27) Mr. Jagtiani submits that Respondent's reliance of judgment
of the Apex Court in SBI General Insurance Company Limited Versus
Krish Spinning 13 is misplaced as the same is rendered in the context of
limited jurisdiction of Court under Section 11 of the Arbitration Act. That
the same is the case with various other judgments relied upon by the
Respondent. That in none of the judgments cited by the Respondent, the
insurer had expressly repudiated or denied its liability for a particular
claim as is done in the present case. Mr. Jagtiani concludes by submitting
12 2025 2 SCC 417
13 Civil Appeal No. 7821 of 2024 decided on 18 July 2024.
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that Petitioner's clear and consistent denial of liability for overhaul claim
takes the dispute outside the scope of arbitration agreement rendering
the award patently illegal and perverse and not a plausible view. That the
award is woefully short of reasons, ignores vital evidence and misapplies
the arbitration agreement. He prays for setting aside the award.
28) Mr. Rustomjee, the learned Senior Advocate appearing for
the Respondent submits that no interference is warranted in the
impugned award in limited scope for interference under Section 34 of the
Arbitration Act. That interpretation of contract and evaluation of
evidence falls within the purview of the Arbitral Tribunal. That Court
cannot re-evaluate evidence or substitute its own interpretation of
contract merely because another interpretation is preferable. That the
Petitioner has urged this Court to re-examine and re-evaluate the
evidence with a view to arrive at a different conclusion, which is
impermissible. That the view taken by the arbitrator is not egregious or
perverse to such an extent that no reasonable person could ever take the
same. That the mandate under Section 34 is to respect the finality of the
arbitral award. He relies on judgments of the Apex Court in Ssangyong
Engineering and Construction Company Limited Versus National
Highways Authority of India (NHAI) 14, Prakash Atlanta (JV) Versus.
National Highways Authority of India 15 and OPG Power Generations
Private Limited (supra).
14 2019 15 SCC 131
15 2026 SCC Online SC 98
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29) Mr. Rustomjee further submits that the dispute is clearly
arbitrable under Clause 12 of the Industrial All Risk Policy. That the
dispute between the parties is primarily a question of "how much" and
not "whether" an amount is payable. That the Tribunal has correctly held
that the dispute with respect to balance claim is an issue of quantum and
not liability. He submits that on 18 December 2003, when Petitioner
issued its settlement intimation voucher, it accepted its liability regarding
the accident. That Petitioner never repudiated its liability with respect to
the overhauling cost. That even at the stage of issuing of cheque,
Petitioner did not state that it was disputing the liability. That no
statement was made as to which part of the claim was paid and which was
rejected. That the clarification came for the first time when statement of
defense was filed. That liability is admitted as Petitioner claims to have
made payment towards Respondent's claims under both heads of
"material damage" and "business interruption". That even joint
surveyors held that the claim was admissible and that no exclusions
applied with respect of the same. That even 2 nd interim survey report
treated claim as admissible under the policy. That the tone and tenor of
letters dated 5 and 18 December 2001 clearly suggest that the Petitioner
would cover the costs of overhauling.
30) Mr. Rustomjee further submits that it is impermissible to
split the cause of action or claim. That Petitioner has sought to create
artificial bifurcation of cause of action into "incident claim" and
"overhauling claim". That such bifurcation is artificially aimed at creating
disputes with regard to liability for portion of the claim. That this is
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evident from three options of repairs presented in the joint surveyor's
first report dated 10 May 2002, which shows that the difference in the
options were only to the extent of repairs. That Options 1 and 2 were
included in Option 3. That by accepting Option 1, Petitioner has
effectively admitted/accepted liability for Option 3 as well. That the
arbitrator has rightly rejected this approach of artificial bifurcation.
31) Mr. Rustomjee further submits that Petitioner's reliance on
letters 27 December 2001 and 25 January 2002 is misplaced as none of the
letters bear out an unequivocal denial of liability of the Petitioner with
respect to overhauling costs. That the wordings of the letters shows that
the view expressed therein was tentative and qualified and did not reflect
Petitioner's final position on the matter. That letters were issued at an
earlier stage before filing of claim. That subsequent conduct and
correspondence between the parties show that the issue as to whether
accident was the proximate cause of overhauling was still being
considered and discussed by the Petitioner as late as in 2003. That there
was no repudiation of liability at any point of time after issuance of claim
bills by the Respondent. That the said two letters were, in any case,
premature as the same didn't discuss the three repair options. That the
issue of overhauling remained under consideration for long after issuance
of letters. That letters dated 27 December 2001 and 25 January 2002
cannot be read in isolation by ignoring letters of 5 December 2001 and 18
December 2001.
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32) Mr. Rustomjee further submits that the Petitioner expressly
admitted that the issue is one of quantum and not of liability, which is
clear from Petitioner's response to the previous Section 34 petition
(challenging award dated 14 September 2012) in which it took a stand
that the dispute between the parties with respect to balance claim was
one of quantum and not a liability issue. That Petitioner cannot now be
permitted to alter its stand by seeking to blow hot and cold in the same
breath. That even in the joint surveyor's report the claim has been
admitted.
33) Mr. Rustomjee further submits that the view taken by
Arbitral Tribunal is strongly supported by several judgment of Apex Court
and various High Court. He relies on judgments in Amlagora Cold
Storage Versus. National Insurance Company Limited 16 ,Krish Spinning
(supra), Oriental Insurance Company Limited Versus. Nagarjuna
Agrichem Limited (supra), Tagros Chemicals India Private Limited
Versus. United India Insurance Company Limited 17 , M/s. LS Automotive
India Private Limited Versus. Oriental Insurance Company Limited 18,
M/s. TRS Lift and Shift Servises Pvt Ltd. Versus. Reliance General
Insurance Company Limited 19, and Karan Synthetics India Private
Limited Versus. Divisional Manager 20. That in those judgments it is
repeatedly held that where part payment has been approved/made under
the policy and the balance amount is claimed, the dispute relates to
16 1993 SCC Online Cal 89
17 ARB. O.P. Comm Div No. 319 of 2024 decided on 6 December 2024
18 ARB. O.P. Comm Div No. 174 of 2025 decided on 19 June 2025
19 AP-COMM 344 of 2024 decided on 4 July 2024
20 Petition Under Arbitration Act No. 35 of 2015 decided on 14 August 2015
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quantum and not to the liability. It is held in those judgments that even if
payment is made towards one head of claim for 'material damage' but was
refused in respect of another, the dispute relates to quantum and not to
the liability. There has been a shift in the legal position with the
judgment of the Apex Court in SBI Vs. Krish Spinning, (supra) by which
principles discussed in various judgments relied upon by Petitioner have
been watered down. Mr. Rustomjee also relies upon judgment of United
State District Court Keller N. AM Inc. Versus. Certain Underwriters 21
wherein it is held that once insurer admits the liability to some extent, it
is reasonable to describe the remaining dispute as a dispute as to "how
much" the insurer is required to pay rather than "whether" it is required
to pay. That the judgment also recognizes the heavy presumption of
arbitrability and that the Court should decide the question in favour of
arbitration. He also relies on judgment of Federal Court of Malaysia in
Press Metal Sarawak SDN BHD Versus. Etiqa Takaful BHD 22 in support
of his contention that where insurer has admitted liability in respect of
part of the claim, the question as to whether the remaining part of the
claim was barred by exclusions was a part of quantum dispute falling
within the ambit of arbitration clause.
34) Mr. Rustomjee further submits that in the event this Court
arrives at conclusion that reasons provided in the award are inadequate or
insufficient, the same can be explained while upholding the award and in
support he relies on judgment of the Apex Court in OPG Power
Generations Private Limited (supra) as followed by this Court in Sanjeev
21 687 F. Supp 3d 712
22 2016 MLJU 404
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23
Malhotra Versus. SBI Global Factors Ltd. And Another and
Securitrans India Pvt Limited Versus FIS Payment Solutions and
Services Pvt Limited24 . Mr. Rustomjee also distinguishes various
judgments cited by Mr. Jagtiani.
35) Mr. Rustomjee further submits that the claim was not barred
by excluded causes and that the accident was proximate cause for
damage, necessitating overhauling. That the onus of proving applicability
of exclusion causes is rightly put by the Arbitral Tribunal on the
Petitioner and it has concluded that the Petitioner has failed to discharge
the said onus. That Petitioner's reliance on GE Reports of 19 October 2001
and 22 October 2001 for suggesting that GT Engine was suffering from
pre-existing damage of corrosion, erosion, discoloration etc is misplaced
as the reports themselves do not state or indicate that there were any
preexisting conditions in the engine. That additionally the Tribunal has
held that Petitioner did not lead evidence of any personnel from the GE.
On the other hand, Respondent led evidence of expert whose testimony is
accepted by Arbitral Tribunal. He takes me through various findings in the
arbitral award to demonstrate that the findings are based on
comprehensive evaluation of evidence. That the Arbitral Tribunal has
recorded finding of fact that the accident was the proximate cause of
damage rectified by overhauling. That therefore findings of the Arbitral
Tribunal on merits of the claim also do not warrant any interference by
this Court in exercise of powers under Section 34 of the Arbitration Act.
23 2025 SCC Online Bom 5402
24 2025 SCC Online Bom 5401
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On above broad submissions, Mr. Rustomjee prays for dismissal of the
Petition.
REASONS AND ANALYSIS
36) Petitioner has sought invalidation of the arbitral award on
two broad grounds: (i) that the dispute relating to rejection of claim for
overhauling of GT engine is not arbitrable under Clause 12 of the
Industrial All Risk Policy and (ii) that the accident/incident is not the
proximate cause for overhauling of GT Engine and that the claim is
otherwise liable to be rejected on merits. The Tribunal has answered both
the issues against the Petitioner. It has held that Respondent's claim for
balance amount towards overhauling cost of GT Engine was a 'quantum'
dispute and therefore arbitrable under Clause-12 of the Industrial All Risk
Policy. The Arbitral Tribunal has further held that the accident/incident
was the proximate cause for overhauling of GT Engine and that therefore
rejection of claim for overhauling was erroneous.
37) In the present case, the incident/accident occurred on 16
September 2001, when the GT Engine tripped and was required to be sent
for repairs to the facility of GE in the USA. There were two options for the
Respondent viz. to carry out repairs necessary for recommissioning of GT
engine or to overhaul the entire GT Engine. Initially Respondents opted
for the first option but since mere repairs to the damaged parts were not
found sufficient, the Respondent opted for overhauling the GT Engine
and claimed the entire expenses incurred for overhauling in addition to
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claim for business interruption. The Petitioner has sanctioned only the
claims for repairs/costs in respect of the actual damages directly caused
during the accident/incident of 16 September 2001 and for business
interruption and has accordingly paid an amount of Rs.7,69,69,369/- to
the Respondent. This included amount of Rs.5,01,41,230/- towards
'material damage' and Rs. 2,68,28,139/- towards 'loss of business
profits/business interruption'. Since the claim for balance expenses
incurred towards overhauling of GT Engine is not honored by the
Petitioner, the Respondent initiated arbitration, which has resulted in
impugned award dated 8 December 2023 by which the Arbitral Tribunal
has sanctioned the claim in the sum of Rs.16,38,57,408.84/- under the
head 'material damage' which essentially is unpaid amount of expenses
incurred by the Respondents towards overhauling of the GT Engine.
Additionally, the Arbitral Tribunal has sanctioned claim in sum of
Rs.6,23,79,114/- towards 'business interruption'. This is how total claim
in the sum of Rs.22,62,36,523/- is awarded by the Arbitral Tribunal in
Respondent's favour under the Industrial All Risk Policy. Since amount of
Rs.7,69,69,369/- is already paid to the Respondent, the Arbitral Tribunal
has directed payment of balance amount of Rs.14,92,66,884/- with simple
interest thereon @ 9 percent p.a. from 20 September 2003 upto the date
of award. The amount of interest comes to Rs.27,05,46,086/- upto the
date of the award. This is how the Arbitral Tribunal has directed payment
of total sum of Rs.41,98,12,970/- by the Petitioner to the Respondent.
The Arbitral Tribunal has also awarded costs of Rs.2 crores in favour of
the Respondent. It has also awarded post award interest @ 12 percent p.a.
on the awarded sums.
