United India Insurance Co. Ltd. v. Bansal Wood Product Pvt. Ltd.

3. The respondent thereafter filed a claim for a total sum of Rs.65,92,016/- the details of which are given below:

(i) Stocks as on 25.01.2001: Rs.68.74.838.75

(ii) Less: Stocks as on 27.01.2001: Rs. 4,06,973.06

Net stocks lost in fire: Rs.64,27,865.69 Rounded off to nearest rupee: Rs.64,27,866.00 Add: Loss in r/o bldg. & electrical: Rs. 1,62,500.00 Add: Fire brigade charges Rs. 1,050.00 Add: Freight charges of ash: Rs. 600.00 Total Claim Amount Rs.65.92.016.00 (Rupees Sixty Five Lakh Ninety Two Thousand and Sixteen only)

4. The respondent issued a Legal Notice dated 02.08.2002 to the Appellant Company and then filed a complaint dated 21.01.2003 before National Consumers Disputes Redressal Commission (NCDRC) claiming a total amount of Rs.1,33,72,016/-. However, during the pendency of the proceedings, the respondent invoked the Arbitration clause and the matter was referred to the Arbitral Tribunal comprising of Hon’ble Mr. Justice S.K. Mahajan (Retired), Presiding Arbitrator, and Mr. M.S. Rekhi, & Mr. V.S. Chopra, Arbitrators. The learned Majority Tribunal granted to the claimant Rs.64,27,866/- plus Rs.1,00,000/- i.e. Rs.65,27,866/- towards the losses suffered due to the fire. The minority Arbitral Tribunal granted a sum of Rs. 31,59,052/- along with an interest of 12% per annum.

5. The appellant had Filed Objections under Section 34 of the Arbitration & Conciliation Act, 1996 against the Majority Tribunal Award, but it did not meet any success and the Objections were dismissed by learned District Judge, Commercial Court on 13.09.2019. Aggrieved by the said dismissal of the Objections under Section 34 of the Arbitration & Conciliation Act, 1996, the present appeal under Section 37 of the Arbitration & Conciliation Act, 1996 has been filed.

6. The main ground of challenge is that the learned Arbitral Tribunal failed to appreciate and consider the separate statement of claims filed by the claimant. There was a vast difference in the quantity of material and rates of various items mentioned in first Bank Statement dated 31.12.2000 submitted by the Bank prior to the date of loss and the two subsequent statements of claim filed by the Respondent. There were thus two lists giving different costs of stock of Rs.69,07,997/- and Rs.72,88,508/- that were submitted to the Surveyor Company and the Bank after the loss had occurred. The learned Tribunal also failed to appreciate that the obvious reason for the difference in the quantity and rates of items was that the claimant was unable to substantiate his claim and the figures were changed in order to match the quantity and the total monetary value of the material as made in the Bank Statement. The Surveyor had rightly taken the rate of material and quantity of material as mentioned in the original Bank Statement dated 31.12.2000 to arrive at the valuation of stocks on the date of loss as Rs.35,36,025/-, but it has been erroneously held by the Majority Arbitral Tribunal that the Surveyor’s Report was ambiguous and arbitrary and that it was based on surmises and conjectures. The Arbitral Tribunal further committed an error by relying on the statement of stocks submitted on a later date after the date of accident.

7. It is further submitted that material facts and the evidence of the Surveyor has not been considered in the right perspective. In fact, the Surveyor Report and the method of assessment of loss adopted by the Surveyor was never challenged by the respondent/claimant and no suggestion whatsoever was given by the respondent in the crossexamination of the Surveyor, controverting its authenticity, correctness or that the Surveyor did not obtain any Report of any Consultant or Association. The report was rejected by the Majority Arbitral Tribunal solely as the appellant failed to examine any consultant as witness to prove the Report. Irrespective of the surveyor report, the respondent has failed to produce any evidence to prove the quantum of stock lying at the time of fire. It is further submitted that the learned Additional District Judge, Commercial Court also failed to appreciate the Objections on these grounds in the right perspective.

8. It is claimed that the impugned Award suffers from patent illegality; is in conflict with the public policy of India and against the basic notions of morality or justice. No reasonable person could have come to the conclusion arrived at by the learned Arbitral Tribunal. It is, therefore, stated that the Arbitral Award dated 19.04.2016 and the Order dated 13.09.2019 dismissing the objections under Section 34 of the Arbitration & Conciliation Act, 1996 are liable to be set aside.

