# SBI General Insurance Co. Ltd v. Krish Spinning

- **Citation:** 2024 INSC 532
- **Court:** Supreme Court of India
- **Decided:** 2024-07-18
- **Case number:** Civil Appeal No. 7821 of 2024
- **Bench:** Dr Dhananjaya Y. Chandrachud, J.B. Pardiwala, Manoj Misra
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sbi-general-insurance-co-ltd-v-krish-spinning-37942
- **Pages:** 70

## Headnote

Issue arose whether the execution of a discharge voucher towards
the full and final settlement between the parties would operate as
a bar to invoke arbitration; as regards the scope and standard of
judicial scrutiny that an application u/s. 11(6) of the Arbitration and
Conciliation Act 1996 can be subjected to when a plea of "accord
and satisfaction" is taken by the defendant; and as regards the effect
of the decision of this Court in In Re: Interplay Between Arbitration
Agreements under the Arbitration and Conciliation Act 1996 and
the Stamp Act 1899 on the scope of powers of the referral court
u/s. 11 of the Act, 1996.
Headnotes†
Arbitration and Conciliation Act, 1996 - s. 11 - Appointment of
an arbitrator - Execution of a discharge voucher towards the
full and final settlement between the parties, if would operate
as a bar to invoke arbitration - Arbitration agreement contained
in a substantive contract, if survives even after the underlying
contract is discharged by "accord and satisfaction" - Scope
and standard of judicial scrutiny that an application u/s. 11(6)
can be subjected to when a plea of "accord and satisfaction"
is taken by the defendant:
Held: Although ordinarily no arbitrable disputes may subsist
after execution of a full and final settlement, yet any dispute
pertaining to the full and final settlement itself, by necessary
implication being a dispute arising out of or in relation to or
under the substantive contract, would not be precluded from
reference to arbitration as the arbitration agreement contained
in the original contract continues to be in existence even after
the parties have discharged the original contract by "accord and
* Author
[2024] 7 S.C.R.
841
SBI General Insurance Co. Ltd. v. Krish Spinning
satisfaction" - Once the full and final settlement of the original
contract itself becomes a matter of dispute and disagreement
between the parties, then such a dispute can be categorised
as one arising "in relation to" or "in connection with" or "upon"
the original contract which can be referred to arbitration in
accordance with the arbitration clause contained in the original
contract, notwithstanding the plea that there was a full and final
settlement between the parties - Where the parties are not
ad idem over accepting the execution of the no-claim certificate
or the discharge voucher, such disputed discharge voucher may
itself give rise to an arbitrable dispute - Thus, the position is
that ordinarily, the Court while acting in exercise of its powers
u/s. 11, will only look into the existence of the arbitration
agreement and would refuse arbitration only as a demurrer
when the claims are ex-facie frivolous and non-arbitrable - On
facts, existence of the arbitration agreement as contained in the
insurance policy not disputed by the appellant-insurer - Dispute
raised by the claimant being one of quantum and not of liability,
prima facie, falls within the scope of the arbitration agreement -
Dispute regarding "accord and satisfaction" as raised by the
appellant does not pertain to the existence of the arbitration
agreement, and can be adjudicated upon by the arbitral tribunal as
a preliminary issue - Appointment of the former Judge of the High
Court as an arbitrator to resolve the disputes between the parties
upheld. [Paras 59, 93, 135, 136]
Arbitration and Conciliation Act, 1996 - Arbitration agreement
contained in a substantive contract, if survives even after
the underlying contract is discharged by "accord and
satisfaction":
Held: Arbitration for the purpose of resolving any dispute pertaining
to any claim which has been "fully and finally settled" between
the parties can only be invoked if the arbitration agreement
survives even after the discharge of the substantive contract -
Arbitration agreement, by virtue of the presumption of separability,
survives the principal contract in which it was contained - Even
if the contracting parties, in pursuance of a settlement, agree to
discharge each other

## Text

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[2024] 7 S.C.R. 840 : 2024 INSC 532
SBI General Insurance Co. Ltd.
v.
