Kiran Raj

In a significant judgement upholding the principle of minimal judicial intervention in arbitration matters, the Supreme Court of India, Division Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan, set aside a High Court judgement and allowed the appeal for appointment of an arbitrator in a long-pending insurance claim dispute. The Court directed the parties to appear before a newly appointed sole arbitrator, a retired Judge of the Bombay High Court.

The matter arose out of a dispute between Arabian Exports Private Limited (the appellant), a meat exporting company operating from Taloja, Maharashtra, and National Insurance Company Ltd. (the respondent), its insurer. The appellant had obtained two insurance policies from the respondent: a Standard Fire and Special Perils Policy covering its plant and machinery and a Fire Declaration Policy insuring its stock-in-trade.

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On 26 July 2005, the factory premises suffered substantial damage due to unprecedented rainfall, leading to major losses to both infrastructure and stock. The appellant notified the insurer of the damages on 29 July 2005 and subsequently filed claims totalling Rs. 5,71,69,554.00. The insurer appointed Chempro Inspection Private Limited as the surveyor, whose report dated 29 November 2005 acknowledged the loss.

Despite repeated follow-ups by the appellant, the insurer delayed settlement. Eventually, in December 2008, the insurer presented the appellant with an undated voucher for Rs. 1,88,14,146.00 as full and final settlement. Facing financial strain and pressure from creditors, the appellant signed the voucher on 12 December 2008 and received the cheque on 19 December 2008.

On 24 December 2008, the appellant issued a letter to the insurer stating that the discharge was not voluntary and that it reserved its right to seek arbitration for the remaining claim of Rs. 3,83,55,408.00. It also sought a copy of the surveyor's report, which was provided on 21 March 2009.

After failed attempts at resolution, the appellant invoked the arbitration clause on 17 April 2009, nominating a retired Joint Commissioner as the arbitrator. The respondent refused to consent to arbitration, contending that the claim had been settled in full. Consequently, the appellant filed Arbitration Applications Nos. 186 and 187 of 2011 before the High Court of Judicature at Bombay under Section 11 of the Arbitration and Conciliation Act, 1996.

The High Court dismissed the applications on 2 December 2011, holding that acceptance of the cheque without demur amounted to full and final settlement, making the dispute non-arbitrable.

The Supreme Court examined the arbitration clause in both policies, which specified that if a dispute arose as to the quantum payable under the policy, liability being otherwise admitted, the matter should be referred to arbitration. However, if the insurer denied liability, arbitration would not be applicable.

The Court scrutinized the appellant's letter dated 24 December 2008, which stated that the claim settlement occurred under duress and economic pressure:

"Looking to the financial strain cast on us by virtue of the wilful delay on the part of your organization in settlement at our claims coupled with the pressure exerted by our bankers and creditors, we were left with no option but to sign and submit to you the said undated and standardized voucher on December 12th, 2008, for the grossly inadequate amount of Rs. 1,88,14,146.00."

The respondent argued that the appellant had voluntarily settled the claim and thus could not later seek arbitration. Relying on Nathani Steels Ltd. v. Associated Constructions, the respondent contended that once a dispute is settled, arbitration cannot be invoked unless the settlement is set aside in a proper proceeding.

However, the Court distinguished this precedent, stating that it pertained to an amicable settlement. In contrast, this case fell under a different category as recognized in National Insurance Co. Ltd. v. Boghara Polyfab Pvt. Ltd., where full and final settlement documents executed under coercion or economic duress did not preclude arbitration.

The Court reiterated the findings in Duro Felguera, S.A. v. Gangavaram Port Ltd. and Vidya Drolia v. Durga Trading Corporation, where it was held that at the stage of Section 11 proceedings, courts should limit themselves to the existence of an arbitration agreement and not delve into merits unless the case is a clear one of dead wood.

In Oriental Insurance Co. Ltd. v. Dicitex Furnishing Ltd., the Court held:

"The court which is required to ensure that an arbitrable dispute exists has to be prima facie convinced about the genuineness or credibility of the plea of coercion; it cannot be too particular about the nature of the plea, which necessarily has to be made and established in the substantive (read: arbitration) proceeding."

The Bench also cited SBI General Insurance Co. Ltd. v. Krish Spinning and Aslam Ismail Khan Deshmukh v. Asap Fluids Pvt. Ltd., where it was reiterated that the discharge of the contract through accord and satisfaction does not automatically nullify the arbitration clause unless specifically agreed.

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The Court concluded: "We have no hesitation in holding that the High Court was wrong in rejecting the Section 11(6) applications of the appellant. The question as to whether the appellant was compelled to sign the standardized voucher/advance receipt forwarded to it by the respondent out of economic duress... are clearly within the domain of the arbitral tribunal."

Setting aside the High Court’s order dated 02.12.2011, the Supreme Court allowed the appeals. The Court appointed a retired Judge of the Bombay High Court as the sole arbitrator: "Accordingly, we appoint Justice (Retd.) Suresh Chandrakant Gupte  as the sole arbitrator. Parties to report to the sole arbitrator by 15.05.2025."

The Court further held: "Appeals are accordingly allowed. However, there shall be no order as to costs."

Advocates Representing the Parties

For the Petitioners: Surekha Raman, Advocate; Amarjit Singh Bedi, Advocate; Shreyash Kumar, Advocate; Sidharth Nair, Advocate; Yashwant Sanjenbam, Advocate; Harshit Singh, Advocate; M/S. K J John And Co, Advocate-on-Record

For the Respondents: Manish Singhvi, Senior Advocate; Vishnu Mehra, Advocate; Manjeet Chawla, Advocate-on-Record; Usha Pant Kukreti, Advocate; Kunal Malhotra, Advocate

Case Title: Arabian Exports Private Limited v. National Insurance Company Ltd.

Neutral Citation: 2025 INSC 630

Case Number: Civil Appeal Nos. 6372-6373 of 2025 (@ SLP (C) Nos. 16907-16908 of 2012)

Bench: Justice Abhay S. Oka, Justice Ujjal Bhuyan

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