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WHETHER DISPUTE IS ONE OF 'LIABILITY' OR OF 'QUANTUM'
38) Petitioner issued Industrial All Risk Policy to the Respondent
for insuring its captive power plant for the period from 22 February 2001
to 21 February 2002. Under the policy, the sum insured for material
damage was Rs.156 crores whereas for business interruption, the sum
insured was Rs.11.17 crores. The insurance policy contained arbitration
agreement under Clause 12 which provided thus:
12. If any difference shall arise as to the quantum to be paid under this
policy (liability being otherwise admitted) such difference shall
independently of all other questions be referred to the decision of an
arbitrator to be appointed in writing by the parties in difference, or if
they cannot agree upon a single arbitrator, to the decision of two
disinterested persons as arbitrators of whom one shall be appointed in
writing by each of the parties within two calendar months after having
been required so to do in writing by the other party in accordance with
the provision of the Arbitration Act, 1940, as amended from time to time
and for the time being in force. In case either party shall refuse or fail to
appoint arbitrator within two calendar months after receipt of notice in
writing requiring an appointment, the other party shall be at liberty to
appoint sole arbitrator and in case of disagreement between the
arbitrators, the difference shall be referred to the decision of an umpire
who shall have been appointed by them in writing before entering on the
reference and who shall sit with the arbitrators and preside at their
meetings.
It is clearly agreed and understood that no difference or dispute shall be
referable to arbitration as hereinbefore provided, if the Company has
disputed or not accepted liability under or in respect of this policy.
It is hereby expressly stipulated and declared that it shall be a condition
precedent to any right of action or suit upon this policy that the award
by such arbitrator, arbitrators or umpire of the amount of the loss or
damage shall be first obtained.
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39) Thus, only differences or disputes as to the quantum to be
paid under the policy, where liability is otherwise admitted, were capable
of being settled through arbitration. In case where the Petitioner disputed
or not accepted the liability under or in respect of the policy, the dispute
or difference could not be referred to arbitration.
40) In the light of the above quoted Clause 12 containing the
arbitration agreement between the parties, the core issue for
consideration is whether Respondent's claim for overhauling cost of GT
Engine is a dispute as to 'quantum' to be paid or whether the same relates
to 'liability' which is disputed or not accepted by the Petitioner.
Respondent contends that it had filed a singular claim in respect of the
costs incurred in overhauling, which included the expenses for damage to
the GT Engine and that since the Petitioner has admitted liability in
respect of part of such claim and has paid to the Respondent partial claim,
the dispute essentially is in respect of the quantum and not in respect of
the liability. On the other hand, it is the case of the Petitioner that
Respondent's claims were under two distinct heads of costs incurred for
repairs to GT Engine due to the incident and costs incurred for
overhauling the entire GT Engine. It is Petitioner's case that it has treated
the two claims as different and distinct and has allowed the former claim
while rejecting the latter. That there is rejection of liability in respect of
the later claim for overhauling of GT Engine. It is Petitioner's contention
that the case involves disputes relating to rejection of liability or non-
acceptance of liability qua the claim for overhauling of GT engine. The
Petitioner contends that the issue does not relate to quantum but the
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same relates to liability. This is how the two parties raised a dispute
before the learned arbitrator about nature of rejection of claim raised by
the Respondent.
41) If rejection of claim for overhauling of GT Engine is treated
as rejection of liability under or in respect of the policy, the dispute is not
capable of being resolved through arbitration since there is no arbitration
agreement for resolution of such dispute. If on the other hand, if the
entire claim of the Respondent for costs incurred towards repairs and
overhauling of GT Engine is treated as a singular indivisible claim, since
the liability in respect of part thereof is admitted, rejection of the other
part would be a dispute relating to quantum, which is capable of being
resolved through arbitration. Therefore, the issue which is at the heart of
controversy is whether the claim raised by the Respondent for incurring
of expenditure towards overhauling of the GT Engine is to be treated as a
single indivisible claim or there are two distinct claims involved in respect
of repairs to engine arising out of accident and overhauling/rebuilding of
the entire engine. The Arbitral Tribunal has treated the dispute between
the parties as the one relating to quantum and has accordingly answered
issue of arbitrability in favour of Respondent and against Petitioner.
Correctness of that finding is questioned before this Court.
42) The Gas Turbine Engine is essentially an aero-derivative
engine which is often used in airplanes and which is smaller than an
industrial gas turbine. Because of its compactness, the clearance between
the rotating parts is almost nil. The primary components of GT Engine,
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i.e., the compressors, turbines and combustor are all fastened on two
shafts that run through the entire GT Engine. The movement of these
shafts is facilitated through bearings (including a 4B bearing) which are
fixed along the shafts. The 4B bearing is housed in Sump-B Section of the
GT Engine.
43) In April 2001, the GT Engine of Respondent encountered oil
leakage in the hot section and repairs were carried out by installation of a
new 4B bearing. The GT Engine was reinstalled and recommissioned in
June 2001. There is no dispute to position that the Petitioner duly paid
the claim raised by the Respondent in respect of the incident of oil
leakage.
44) On 16 September 2001, the incident/accident occurred when
metal chip detector installed in oil Sump-B sounded an alarm and
fluctuations were noticed in the resistance and the GT Engine tripped.
45) The GT Engine was under Operation and Maintenance
Contract dated 15 September 2000 with GEEPO, a subsidiary/sister
concern of GE.
46) GEEPO carried out Borescope Inspection of GT Engine which
showed that Sump-B was not in good order and 4B bearing cage was
broken. Respondent sent the GT Engine to GE's facility in Houston, Texas
and the engine reached the facility of GE in the USA in October 2001. The
GE issued two reports dated 19 October 2001 and 22 October 2001.
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Petitioner particularly relies on observations in report dated 19 October
2001 which recorded some additional issues over and above the Sump-B
issue such as corrosion, discoloration, reddish yellow rust etc. in respect
of several components of the engine.
47) The Petitioner appointed McLarens Toplis as its surveyors in
the USA. McLarens Toplis issued report on 28 November 2001 to the
Petitioner, in which it was stated as under:
We report that the scope of repairs requested from Search Chem are
completed and final Testing will be conducted on Dec. 5 or 6th, 2001. We
advise that the repair scope was not what GE had recommended, More
particular GE recommended in their inspection report that the LPT also
he rebuilt/repaired and possible the entire angine be rebuilt before they
would offer a warranty.
Our concern here is a limited repair on this engine that may eventually
fail again and thus placing yourselves in another claim for
damages/repairs. Though these other areas nay be wear and tear issues
and/or aggravated from the previous failure. Experts at GE cannot say
which issue this addresses, only that at some time they will need to be
addressed.
It appears we are looking at two different possibilities in this case;
A) The loss of oil during the first incident caused the No. 4 bearing to
fatigue and ultimately fail.
B) The over torqueing of the bearing resulted in the bearing failure.
C) Or the combination of both the above contributed to the bearings
failure.
The data sheet provided shows no remarkable patterns. It is a
spreadsheet type data sheet that has the information imputed every 4
hours. (I believe manually, as allegedly read from the sensors.
Over all GE has found the entire engine in need of a complete overhaul
due their findings during the break down. As we reported earlier, Search
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Chem has not agreed to this and has limited their scope of repair to the
areas of failure, only.
48) After receipt of report of McLarens Toplis, the Petitioner
wrote to the Respondent on 5 December 2001 stating as under:
We have received a communication from our Head office regarding
report of M/s Mclarens Toplis, Houston, USA.
In terms of the said report, G.E have recommended to overhaul the
entire engine and not limit the repairs for the present accident alone.
Unless the engine is completely overhauled, another loss could occur in
the near future. It is thus evident that engine has to be overhauled
thoroughly to fit to run continuously.
Further it is also reported that unless the engine is overhauled, the
repairers are also not willing to give guarantee-for the engine with
respect to the present repairs.
From the above, it would be observed that it is imperative to carry
out complete overhauling of the entire engine as per G.E. 's
recommendations instead of limiting the scope of repairs to the
areas of failure (present accident loss only).
We would request you to kindly ensure that this is done before the
engine is dispatched to India and Iet us have your confirmation to
enable us to revert to our Head Office (We are informed that the final
testing is to be conducted on 5th or 6th December, 2001). Kindly treat
this matter as most urgent.
(emphasis and underlining added)
49) In the meantime, Petitioner sought advice from its Head
Office and once again wrote to the Respondent on 18 December 2001
stating as under :
We had sought the advice of our Head Office/Regional Office with regard
to contents of your letter dated 12.12.2001.
Our Head Office have received a communication from M/s. McLarens
Toplis in terms of which they had found excessive transit vibration and
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it was also revealed that no.4 bearing failure was not due to bad bearing
but something which is not incidental to the earlier accidental damage.
Our Head Office has therefore once again reiterated that it would
be advisable for yourselves to repair the entire engine now itself as
recommended by G. E. so that the engine may not have any
problem in the future. if it is not done as recommended by G. E.
then future claim is imminent as observed by McLarens and it will
pose problem at the time of underwriting of the risk.
We would request you to kindly look into the above aspects and let us
have your confirmation to enable us to revert to our Head Office. Kindly
treat this as most urgent.
(emphasis and underlining added)
50) Thus, by its letter dated 5 December 2001, the Petitioner
referred to the report of the M/s. McLarens Toplis and suggested that 'it is
imperative to carry out complete overhauling of the entire engine as per GE's
recommendations instead of limiting the scope of repairs to the areas of
failure caused by the accident'. However, it appears that the Respondents
opted for limited repairs of Sump-B bearing. GE completed the repairs of
Sump-B bearing and the engine was tested on 7 December 2001. During
the testing, core rotor vibrations were noticed during transient conditions
beyond acceptable limits. It appears that on 17/18 December 2001, a
meeting took place between the representatives of GE and Respondent,
minutes whereof were recorded in the subsequent letter dated 24
December 2001, which read thus :
GE completed the repair of Sump B bearing failure and the engine was
tested on December 7, 2001 During this testing the core rotor vibrations
were found to be 3.5 to 4.0 mils during transient conditions. the
acceptable limit of these vibrations is 3.0 mils.
GE has suggested to attend to these vibrations by opening HPC and HPT
modules and performing a balance. But this HPC & HPT balance will
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only take care of transient vibrations, which is not a solution to the
complete problems. Therefore GE further suggested to do complete
overhaul for which GE would extend a full guarantee SCIL agreed to this.
The complete overhaul will take 50-60 days from the induction and the
engine can be inducted earliest on December 27, 2001 for full tear down
into each module for complete inspection and repairs.
The estimated cost of repairs indicated above will be $ 2,645,280. This is
in addition to Sump B repair cost of $ 454,720
51) Thus, through its two letters dated 5 December 2001 and 18
December 2001, Petitioner specifically advised the Respondent to go for
complete overhauling of GT Engine instead of restricting the repairs to
the areas of failure caused by the accident. In fact, in the letter dated 18
December 2001, Petitioner expressed apprehension of creation of
problems at the time of underwriting of the risk if overhauling of the
engine was not done as recommended by the GE.
52) In the above background, the Respondent wrote to the
Petitioner on 24 December 2001 giving details of overhauling of the GT
Engine and intimated to the Petitioner that it would claim entire costs of
repairs and also the incidental expenses incurred by it, which is clear from
following portion of letter dated 24 December 2001:
While we will be claiming on you for the entire cost of repairs as also all
incidental expenses incurred by us in connection with repairs to be
carried out by G.E. we would request you to send any instruction that
you may wish to send your surveyors abroad for their lissing with G.E.
and facilitating speedy completion of repairs and turn of the engine to
us.
Kindly acknowledge receipt and advise us the steps Inken by you, if we
don't receive any reply from you immediately we shall assume that you
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have concurred with our line of action and have advised your surveyors
abroad suitably in this connection.
53) Upon receipt of letter dated 24 December 2001 from the
Respondent, Petitioner did a U-turn. While it kept on pestering the
Respondent vide letters dated 5 December 2001 and 18 December 2001 to
go for complete overhauling of the GT Engine, after receipt of details of
overhauling costs vide letter dated 24 December 2001, the Petitioner
apparently realized the risk involved in recommending overhauling of GT
Engine on account of claim of entire costs of overhauling likely to be
raised by the Respondent. Accordingly, on 27 December 2001, Petitioner
wrote to the Respondent as under:
We are in receipt of your Letter dated 24 December, 2001 and have noted
the contents thereof.
It is observed that you had made a claim totaling to $32.19,497.11
approximately Rs. 15 Crores. In this connection, you will kindly
appreciate that our liability, subject to adequacy of sum insured, would
be restricted to repair cost in respect of actual damages directly caused
during the accident/incident on 16 September, 2001 necessitating
despatch of the damaged equipment to Houston, USA for repair.
Overhauling coat etc. would not fall within the purview of the policy.
In my case, as you are aware, MC LARENS TOPLIS Houston, USA (M/s
Mehta & Padmsey Associates, M/s. Bhatewadekar & Co.) have already
been appointed by our Head Office and their detailed report is awaited
and we would be in a position to write to you further only on receipt of
the same after receiving directives from our Head Office. In the
meantime, you may kindly note that at this juncture, we are not in a
position to accept liability as per the claim raised by yourselves in your
subject letter due to the reasons mentioned above and as per the terms
and conditions of the Policy.
