"I realise that some of my criticisms may be mistaken; but to refuse to criticize judgements for fear of being mistaken is to abandon criticism altogether... If any of my criticisms are found to be correct, the cause is served; and if any are found to be incorrect the very process of finding out my mistakes must lead to the discovery of the right reasons, or better reasons than I have been able to give, and the cause is served just as well." -Mr. HM Seervai, Preface to the 1st ed., Constitutional Law of India.

Tuesday, December 16, 2014

Settlement of Insurance Claim and the Discharge of Insurance Contract

Recently, a two judge Bench of the Supreme Court of India had the occasion in New India Assurance Co. Ltd. v. Genus Power Infrastructure (04.12.2014) to discuss the law on discharge of an insurance contract.

Facts

Genus Power Infrastructure Ltd. (Genus) purchased a Standard Fire and Special Perils Policy (Policy) from New India Assurance Co. Ltd. (NIA) for its manufacturing unit. The total sum assured under the one-year policy was Rs. 91.10 crores. Within seven months from the date of the policy, a fire explosion occurred in the adjoining terminal of the Indian Oil Corporation. This caused severe damage to the manufacturing unit of Genus. Genus notified NIA of the accident and NIA appointed a surveyor and a loss assessor. The loss as per Genus was 28.79 crores while the surveyor assessed Rs. 6.09 crores as the loss. 

Genus signed a detailed letter of subrogation duly stamped accepting Rs. 5.96 crores in full and final settlement of its claim under the Policy. After three weeks from the letter of subrogation, Genus issued a notice to NIA stating that the discharge voucher was signed under extreme duress, coercion and undue influence by NIA who took undue advantage of the financial difficulties of Genus in trying to get the amount of 5.96 crores settled under the Policy and sought nomination of arbitrator. NIA replied that there was no arbitrable dispute in view of the letter of subrogation where Genus had accepted Rs. 5.96 crores and the full and final settlement of the claim.

Genus filed a petition under S. 11 of the Arbitration and Conciliation Act, 1996 for appointment of the arbitrator. The Delhi High Court determined that there was a valid arbitration agreement and appointed an arbitrator. This order was challenged by NIA through a Special Leave Petition to the Supreme Court.

Contentions:

Following were the contentions of NIA in the SLP: 
  • The letter of subrogation was a detailed agreement signed after negotiations between the parties in the presence of two witness and should be therefore given effect. 
  • The amount was as recommended by the surveyor reduced by the mandatory reinstatement premium payable under the policy. 
  • When the company’s annual turnover was Rs. 500 crores, it is improbable that such a company would be financially coerced in giving the discharge receipt. 
Contentions on behalf of Genus were following:

NIA knew fully well that its manufacturing unit had been destroyed and therefore NIA used its dominant position to force Genus to sign the discharge voucher. 

Question: According to the Supreme Court, the following question arose for determination: 

[W]hether the discharge in the present case upon acceptance of compensation and signing of subrogation was not voluntary and whether the claimant was subject to compulsion or coercion and as such could validly invoke the jurisdiction under Section 11 of the Act.”

Decision:

Following is the summary of the court’s decision 
  • A bald plea or fraud/ coercion, duress or undue influence is not sufficient and a party which pleads that the above-stated acts have occurred should establish the same. 
  • Factually, there was no protest or demur raised around the time or soon after the letter of subrogation was signed. 
  • The notice by Genus was given only three weeks after the letter of subrogation. 
  • The financial position of Genus was not so precarious that it was left with no remedy but to accept the said letter. 
  • Since there was full and final satisfaction of the claim, noting in the policy survived and therefore, there was no arbitrable dispute for the court to exercise its power under Section 11 of the 1996 Act.
Comment

General insurance companies such as the NIA generally follow the procedure of determining the claim and informing the insured following which they give a pre-determined format of a letter of subrogation which provides, among other things, that the claim paid was in full and final settlement of the claim under the policy. Only after the signed letter of subrogation is given does the insurer makes payment of the claim. If the insured who had suffered loss (at times enormous loss) protests with the Insurance Company of the claim, even that amount would be locked up for a long time in disputes. So, the question is, as a matter of policy, should the letter of subrogation providing for full and final settlement of the claim be taken seriously? The second question is whether in such cases the insured should be asked to prove undue influence / coercion when the industry practice is well-known? 

