Arbitration and Conciliation Act, 1996 – s.11(6) – Application under, for appointment of arbitrator – Court’s jurisdiction to examine the arbitrability of the dispute in the context of no objection certificates/discharge vouchers given by the insured to the insurer in discharge of the claim – Economic duress or coercion, if exists – In 2011, the respondent-insured obtained Standard Fire and Special Peril Policy from the appellant to cover the stocks of goods lying in its three separate godowns– Total sum insured was @ ` 13 crores– On 25.05.12, fire broke out destroying the stock in the godowns – Appellant appointed surveyor – Respondent lodged claim for ` 14.88 crores – Surveyor recommended payment of ` 12.93 crores to the respondent– However, the appellant appointed new surveyor – Appellant released ` 3.50 crores on 04.03.13 – Respondent signed the discharge voucher – As per new surveyor’s report, the assessment worked to ` 7.16 crores which was offered to the respondent in May 2014, in full and final settlement of the claim – Accepted reluctantly by the respondent – By letter dtd. 06.06.14, the respondent withdrew the letter dtd. 31.05.14 submitted along with the discharge voucher for full and final settlement of the claim – Respondent informed the appellant that the huge difference between the total amount claimed and the final claim settlement amount needs to be resolved, failing which the respondent would invoke the arbitration, as per the terms and conditions of the Policy – Respondent filed application u/s.11(6) for appointment of arbitrator – Allowed by Single Judge – On appeal, held: An aggrieved party can be the victim of economic coercion which results in its signing a document which discharges the other party of its obligations – Several letters spanning over two years stating that the respondent was facing financial crisis on account of the delay in settling the claim,were addressed to the appellant – Overall reading of respondent’s application u/s. 11(6) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated– At this stage, the Court is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness/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 (arbitration) proceeding – Reasoning in the impugned judgment cannot be faulted. Dismissing the appeal, the Court
HELD: 1.1 Proposition (iii) of the conclusions recorded in Boghara Polyfab visualize duress or coercion on account of withholding of payments due. The court – in more places than one, recognized that an aggrieved party can be the victim of economic coercion which results in its signing a document which discharges the other party of its obligations. [Para 18][410-C-D] National Insurance Co. Ltd v Boghara Polyfab Pvt Ltd (2009) 1 SCC 267 : [2008] 13 SCR 638 – relied on. New Indian Assurance Co. Ltd v Genus Power
Infrastructure Ltd. (2015) 2 SCC 424 : [2014] 12 SCR 360; Union of India (UOI) and Ors. v Master
Construction Co. (2011) 12 SCC 349 : [2011] 5 SCR 853; Velugubanti Hari Babu v. Parvathini Narasimha Rao & Anr. (2016) 14 SCC 126 : [2016] 3 SCR 228; ONGC Mangalore Petrochemicals Ltd. v ANS
Constructions Ltd. and Anr. (2018) 3 SCC 373 : [2018]
2 SCR 598 – referred to.
1.2 Though the pleadings in the initial application under Section 11(6), Arbitration and Conciliation Act, 1996 are weak, nevertheless, the materials on the record, in the form of copies of the inter se correspondence of the parties– which span over 2 years, clearly show that respondent kept repeatedly stating that it was facing financial crisis; it referred to credits obtained for its business and the urgency to pay back the bank. The Surveyor’s report, dated 14.08.2014, recommended payment of ` 12,93,26,704.98/- to respondent. The appellant referred the matter to a chartered accountant’s firm, to verify certain inventory and sales figures. It went by the report of the latter, who stated that the estimate of loss could not be more than ` 7,16,30,148/-. This is what was offered to respondent, by May, 2014. Respondent’s application under Section 11(6) is replete with references to the number of letters written to the appellant, seeking release of amounts; it also averred to inability to pay its income tax dues, the pressure from bankers (in support of which, copies of letters of bankers were produced along with the application). [Para 19][410-H; 411-A-C]
1.3 An overall reading of respondent’s application (under Section 11(6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. Several letters – spanning over two years- stating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. An application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings. At this stage, therefore, 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. If the court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court. There are decisions of this court (Associated Construction v Pawanhans Helicopters Ltd. (2008) 16 SCC 128 and Boghara Polyfab upheld the concept of economic duress. Having regard to the facts and circumstances, this court is of the opinion that the reasoning in the impugned judgment cannot be faulted. [Para 21][412-D-H; 413-H]
Associated Construction v Pawanhans Helicopters Ltd. (2008) 16 SCC 128 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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