54) Thus, after realising that the Respondent was likely to raise a
claim of Rs.15 crores towards overhauling of the GT Engine, Petitioner
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clarified on 27 December 2001 that it would restrict the claim only to
repairs costs in respect of the actual damage directly caused by the
incident and that overhauling costs would not fall within the purview of
the policy. Respondent protested against the volte-face taken by the
Petitioner vide letter dated 28 December 2001, in which it stated as
under :
We are suprised to receive a casual letter of this nature from you in
connection with the claim which you will appreciate is very serious and
sensitive.
In this circumstances we repeat and reiterate that our total
expenses(which may not be restricted to Rs. 15 Crores as is indicated in
your letter and may be more because of duty element and other
incidental expenses until the equipment reaches our site) is payable by
you in full as per the terms of the policy. It is your responsibility to
explain to our satisfaction that some of the heads of expenses that we
might have incurred or be incurring fall under the exclusions of the said
policy in case you deny payment of the same to us.
Now that you have not advised us anything as regards further active
involvement of your surveyors abroad during the whole process of
repairs until the dispatch by GE, we are going ahead with the process as
indicated in our Jetter dt.24.12.2001.
55) Thus, Respondent made it clear to the Petitioner that it
would go ahead with the overhauling of the GT Engine as indicated in
letter dated 24 December 2001. Petitioners wrote to the Respondent on 25
January 2002 once again intimating that the liability would be limited to
the extent of actual damages before the turbine was dispatched to USA for
repairs and that the expenses claimed towards costs of overhauling were
not payable as per the terms and conditions of Industrial All Risk Policy.
The letter dated 25 January 2002 reads thus:
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Further to our letter dated 30 December, 2001 in response to your letter
dated 28 December, 2001 we have now received advices from our
controlling office as under.
1) The detailed report from Mclarens Toplis North America, Inc.
Houston, USA is awaited and a detailed Letter will be issued on receipt of
the same.
2) In the meanwhile, it may please be noted that our liability would be
limited to the extent of actual damages before tire turbine was
despatched to USA for repairs. The expenses claimed towards cost of
overhauling are not payable as per the terms and conditions of IAR
Policy.
We shall revert to yourselves on receipt of detailed letter/advises from
our controlling offices.
56) Based on letters dated 27 December 2001 and 25 January
2002, Petitioner has raised the plea that part of the claim relating to
overhauling of GT Engine is rejected and/or not accepted by it and that
therefore, adjudication of disputes relating to that claim is not arbitrable.
Petitioner has criticized the Award of the Arbitral Tribunal contending
that both the letters are virtually ignored by the Tribunal, which has given
unnecessary weightage to the letters dated 5 December 2001 and 18
December 2001.
57) The Arbitral Tribunal has recorded nine reasons for holding
that even part of the claim relating to overhauling of GT Engine is
covered by one and the same incident and that it is impermissible to split
a single claim or cause of action in two separate parts. It would be
apposite to reproduce the relevant parts of the nine findings recorded by
the Arbitral Tribunal in the Award as under:
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40. The Tribunal has considered the rival submissions carefully. In the
Tribunal's view the submissions made on behalf of the Respondent are
not found to be meritorious for more than one reason.
41. First, admittedly the incident which caused damage to GT Engine
occurred on 16.09.2021 and the part of such claims was admittedly paid
by the Respondent to the Claimant. Rest of the claims was not accepted
being claim of Overhauling. As a necessary corollary, the dispute
between the parties is clearly seen to be relating to quantum, which is
squarely covered by Arbitration Clause 12 of the Policy.
42. Second, following the above aspect, the fact of the matter is that the
Respondent made the part payment of Rs. 7,69,69,369 to the Claimant
against the Claimant's claim of Rs. 24,73,18,765 under the Policy. At the
time of making payment, the Respondent did not indicate that the
balance of Rs. 17,03,49,396 was not being paid for the reason that
Respondent has denied its liability for the same. That was the first
occasion when the Respondent ought to have made its position clear
which it never did.
43. Third, and very significantly, the Respondent has not repudiated its
liability with respect to Claimant's claim at any point of time. This is not
even disputed by the Respondent. In the absence of any repudiation by
the Respondent of the Claimant's claim arising out of the incident that
occurred on 16.09.2001, no inference can be drawn that there is denial of
liability by the Respondent under or in respect of the Policy.
44. Fourth, in what has been noticed in the three reasons above, the
question of inference of implied denial of liability for the unpaid amount
does not arise.
45. Fifth, for the purpose of arbitrability of claim, the distinction drawn
by the Respondent between the 'incident claim' which was paid and
'overhauling claim' which was not paid by the Respondent, is wholly
misconceived. It is admitted case of the Respondent that even
Respondent recommended to the Claimant to have the GT Engine
overhauled. In this regard, the two letters of the Respondent dated
05.12.2001 and 18.12.2001 deserve to be noticed.
47. For whatever reason, if the Respondent was of the view that
Overhauling Claim was out of coverage or unpayable by them, there was
no occasion for the Respondent to insist for overhauling the engine. The
Insurance Company would have denied its liability of Overhauling Costs
when the G.E. recommended to overhaul the entire engine and not
further recommend to the Claimant to go in for overhauling. Rather, the
Insurance Company represented to the Claimant that it was imperative
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to carryout complete overhauling of the entire engine as per G.E. 's
recommendations.
48. Two things, in the Tribunal's view, were in the mind of the
Respondent and that was because the Engine was covered under the
Policy that, (i) the engine has to be overhauled thoroughly to fit to run
continuously and (ii) the repairs guarantee for the engine's present
repairs was a must. These could be achieved only if the engine was
overhauled. But for the coverage of Overhauling Costs under the Policy,
in the Tribunal's view, no recommendation of overhauling would have
been made by the Respondent. Why would the Insurance Company give
an unsolicited advice to the Claimant if overhauling costs under the
Policy were not covered?
50. Both these letters of 05.12.2001 and 18.12.2001 bear the Reference:
IAR POLICY NO. 022000/11/23/2990/2000-2001 CLAIM NO.
022000/11/23/0100001/2001-2002- DAMAGE TO GAS TURBINE.
51. In the Tribunal's view, the coverage of Overhauling Costs under and
in respect of the Policy becomes very clear in view of the above two
letters from the Respondent.
52. In light of the above two letters of the Respondent and what has
been discussed above, the conduct of the Respondent in communicating
to the Claimant vide subsequent letters, dated 27.12.2001 that
"Overhauling cost etc. would not fall within the purview of the policy ", and
dated 25.01.2002 that "The expenses claimed towards cost of overhauling
are not payable as per the terms and conditions of IAR Policy" would not
take the dispute out of arbitrability clause.
53. Sixth, the construction of the expression, "such difference shall
independently of all other questions be referred to the decision of an
arbitration" does not mean that each claim may be taken a separate
dispute as contended by the learned senior counsel for the Respondent.
Rather reading the clause in a holistic manner would rather show that
dispute with regard to amount payable as claimed by the Claimant or
unpayable part of the claim as per the Respondent would relate to
quantum dispute and shall be referred to the decision of an arbitration.
54. Seventh, the Joint Surveyors in their two Interim Survey Reports have
noted in unambiguous terms that claimant's claim was admissible under
the Policy. The only dispute between the parties, therefore, is about
quantum in as much as whether the Claimant is entitled to Rs.
7,69,69,369 which has been paid by the Respondent to the claimant or
claimant is entitled to full repair costs of the engine in the sum of Rs.
24,73, 18,765 as claimed by the Claimant.
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55. Eighth, in the Tribunal's view, none of the Judgments cited by the
learned senior counsel for the Respondent actually helps the
Respondents. The cited Judgments are distinguishable on facts.
63. Ninth, the submission of the learned senior counsel for the
Respondent that Respondent has a right to split the cause of action
between the 'Incident Claim' and 'Overhauling Claim', in the Tribunal's
view is wholly misconceived. What Respondent seeks, is to divide a
single claim or cause of action into two separate parts which is
impermissible. The Arbitration and Conciliation Act, 1996 does not
provide for splitting up of the cause of action which is capable of
resolution through the mechanism of arbitration.
64. In the Tribunal's view the entire claim raised by the claimant is
arising out of one incident which cannot be split up as is sought to be
done by the Respondent to keep part of claim outside the arbitration. As
a matter of fact, the facts as noted in above discussion are eloquent and
clearly lead to the conclusion that in the absence of repudiation of
Claimant's Claim by the Respondent, the parties have their dispute
about quantum alone which is clearly arbitrable.
65. Even on the analogy of rule provided in Order 2 Rule 2 CPC, such
split of single claim into two is impermissible. The rule contained in
Order 2 Rule 2 CPC bars such split. What the rule lays down is that
where there is one entire cause of action, the plaintiff cannot split the
cause of action into parts so as to bring separate suits in respect of those
parts. This rule will equally apply in a situation such as this where the
Respondent intends to split cause of action and single claim of the
Claimant into two, namely, 'Incident Claim' and 'Overhauling Claim'.
66. Law does not countenance, rather discourages, splitting of claim and
remedies based on same cause of action.
67. The Tribunal, thus, holds that the dispute arising in this arbitration
between the parties is a quantum dispute and not a liability dispute. The
present dispute is therefore arbitrable.
58) Thus, broadly the Arbitral Tribunal has held that in respect of
damage caused to GT Engine in the incident occurring on 16 September
2001, part of the claim is admittedly paid by the Petitioner and since rest
of the claim relating to overhauling is not accepted, the dispute between
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parties relates to 'quantum' which is squarely covered by arbitration
Clause-12 of the policy. The Tribunal has further held that while making
part payment of Rs.7,69,69,369/- to the Respondent, Petitioner did not
indicate that the balance amount was not being paid because liability was
denied. It is further held that the liability has never been repudiated at
any point of time. It is further held that the distinction between 'incident
claim' and 'overhauling claim' is misconceived as Petitioner itself
recommended that GT Engine must be overhauled vide letters dated 5
December 2001 and 18 December 2001. It is further held that there was no
reason for Petitioner-Insurance Company to give unsolicited advice for
carrying out overhauling if liability in respect of that part of claim was
denied. The Tribunal has held that subsequent letters dated 27 December
2001 and 25 January 2002 did not take disputes out of arbitration clause
on account of the previous letters dated 5 and 18 December 2001. The
Tribunal has further held that the joint surveyors noted that the
Respondent's claim was admissible under the policy and the dispute was
only relating to quantum.
59) I am in broad agreement with the above findings recorded by
the Arbitral Tribunal. The Tribunal had two sets of letters of Petitioner
before it. The first set of letters issued on 5 December 2001 and 18
December 2001 virtually directed Respondent to overhaul GT Engine
rather than limiting the repairs to damage caused by the
incident/accident. The Petitioner stated in letter dated 5 December 2001
that "it is imperative to carry out complete overhauling of the entire
engine". In further letter dated 18 December 2001, Petitioner virtually
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issued a threat to the Respondent that it would not underwrite the risk if
overhauling of GT Engine is not carried out. There was no occasion or
reason for the Petitioner to insist for overhauling of the GT Engine. It did
so with a view to avoid further breakdown of the GT Engine resulting in
multiple and frequent claims. The Tribunal has rightly questioned as to
why Petitioner would give an unsolicited advice to the Respondent if
overhauling cost was not to be considered as covered under the policy.
The findings recorded by the Arbitral Tribunal based on the first set of
letters dated 5 and 18 December 2001 are plausible findings and it cannot
be held, by any stretch of imagination, that the findings are of such nature
that no fair-minded person would ever record the same.
60) Coming to the next set of letters dated 27 December 2001 and
25 January 2002, I am in agreement with the Arbitral Tribunal that the
said letters do not take the dispute out of arbitration clause. It is
Petitioner's contention that the Tribunal has not recorded any reasons for
holding so. I am unable to agree. The Tribunal has considered the effect
of the said two letters in the context of earlier letters dated 5 and 18
December 2001. This Court can undertake the exercise of explaining the
existence of underlying reasons, which exercise does not supplant the
reasons in the award but only explains it for better and clearer
understanding thereof. In OPG Power Generation Private Limited (supra)
the Apex Court has held in paragraph 168 as under:
168. We have given due consideration to the above submission. In our
view, a distinction would have to be drawn between an arbitral award
where reasons are either lacking/unintelligible or perverse and an
arbitral award where reasons are there but appear inadequate or
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insufficient [ See paras 79 to 83 of this judgment.] . In a case where
reasons appear insufficient or inadequate, if, on a careful reading of the
entire award, coupled with documents recited/relied therein, the
underlying reason, factual or legal, that forms the basis of the award, is
discernible/intelligible, and the same exhibits no perversity, the Court
need not set aside the award while exercising powers under Section 34 or
Section 37 of the 1996 Act, rather it may explain the existence of that
underlying reason while dealing with a challenge laid to the award. In
doing so, the Court does not supplant the reasons of the Arbitral
Tribunal but only explains it for a better and clearer understanding of
the award.
