Award Can Be Set Aside U/S 34 Of Arbitration Act If Arbitrator Travels Beyond Arbitration Agreement: Madhya Pradesh HC

The Madhya Pradesh High Court bench of Justice Subodh Abhyankar affirmed that if arbitrator travels beyond the terms of the arbitration agreement while passing an award, such an award is liable to be set aside under section 34 of the Arbitration Act.Brief FactsThis Arbitration Appeal under Section 37 of the Arbitration and Conciliation Act, 1996 has been filed by the appellant-United India Insurance Co. Ltd., against the order dated 14.11.2017, passed by the District Judge, Ratlam in Misc.Civil Case No.22/2007 (old No. 17/2004) whereby, the Award passed by the Arbitrator dated 13.9.2004, has been affirmed and the application filed by the appellant u/s.34 of the Act of 1996, has been rejected.The respondents no.1 and 2 had obtained a fire policy from the appellants United India Insurance Co. Ltd., covering their stocks, lying in the premises of the Respondent factory. The policy was valid for the period 13.5.1989 to 12.5.1990. During the policy period, a claim was put forth by the respondents, alleging fire in their premises, which resulted in damages. The appellant appointed surveyor/investigator and found that the fire was deliberate, and repudiated the claim vide their communication dated 24.12.1991. Copy of the repudiation letter has also been placed on record. Being dissatisfied by the decision of repudiation, the respondents filed a regular civil suit for recovery of Rs.24,12,500/-/. The newly added defendant (Punjab National Bank) moved an application, that since the policy contained an arbitration clause , the matter be referred for arbitration. In spite of opposition by the appellant, the said application was allowed, and the matter was referred to the Arbitration. The arbitration tribunal vide their award dated 13.9.2004, allowed the claim of the respondent against the appellant and directed for payment of Rs. 24,12,500 with interest to the respondent no.1 Smt Rekha & respondent no.2 Prakiran Being aggrieved of the same, the appellant filed an application u/s.34 of the Arbitration and Conciliation Act, 1996, and by order dated 14.11.2017, the trial court rejected the objections. ContentionsThe appellant submitted that not only that the Arbitration Tribunal itself was not properly constituted, in fact, even as per the Arbitration Agreement between the parties, it was not a dispute which could be referred to the Arbitration Tribunal.That clause 13 of the agreement provides that if any difference arises between the parties as to the quantum to be paid under the policy, liability being otherwise admitted, only such difference shall, independently of all other questions, be referred to the decision of an arbitrator to be appointed in writing by the parties in difference. In this case, entire claim was repudiated.That since the Arbitrator appointed by the appellant/Insurance Company, Shri H.R.Choudhary had already sent a letter dated 02.9.2004, to the other Arbitrators, that he is relinquishing the post of Arbitrator, in such circumstances, the remaining only two Arbitrators could not have passed the Award which was clearly in violation of S.10 of the Act of 1996, which provides that the number of Arbitrators cannot be even.Per contra, the respondents submitted that in the civil suit filed by the respondents no.1 & 2, the appellant Insurance Company did not object to the appointment of the Arbitrator.That the Award has been passed by the Presiding Officer Shri O.P. Agrawal and Jayant Bohara, who was also the other Arbitrator, and in such circumstances, it cannot be said that it was decided by the even number of the Arbitrators.Court's AnalysisThe court, at the outset, referred to clause 13 of the Arbitration Agreement and noted that the dispute, which could be referred to the Arbitration was only in respect of the quantum to be paid under the policy, and not all the disputes under the policy could be referred to the Arbitration. In other words, when the liability is accepted by the Insurance Company, and the dispute is in relation to the quantum of compensation, only such dispute could be referred to the Arbitration and not others.In Oriental Insurance Co. Ltd. v. Narbheram Power and Steel (P) Ltd., (2018), the Supreme Court has held that Such an arbitration clause will get activated or kindled only if the dispute between the parties is limited to the quantum to be paid under the policy. The liability should be unequivocally admitted by the insurer. That is the precondition and sine qua non for triggering the arbitration clause. An arbitration clause would enliven or invigorate only if the insurer admits or accepts its liability under or in respect of the policy concerned, the court noted.Based on the above, the court observed that in the present case, it is an admitted fact that the Insurance Company had already denied the claim, and thus, it was not a case where there was any dispute existed between the parties regarding the quantum of the compensation to be paid by the appellant-Insurance Company to ...

Award Can Be Set Aside U/S 34 Of Arbitration Act If Arbitrator Travels Beyond Arbitration Agreement: Madhya Pradesh HC

Mohd Malik Chauhan

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