The Oriental Insurance Co. Ltd. vs Dicitex Furnishing Ltd.
The appellant insured Standard Fire and Special Peril Policy to Dicitex in order to cover the stocks of goods kept in three separate godowns at Thane, Maharashtra, by three separate endorsements. The Oriental Insurance insured Rs. 13 crores for this. Clause 13 of the agreement included an arbitration clause. Due to fire entire stock was destroyed and Dicitex claimed Rs. 14.88 Crores. However, the surveyor appointed by Oriental Insurance estimated the damages worth Rs. 12.93 Crore. Dicitex requested that its claim should be resolved on priority as it was in financial distress. Following this Oriental Insurance appointed another surveyor. Despite requests from Dicitext settle the claim on priority the Insurer and surveyor delayed the valuation. The insurer sent a discharge voucher worth Rs. 7.16 Crore after 26 months of the fire, and said that if Dicitex did not accept discharge, then the Insurer would not make any payments.
Due to financial distress, Dicitex accepted the discharge voucher. However, within 12 days Dicitex raised a dispute which was denied by the insurer on the grounds that Dicitex had signed an unconditional discharge voucher and denied to appoint an arbitrator. Dicitex filed a petition before the Bombay High Court under s.11(6) of the act seeking the appointment of an arbitrator. The High Court noted that the dispute was arbitrable as the discharge voucher was signed by Dicitex unwillingly due to financial distress. The decision of the High Court was challenged by the Insurer before the Supreme Court
Whether Dicitex has prima facie stated that unconditional discharge voucher was executed due to coercion/undue influence/ economic duress, therefore, leading to the dispute be arbitrable?
The Supreme Court relied on the judgment in the case of Boghara Polyfab Limited to analyze whether the dispute is arbitrable in relation to no objection certificate or unconditional discharge vouchers being executed and laid down the following illustrations:
- A claim is referred to as conciliation or a pre litigation Lok Adalat. The terms of the settlement are signed by both parties and attested by the Conciliator or Lok Adalat After settlement there can be no reference to arbitration.
- Various claims are made by the claimant including the admitted or undisputed ones which are paid and disputed claims which are resolved after negotiation issuing no-objection certificate or discharge vouchers in this case both the contract and dispute do not continue.
- A contractor may execute work for a specific time and the employer may concede the case for a much-decreased aggregate. If the employer makes the decreased total a “take it or leave it to offer", expressing no assets would be delivered except if the reduced installment is acknowledged, and the contractor is hard squeezed for reserves, the release would be under financial duress. Thus, it would not be viewed as a deliberate release of the agreement and there would be no bar to arbitration.
- In case an insured party under economic duress is proposed a “take it or leave it” offer for an amount lesser than the amount claimed at that point the discharge voucher gave in thereof, would not be intentional as it is given under economic duress. In such a case an arbitration clause can be invoked in order to refer the dispute through arbitration.
- A claim for a huge aggregate is voluntarily reduced by the Claimant and a full and final discharge voucher is given so as to avoid litigation and get an early settlement. Regardless of whether the claimant may have concurred for settlement because of financial compulsions, the choice was their free decision. Accordingly, the understanding is substantial and there can't be any reference to discretion. Therefore, the accord is valid and there cannot be any reference to arbitration.
The court further relied on Master Constructions to hold that mere prima facie cases of fraud/coercion/undue influence/ economic duress in the issuance of discharge voucher qualifies as an arbitrable dispute.
This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being.