61) Following the ratio of the judgment in OPG Power
Generation Private Limited (supra) this Court has held in Sanjeev
Malhotra (supra) in paragraphs 39 to 43 as under:
39. It is a well settled position that inadequacy or insufficiency of
reasons in the Arbitral Award cannot be a ground for setting aside the
same. An Award would become susceptible to challenge as being
unintelligible when the Arbitral Tribunal fails to record any reasons for
arriving at a particular conclusion. On the other hand, the Arbitral
Tribunal may record some reasons, which may appear to be insufficient
or inadequate or inelaborate to the losing party. While deciding a
particular issue, the Arbitral Tribunal may not express itself by recording
very detailed and elaborate reasons, but may set forth some reasons to
support the conclusion. So long as the Court agrees with the ultimate
conclusion recorded by the Arbitral Tribunal, the Court cannot set aside
the Award on technicality of absence of elaborate or extensive reasons,
which the Court may expect the Arbitral Tribunal to record. The test is,
on meaningful reading of the entire Award, whether the Court can
extract what the Arbitral Tribunal wants to hold and why it has held so.
The test is not to match the expectation of the Section 34 Court about
the level of elaborateness of reasons. Given that the Court needs to show
significant deference to the arbitral awards and must grant broad
latitude to the factual findings recorded therein, all that needs to be seen
is whether the reasons are discernible from the award. Reasons in the
award need not be elaborate always, they can also be compendious. So
long as the recorded reasons pass the muster of conveying to the Court
what is meant to be said and why it is said, interference in the Award on
the objection of lack of reasons would be avoided. Arbitral Tribunal is
not a Court which is expected to record very detailed or elaborate
reasons in support of each of the finding. The Arbitral Tribunal can be
accused of passing non-speaking Award only if the Award contains no
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reasons at all. However, where some reasons can be discerned
supporting the ultimate conclusion reached, with which Section 34
Court ultimately concurs, there is no room for setting aside the award.
Under Section 34 of the Arbitration Act, the Court ultimately does not sit
as a court of appeal over the arbitral award.
40. The principles discussed above find support in the judgment of the
Apex Court in OPG Power Generation Private Limited vs. Enexio Power
Cooling Solutions India Pvt. Ltd. and Another in which it is held thus:
xxx
41. The issue of adequacy of reasons has also been dealt with by the
Apex Court in Dyna Technologies Pvt. Ltd. vs. Crompton Greaves
Limited25, In which the Court has held in paragraph 35 as under:
35. When we consider the requirement of a reasoned order, three
characteristics of a reasoned order can be fathomed. They are:
proper, intelligible and adequate. If the reasonings in the order
are improper, they reveal a flaw in the decision-making process.
If the challenge to an award is based on impropriety or perversity
in the reasoning, then it can be challenged strictly on the
grounds provided under Section 34 of the Arbitration Act. If the
challenge to an award is based on the ground that the same
is unintelligible, the same would be equivalent of providing
no reasons at all. Coming to the last aspect concerning the
challenge on adequacy of reasons, the Court while exercising
jurisdiction under Section 34 has to adjudicate the validity
of such an award based on the degree of particularity of
reasoning required having regard to the nature of issues
falling for consideration. The degree of particularity cannot
be stated in a precise manner as the same would depend on
the complexity of the issue. Even if the Court comes to a
conclusion that there were gaps in the reasoning for the
conclusions reached by the Tribunal, the Court needs to
have regard to the documents submitted by the parties and
the contentions raised before the Tribunal so that awards
with inadequate reasons are not set aside in casual and
cavalier manner. On the other hand, ordinarily unintelligible
awards are to be set aside, subject to party autonomy to do away
with the reasoned award. Therefore, the courts are required to be
careful while distinguishing between inadequacy of reasons in an
award and unintelligible awards.
(emphasis added)
25 (2019) 20 SCC 1
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42. In Ravi Raghunath Khanjode and others vs. Harasiddh
Corporation26, I have followed the ratio of the judgment in OPG Power
Generation Private Limited (supra) and it is held in paragraphs 46 and
47 as under:
46. It is also settled law that the Award need not be set aside on
the ground of inadequacy of reasons so long as the ultimate
conclusions reached by the Arbitral Tribunal are found to be
correct. Reference in this regard can be made to the judgment of
the Apex Court in OPG Power Generation Private Limited v. Enexio
Power Cooling Solutions India Private Limited in which it is held in
para-168 as under :--
168. xxx
47. Therefore even if the reasons recorded by the arbitral tribunal
for repelling the objection of requirement to secure permission
under Section 43 of BTAL Act or Section 36A of the MLRC are to
be construed as inadequate or insufficient, I am of the view that
the Award is not rendered bad on that ground alone. It is not that
the learned Arbitrator has recorded absolutely no reasons. I am
in agreement with the ultimate conclusion reached by the
learned Arbitrator for the reasons indicated in the later part of
the judgment. The objection of failure to record reasons is
accordingly rejected.
43. In my view therefore, the Award cannot be annulled only because
the Petitioner expects the Arbitral Tribunal to have recorded better
reasons while rejecting the objection of variation/novation of contract.
62) In Securitrans India Pvt. Ltd. (supra), this Court has once again
followed the ratio of the judgment of the Apex Court in OPG Power
Generation Private Limited (supra) and it is held in paragraphs 53 and 54
of the judgment as under:
53. Also the Award has to be read in its entirety and the finding of
perversity can be recorded when there are absolutely no reasons for
reaching the conclusion. An arbitral award is not to be readily set aside
on the ground of inadequacy of reasons. Where the reasons do not
appear to be sufficient, Section 34 Court can consider all the documents
26 2025 SCC Online Bom 4505
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and discern the underlying reason from reading of the entire award.
Here, the judgment of the Apex Court in OPG Power Generation Private
Limited (supra) would be relevant, in which the Apex Court has held in
paragraphs 168 and 169 as under:--
xx
54. Thus in a case where reasons appear to be insufficient or inadequate,
but on a careful reading of the entire Award, the underlying reason is
intelligible, the Court need not set aside the Award and rather it can
explain the existence of that underlined reason while examining the
issue of invalidation of Award. Mere omission on the part of Arbitral
Tribunal to refer to a particular contractual clause would not ipso facto
render the conclusion recorded by Arbitral Tribunal perverse. The Court
can make meaningful reading of the entire reasons recorded by the
Arbitral Tribunal and can explain what exactly is meant to be said by the
Arbitral Tribunal. The ratio of the judgment in OPG Power Generation
Ltd. (supra) has been followed by me in CDSL v. Daksha Narendra
Bhausar (supra) in which it is held in paragraph 76 as under:
In the present case, the Arbitral Tribunal has recorded the
underlying reason of BRH acting in its capacity as DP during
some of its negligent and fraudulent acts and has accordingly
applied the provisions of Section 16 of the Depositories Act and
Clause 5.3.2 of CDSL Bye laws. The underlying reason discernible
from reading of the award cannot be termed as perverse. The
manner of enquriy conducted by Arbitral Tribunal or the detailed
findings recorded by it may not be to the liking of the Petitioner,
however so long as this Court has not found the final conclusion
of Arbitral Tribunal treating role of BRH as DP to be not perverse,
there is no warrant for exercising the powers under Section 34 of
the Arbitration Act for invalidating the Award.
63) Following ratio of the above quoted judgments, I now
undertake the exercise of explaining existence of underlying reasons to
the finding recorded by the Arbitral Tribunal in paragraph 52 of the Award
in which it is held that letters dated 27 December 2001 and 25 January
2002 do not take the dispute out of arbitrability clause. Firstly, it must be
observed that the conclusion is reached on the basis of the findings that
"in the light of the above two letters of the Respondent and what has been
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discussed above.....". Thus, the Tribunal has read letters dated 27
December 2001 and 25 January 2002 in the light of the previous letters
dated 5 December 2001 and 18 December 2001. Secondly, after going
through letters dated 27 December 2001 and 25 January 2002, it is
difficult to conclude that Respondent repudiated the claim in respect of
overhauling expenses of the GT Engine. This is clear from the following:
i) The contents of letters are not conclusive in nature as they
use words such as "in the meantime", "at this juncture", etc. and
the letters were issued awaiting directives from head office and
detailed report from M/s. McLarens Toplis. The letters are thus
both, tentative as well as qualified. It therefore cannot be
contended that the letters had the effect of final repudiation of the
claim for overhauling of GT Engine.
ii) Both the letters were issued before submission of claim bills
to the Petitioner by the Respondent. The claim bill was submitted
by the Respondent on 17 February 2002 towards material damage.
iii) Though tentative views about non-acceptance of overhauling
claim was expressed in the letters dated 27 December 2001 and 25
January 2002, after receipt of claim bill actually raising the claim
towards overhauling of GT Engine, Petitioner never repudiated the
said claim bill at any point of time. For the first time, artificial
distinction of 'incident claim' and 'overhaul claim' was sought to be
raised in the Statement of Defense.
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iv) Long after issuance of the two letters, parties were in regular
discussion regarding condition of GT Engine prior to the accident,
necessity to overhaul the same and the extent of damage caused by
accident. This is evident from GE letter dated 28 January 2003
explaining that vibration noticed during testing were relatable to
accident. By its letter dated 19 June 2003 Petitioner raised the
queries about technical problems with the GT Engine, details of
overhauling carried out prior to accident, manufacturer's
specification of overhauling etc. This is also clear from
Respondent's response dated 24 June 2003 to the Petitioner's letter.
If liability in respect of the overhauling claim was already denied in
toto and if the Petitioner was firm with such denial, why Petitioner
called for details of overhauling carried out by the Respondent vide
letter dated 19 June 2003 is incomprehensible. This shows that the
admissibility of claim relating to overhauling remained under
active consideration of the Petitioner long after issuance of the
letter dated 27 December 2001 and 25 January 2002.
v) The Tribunal was also justified in relying on letters dated 5
December 2001 and 18 December 2001 advising the Respondent to
overhaul the GT Engine for the purpose of concluding that the
subsequent two letters of 27 December 2001 and 25 January 2002 do
not take the dispute out of the arbitrability clause.
64) Mr. Jagtiani has strenuously contended that though the two
letters of 27 December 2001 and 25 January 2002 were issued before
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submission of actual 'claim bills', the same were issued in response to the
'claim' raised by the Respondent on Petitioner on 24 December 2001. He
has contended that the 'claim bill' ultimately submitted on 17 February
2002 exactly matches the 'claim' indicated in letter dated 24 December
2001. He submits that even letter dated 27 December 2001 refers to
making of 'claim' by the Respondent. However, I am unable to read letters
dated 27 December 2001 and 25 January 2002 as rejection/repudiation of
the claim. By letter dated 24 December 2001, Respondent had given
details of overhauling cost in response to Petitioner's own letter dated 18
December 2001. By that letter dated 18 December 2001, Petitioner had
virtually threatened the Respondent of not underwriting the risk if GT
Engine was not overhauled. Respondent unwillingly went for overhauling
of GT Engine on account of letters dated 5 December 2001 and 18
December 2001. Before actually commencing overhauling work, it merely
gave idea to the Petitioner of cost that would be incurred for overhauling
of GT Engine. It therefore cannot be contended that on 24 December
2001, Respondent raised a 'claim' which was capable of being adjudicated
by the Petitioner. It therefore cannot be held that the letter dated 24
December 2001 raised a claim, which was considered and
rejected/repudiated by the Petitioner vide letters dated 27 December 2001
and 25 January 2002. On the other hand, Petitioner received the claim bill
only on 17 February 2002 claiming sum of Rs.24.02 crores for material
damage alone, which included overhauling cost. Far from communicating
the Respondent that it would treat the 'incident claim' distinct from
'overhauling claim', the Petitioner treated the claim bill of the
Respondent as 'one single composite claim' and proceeded to sanction
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amount of Rs 7.69 crores. Even while sanctioning and releasing the
payment of Rs.7.69 crores, Petitioner did not indicate to the Respondent
that it was treating 'incident claim' separately from 'overhaul claim' and
was repudiating the latter.
