Kiran Raj

A recent adjudication by the Calcutta High Court has led to the appointment of an arbitrator in a dispute concerning an insurance claim arising from a fire that severely damaged an industrial facility. The single bench of Justice Shampa Sarkar held that the matter should be referred to arbitration, as prescribed under the insurance policy’s arbitration clause, and declined to dismiss the claim at the referral stage.

The dispute stems from a fire that occurred on the night of September 29-30, 2019, at the insured premises of a private limited company engaged in the production of snack foods. The fire resulted in extensive damage to the factory located in Howrah, West Bengal. The petitioner had secured insurance coverage under a Standard Fire and Special Perils Policy for the period from March 19, 2018, to March 18, 2020. The policy provided coverage for stocks, plant, machinery, buildings, furniture, and fixtures, with an insured value of Rs.39,07,95,000. The insurance premium payable was Rs.1,82,216.

Upon the occurrence of the fire, the petitioner informed the insurance company on September 30, 2019, via email and submitted a formal claim estimating losses between Rs.30 to 35 crores. A detailed claim amounting to Rs.43,28,87,710 was filed. The insurance company appointed M/s Kothari Insurance Surveyors and Loss Assessors Pvt. Ltd. as the surveyor-cum-loss assessor. The surveyor visited the site on October 1, 2019, and undertook the initial inspection.

Over two years later, the surveyor’s final report, dated July 11, 2022, assessed the total loss at Rs.17,16,83,362. After deductions of Rs.85,00,000 for salvage and Rs.81,59,168 towards policy excess, the final payable amount stood at Rs.15,50,24,194. The petitioner contested this assessment, claiming that the surveyor lacked the requisite competence and had relied on an unlicensed chartered accountant, Mr. B.K. Basu, for evaluating the loss. The petitioner further argued that the final report had not been shared before settlement.

Despite raising these objections, the petitioner, under financial distress, signed a consent-cum-discharge voucher dated September 29, 2022. The agreed settlement amount of Rs.15,40,26,710 was transferred on September 30, 2022. Subsequently, in May 2023, the petitioner obtained the final survey report and an addendum report dated August 10, 2022, and contended that the assessment contained serious miscalculations and unjustified deductions. The petitioner formally protested through a letter dated August 4, 2023, demanding reconsideration, which the insurance company declined. The petitioner then invoked arbitration through a notice dated September 26, 2023.

The insurance company responded on October 25, 2023, rejecting the arbitration request. The respondent contended that the petitioner had accepted full and final settlement of the claim, as reflected in a board resolution, and no dispute remained arbitrable.

The court examined the claims and counterclaims to determine whether the dispute fell within the scope of arbitration. It noted that the petitioner had consistently challenged the assessment, including objecting to the preliminary report and raising concerns about the surveyor’s methodology. The court remarked, "The petitioner raised an objection before the surveyor at the time of preparation of the preliminary assessment report," stating that the petitioner was not provided with the final and addendum reports before signing the discharge voucher.

The enforceability of the discharge voucher was examined in light of guidelines issued by the Insurance Regulatory and Development Authority of India (IRDA). The judgment cited IRDA circulars dated September 24, 2015, and June 7, 2016, which explicitly state that execution of a discharge voucher does not preclude an insured party from seeking higher compensation before an appropriate forum. The court quoted, "Insurers shall not use the instrument of discharge voucher as a means of estoppel against the aggrieved policyholders when such policyholder approaches judicial fora."

The court also relied on the Supreme Court's ruling in SBI General Insurance Co. Ltd. v. Krish Spinning, which held that disputes involving accord and satisfaction are arbitrable. The judgment stated, "Accord and satisfaction of the claim as alleged by the respondent, is an arbitrable dispute, which falls strictly within the domain of the arbitrator."

The court further observed that the board resolution cited by the insurance company pertained to the acceptance of the preliminary survey report, which was not final. It noted that the delay in providing the final assessment and addendum reports prevented the petitioner from making an informed decision at the time of settlement.

Given the presence of an arbitration clause in the insurance contract, the court held in favor of referring the dispute to arbitration. The judgment stated that an arbitration agreement remains valid and enforceable despite the execution of a discharge voucher. It further clarified that an arbitral tribunal is the appropriate authority to determine whether the settlement was made under coercion or economic duress.

Accordingly, the court appointed Mr. Sourav Sen, Senior Advocate, as the sole arbitrator. The appointment is subject to the provisions of Section 12 of the Arbitration and Conciliation Act, 1996. The arbitrator shall determine all issues, including the admissibility of the claim and whether the dispute is arbitrable. The arbitrator’s remuneration shall be fixed as per the schedule of the Act.

Case Title: M/S. Pampar Ovenfresh Foods Pvt. Ltd. v. United India Insurance Company Limited & Ors.
Case Number: AP-COM/455/2024
Bench: Justice Shampa Sarkar

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