Krish Spinning
(Civil Appeal No. 7821 of 2024)
18 July 2024
[Dr Dhananjaya Y. Chandrachud, CJI, J.B. Pardiwala*
and Manoj Misra, JJ.]
Issue for Consideration
Issue arose whether the execution of a discharge voucher towards
the full and final settlement between the parties would operate as
a bar to invoke arbitration; as regards the scope and standard of
judicial scrutiny that an application u/s. 11(6) of the Arbitration and
Conciliation Act 1996 can be subjected to when a plea of "accord
and satisfaction" is taken by the defendant; and as regards the effect
of the decision of this Court in In Re: Interplay Between Arbitration
Agreements under the Arbitration and Conciliation Act 1996 and
the Stamp Act 1899 on the scope of powers of the referral court
u/s. 11 of the Act, 1996.
Headnotes†
Arbitration and Conciliation Act, 1996 - s. 11 - Appointment of
an arbitrator - Execution of a discharge voucher towards the
full and final settlement between the parties, if would operate
as a bar to invoke arbitration - Arbitration agreement contained
in a substantive contract, if survives even after the underlying
contract is discharged by "accord and satisfaction" - Scope
and standard of judicial scrutiny that an application u/s. 11(6)
can be subjected to when a plea of "accord and satisfaction"
is taken by the defendant:
Held: Although ordinarily no arbitrable disputes may subsist
after execution of a full and final settlement, yet any dispute
pertaining to the full and final settlement itself, by necessary
implication being a dispute arising out of or in relation to or
under the substantive contract, would not be precluded from
reference to arbitration as the arbitration agreement contained
in the original contract continues to be in existence even after
the parties have discharged the original contract by "accord and
* Author
[2024] 7 S.C.R.
841
SBI General Insurance Co. Ltd. v. Krish Spinning
satisfaction" - Once the full and final settlement of the original
contract itself becomes a matter of dispute and disagreement
between the parties, then such a dispute can be categorised
as one arising "in relation to" or "in connection with" or "upon"
the original contract which can be referred to arbitration in
accordance with the arbitration clause contained in the original
contract, notwithstanding the plea that there was a full and final
settlement between the parties - Where the parties are not
ad idem over accepting the execution of the no-claim certificate
or the discharge voucher, such disputed discharge voucher may
itself give rise to an arbitrable dispute - Thus, the position is
that ordinarily, the Court while acting in exercise of its powers
u/s. 11, will only look into the existence of the arbitration
agreement and would refuse arbitration only as a demurrer
when the claims are ex-facie frivolous and non-arbitrable - On
facts, existence of the arbitration agreement as contained in the
insurance policy not disputed by the appellant-insurer - Dispute
raised by the claimant being one of quantum and not of liability,
prima facie, falls within the scope of the arbitration agreement -
Dispute regarding "accord and satisfaction" as raised by the
appellant does not pertain to the existence of the arbitration
agreement, and can be adjudicated upon by the arbitral tribunal as
a preliminary issue - Appointment of the former Judge of the High
Court as an arbitrator to resolve the disputes between the parties
upheld. [Paras 59, 93, 135, 136]
Arbitration and Conciliation Act, 1996 - Arbitration agreement
contained in a substantive contract, if survives even after
the underlying contract is discharged by "accord and
satisfaction":
Held: Arbitration for the purpose of resolving any dispute pertaining
to any claim which has been "fully and finally settled" between
the parties can only be invoked if the arbitration agreement
survives even after the discharge of the substantive contract -
Arbitration agreement, by virtue of the presumption of separability,
survives the principal contract in which it was contained - Even
if the contracting parties, in pursuance of a settlement, agree to
discharge each other of any obligations arising under the contract,
this does not ipso facto mean that the arbitration agreement too
would come to an end, unless the parties expressly agree to do
the same - Intention of the parties in discharging a contract by
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"accord and satisfaction" is to relieve each other of the existing
or any new obligations under the contract - Such a discharge of
obligations under the substantive contract cannot be construed to