65) Even Joint Surveyors' interim reports which are discussed by
the Arbitral Tribunal in paragraph 54 of the Award leave no manner of
doubt that there was no dispute about admissibility of the claim. Merely
because the survey assessment was done with regard to only Option No.1,
it cannot be contended that the surveyors seggregated the claims into two
and denied any liability in respect of Option No.3. Even joint surveyors
held that the claim was admissible and that no exclusions applied with
respect of the same. Even 2nd interim survey report treated claim as
admissible under the policy
66) What is more shocking in the present case is the fact that the
Petitioner, who is now enthusiastically and strenuously treating the
dispute to be one of liability and not of quantum, pleaded to the contrary
in Affidavit-in-Reply filed in Arbitration Petition No.430 of 2013, in which
it contended that "I say that there being a dispute with regard to quantum,
Petitioner had raised arbitration clause and the Respondent had, keeping in
mind the said arbitration clause, named the Arbitrator and voluntarily
submitted to arbitration". Again, the Petitioner contended that "the
Respondent had offered to settle the claim as the liability was admitted and
the Respondent had offered to settle the claim, there arose dispute with
regard to quantum". Having admitted that the dispute between parties
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related to quantum and not to liability in Affidavit-in-Reply filed in
Arbitration Petition No.430 of 2013, Petitioner cannot now turn around
and contend to the contrary.
67) Considering the above position, in my view, the finding
recorded by the Arbitral Tribunal about arbitrability of dispute relating to
rejection of claim for overhauling of GT Engine cannot be termed as so
grossly perverse that this Court must interfere in the Award. Before
proceeding to discuss the case laws relied upon by rival parties, it would
also be necessary to make a quick observation about rejection of
Petitioner's contention before Arbitral Tribunal that since overhauling
claim was covered by exclusion causes, the same was not arbitrable. The
Tribunal has rejected Petitioner's contention by holding in paragraph 93
as under:
93. Having regard to the above legal position, the Tribunal. or
consideration of the factual aspects of the matter, finds it difficult to
hold that the Respondent-Insurer has discharged its burden for the
following reasons:
(i) The two inspection reports of GE dated 19.10.2001 and 22.10.2001, in
the absence of any oral evidence of GE official let in by the Insurer, do
not establish the pre-existing condition of the Engine prior to its
dismantling and disassembling.
(ii) The Chart which has been placed on record by the Insurer indicating
break down repairs during the period March 1999 to September 2001
does not lead to any conclusion that repairs were necessitated or break
down happened because of erosion, corrosion, rust, oxidation or wear
and tear or lack of maintenance.
(iii) The incident that happened to the Engine on 30.04.2001 led to its
repairs by Air India. The Engine was reinstalled in the month of June,
2001 after the repairs were carried out to the satisfaction of GE. The
repairs by Air India only few months before the subject Accident do not
show anything like erosion, corrosion, oxidation etc, the grounds on
which the Respondent seeks to avoid its liability by invoking Excluded
Causes.
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(iv) The Joint Surveyors (RW-1 and RW-2) in their oral evidence have
stood by their First Interim Survey Report and Second Interim Survey
Report which record that from March 1999, until subject Accident after
necessary repairs, the GT Engine was functioning smoothly.
(v) During the period March 1999 to June 2001, the Respondent has
renewed Insurance policy on year-on-year basis.
(vi) The Joint Surveyors in their First Interim Survey Report were very
clear and categorical that the damage was accidental and the claim was
admissible under Industrial All Risk Policy issued to and held by Insured.
68) Again, the above findings do not warrant interference in
exercise of jurisdiction under Section 34 of the Arbitration Act as the
same are well supported by evidence on record. In any case, no serious
attempt is made before me to demonstrate that the overhauling claim was
covered by exclusion causes. The only complaint is about conflating of
issues relating to excluded causes and accident being proximate cause of
overhauling. The issue of accident being proximate cause for overhauling
is discussed in latter part of the judgment. The argument of overhauling
claim being based on the exclusion causes is raised to support the
contention of absence of arbitration agreement and the said contention is
rightly rejected by the Arbitral Tribunal.
69) Both the sides have relied upon judgments in support of their
contentions about dispute relating to overhauling claim being dispute of
quantum and dispute of liability. It would be apposite to first take stock of
various judgments relied upon by Mr. Jagtiani on behalf of the Petitioner:
A) In United India Insurance Company Versus. Hyundai
Engineering and Construction Company Limited (supra), there was a
similar clause in the policy. The case involved an accident, and the claim
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was repudiated by the insurance company. The Apex Court relied upon its
judgment in Vulcan Insurance Company Limited Versus. Maharaj Singh
(supra) and held in paragraphs 11 and 12 of the judgment as under:
11. The other decision heavily relied upon by the High Court and also by
the respondents in Duro Felguera [ (2017) 9 SCC 729 ] , will be of no avail.
Firstly, because it is a two-Judge Bench decision and also because the
Court was not called upon to consider the question which arises in the
present case, in reference to Clause 7 of the subject Insurance Policy.
The exposition in this decision is a general observation about the effect
of the amended provision and not specific to the issue under
consideration. The issue under consideration has been directly dealt
with by a three-Judge Bench of this Court in Oriental Insurance Co.
Ltd. [(2018) 6 SCC 534] , following the exposition in Vulcan Insurance Co.
Ltd. v. Maharaj Singh [(1976) 1 SCC 943] , which, again, is a three-Judge
Bench decision having construed clause similar to the subject Clause 7
of the Insurance Policy. In paras 11 and 12 of Vulcan Insurance Co. Ltd. ,
the Court answered the issue thus : (SCC pp. 948-49)
"11. Although the surveyors in their letter dated 26-4-1963
had raised a dispute as to the amount of any loss or damage
alleged to have been suffered by Respondent 1, the appellant at
no point of time raised any such dispute. The appellant company
in its letters dated 5-7-1963 and 29-7-1963 repudiated the claim
altogether. Under Clause 13 the company was not required to
mention any reason of rejection of the claim nor did it mention any.
But the repudiation of the claim could not amount to the raising of a
dispute as to the amount of any loss or damage alleged to have been
suffered by Respondent 1. If the rejection of the claim made by the
insured be on the ground that he had suffered no loss as a result of
the fire or the amount of loss was not to the extent claimed by him,
then and then only, a difference could have arisen as to the amount
of any loss or damage within the meaning of Clause 18. In this case,
however, the company repudiated its liability to pay any amount
of loss or damage as claimed by Respondent 1. In other words,
the dispute raised by the company appertained to its liability to
pay any amount of damage whatsoever. In our opinion,
therefore, the dispute raised by the appellant company was not
covered by the arbitration clause.
12. As per Clause 13 on rejection of the claim by the company an
action or suit, meaning thereby a legal proceeding which almost
invariably in India will be in the nature of a suit, has got to be
commenced within three months from the date of such rejection;
otherwise, all benefits under the policy stand forfeited. The rejection
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of the claim may be for the reasons indicated in the first part of
Clause 13, such as, false declaration, fraud or wilful neglect of the
claimant or on any other ground disclosed or undisclosed. But as
soon as there is a rejection of the claim and not the raising of a
dispute as to the amount of any loss or damage, the only remedy
open to the claimant is to commence a legal proceeding, namely,
a suit, for establishment of the company's liability. It may well be
that after the liability of the company is established in such a
suit, for determination of the quantum of the loss or damage,
reference to arbitration will have to be resorted to in accordance
with Clause 18. But the arbitration clause, restricted as it is by the
use of the words 'if any difference arises as to the amount of any loss
or damage', cannot take within its sweep a dispute as to the liability
of the company when it refuses to pay any damage at all."
(emphasis supplied)
Again in para 22, after analysing the relevant judicial precedents,
the Court concluded as follows : (SCC p. 952)
"22. The two lines of cases clearly bear out the two distinct
situations in law. A clause like the one
in Scott v. Avery [Scott v. Avery, (1856) 5 HLC 811 : 10 ER 1121]
bars any action or suit if commenced for determination of a
dispute covered by the arbitration clause. But if on the other hand
a dispute cropped up at the very outset which cannot be referred to
arbitration as being not covered by the clause,
thenScott v. Avery [Scott v. Avery, (1856) 5 HLC 811 : 10 ER
1121] clause is rendered inoperative and cannot be pleaded as a bar
to the maintainability of the legal action or suit for determination of
the dispute which was outside the arbitration clause."
(emphasis supplied)
12. From the line of authorities, it is clear that the arbitration clause has
to be interpreted strictly. The subject Clause 7 which is in pari materia to
Clause 13 of the policy considered by a three-Judge Bench in Oriental
Insurance Co. Ltd. [Oriental Insurance Co. Ltd. v. Narbheram Power and
Steel (P) Ltd., (2018) 6 SCC 534 : (2018) 3 SCC (Civ) 484] , is a conditional
expression of intent. Such an arbitration clause will get activated or
kindled only if the dispute between the parties is limited to the quantum
to be paid under the policy. The liability should be unequivocally
admitted by the insurer. That is the precondition and sine qua non for
triggering the arbitration clause. To put it differently, an arbitration
clause would enliven or invigorate only if the insurer admits or accepts
its liability under or in respect of the policy concerned. That has been
expressly predicated in the opening part of Clause 7 as well as the
second paragraph of the same clause. In the opening part, it is stated
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that the "(liability being otherwise admitted)". This is reinforced and
restated in the second paragraph in the following words:
"It is clearly agreed and understood that no difference or
dispute shall be referable to arbitration as hereinbefore provided,
if the Company has disputed or not accepted liability under or in
respect of this Policy."
Thus understood, there can be no arbitration in cases where the
insurance company disputes or does not accept the liability under or in
respect of the policy.
Thus, the judgments in Hyundai Engineering and Construction Company
Limited (supra) and Vulcan Insurance Company Limited (supra) are
authorities on the issue that there must be unequivocal admission of
liability by the insurer which is a pre-condition and sine qua non for
triggering the arbitration clause. I do not see much difficulty in accepting
the proposition that for triggering of arbitration clause, unequivocal
admission of liability is necessary. The judgment however provides little
assistance for deciding the issue at hand as the ratio of the judgment
would have been helpful only if this Court was to hold that the claim for
overhauling was segregable or that the liability in respect thereof was
denied by the Petitioner by repudiating the claim.
B) In Oriental Insurance Company Limited Versus. Narbheram
Power and Steel Pvt. Ltd. (supra), clause 13 of the policy did not permit
reference to arbitration if the insurer had disputed or not accepted the
liability. In the facts of that case, the insurer had repudiated the claim by
denying to accept the liability for various reasons. In the present case,
this Court is unable to record a finding that there is any denial of liability
by the Petitioner in respect of claim for overhauling of the GT Engine.
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C) In M/s. Malak Specialities (P) Ltd (supra), the claim was
rejected despite surveyor assessing the amount payable to the insured. By
relying on judgments in Narbheram Power & Steel Private Limited and
Hyundai Engineering & Construction Company Limited (supra), this
Court held that the insurer had not accepted the liability under the policy
and had in fact repudiated the claim by denying to accept the liability.
The judgment is thus rendered in the facts of that case and cannot have
any possible application to the present case.
D) In Sanghi Industries Limited (supra), there was similar
arbitration clause No.12 restricting arbitration only to quantum disputes.
The insurer treated the claim in two parts as the insured had claimed
reimbursement of damage because of breakdown of machinery and a
claim for loss of profits. The first claim of damage caused to the plant and
machinery was cleared by the insurer and the claim for loss of profits was
rejected. It is in the facts of that case that the Gujarat High Court held
that the claim was in two parts and sanctioning of first part did not have
any correlation with rejection of the second part.
E) In Kohinoor Steel Pvt. Ltd. (supra), Single Judge of Calcutta
High Court has decided the application under Section 11 of Arbitration
Act in a case involving similar arbitration clause. During commissioning
of the plant, a thunderstorm had seriously damaged the crane and
overhead water-tank. The insurer allowed the claim for overhead tank but
refused the same in respect of the crane on the ground that the crane was
already operationalised and a clause in the policy did not cover something
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which was already operationalised. Therefore, liability in respect of the
crane was denied. Thus, the case involved inadmissibility of claim in
respect of the crane which was already operationalised and rejection of
liability in respect thereof by the insurer. The judgment is clearly
distinguishable and cannot have any application to the present case
where the claim for overhauling is neither separable nor capable of being
rejected by segregating the same from repair claim arising out of incident.
The judgment in Kohinoor Steel Private Limited (supra) is otherwise
distinguished in judgments relied upon by Mr. Rustomjee.
F) In Metal Crafts Engineering Pvt. Ltd. (supra), Single Judge of
Calcutta High Court has again decided Application under Section 11 of
Arbitration Act and the case involved total rejection of the claim in
entirety unlike splitting of one claim into two parts as is done in the
present case. The judgment is thus clearly distinguishable.
G) In New India Assurance Company Limited Versus.
