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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 10784  OF 2014 @ SPECIAL LEAVE PETITION (CIVIL) NO.24652 OF 2013

NEW INDIA ASSURANCE COMPANY LTD      …. Appellant

Versus

GENUS POWER INFRASTRUCTURE LTD.     …. Respondent

J U D G M E N T  

Uday U. Lalit, J.

1. Leave  granted.  This  appeal  challenges  the  order  dated  30.05.2013  

passed by the High Court of Delhi in Arbitration Petition No.212 of 2011  

appointing  an  arbitrator  to  adjudicate  the  disputes  between  the  present  

parties.

2. The  respondent  has  a  manufacturing  unit  for  which  it  had  

purchased a Standard Fire and Special Perils Policy (‘policy’ for short) from  

the appellant on 17.04.2009, which policy was for a period of one year and  

the total sum assured was Rs.91 crores and 10 lacs only.  On 29.10.2009

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there was a fire explosion in the adjoining Indian Oil Corporation Terminal  

causing extensive damage to the manufacturing unit of the respondent. On  

being notified, the appellant appointed a category “A” Licensed Surveyor  

and Loss Assessor in compliance of Section 64 UM of the Insurance Act,  

1938 to assess the damage. In the assessment of the respondent and as per  

the claim lodged by it, the loss caused to its plant and machinery, buildings  

fixtures and furnitures and stocks was to the tune of Rs.28.79 crores.  It  

appears  that  the  Surveyor  submitted  his  final  report  on  27.07.2010  and  

assessed the loss at Rs.6,09,77,406/-.   It is contended by the appellant but  

denied by the respondent that the final survey report was duly communicated  

to the respondent on 01.11.2010.  

3.  On  11.03.2011  the  respondent  signed  a  detailed  letter  of  

subrogation which was on a stamp paper, accepting Rs.5,96,08,179/- in full  

and final settlement of its claim under the policy and the relevant portion of  

said letter dated 11.03.2011 was to the following effect:

To,

New India Assurance Co. Ltd. Regional Office Nehru Place, Tonk Road, Jaipur

Dear Sir,

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That in consideration of claim amount of Rs.5,96,08,179 (Rupees Five  

Crores Nintey Six Lakhs Eight Thousand One Hundred Seventy Nine only)  

(herein after referred as “Claim amount”) as full and final settlement amount  

of  our  claim  No.330203/11/10/01/00100001  arising  under  policy  

No.330203/11/09/11/00000018 (herein after referred as “Policy”) covering  

fire loss of my/our factory situated on Plot No.SPL 3, Sitapura, - Industrial  

area Jaipur (herein after referred as “Factory Premises”) due to fire that took  

place in IOC Terminal on 29-10-2009, we hereby subrogate our rights on  

behalf  of  M/S  Genus  Power  Infrastructures  Limited  Jaipur  (herein  after  

referred as “Insured”) in favour of New India Assurance Co. Ltd. (herein  

after referred as “Insurer”) as under:-

1) That  we  the  Insured  hereby  subrogate  all  the  rights  and  remedies  (to  the  extent  provided  by  aforesaid  contract  of  Insurance and under the General law and further any other  Law enforceable consequence to the above loss) against the  RIICO,  Indian  Oil  Corporation,  Govt.  of  Rajasthan,  other  insurance company or any other agency/authority of Govt.  of  Rajasthan,  semi  Govt.  etc.  whom  so  ever  is  liable  in  respect  whereof  in  favour  of  the  Insurer  regarding  Fire  accident  taken  place  on  29-10-2009  in  IOC  terminal  in  Sitapura  Industrial  Area,  Jaipur  and  claim  arises  under  “Policy” covering fire  loss  of  Insured factory in  “Factory  Premises” in favour of the “Insurer”.

2) That we the Insured further assign and transfer all rights to  Insurer to recover the claim amount or any part thereof from  RIICO,  Indian  Oil  Corporation,  Govt.  of  Rajasthan,  other  insurance company or any other agency/authority of Govt.  of Rajasthan, semi Govt. etc. who so ever is liable.

3) That we the Insured further assign and transfer all rights to  agitate the Claim before the RIICO, Indian Oil Corporation,  Govt. of Rajasthan, other insurance company or any other  agency/authority of Govt. of Rajasthan, semi Govt. etc. who  so ever is liable to pay the compensation/claim.  The Insurer  

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will be entitled to file complaint/claim before any court of  law, tribunal or any other adjudicatory authority and plead  the same on behalf of ourselves and in getting success in  adjudication  therein  will  be  entitled  to  retain  the  amount  paid……. …………………………………………………………….. ………………………………………………………………

In witness whereof we get our hands on this Subrogation letter on the 11th  

day of March 2011.

For Genus Power Infrastructure ltd.

Authorized Signatory Signature

4. After nearly three weeks i.e on 31.03.2011 the respondent issued a  

notice to the appellant stating that the discharge voucher was signed under  

extreme duress,  coercion and undue influence  exercised  by the appellant  

who  took  undue  advantage  of  the  extreme  financial  difficulties  of  the  

respondent.  The respondent further sought to appoint its nominee arbitrator.  