9. Submissions heard.

10. Section 34 of the Act provides for limited supervisory role of courts for review of arbitral award with the sole objective to ensure fairness of the arbitral proceeding. Intervention of the court is envisaged in only few circumstances, i.e. when an award is in conflict with the public policy of India, which includes cases of fraud, breach of Fundamental Policy of Indian law and breach of public morality. The other ground provided under Section 34 is patent illegality. It specifically provides that an Award cannot be set aside on the ground of erroneous application of the law or on re-appreciation of a fact.

11. In the decision of Renusagar Power Co. Ltd. v. General Electric Co, 1994 Supp (1) SCC 644, in construing the expression “public policy” in the context of a Foreign Award, the Apex Court held that an Award which is in violation of the statute enacted to safeguard the national interest, shall be contrary to the public policy of India and the fundamental policy of Indian law. The contravention of law alone would not attract the bar of public policy as something more than contravention of law is required.

12. It was further observed in Renusagar (supra) that disregarding the orders passed by superior courts would adversely affect the administration of justice and consequently an Award passed in such disregard to orders of superior courts shall also be a violation of fundamental policy of Indian law.

13. In the decision of Associate Builders v. DDA, (2015) 3 SCC 49, the law as stated by the Supreme Court in Renusaga (supra) was reiterated by observing that it would be against the fundamental principles of Indian law to disregard the binding force of a superior court's decision.

14. The Supreme Court in the decision of Ssangyong Engineering and Construction Company Limited v. NHAI, (2019) 15 SCC 131, traced the scope of the 2015 Amendments based on the Law Commission Report and the statement of Objects and Reasons to provide judicial interpretation of the term “fundamental policy of Indian law” and held that the expression “fundamental policy of Indian law” is relegated to the understanding of this expression as was defined in the case of Renusagar (supra).

15. The Supreme Court in the decision of Vijay Karia v. Prysmian Cavi E Sistemi SRL, (2020) 11 SCC 1 reaffirmed these principles and explained as under: “Fundamental policy of Indian Law as has been held in Renusagar(Supra) must amount to a breach of some legal principle or legislation which is so basic to Indian law that it is not susceptible of being compromised. “Fundamental Policy” refers to the core values of Indian public policy as a nation, which may find expression not only in statutes but also time-honoured, hallowed principles which are followed by the courts”.

16. Patent illegality on the other hand pertains to departure of an arbitral tribunal in giving due regard to the inviolable rules of procedure.

17. In Sumitomo Heavy Industries Limited vs. ONGC Ltd. (2010) 11 SCC 296 the Hon’ble Apex Court has observed that if the umpire on the facts has taken one construction on the clauses of the Agreement which according to him was the correct one, then it would not make the Award perverse merely because another construction could have been preferred in respect of said clause.

18. In the decision of Mc Dermott International Inc. Vs. Burn Standard Co. Ltd. (2006) 11 SCC 181, a reference was made to the decision of U.P. State Handloom Corpn. Ltd. vs. Asha Lata Talwar 2009 SCC OnLine All 624, wherein it was observed that under Section 34 of the Arbitration & Conciliation Act, 1996 there is a departure from the scheme of Section 16 in the 1940 Act where perhaps the court was given wider amplitude of powers. The Apex Court interpreted the scope of interference under Section 34 and observed that the court cannot correct errors of the arbitrators. It can only quash the Award leaving the parties free to begin the arbitration again if it is desired. The scheme of the provisions aim at keeping the supervisory role of the court at a minimum level and this can be justified as parties to the agreement, make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.

19. The Supreme Court, in its judgment in National Highway Authority of India vs. M. Hakeem (2021) 9 SCC 1, referred to Redfern and Hunter on Internation Arbitration (6th Edn.) in regard to setting aside of an award and reaffirmed that while entertaining appeals under Section 34 of the Arbitration & Conciliation Act, 1996 the court is not actually sitting as a Court of appeal over the award of the Arbitral Tribunal and therefore, the court would not re-appreciate or re-assess the evidence. It was concluded in M. Hakeem (supra) by the Apex court that the position of law stands crystallized today. The findings of facts as well as of law, of the Arbitrator/ Arbitral Tribunal are ordinarily not amenable to interference either under Section 34 or Section 37 of the Act. The scope of interference is only where the finding of the Tribunal is either contrary to the terms of the contract between the parties, or ex facie, perverse, that interference by this Court is absolutely necessary. The Arbitrator/ Tribunal is the final arbiter on facts as well as in law, and even errors, factual or legal, which stop short of perversity, do not merit interference under Sections 34 or 37 of the Act.