mean that the parties also intended to relieve each other of their
obligation to settle any dispute pertaining to the original contract
through arbitration - Although ordinarily no arbitrable disputes
may subsist after execution of a full and final settlement, yet
any dispute pertaining to the full and final settlement itself, by
necessary implication being a dispute arising out of or in relation
to or under the substantive contract, would not be precluded from
reference to arbitration as the arbitration agreement contained
in the original contract continues to be in existence even after
the parties have discharged the original contract by "accord and
satisfaction". [Paras 48, 49, 51, 53, 54]
Arbitration and Conciliation Act 1996 - s. 11 - Powers of
the referral court under, as regards the appointment of an
arbitrator - Scope of - Effect of the decision in In Re: Interplay
Between Arbitration Agreements under the Arbitration and
Conciliation Act 1996 and the Indian Stamp Act 1899:
Held: In view of the observations made by this Court in In Re:
Interplay's case that the High Court and the Supreme Court at
the stage of appointment of arbitrator shall examine the existence
of a prima facie arbitration agreement and not any other issues,
it is clear that the scope of enquiry at the stage of appointment
of arbitrator is limited to the scrutiny of prima facie existence of
the arbitration agreement, and nothing else - Thus, it is difficult
to hold that the observations made in Vidya Drolia's case and
adopted in NTPC v. SPML's case that the jurisdiction of the referral
court when dealing with the issue of "accord and satisfaction" u/s.
11 extends to weeding out ex-facie non-arbitrable and frivolous
disputes would continue to apply despite the subsequent decision
in In Re: Interplay's case. [Paras 113-114]
Arbitration and Conciliation Act 1996 - s. 11 - Powers of
the referral court under, as regards the appointment of an
arbitrator - Scope of - Effect of the decision in In Re: Interplay
Between Arbitration Agreements under the Arbitration and
Conciliation Act 1996 and the Indian Stamp Act 1899 - Principle
of arbitral autonomy-judicial non-interference, principle of
negative competence-competence, and judicial interference
under the Act, 1996, explained. [Paras 96-112]
[2024] 7 S.C.R.
843
SBI General Insurance Co. Ltd. v. Krish Spinning
Contract - Discharge of - Discharge by performance -
Discharge by "accord and satisfaction" or by "full and final
settlement" - Explanation of:
Held: Contract between parties can come to an end by the
performance thereof by both the parties, that is, by the fulfilment
of all the obligations in terms of the original contract - This is
discharge by performance - Alternatively, the contract may also
be discharged by substitution of certain new obligations in place of
the obligations contained in the original contract, and subsequent
performance of the substituted obligations - Substituted obligations
are referred to as 'accord' and the discharge of the substituted
obligations is referred to as 'satisfaction' - This is discharge by
"accord and satisfaction" or by "full and final settlement" in common
parlance - Written confirmation of discharge by "accord and
satisfaction" can also be in the form of a full and final discharge
voucher or a No-Dues or a No Claims Certificate issued by one
of the parties acknowledging that there are no outstanding claims
and that such a party has received the full and final payment to
its satisfaction - Concept of discharge of a contract by "accord
and satisfaction" is embodied in s. 63 of the Contract Act, 1872,
which provides that the promisee may, inter alia, accept any
substituted obligation in place of the original promise made to
him, and such acceptance on the part of the promisee would
amount to the discharge of the contract - Once a contract has
been fully performed, it can be said to have been discharged
by performance - Once the contract has been discharged by
performance, neither any right to seek performance, nor any
obligation to perform remains under it - However, whether there
has been a discharge of contract or not is a mixed question of law
and fact, and if any dispute arises as to whether a contract has
been discharged or not, such a dispute is arbitrable as per the
mechanism prescribed under the arbitration agreement contained
in the underlying contract. [Paras 40-42, 46, 47]
Arbitration and Conciliation Act, 1996 - s. 16 - Presumption
of separability - Doctrine of separability:
Held: Arbitration agreement, by virtue of the presumption of
separability, survives the principal contract in which it was