On 21.04.2011 the  appellant  replied  that  there  was  no arbitrable  dispute  

which existed between the parties inasmuch as the respondent had voluntary  

signed the letter of subrogation and had accepted payment in full and final  

settlement of its claim. In  the meantime on 05.04.2011 the respondent had  

filed a  petition under section 11 of  the Arbitration and Conciliation Act,  

1996 (The ‘Act’ for short) before the High Court of Delhi alleging that it had  

accepted  the  payment  as  stated  above  because  of  extreme  financial  

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difficulty,  duress  and  coercion.   On  10.05.2013  the  High  Court  after  

recording rival submissions of the parties adjourned the matter which was  

then taken up on 30.05.2013 when the  High Court observed;

“Vide order dated 10th May, 2013, this Court has  already  observed  that  there  is  a  valid  arbitration  agreement  between the parties  and there are  disputes  which are covered under the arbitration agreement.  The  learned  counsel  for  the  respondent  submits  that  the  disputes are not arbitrable.  The respondent can raise  this objection before the learned arbitrator.”

In that view of the matter the High Court proceeded to appoint a sole  

arbitrator to adjudicate the disputes between the parties.

5. The  aforesaid  order  dated  30.05.2013  is  the  subject  matter  of  

challenge in the present  appeal.   Appearing for the appellant Mr. Gaurab  

Banerji,  learned Senior Advocate  submitted that  the letter  of  subrogation  

was a detailed agreement which was finalized and signed after negotiations  

between  the  parties  and in  the  presence  of  two witnesses.   The  amount  

agreed to was the amount recommended by the surveyor, reduced by the  

mandatory reinstatement premium payable under clause 15 of the policy and  

as  such  the  settlement  took  place  at  the  amount  recommended  by  the  

surveyor.  Placing reliance on the financial status of the respondent, it was  

submitted that its annual turnover is more than Rs.500 crores for last few  

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years  and  it  was   quite  improbable  that  such  a  company  would  feel  

financially constrained and stand coerced as alleged, in giving discharge on  

receipt  of  Rs.5.98  crores.   Mr.  Krishnan  Venugopal,  learned  Senior  

Advocate  appearing  for  the  respondent  submitted  that  knowing  that  the  

respondent  was  under  tremendous  pressure  owing  to  the  complete  

destruction of its manufacturing unit and not being in a position to negotiate,  

the appellant by using its dominant position had forced the respondent to  

sign  the  discharge  voucher  and accept  the  payment  as  stated  above.   In  

support,  reliance  was  placed  on  the  decision  of  this  court  in  National  

Insurance Co. Ltd. vs. Boghara Polyfab (P) Ltd.1 by Mr. Venugopal.

6. The question that arises is whether the discharge in the present case  

upon acceptance of compensation and signing of subrogation letter was not  

voluntary and whether the claimant was subjected to compulsion or coercion  

and as such could validly invoke the jurisdiction under Section 11 of the  

Act.  The law on the point is clear from following  decisions of this court.  In  

National Insurance Co. Ltd. vs. Boghara Polyfab Pvt. Ltd. in paras 26  

and 51 it was stated as under:-

“26. When we refer  to  a  discharge  of  contract  by an  agreement signed by both the parties or by execution of a  full  and  final  discharge  voucher/receipt  by  one  of  the  parties,  we refer to an agreement or discharge voucher  

1 2009(1) SCC 267

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which is validly and voluntarily executed.  If the party  which has executed the discharge agreement or discharge  voucher,  alleges  that  the  execution  of  such  discharge  agreement  or  voucher  was  on  account  of  fraud/coercion/undue  influence  practiced  by  the  other  party and is able to establish the same, then obviously the  discharge of the contract by such agreement/voucher is  rendered void and cannot be acted upon.  Consequently,  any dispute raised by such party would be arbitrable.

51.   The  Chief  Justice/his  designate  exercising  jurisdiction  under  Section  11  of  the  Act  will  consider  whether  there  was  really  accord  and  satisfaction  or  discharge of contract by performance. If the answer is in  the  affirmative,  he  will  refuse  to  refer  the  dispute  to  arbitration.  On the  other  hand,  if  the  Chief  Justice/his  designate comes to the conclusion that the full and final  settlement receipt or discharge voucher was the result of  any fraud/coercion/undue influence, he will have to hold  that  there  was  no  discharge  of  the  contract  and  consequently,  refer  the  dispute  to  arbitration.  Alternatively,  where  the  Chief  Justice/his  designate  is  satisfied prima facie that the discharge voucher was not  issued  voluntarily  and  the  claimant  was  under  some  compulsion  or  coercion,  and  that  the  matter  deserved  detailed  consideration,  he  may instead  of  deciding  the  issue  himself,  refer  the  matter  to  the Arbitral  Tribunal  with a specific direction that the said question should be  decided in the first instance.”