20. In Dyna Technologies (P) Ltd. vs. Cromption Greaves Ltd. (2019) 20 SCC 1, it was observed that only when there is complete perversity in the reasoning provided by the Arbitral Tribunal, an Award can be challenged under the provisions of Section 34 of the Arbitration & Conciliation Act, 1996.

21. The Hon‟ble Supreme Court in the case of MMTC Ltd. vs M/s Vedanta Ltd. (2019) 4 SCC 163 has also held as under:

be extremely cautious and slow to disturb such concurrent findings. "

22. In a recent judgement in Haryana Tourism v M/S Khandari Beverages ltd, Civil Appeal No.266/2022 decided by the Supreme Court on 11.01.2022 that while considering an Appeal under Section 34 of the Arbitration & Conciliation Act, 1996, the court can only consider those limited grounds which are available under Section 34 of the Arbitration & Conciliation Act, 1996 and cannot re-appreciate the merits of the case as in a regular appeal.

23. In the present case, the only ground of challenge to the Award by the Appellant is that Surveyor’s Report giving the estimate of losses caused to the respondent due to damage of his stocks in a fire at his factory, has been discarded without any basis. While the learned Arbitral Tribunal considered the list of stocks but did not accept the methodology for calculating the damages. However, as is evident from the Award, the learned Arbitrator has considered the Surveyor’s Report in detail and had given cogent reasons for coming to a different finding in regard to the calculation of the value of the stock after considering the Bank Statements and other documents which had also been considered by the Surveyor while making an assessment of the stock value.

24. Similar facts as in present case, came up for consideration in Oriental Insurance Co. Ltd. vs. Diamond Product Ltd. 2021 SCC OnLine Del 4319 before the Co-ordinate Bench. The question for consideration was whether the Arbitral Tribunal had committed a patent illegality in assessing the loss which the respondent had suffered qua the stock which was available at its factory on the day of fire and rejecting the assessment of the loss made by the Surveyor. What came through was that because of the fire and given the fact that stock register and production register was not available. The Arbitral Tribunal after weighing the pros and cons of the material placed before it including the Surveyor’s Report, for good reasons took recourse to the manufacturing and trading account and opening and closing stock of the raw material and finished goods produced before the Auditor to ascertain the value of the stock that would have been available at the respondent’s factory had the incident of fire not occurred in order to assess the losses. The objections under Section 34 of Arbitration & Conciliation Act, 1996 were rejected on the ground that the Arbitral Tribunal had weighed the material placed before it to reach the conclusion about the value of the closing stock. The argument that the Award suffered from patent illegality in ignoring the Surveyor’s Report was over turned and held to be untenable by observing that no doubt the weight ought to be given to the Surveyor’s Report, but it cannot be held that the conclusions reached by Surveyor, cannot be put to test.

25. Reference may also be made to Oriental Insurance vs. Amira Food (India) Ltd. 2010 (166) DLT 27 and New India Assurance Co. Ltd. vs. Pradeep Kumar (2009) 7 SC, wherein it was observed that although the assessment or loss approved by the Surveyor is a pre-requisite for payment or settlement of claim by the insurer, yet the Surveyor’s Report is not the last and final word. Surveyor’s Report may be basis of foundation for settlement of claim by the insurer, but is neither conclusive nor can it be held sacrosanct. This being so, the contention that the Surveyor’s Report could not have been rejected, was over turned.

26. We find that the Arbitral Tribunal had given adequate reasons as to why it had resorted to adopting the manufacturing and trading account route instead of Surveyors Report, in arriving at the value of the stock. The learned District Judge in the impugned Order had considered the challenge to the Surveyor’s Report and concluded that the value of stocks had been correctly assessed by the learned Arbitral Tribunal.

27. It is now well established that domestic awards can be challenged on the ground of patent illegality only if such an error go to the root of the award. Mere erroneous application of the law, or appreciation of evidence, does not call for interference of the Award on the ground of patent illegality or perversity. The Court cannot re-appreciate the evidence to overturn an Arbitral Award, which is essentially not within the scope of Section 34 or Section 37 of the Arbitration & Conciliation Act, 1996.

28. In view of above, we find no merit in the present appeal, which is hereby dismissed.

(NEENA BANSAL KRISHNA) JUDGE (SURESH KUMAR KAIT)

JUDGE FEBURARY 2, 2023