Ampoules and Vials Manufacturing Co. Ltd.(supra), Single Judge of this
Court has dealt with similar clause in the insurance policy. The insurer
had approved the claim for Rs 1.59 crores as against the claim of the
insured of Rs.3.55 crores. The insured signed discharge voucher for
Rs.1.59 crores and sought to raise claim in respect of balance non-
sanctioned amount. The insurer repudiated the liability under the policy
in respect of balance amount. In the facts of that case, this Court held
that there was accord and satisfaction and complete discharge of liability
upon signing of discharge voucher and the case involved repudiation of
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liability. It must be observed here that the judgment in Ampoules and
Vials Manufacturing Co. ltd. (supra) does not contain detailed discussion
as to why non-sanctioning part of the claim could not be treated as
dispute relating to quantum. Also, in view of law subsequently developed,
it is difficult to hold that the judgment in Ampoules and Vials
Manufacturing Co. ltd. can be read to mean an abstract proposition that
in every case where discharge voucher is signed, the dispute relating to
balance unpaid amount would be that of liability and not quantum. In
recent judgment in Krish Spinning (supra) the Supreme Court has held to
the contrary.
H) In EC Wheels India Private Ltd. (supra), a Single Judge of the
Calcutta High Court has decided an application under Section 11 of the
Arbitration Act for appointment of Arbitrator. The case involved
repudiation of entire claim and not one part of the claim raised by the
insured. An argument was sought to be raised before the High Court that
negation of claim was also a dispute regarding quantum, which is not
accepted in the judgment. The judgment in my view is clearly
distinguishable and has no application to the facts of the present case.
I) In English judgment in New Hampshire Insurance Company
Versus. Strabag Bug AG (supra) the case involved total repudiation of the
entire claim which is the first distinguishing factor from the present case.
The judgment is cited in support of proposition that though a dispute
relates to amount arising out of prima-facie acceptance of liability, if it
depends on application of particular provisos or exemptions in the policy,
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the same would raise a question of liability rather than mere dispute of
quantum. The judgment would have been relevant in the present case if
Petitioner was in a position to demonstrate that the claim for overhauling
of GT Engine was covered by exclusion causes, which the Petitioner has
failed to demonstrate. The judgment therefore has no application to the
facts of the present case.
J) Lastly, Mr. Jagtiani has relied on judgment of High Court of
England in DC Bars Ltd. (supra). Apart from the fact that the decision
would only have persuasive value, the case involved rejection of claims
towards distinct and separate periods for which losses were claimed. It
was held that the dispute related to liability in respect of each of those
periods and the same did not relate to quantum. The judgment again is of
little assistance to the Petitioner since the present case does not involve
raising of multiple claims for different periods.
70) On the other hand, Mr. Rustomjee has relied upon various
judgments in support of his contention that the dispute relating to
overhaul claim is a dispute of quantum and not of liability. It would be
apposite to discuss the ratios of the judgments relied upon by Mr.
Rustomjee.
A) In M/s. LS Automotive India Private Limited (supra), Single
Judge of Madras High Court, while deciding Section 11 Application has
dealt with a case where the insurer's policy gave coverage for raw material
as well. The insurer however sanctioned only the claim relating to damage
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caused by floods. The insurer treated non-sanctioning of claim for
damage/loss of raw materials as rejection of liability. The Single Judge of
Madras High Court however held that the case involved making of part
payment in respect of a single claim and that therefore the dispute was
arbitrable. Though Mr. Jagtiani has sought to distinguish the judgment on
the ground that Madras High Court has done only a limited scrutiny under
Section 11 of the Arbitration Act, the judgment is ultimately based on
Supreme Court judgment in Krish Spinning (supra), which is being
discussed in latter part of the judgment.
B) In M/S. TRS Lift and Shift Services Pvt. Ltd. (supra) a Single
Judge of Calcutta High Court, while dealing with application under
Section 11 of Arbitration Act and dealing with similar clause in insurance
policy, has held that the liability was partially admitted and that therefore
dispute relating to non-payment of balance amount was that of quantum
and not of liability.
C) In Tagros Chemicals India Pvt Ltd (supra), a Single Judge of
Madras High Court, while deciding application under Section 11 of
Arbitration Act, has discussed the entire case law on the subject. The case
involved two claims for material damage and business interruption. The
insurer sanctioned the claim for material damage, but disputed its
liability in respect of business interruption claim. The Madras High Court
considered the judgments in Hyundai Engineering & Construction
Company Limited, Narbheram Power & Steel Pvt. Ltd., (supra) as well as
judgment of the Delhi High Court in Kohinoor Steel Pvt. Ltd. (supra) and
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held that the incident which triggered the claim was one and that the loss
claimed under the head 'business interruption' was directly and
substantially connected to claim for 'material damage', for which liability
was admitted. It is held that the judgment of the Apex Court in Krish
Spinning (supra) has watered down the ratio of the judgments in Hyundai
Engineering and Construction Company Limited, Narbheram Power and
Kohinoor Steel Private Limited (supra). The Madras High Court has held
in paragraphs 22 to 24 and 26 as under:
22. I am unable to agree with the submissions of the learned Senior
Counsel appearing for the Respondent. The incident that has triggered
the claim is admittedly one, unlike in the case of Kohinoor Steel and the
loss claimed under the head 'business interruption' is directly and
substantially connected to 'material damage' which is admittedly
accepted to be indemnified by the insurance company. In fact, as already
discussed above, the Respondent has already released substantial
payments towards 'material damage' and they are only disputing the
claim of the Petitioner on quantum. Therefore, in my considered view
the claim for business interruption cannot be dissected or segregated
from the total claim made by the Petitioner, though it may be under two
heads for which separate premiums have been paid. The documents that
may be relied on by the parties and the evidence that may be let in would
also be the same, leave alone the same parties being examined as
witnesses before either the Arbitrator or the Court.
23. As held by Hon'ble Supreme Court in SBI General Insurance Co. Ltd.,
(referred herein supra) when a valid arbitration agreement exists, then
the reference cannot fall back on 'Eye of the Needle' and 'ex facie
meritless' tests, since the principles of modern arbitration place arbitral
autonomy and judicial non-interference on the highest pedestal. Here
having found that business interruption loss is related to material
damage, it is not open to the Insurance Company to contend that since
the claim 'business interruption loss' is repudiated, the said issue cannot
be referred to the decision of the Arbitrator.
24. The decisions relied on by learned Senior Counsel Mr.M.S.Krishnan
appearing for the Respondents is also clearly distinguishable on facts. In
fact, as held by the Hon'ble Delhi High Court in Payoo Payment's
case, (referred herein supra), there has been a shift in the legal
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position with the pronouncement of the Hon'ble Supreme Court in
SBI General Insurance Co. Ltd. v. Krish Spinning, and consequently
the decisions of the Hon'ble Supreme Court in Oriental Insurance
Company and United India Insurance Company, have been watered
down. In the decision of the Hon'ble Calcutta High Court, the claim was
in respect of two distinct items, namely, a crane and an overhead tank
and with the High Court finding that the claim on the count of the crane
was beyond the scope of the arbitration agreement, it was held that the
arbitration could proceed only in respect of the overhead tank and not
the crane. Though much reliance has been placed on by learned Senior
Counsel on this decision, to apply to the facts of the case, I am unable to
countenance the said contention, because in the said case before the
Hon'ble Calcutta High Court, the items in respect of which the claim was
made were entirely distinct and different, namely, a crane and an
overhead tank. However, in the present case, there is no such
distinctiveness in respect of the subject matter of the claim. Both the
'material damage' as well as the 'business interruption claim' arise out of
the fire accident that occurred on 07.04.2020 and in fact, as already
discussed even the claim under ' business interruption loss' is directly
associated with the 'material damage' claim.
26. Be that as it may, in the present case I am unable to accept the
contention of the Insurance Company that since they are repudiating
the business interruption claim part, the same cannot be referred to
arbitration. Since the business interruption loss claim is clearly
dependent on the material damage claim which is accepted even by
the Insurance Company under the policy, it has to be decided by
arbitration alone. It is not as though the claims for material
damage and business interruption are totally distinct and
unconnected altogether. The very business interruption Clause in
Section II itself, clearly refers to the indemnity Clause to material
damage suffered by the policy holder. Therefore, both the claims are
intertwined and cannot be separated, relegating the parties to litigate
before different Forums, one before the Arbitrator and another before
the Civil Court.
(emphasis added)
Thus in Tagros Chemicals India Pvt Ltd Madras High Court has held
rejection of business interruption claim did not mean that the same was
non-arbitrable. The present case is far better than Tagros Chemicals
India Pvt Ltd since both the claims are sanctioned here. The dispute
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relates to only non-payment of part of the claim for repairs arising out of
the accident.
D) The Delhi High Court, in Nagarjuna Agrichem Ltd. (supra),
has decided Section 34 Petition. The issue before the Delhi High Court
was about coverage in respect of stock when fire had caused damage to
the plant. The Delhi High Court held that since part payment was made
for material damage, the liability under the insurance policy was admitted
and that therefore, the dispute related to the quantum which was clearly
arbitrable. The Delhi High Court held in paragraphs 98, 120 and 121 as
under:
98. It is pertinent to mention here that in the present case, the insurance
company has made part payment from the material damage process of
the respondent. It is also pertinent to mention here that if the liability
under the BPM Policy has been admitted, it is unjustified to deny the
liability under the stock policy. The Court considers that no fault can be
found with the finding of the learned AT.
120. Learned counsel for the petitioner has heavily relied upon United
India Insurance Co. Ltd. v. Hyundai Engineering and Construction Co.
Ltd. (2018) SCC OnLine SC 1045 and Oriental Insurance Co. Ltd. v.
Narbheram Power and Steel Pvt. Ltd. (2018) 6 SCC 534. However, the
case at hand is distinct from United India Insurance Co. Ltd. (Supra) and
Narbheram Power and Steel Pvt. Ltd. (Supra) on several fundamental
legal and factual grounds. Though, the cases concern insurance disputes,
yet they differ significantly in terms of arbitrability, the enforceability of
discharge vouchers, policy interpretation, and the weight given to
surveyor reports.
121. A key distinguishing factor is the question of arbitrability, which
played a decisive role in United India Insurance Co. Ltd. (Supra) and
Narbheram Power and Steel Pvt. Ltd. (Supra). In the aforesaid cases,
the Apex Court unequivocally ruled that when an insurance company
entirely denies liability, arbitration is not permissible under the terms of
the insurance contract. It was, inter alia, held that if the insurer
repudiates the claim altogether and there exists no dispute over
quantum. The Court, inter alia, held that such matters must be
adjudicated in a civil court. However, in the present case, the petitioner
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did not completely repudiate liability but instead partially admitted
liability and even made partial payments under the material damage
policy. In the present case, the learned Arbitral Tribunal, inter alia,
found that the insurer, by making partial payments and engaging in
negotiations, had waived its right to object to arbitrability.
E) In Karan Synthetics (I) Pvt. Ltd. (supra), the issue before
Single Judge of Gujarat High Court, involved fire causing loss in the
factory and sanctioning of part of the claim. The Gujarat High Court has
held in paragraph 4 as under:
4. Having heard learned counsel for the parties and having perused the
material on record, none of the objections can be accepted. Firstly, the
arbitration clause does envisage arbitration only in case of disputes
in quantum of the insurance to be paid and would not cover a case
where entire liability has been repudiated by the insurance
company. It is in this context clause13 provides that if any disputes of
difference arises as to quantum to be paid under the policy
(liability being otherwise admitted) such difference shall be referred to
arbitration. However, in the present case, there is nothing on record to
suggest that the insurance company disowned its liability. Firstly,
admittedly the insurance company has not formally repudiated
the claim by accepting its surveyor's opinion that the cause of fire
would not justify paying any insurance sum at all. Secondly, the
act of insurance company to appoint an arbitrator itself would
demonstrate that it is not a case of total denial of the liability. Thirdly,
the very offer of payment of Rs.1,56,000/ would negate any such stand of
the company. Lastly the opinions of the arbitrators already appointed by
the parties also would not be conclusive. The arbitration Tribunal
would be constituted only in the manner provided in clause13 when
two arbitrators appointed by rival parties would select and appoint a
third arbitrator. Till this time, this is done any opinion by the arbitrator
would not form final and binding opinion since no such Tribunal ever
came in existence. Regarding jurisdiction admittedly the insurance
policy was issued by the insurance company from Ahmedabad office.
Such objection is therefore, turned down.