7. In the decision rendered in Union of India vs. Master Construction  

Co.2 this court observed as under:

“18. In our opinion, there is no rule of the absolute  kind.  In  a  case  where  the  claimant  contends  that  a  discharge  voucher  or  no-claim  certificate  has  been  obtained by fraud,  coercion,  duress  or  undue influence  

2 (2011) 12 SCC 349

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and the other  side contests  the correctness  thereof,  the  Chief Justice/his designate must look into this aspect to  find out at least, prima facie, whether or not the dispute  is bona fide and genuine. Where the dispute raised by the  claimant with regard to validity of the discharge voucher  or  no-claim  certificate  or  settlement  agreement,  prima  facie, appears to be lacking in credibility, there may not  be a necessity to refer the dispute for arbitration at all.

19. It cannot be overlooked that the cost of arbitration  is quite huge—most of the time, it runs into six and seven  figures.  It  may  not  be  proper  to  burden  a  party,  who  contends that the dispute is not arbitrable on account of  discharge  of  contract,  with  huge  cost  of  arbitration  merely because plea of fraud, coercion, duress or undue  influence has been taken by the claimant. A bald plea of  fraud, coercion, duress or undue influence is not enough  and the party who sets up such a plea must prima facie  establish the same by placing material before the Chief  Justice/his  designate.  If  the  Chief  Justice/his  designate  finds  some  merit  in  the  allegation  of  fraud,  coercion,  duress or  undue influence,  he may decide the same or  leave it to be decided by the Arbitral Tribunal. On the  other hand, if such plea is found to be an afterthought,  make-believe or lacking in credibility, the matter must be  set at rest then and there.

22. The above certificates leave no manner of doubt  that upon receipt of the payment, there has been full and  final  settlement  of  the  contractor’s  claim  under  the  contract. That the payment of final bill was made to the  contractor on 19-6-2000 is not in dispute. After receipt of  the payment on 19-6-2000, no grievance was raised or  lodged  by  the  contractor  immediately.  The  authority  concerned, thereafter, released the bank guarantee in the  sum of Rs 21,00,000 on 12-7-2000. It was then that on  that day itself, the contractor lodged further claims.”

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8. It is therefore clear that a bald plea of fraud, coercion, duress or undue  

influence is not enough and the party who sets up a plea, must prime facie  

establish the same by placing material before the Chief Justice/his designate.  

Viewed thus, the relevant averments in the petition filed by the respondent  

need to be considered, which were to the following effect:-

“(g) That  the  said  surveyor,  in  connivance  with  the  Respondent Company, in order to make the Respondent  Company  escape  its  full  liability  of  compensating  the  Petitioner of such huge loss, acted in a biased manner,  adopted coercion undue influence and duress methods of  assessing the loss and forced the Petitioner to sign certain  documents including the Claim Form.  The Respondent  Company also denied the just claim of the Petitioner by  their acts of omission and commission and by exercising  coercion  and  undue  influence  and  made  the  Petitioner  Company  sign  certain  documents,  including  a  pre- prepared  discharge  voucher  for  the  said  amount  in  advance, which the Petitioner Company were forced to  do so in the period of extreme financial difficulty which  prevailed during the said period.  As stated aforesaid, the  Petitioner  Company  was  forced  to  sign  several  documents  including  a  letter  accepting  the  loss  amounting  to  Rs.6,09,55,406/-  and  settle  the  claim  of  Rs.5,96,08,179/-  as  against  the  actual  loss  amount  of  Rs.28,79,08,116/-  against  the  interest  of  the  petitioner  company.  The said letter and the aforesaid pre-prepared  discharge voucher stated that the petitioner had accepted  the claim amount in full and final settlement and thus,  forced  the  petitioner  company  to  unilateral  acceptance  the same.  The petitioner company was forced to sign the  said  document  under  duress  and  coercion  by  the  Respondent  Company.   The  Respondent  Company  further threatened the petitioner Company to accept the  said amount in full and final or the Respondent Company  will not pay any amount toward the fire policy.  It was  

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under such compelling circumstances that the petitioner  company was forced and under duress was made to sign  the acceptance letter.”

9. In our considered view, the plea raised by the respondent is bereft of  

any details  and particulars,  and cannot  be anything but  a  bald assertion.  

Given the fact that there was no protest or demur raised around the time or  

soon  after  the  letter  of  subrogation  was  signed,  that  the  notice  dated  

31.03.2011  itself  was  nearly  after  three  weeks  and  that  the  financial  

condition of the respondent was not so precarious that it was left with no  

alternative but to accept the terms as suggested, we are of the firm view that  

the discharge in the present case and signing of letter of subrogation were  

not because of exercise of any undue influence. Such discharge and signing  

of letter of subrogation was voluntary and free from any coercion or undue  

influence.  In the circumstances, we hold that upon execution of the letter of  

subrogation,  there  was full  and final  settlement  of  the claim.   Since our  

answer to the question, whether there was really accord and satisfaction, is  

in the affirmative, in our view no arbitrable dispute existed so as to exercise  

power  under  section  11  of  the  Act.  The  High  Court  was  not  therefore  

justified in exercising power under Section 11 of the Act.  

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10. In the circumstances,  we allow the present  appeal  in  the aforesaid  

terms and set aside the order of the High Court .  No order as to costs.

………………………..J. (Anil R. Dave)

………………………..J. (Uday Umesh Lalit)

New Delhi, December 04, 2014

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