First, given that by the very nature of the position of the parties, the insurer is in a dominant position. Two, how is the acknowledgement of full and final settlement of the claim different from an agreement that the insured will not file any suit/ invoke arbitration if the amount determined by the insurer is paid? The latter is a void agreement as it restrains legal proceedings while the former does not restrain access to legal fora but makes such access meaningless. 

What should be material is whether the protest subsequent to the letter of subrogation is genuine or merely an afterthought. From this perspective, the date of receipt of the money by the insured could be a very relevant in deciding whether the protest was in time or not. 

In this case, the court was perhaps strict in stating that the protest was belated (three weeks after the letter of subrogation). In any case, the insured should, in future, immediately (within a day or two) make a protest (through email or registered post with acknowledgement due) of the amount of loss failing which the insured may lose the opportunity to question the correctness of the surveyor’s or the insurer’s determination of loss.

Friday, December 12, 2014

Indian Journal of Arbitration Law: Call for Papers

The Call for Papers of the Indian Journal of Arbitration Law is below:

Call for Papers
The Indian Journal of Arbitration Law is a biannual, student reviewed Journal by the Centre for Advanced Research and Training in Arbitration Law of National Law University, Jodhpur.
National Law University, Jodhpur, one of the premier law schools in India, is taking successful initiatives for the promotion of areas related to the specialized fields of law. To strengthen the promotion of knowledge, research and legal interaction in the subject of arbitration law, it has established the Centre for Advanced Research and Training in Arbitration Law. The Indian Journal of Arbitration Law is one such initiative of this centre towards the development of this expert legal arena.
The Journal strives to inculcate the prevalent theories in the field of arbitration with their practical relevance. The editorial board seeks to achieve this feat by including contributions from individuals with varied expertise of practicing arbitration and by focusing on developing trends. In this regard, the board would give due emphasis to the rich thought processes of students of law, who bring to the forefront the innovative academic research currently underway in most law schools all over the world. Inclusion of changing regional trends will play a vital part in understanding the scope and extant of this discipline and would therefore find due importance in the Journal.
The Indian Journal of Arbitration Law is pleased to announce its upcoming issue (Volume 4: Issue 1), which is to be published in April, next year.
Theme: UNCITRAL Model Law’s 30th Anniversary. We also welcome notes on the 246th Law Commission Report.
The Board of Editors cordially invites original, unpublished submissions for publication in the following categories:
- Articles
- Notes
- Comments
- Book Reviews
Manuscripts may be submitted via email to editor.cartal@gmail.com latest by 5th February, 2015.

For further details regarding Editorial policy and submission guidelines please visit the website here.

Monday, November 24, 2014

Amendments to the Arbitration & Conciliation Act, 1996 Soon?

News reports (here and here) suggest that a Bill containing amendments to the Arbitration and Conciliation Act, 1996 would be introduced in the month-long Winter Session of the Parliament. Recently, the Law Commission of India suggested several amendments to the said enactment. It is expected that the Bill will be substantially in line with the Law Commission's proposal, which are not altogether free from defects.

Tuesday, November 11, 2014

Partial Setting Aside of Arbitral Awards & Compensation for Breach of Vishaka Guidelines

A recent decision of the Madras High Court is extremely interesting from two perspectives. The first issue is that the Single Judge, after an incisive analysis, rejected the prevailing view (especially in the Madras High Court-see this article titled "Anugraha Engineers & Contractors V. Union of India, 2014 (3) CTC 116: A Critique" noting and criticising the same) that awards could not be partially set aside or modified by a court hearing a petition for setting aside an award under S. 34 of the Arbitration and Conciliation Act, 1996 (1996 Act).

The second interesting point is that the judge held that where there was a complaint of sexual harassment, non-constitution by the employer of a committee as per the Vishaka Guidelines (at the time of the complaint, the Sexual Harassment of Women at Workplace Act 2013 was not enacted) was illegal and the employee who had complained against sexual harassment was entitled to compensation from the Employer. In the present case, the court awarded the complainant an ad hoc amount of Rs. 1.68 crores as damages for non-constitution of sexual harassment committee as per Vishaka Guidelines. The court held in this regard:

"137. Therefore, considering the status occupied and the position in which the petitioner was employed in the first respondent organisation and considering the opportunities that she lost on account of the non constitution of the committee, I am of the view that the grant of an amount equivalent the severance benefit of Rs.1,68,00,000/-, as compensation towards the 12th head of claim, would be appropriate."

The decision in Ms. Gayatri Balaswamy v. ISG Novasoft Technologies Ltd. is accessible from this link (pdf).
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