contained - s. 16(1) which is based on Art.16 of the UNCITRAL
Model Law on International Commercial Arbitration, 1985 embodies
the presumption of separability - Two aspects to the doctrine of
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separability as contained in the 1996 Act are that an arbitration
clause forming part of a contract is treated as an agreement
independent of the other terms of the contract; and decision by
the arbitral tribunal declaring the contract as null and void does
not, ipso facto, make the arbitration clause invalid - Fundamental
premise governing the doctrine of separability is that the arbitration
agreement is incorporated by the parties to a contract with the
mutual intention to settle any disputes that may arise under or in
respect of or with regard to the underlying substantive contract,
and thus by its inherent nature is independent of the substantive
contract. [Paras 49-51]
Arbitration and Conciliation Act 1996 - s. 11(6) - Appointment
of an arbitrator - Case of M/s Arif Azim Co. Ltd. v. M/s Aptech
Ltd. on applicability of Limitation Act, 1963 to an application
for appointment of arbitrator u/s. 11(6), and the power of the
court to decline to make a reference u/s. 11 where the claims
are ex-facie and hopelessly time barred - Clarification:
Held: It is clarified that while determining the issue of limitation
in exercise of the powers u/s.11(6) the referral court should limit
its enquiry to examining whether s.11(6) application has been
filed within the period of limitation of three years or not - Date
of commencement of limitation period for this purpose shall have
to be construed as per the decision in Arif Azim's case - It is
further clarified that the referral courts, at the stage of deciding
an application for appointment of arbitrator, must not conduct an
intricate evidentiary enquiry into the question whether the claims
raised by the applicant are time barred and should leave that
question for determination by the arbitrator - Such approach gives
true meaning to the legislative intention underlying s.11(6-A), and
also to the view taken in In Re: Interplay's case - Observations
made in Arif Azim's case are accordingly clarified - Effect of the
said clarification is only to streamline the position of law, so as to
bring it in conformity with the evolving principles of modern-day
arbitration, and to avoid the possibility of any conflict that may
arise in future. [Paras 133-134]
Arbitration and Conciliation Act; 1996 - s. 11 - Petition for
appointment of an arbitrator - Preliminary objection that
the arbitration clause as contained in the insurance policy
not attracted as no admission of liability on the part of the
appellant, whereas the said arbitration clause envisages
[2024] 7 S.C.R.
845
SBI General Insurance Co. Ltd. v. Krish Spinning
reference to arbitration only in cases where liability is admitted,
and there is a dispute as regards the quantum of liability:
Held: No merit in the said plea - Appellant-insurer admitted its
liability with respect to the first claim and had even disbursed
certain amount in pursuance of the signing of the advance
discharge voucher by the respondent-insured - Thus, a clear case
of admission of liability by the appellant - However, the quantum
of liability is in dispute as the amount claimed by the respondent
is at variance with the amount admitted by the appellant - Thus,
the dispute being one of quantum and not of liability, falls within
the ambit of the conditional arbitration clause as contained in the
insurance policy. [Paras 36, 37]
Arbitration and Conciliation Act, 1996 - s. 11 - Petition for
appointment of an arbitrator - Plea that the claim sought to
be referred to arbitration is a deadwood claim and thus, the
application for appointment of arbitrator ought to have been
rejected:
Held: Notice invoking arbitration was sent by the respondentinsured to the appellant-insurer on 02.03.2020 and the petition
seeking appointment of arbitrator u/s. 11(6) was filed before the
High Court on 25.10.2021 - Thus, the arbitration petition was filed
before the High Court much prior to the expiry of the limitation
period of three years - Further, the notice invoking arbitration was
also sent by the respondent well within time from the date of the
accrual of the cause of action - Thus, it cannot, be said that the
claim is a deadwood claim or the arbitration application before the
High Court was time-barred. [Para 38]
Case Law Cited
In Re: Interplay Between Arbitration Agreements under the
Arbitration and Conciliation Act 1996 and the Indian Stamp Act
1899 [2023] 15 SCR 1081 : 2023 INSC 1066 - followed.
