Delhi High Court Upholds ₹33.26 Crore Arbitral Award Against United India Insurance | Consent Letter Held Vitiated By Economic Duress
Safiya Malik
The High Court of Delhi Single Bench of Justice Jasmeet Singh has dismissed a petition under Section 34 of the Arbitration and Conciliation Act filed by United India Insurance Company Limited, thereby upholding an arbitral award in favour of M/s Valley Iron & Steel Company Limited. The dispute arose after the insured’s factory in Himachal Pradesh suffered severe flood damage in 2011, covered under a Standard Fire and Special Perils Policy. While the insurer relied on a “consent letter” reflecting full and final settlement, the arbitral tribunal held that the letter had been executed when the insured was left with no viable alternative, and was therefore tainted by coercion. Affirming this view, the Court held that a discharge voucher or consent letter signed under economic duress cannot preclude arbitration. Finding no perversity or patent illegality in the award directing payment of over ₹33 crore with interest, the Court declined to interfere.
The dispute arose from an insurance claim lodged by M/s Valley Iron & Steel Company Limited after its factory in Himachal Pradesh suffered severe flood damage in 2011. The company held a Standard Fire and Special Perils Policy issued by United India Insurance Company Limited. The insurer initially assessed the loss through a surveyor and made a part payment of ₹7 crore on an ad hoc basis. Subsequently, the insurer secured a “consent letter” from the insured, acknowledging a full and final settlement at ₹10.45 crore.
The insured later challenged this settlement before an arbitral tribunal, contending that the consent letter had been signed under economic duress as the company was left without any alternative but to accept the amount offered. It argued that the settlement was coerced and not voluntary, particularly as the surveyor’s report had not been finalized at the time of signing.
The insurer opposed the claim, maintaining that the discharge voucher and consent letter represented a valid and binding full and final settlement, precluding further claims. The insurer argued that the insured’s acceptance of the payment extinguished any subsequent rights to arbitration.
The arbitral tribunal examined the evidence, including the surveyor’s assessment, the financial circumstances of the insured at the relevant time, and the sequence of events surrounding the execution of the consent letter. The tribunal concluded that the consent was obtained under coercion and therefore could not preclude arbitration. It directed the insurer to pay over ₹33.26 crore with interest at 9% per annum from 2012 until realization.
United India Insurance challenged this award by filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court. The petition sought to set aside the arbitral award on grounds of alleged illegality and perversity. The insured defended the award, asserting that the tribunal’s findings were well-founded in fact and law. The matter thus came before the High Court for adjudication .
The Court recorded that “an arbitral Award can be set aside only on limited grounds, and the supervisory role of the Court is confined to a narrow compass.” It stated that “the Court does not sit in appeal over the award and cannot re-examine the correctness of the findings of the Tribunal.” The Court noted that “a finding of the Tribunal may be termed perverse only if it is based on no evidence, or is such that no reasonable person would have arrived at.”
On arbitrability, the Court observed that “a purported full and final settlement becomes arbitrable in nature if it is vitiated by undue influence, coercion, duress, or similar factors.” It held that the Tribunal’s conclusion that the consent letter pre-dated the survey report and was executed under duress was “supported by material on record.” Addressing the petitioner’s reliance on New India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd., the Court stated, “the present case stands on an entirely different footing” as evidence established financial distress and absence of alternatives for the respondent.
Regarding disputed letters, the Court recorded that “the Tribunal appreciated the difference between a ‘fraudulent claim’ and a ‘genuine claim supported by collateral lies.’” It found that the Tribunal’s conclusion that such letters did not affect the genuineness of the claim was a “plausible view based on evidence.” The Court declined to interfere, stating, “even if another view is possible, the view of the Tribunal is reasonable, plausible and meets the threshold of a prudent mind.”
On the surveyor’s report, the Court recorded the Tribunal’s finding that the report was “riddled with inconsistencies, arbitrary deductions, and remarks wholly at odds with the overwhelming evidence of damage.” It cited precedent that “the surveyor’s report is not the last and final word” and agreed with the Tribunal that the report could not form the sole basis for settlement. The Court held that “the Tribunal was justified in holding that the Surveyor’s Report in the present case could not be accepted at face value.”
Concerning compliance with policy and regulations, the Court noted that the Tribunal found “the petitioner and its surveyor failed to act in accordance with both the policy terms and the regulatory framework.” It stated that “repeated letters and requests for on-account payment or extension of reinstatement period went unanswered” and that the insurer “violated many of the duties prescribed for insurers in the Regulations of the IRDAI and the Claims Manual of the GIPSA companies.”
On interest, the Court recorded that the Tribunal had “given cogent reasons that the petitioner’s failure to process the claim expeditiously, including failure to release interim payments, directly impeded reinstatement.” It upheld the award of interest at 9% per annum from 01 February 2012.
The Court recorded: “In view of the above findings, the present petition seeking the setting aside of the impugned Arbitral Award dated 28.07.2021 and Order dated 28.08.2021 passed by the Tribunal stands dismissed. Pending applications, if any, also stand disposed of.”
“In view of the judgment passed in O.M.P. (COMM) 194/2022, where the petition filed under section 34 of the Act has been dismissed, the enforcement petition is allowed, and the Award shall be enforced as a decree.”
“As per the office report, the awarded amount along with interest has already been deposited by the judgment debtor with the Registrar General, Delhi High Court. Let the same be released to the decree holder along with up-to-date interest after 4 weeks from today.”
“With these directions, the enforcement petition is disposed of along with pending applications, if any.”
Advocates Representing the Parties
For the Petitioners: Mr. A.K. De, Ms. Ananya De, Ms. Chandni Sharma, Advocates
For the Respondents: Mr. S.D. Singh, Mr. Kamla Prasad, Mrs. Meenu Singh, Mr. Siddharth Singh, Advocates
Case Title: United India Insurance Co. Ltd. v. M/s Valley Iron & Steel Co. Ltd.
Case Number: O.M.P. (COMM) 194/2022; OMP (ENF.) (COMM.) 21/2022
Bench: Justice Jasmeet Singh