F) In Amlagora Cold Storage (P) Ltd. (supra), Single Judge of
Calcutta High Court has held in paragraphs 98 and 99 as under:
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98. It was submitted on behalf of the Insurance Company that the said
arbitration clause provides that if the company disclaims liability to the
insured for any claim and such claim was not within 12 calendar months
from the date of such disclaimer, made the subject-matter of a suit in a
Court of law, then the claim shall for all purposes be deemed to have
been abandoned and shall not thereafter be recoverable under the
policy. The policy also provides that if there is any difference with regard
to the quantum to be paid up under the said policy, the liability being
otherwise admitted such difference is referable to arbitration. The point
raised is, was it a case of disclaimer of liability or was it a case of
difference as to quantum to be paid where the liability was otherwise
admitted. It is apparent that the insurance company admitted the
liability and its Board of Directors approved the payment of such
liability. The quantum of such liability was fixed by the insurance
company at Rs. 12,19,060/-. Therefore in my opinion this was a case
where the dispute was with regard to the quantum to be payable. This
was not a case where the insurance company disclaimed liability. I am
unable to accept the submission made on behalf of the insurance
company that since the quantum was disputed by the insurance
company therefore there was a disclaimer of liability in respect of the
balance of the unpaid amount. If that contention is to be accepted then
it will lead to absurdities because in each and every case whereever there
is dispute as to the quantum of the liability the same cannot go to
arbitration as balance amount will in all cases be disclaimed. Such
interpretation will defeat the very purpose of the amended arbitration
clause which provides that in case where the quantum of the liability is
in dispute the same will be determined by reference to the arbitration.
99. In the instant case since there was a dispute as to the quantum of
liability, the plaintiff did commence the arbitration proceedings. The
said arbitration proceedings were ultimately disposed of by a consent
order made in the appeal being the order dated April 2, 1981.
G) In Keller N Am Inc. (supra), the US District Court has dealt
with slightly similar clause and has held that when some liability is
admitted, the question is about 'how much' the defendants are required
to pay and not 'whether' they are required to pay.
H) In Press Metal Sarawak SDN BHD (supra), the Malaysian
Federal Court has held that the question as to whether remaining part of
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claim was barred by exclusion cause was a quantum dispute falling within
the arbitration clause.
71) This brings the Court to the ratio of judgment of the
Supreme Court in Krish Spinning (supra). The case before the Apex Court
involved identical arbitration clause. Two incidents of fire had taken place
at the factory premises of the Respondent therein. In respect of the first
fire incident, a claim for Rs. 1.76 crores was raised, but the Appellant
therein allowed the claim only in the sum of Rs. 84.19 lakh. The
Respondent therein signed the advance discharge voucher and received
Rs. 84.19 lakh towards full and final settlement of the claim arising out of
the first fire incident. Thereafter, claim relating to second fire incident
was raised and total amount of Rs.4.86 crores was released in three
installments. Before release of second and third installments, Respondent
sought to create dispute relating to surveyor's final assessment report in
respect of the first fire incident and took a position that final discharge
voucher was signed under duress. The Respondent therein pressed the
claim for balance amount in respect of first fire incident. Petition under
Section 11 was filed before the High Court which was resisted by the
insurer The Apex Court held that since amount of Rs.84.19 lakhs was
paid, there was admission of liability and the issue related only to
quantum of liability. The Apex Court held as under:
38. A preliminary objection was raised on behalf of the appellant that
the arbitration clause as contained in the insurance policy referred to
above is not attracted in the present case as there is no admission of
liability on the part of the appellant, whereas the said arbitration clause
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envisages reference to arbitration only in cases where liability is
admitted and there is a dispute as regards the quantum of liability.
39. However, we find no merit in the aforesaid submission of the
appellant. It is evident from the record that the appellant had admitted
its liability with respect to the first claim and had even disbursed an
amount of Rs 84,19,579/- in pursuance of the signing of the advance
discharge voucher by the respondent. Thus, it is clearly a case of
admission of liability by the appellant. However, the quantum of liability
is in dispute as the amount claimed by the respondent is at variance with
the amount admitted by the appellant. Thus, the dispute being one of
quantum and not of liability, it falls within the ambit of the conditional
arbitration clause as contained in the insurance policy.
55. Thus, even if the contracting parties, in pursuance of a settlement,
agree to discharge each other of any obligations arising under the
contract, this does not ipso facto mean that the arbitration agreement
too would come to an end, unless the parties expressly agree to do the
same. The intention of the parties in discharging a contract by "accord
and satisfaction" is to relieve each other of the existing or any new
obligations under the contract. Such a discharge of obligations under the
substantive contract cannot be construed to mean that the parties also
intended to relieve each other of their obligation to settle any dispute
pertaining to the original contract through arbitration.
57. The aforesaid position of law has also been consistently followed by
this Court as evident from many decisions. In Boghara Polyfab (supra),
while rejecting the contention that the mere act of signing a "full and
final discharge voucher" would act as a bar to arbitration, this Court held
as follows:
"44. ... None of the three cases relied on by the appellant lay down a
proposition that mere execution of a full and final settlement receipt
or a discharge voucher is a bar to arbitration, even when the validity
thereof is challenged by the claimant on the ground of fraud,
coercion or undue influence. Nor do they lay down a proposition that
even if the discharge of contract is not genuine or legal, the claims
cannot be referred to arbitration. [...]"
59. The position that emerges from the aforesaid discussion is that there
is no rule of an absolute kind which precludes arbitration in cases where
a full and final settlement has been arrived at. In Boghara
Polyfab[National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd., (2009) 1
SCC 267 : (2009) 1 SCC (Civ) 117] , discussing in the context of a case
similar to the one at hand, wherein the discharge voucher was alleged to
have been obtained on ground of coercion, it was observed that the
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discharge of a contract by full and final settlement by issuance of a
discharge voucher or a no-dues certificate extends only to those
vouchers or certificates which are validly and voluntarily executed. Thus,
if the party said to have executed the discharge voucher or the no-dues
certificate alleges that the execution was on account of fraud, coercion
or undue influence exercised by the other party and is able to establish
such an allegation, then the discharge of the contract by virtue of
issuance of such a discharge voucher or no-dues certificate is rendered
void and cannot be acted upon.
72) Thus, in Krish Spinning (supra) though a discharge voucher
was signed and executed and claim was later raised for balance unpaid
amount, the Apex Court has held that there was admission of liability of
part of claim and that therefore the dispute related to quantum and not of
liability. Though the judgment in Krish Spinning essentially applies to a
case involving accord and satisfaction, it underscores an important point
that once the liability is admitted and part payment in respect of the
claim is made, the dispute relating to unpaid part is a dispute of quantum
and not of liability. The Three Judge Bench judgment in Krish Spinning
(supra) thus settles the law relating to arbitrability of disputes involving
insurance claim where part of the liability is admitted and dispute exists
in respect of unpaid part.
73) In the present case, one singular claim relating to expenses
incurred by Respondent for repairing GT Engine was submitted.
Petitioner admitted its liability in respect of part of the claim and paid
amount of Rs.7.69 crores. The dispute was thus about 'how much' amount
was payable and not 'whether' any amount is at all payable. Qua part of
claim for which payment is not made, the dispute would obviously be the
one relating to quantum and not a dispute relating to liability. I am not
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inclined to accept the hair-splitting exercise sought to be now suggested
by Petitioner that it always treated Respondent's claim as in two parts. It
never did so. It always treated the entire claim as a single indivisible
claim, but sanctioned part of it. It has taken a position that it would pay
only the claim for part of repairs and not for the entire repairs. Repairs to
the engine due to accident would also get covered by overhauling. If one
considers the options given by GE, Option No.1 gets included in Option
No.3. In Option No.1, repairs to only rotating parts (HPC, HPT) were to be
carried out. In option, which envisaged overhauling of the engine, in
addition to repairs of rotating parts of HPT and HPC, several other repairs
in respect of various other parts of the engine were to be carried out. Thus
even the option for overhauling ultimately included repairs to the GT
Engine. In my view, the extent of repairs could not have been a factor for
sub-dividing the claim into 'incident repairs' and 'overhauling'. The
Petitioner itself never segregated the same into two claims. Therefore, the
submission from Petitioner's standpoint, that incident claim and overhaul
claim arose from distinct legal obligations is misplaced. Petitioner never
directed Respondent to submit two separate claims for 'incident repairs'
and for 'overhauling'. Initially it coaxed the Respondent to go for
overhauling and later sought to restrict the insurance claim only for part
of the repairs. Therefore, non-sanction of remaining part would clearly be
a dispute relating to quantum. More importantly even at the stage of
issuing of the cheque, Petitioner did not state that it was disputing
liability for overhaul claim by segregating the Respondent's claim in two
parts.
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74) Respondent raised two claims arising out of the incident, the
first claim being the incident claim and the second one being for business
interruption. Both the claims are sanctioned by the Petitioner. However
the sanction of the first claim was only partial. Therefore non-sanction of
the full amount for the first claim is obviously a dispute relating to
quantum, which is arbitrable. Clause 12 would make a dispute non-
arbitrable only if there is total denial of liability in respect of the claim.
Once the claim is entertained and sanctioned partly, non-sanction of
remaining part does not amount to denial of liability in respect of the
claim. Once part of the claim is not accepted, dispute raised in respect of
denied part cannot tantamount to non-acceptance or denial of liability in
respect of the 'claim'. For being non-arbitrable the entire claim must be
repudiated in toto. The moment the claim is sanctioned in part, the
dispute relating to denied part becomes dispute relating to the quantum
of the raised claim. The case thus involves admission of liability in respect
of the first claim and the dispute was clearly arbitrable.
75) Therefore, no case is made out for invalidating the Arbitral
Award in so far as it relates to the findings on the issue of arbitrability.
WHETHER INCIDENT/ACCIDENT IS A PROXIMATE CAUSE OF OVERHAULING OF
GT ENGINE
76) A defense was taken by Petitioner-Insurance Company that
overhauling of GT Engine was required to be undertaken on account of
wear and tear resulting out of corrosion, rust etc. Petitioner contended
that the incident of 16 September 2001 did not necessitate the
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overhauling. The Tribunal has rejected the defence of the Petitioner and
has held that the incident/accident was the proximate cause of
overhauling. The Tribunal held in paragraphs 149 to 153 of the Award as
under:
149. The question for consideration by the Tribunal is, whether the
Respondent was justified in declining to cover overhauling costs of the
GT Engine? The determination of this question would necessarily
require determination of the question, whether or not, overhauling was
necessitated by the incident of 16.09.2001.
150. As a matter of fact, the Respondent in its written submissions under
the head 'REASONS FOR DENIAL OF LIABILITY OF THE OVERHAULING
COSTS THE GT ENGINE' as taken up the position that Overhauling
Costs are specifically excluded in terms of 'Excluded Causes' under the
Policy. While dealing with the arbitrability issue, the Tribunal has
already negated this contention of the Respondent. The consideration of
the matter by the Tribunal in preceding paragraphs on the aspect of
Excluded causes shall form of part of consideration of this aspect here as
well. However, the reasons for the Tribunal's finding that the coverage of
Overhauling Costs under and in respect All Risk Policy is not excluded
under 'Excluded Causes' may be briefly noted here as well.
(i) First, the Respondent itself had insisted the Claimant to have
GT Engine overhauled as recommended by GE and its Surveyors
(Inspectors) in America. This is very clear from the Respondent's
letter dated 05.12.2023. It the Overhauling costs were excluded
and if they were out of coverage or unpayable by them, there was
no occasion for the Respondent to insist for overhauling the
Engine.
(ii) Second, By the time the above letter dated 05.12.2001 was
sent by the Respondent to Claimant, the Respondent had full
knowledge about the condition of the GT Engine which was
recorded by GE in its Detailed Report dated 19.10.2001. All issues
with the diverse components of GT
Engine including inter alia erosion, corrosion, rust, wear and tear
were
within the knowledge of the Respondent. If the Detailed Report
of GE dated 19 10 2001 were sufficient to bring the GT Engine
under Excluded Causes, the Respondent would not have written
the letter dated 05.12.2001 which it did. Rather on the other
hand, the Respondent made a clear representation to the
Claimant to go in for overhauling of the GT Engine in the
backdrop of entire available material available with it depicting
the condition of the GT Engine.
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(iii) Third, if the overhauling costs were not admissible under the
Policy, the first thing the Respondent would have done once it
got to know GE's Report dated 19.10.2001, and got its Inspectors'
communication for overhauling of the Engine to communicate to
the Claimant that Overhauling Costs fall in Excluded Causes and
therefore such claim was inadmissible. On the other hand, the
Respondent's letter dated 05.12.2001 to the Claimant was
followed by another letter dated 18.12.2001 (By that time limited
repairs of GT Engine were already carried out but transient
vibrations beyond permissible limits were detected in the Engine
during testing and GE had given three options including
overhauling to the Claimant) wherein the Respondent reiterated
that it would be advisable for the Claimant to repair the entire
Engine as recommended by GE.
(iv) Fourth, the two inspection reports of GE dated 19.10.2001
and 22.10.2001, in the absence of any oral evidence of GE official
let in by the Respondent, do not establish the pre-existing
condition of the Engine prior to its dismantling and
disassembling.
(v) Fifth, the events which the Respondent has highlighted about
the GT Engine from January 1999 to September 2001 in the
written submissions under the head 'The GT Engine was in poor
condition even pre-accident' are also summarised by way of chart
on arbitrability issue. In the Tribunal's considered opinion, the
chart does not lead to any conclusion that repairs were
necessitated or breakdown happened because of erosion,
corrosion, rust, oxidation or wear and tear or lack of
maintenance. As a matter of fact, the Respondent has admitted
in the written submissions that the GT Engine has been running
for the durations of 535- 735 hours per month in the year 1999. It
the Engine had the Issues which the Respondent has highlighted,
the GT Engine would not have been in position to run for so
many hours every month. GT Engine is a highly sophisticated
machine. While in use, it may have had certain issues which
needed corrections and in fact such corrections were done. This
leads to an inference that GT Engine was not in poor condition
prior to Accident as is sought to be made out by the Respondent.
As late as on 30.04.2001, some bearing issue with the Engine
arose. For repairs of this, the Engine was sent to Air India
workshop. The Engine was reinstalled in the month of June 2001
after the repairs were carried out to the satisfaction of GE. The
repairs by Air India carried out only few months before the
subject Accident do not show something like erosion, corrosion,
oxidation, rust etc., the grounds on which the Respondent seeks
to bring the case for overhauling costs under the Excluded Causes.
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151. Respondent's own witness Mr. Soumil Menta (RW-3) has deposed in
his cross-exanimation that if overhauling was not carried out, GT Engine
would not have run after the accident. That the GT Engine was in a poor
condition prior to Accident has not been found meritorious by the
Tribunal. The Claimant at the first instance, despite recommendation of
GE for overhauling of the Engine and Respondent's insistence to go in
for overhauling of the Engine as advised by GE and the report of
McLarens Toplis, asked GE to carry out limited repairs. This act of the
Claimant was in consonance with the principle that as a prudent
insured, the Claimant was required to do a thing that would have
mitigated the loss to the insurer. However, the limited repairs were not
successful. The other two options given by the GE would not have
rendered the Engine fully fit and functional. It is, therefore, established
on record that GT Engine required overhauling after the Accident to run
smoothly and continuously.
152. In the Survey Reports, the Joint Surveyors have opined that the
damage suffered by the GT Engine could be rectified by the balancing of
HPC and HPT rotors. The Tribunal finds it difficult to accept the above
conclusion of the Joint Surveyors as RW3 has admitted in his cross-
examination that there was no technical basis to indicate that the GT
Engine would have run smoothly without overhauling.
153. As a matter of fact, there is ample material on record including
various letters/communications of GE, McLarens Toplis and the letters
of the Respondent itself which clearly show that it was imperative to
overhaul the GT Engine and the accident was the proximate cause of the
overhauling. The Tribunal does not find any merit in the argument of
the learned senior counsel for the Respondent that Claimant has failed
to discharge its burden of proving that overhauling was necessitated due
to the Accident. The judgment of the Supreme Court in Bajaj Allianz
General Insurance Company (supra), in the light of observations made
above, has no application to the fact situation of the present case.
77) Mr. Jagtiani has criticized the Arbitral Tribunal for having
recorded the finding of accident being proximate cause of overhauling on
the basis of "various letters/communications of GE, M/s. McLarens Toplis
and letters of the Respondent". According to Mr. Jagtiani, none of the three
quoted material even remotely suggest the accident to be the proximate
cause requiring the overhauling. I am unable to accept the contention
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raised by Mr. Jagtiani. The Arbitral Tribunal has used the word
"including" meaning thereby that the material enumerated by it is not
exhaustive and that the finding is recorded by considering several other
materials available on record. Whether the incident/accident is a
proximate cause for overhaul of GT Engine or not is a question of fact on
which the Tribunal has ruled in favour of the Respondent. I have my own
limitations in exercising jurisdiction under Section 34 of the Arbitration
Act in examining correctness of those findings of fact. It is not necessary
to discuss the settled position of law relating to limitations on jurisdiction
of Section 34 Court in considering objections to Arbitral Award. It is only
in cases where an extreme perversity is demonstrated or where the
finding recorded by the Arbitral Tribunal is such that no fair-minded
person can ever record the same that Section 34 Court would be justified
in reversing the finding on fact. In my view, Petitioner has thoroughly
failed to make out a case for interference in finding of fact recorded by the
Arbitral Tribunal on the issue of accident/incident being the proximate
cause for overhauling of the GT Engine. None the less I briefly discuss the
material available on record of Arbitral Tribunal which can support its
finding since this Court can explain existence of underlying finding even
when reasons do not appear to be adequate enough as held in the
judgment of the Apex Court in OPG Power Generation Private Limited
(supra).
78) Petitioner has strenuously relied on the two GE's Reports of
19 October 2001 and 22 October 2001 to suggest that the GT Engine was
suffering from pre-existing damage of corrosion, rust, erosion,
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discolouration etc. However, GE's letter dated 15 January 2002 clearly
suggests that overhauling was needed on account of damage caused to
various parts of GT Engine as a result of accident of 16 September 2001.
Relevant part of GE's letter dated 15 January 2002 reads thus:
The Sump B repair was carried out and testing done on December 7,
2001. During this testing, the core rotor vibrations were found to be 3.5
to 4.0 mils during transient conditions. The acceptable limit of these
vibrations is 3.0 mils.
On December 7, 2001, GE suggested to attend to these vibrations
by opening HPC and HPT modules and performing a balance. In adition,
GE also suggested to do complete disassembly and conudct a full
examination and rebuild the engine to take care of all other damages
noted during prior inspections. GE believes that performing the HPC and
HPT balance would only take care of the transient vibration issues and
would not be a good solution to the complete possible problems with
this engine. GE offered to extend a full guarantee only if the engine is
fully overhauled per GE guidelines at a GE qualified shop.
As per Search Chem records, the engine has put in 21000 hours
and the type of vibrations seen during testing (Engine indicated to have
no transient vibration per the on site Plant Manager) indicate that the
damage to other parts also might be result of accident on
September 16, 2001.
(emphasis added)
79) Thus, in the present case, the Sump B repairs were first
carried out on 7 December 2001 whereafter the GT Engine was put for
testing and core rotor vibrations were noticed during transient conditions
beyond acceptable limits. Therefore, on 7 December 2001, GE gave
suggestions for attending to those vibrations by opening HPC and HPT
modules. Additionally, it also suggested to completely disassemble the
engine and conduct full examination and to rebuild the engine and to
take care of other damage noted during prior inspection. GE suggested
that performing HPC and HPT balance would only take care of transient
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vibration issues and was not a complete solution to problems in the
engine. With these observations, GE concluded that since the engine had
not indicated any transient vibrations as reported by Site Plant Manager
of the Respondent, the damage to other parts would also be a result of the
accident. The letter thus conclusively establishes accident to be the
proximate cause for overhauling the GT Engine. If pre-existing condition
of corrosion, rust, etc necessitated overhaul, the engine ought to have run
smoothly after effecting the incident repairs. The engine used to run
smoothly without vibration before the incident as reported by the Site
Plant Manager. This is why GE opined that the accident must have
damaged other parts which was causing vibrations in the engine even
after carrying out incident repairs.
80) Respondent also led evidence of expert whose testimony is
accepted by the Arbitrator and who deposed that GT Engine, being highly
sophisticated one, the same could not have functioned if it suffered from
corrosion, rust or wear and tear and that the accident might have caused
oil to travel inside turbine parts causing coking and that the condition
noted in GE reports must have been a result of accident or subsequent
transportation or dismantling of the engine. The Arbitrator has also relied
upon joint Surveyors' report, all three of which made a categorical
observation that the GT Engine was operating smoothly, and was in good
healthy condition and did not suffer from any pre-existing damage prior
to the accident. Additionally, the Arbitral Tribunal has also relied upon
letter of GE dated 27 September 2001 stating that GT Engine suffered
serious internal component damage, GEEPO's letter dated 27 September
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2001, GE's letter dated 12 April 2002 to the Respondent reporting
sufferance of widespread damage of oil leakage extensively damaging
various parts and GE's letter dated 28 May 2003 emphatically stating that
the vibrations in LP and HP could be related to accident of 16 September
2001. The Tribunal has also noted that GE recommended overhauling of
GT Engine only after 50,000 hours of running and that the subject engine
had run for only 27,000 hours and that the same was therefore not due for
overhauling. The Tribunal has also noted performance of GT Engine at
the optimum level prior to the accident based on joint surveyors' reports.
81) The Arbitral Tribunal thus had ample material before it for
arriving at the conclusion that the accident was the proximate cause for
overhauling of GT Engine. By no stretch of imagination, can it be
contended that the findings recorded by the Arbitral Tribunal are so
grossly perverse that this Court must invalidate the Award in exercise of
powers under Section 34 of the Arbitration Act.
82) Mr. Jagtiani's criticism of the learned Arbitrator of giving
discriminatory treatment is unfounded. He has relied upon finding
recorded by the Arbitral Tribunal in paragraph 83 of the Award where the
Tribunal has expected Petitioner to examine witness from GE to make out
its case for pre-existing conditions of GT Engine. However, according to
Mr. Jagtiani, several letters of GE favouring Respondent have been relied
upon by the Arbitrator without any oral testimony of GE's personnel. In
my view however, the contention is raised out of myopic reading of
findings recorded in paragraph 83 of the Award. What the Tribunal has
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observed in paragraph 83 of the Award is that the condition of GT Engine
depicted in the two GE reports of 19 October 2001 and 22 October 2001
was the condition that was found after the accident and at the time when
the engine was already disassembled and opened. The Tribunal has held
that reports by themselves did not establish 'pre-existing' condition of
the GT Engine. The Tribunal has therefore held that if Petitioner wanted
to prove that the condition of the engine found after disassembling was
the same which existed prior to the accident, Petitioner ought to have
examined a witness from GE to support its case and ought to have granted
an opportunity to the Respondent to cross-examine such witness. The
findings in paragraph 83 therefore cannot be read to mean as if the
Tribunal has refused to take into consideration the GE's reports dated 19
October 2001 or 22 October 2001. The Tribunal has considered both the
reports, and has recorded a finding against Respondent that the reports
depicted rusting etc. but has refused to believe that the rusting was pre-
existing before the accident.
83) Therefore, the finding of fact recorded by the Arbitral
Tribunal about accident being the proximate cause of accident does not
warrant any interference in exercise of powers under Section 34 of the
Arbitration Act.
CONCLUSIONS
84) Considering the overall conspectus of the case, in my view,
the Petitioner has failed to make out any valid ground of challenge to the
impugned Arbitral Award. The findings recorded by the Arbitral Tribunal
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are well supported by the material on record. The scope of powers of this
Court in examining objections to the Arbitral Award is well settled in
several judgments, and I do not wish to burden this Judgment by
discussing ratio of those judgments. In recent judgment of the Apex Court
in Prakash Atlanta (JV) (supra) all the judgments relating to scope of
interference by Section 34 Court are surveyed. Considering the extremely
narrow scope of interference by Section 34 Court in the Arbitral Award, in
my view, no case is made out for tracing an element of patent illegality,
gross perversity, conflict with public policy of India or contravention with
fundamental policy of Indian laws. The Tribunal has not violated the
principles of natural justice nor has travelled beyond the scope of
contractual terms. It has not ignored any vital piece of evidence or
binding effect of any judgment. The findings recorded by the Tribunal are
not such that no fair-minded person would ever record the same. The
attempt on the part of the Petitioner is to impress upon the Court to take
a different view based on the material considered by the Tribunal, which
is impermissible. In fact the Petitioner has taken a volte-face in the second
round of arbitration as it had pleaded in the first round that the dispute
was about the quantum and therefore arbitrable.
85) No submissions are canvassed with regard to the quantum of
claim awarded by the Arbitral Tribunal, award of interest as well as award
of costs. The Award appears, to my mind, to be unexceptional. In that
view of the matter, the Award deserves to be upheld by dismissing the
Arbitration Petition.
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ORDER
86) Accordingly, I proceed to pass the following order:
Commercial Arbitration Petition is dismissed. However, considering the
facts and circumstances of the case, I deem it appropriate not to award
any further costs in the Commercial Arbitration Petition. All pending
Interim Applications are disposed of. The amount deposited in this Court
in pursuance of order dated 5 February 2025 shall be paid over to the
Respondent alongwith accrued interest.
[SANDEEP V. MARNE, J.]
87) After the judgment is pronounced, Mr. Jagtiani, the learned
Senior Advocate appearing for the Petitioner prays for stay of direction
for payment of deposited amount to the Respondent. Request is opposed
by the learned counsel appearing for the Respondent. there shall be stay
to the direction for payment of amount deposited in this Court for a
period of six week.
Digitally
signed by
NEETA
NEETA SHAILESH
SHAILESH SAWANT [SANDEEP V. MARNE, J.]
SAWANT Date:
SPONSORED
2026.04.22
21:11:06
+0530_____________________________________________________________________________
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