M/s Arif Azim Co. Ltd. v. M/s Aptech Ltd. [2024] 3 SCR 73 : 2024
INSC 155 - clarified.
Oriental Insurance Company Ltd. v. Dicitex Furnishing Ltd. [2019]
14 SCR 389 : (2020) 4 SCC 621; National Insurance Co. Ltd. v.
Boghara Polyfab [2008] 13 SCR 638 : (2009)1 SCC 267; New
India Assurance Co. Ltd. v. Genus Power Infrastructure Ltd. [2014]
12 SCR 360 : (2015) 2 SCC 424; Payana Reena Saminathan v.
846
[2024] 7 S.C.R.
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Pana Lana Palaniappa (1913-14) 41 IA 142; National Agricultural
Coop. Marketing Federation India Ltd. v. Gains Trading Ltd. (2007)
5 SCC 692; R.L. Kalathia and Company v. State of Gujarat [2011]
1 SCR 391 : (2011) 2 SCC 400; Damodar Valley Corporation v.
K.K. Kar [1974] 2 SCR 240 : (1974) 1 SCC 141; Bharat Heavy
Electricals Ltd. v. Amar Nath Bhan Prakash (1982) 1 SCC 625;
P.K. Ramaiah and Company v. Chairman and Managing Director,
National Thermal Power Corporation (1994) Supp 3 SCC 126;
Nathani Steels Ltd. v. Associated Constructions (1995) Supp 3
SCC 324; Jayesh Engineering Works v. New India Assurance
Co. Ltd. (2000) 10 SCC 178; Konkan Railway Corpn. Ltd. v.
Rani Construction (P) Ltd. [2002] 1 SCR 728 : (2002) 2 SCC
388; SBP & Co. v. Patel Engg. Ltd. [2005] Supp. 4 SCR 688 :
(2005) 8 SCC 618; Union of India v. Master Construction Co.
[2011] 5 SCR 853 : (2011) 12 SCC 349; Duro Felguera, S.A. v.
Gangavaram Port Ltd. [2017] 10 SCR 285 : (2017) 9 SCC 729;
United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd.
[2019] 5 SCR 521 : (2019) 5 SCC 362; Mayavati Trading Private
Limited v. Pradyut Deb Burman [2019] 12 SCR 123 : (2019) 8
SCC 714; Uttarakhand Purv Sainik Kalyan Nigam Ltd. v. Northern
Coal Field Ltd. [2019] 14 SCR 999 : (2020) 2 SCC 455; Union
of India v. Pradeep Vinod Construction Company [2019] 17 SCR
64 : 2019 INSC 1241; DLF Home Developers Ltd. v. Rajapura
Homes (P) Ltd. [2021] 12 SCR 1 : (2021) 16 SCC 743; BSNL
v. Nortel Networks (India) (P) Ltd. [2021] 2 SCR 644 : (2021) 5
SCC 738; Indian Oil Corporation Limited v. NCC Limited [2022]
13 SCR 660 : (2023) 2 SCC 539; NTPC Ltd. v. SPML Infra Ltd.
[2023] 2 SCR 846 : (2023) SCC OnLine SC 389; Vidya Drolia &
Ors. v. Durga Trading Corporation [2019] 3 SCR 465 : (2021) 2
SCC 1 - referred to.
Heyman v. Darwins Ltd. [1942] AC 356; Hayter v. Nelson [1990]
2 Lloyd's Rep. 265, 272; Colmar Impex v. PAZ, 1968 Rev.
Arb. 149, 155 (Colmar Cour d'Appeal); Prima Paint Corp.
v. Flood & Conklin Manufacturing, 388 U.S. 395 (U.S. S.Ct.
1967); Buckeye Check Cashing, Inc. v. Cardegna, 546 U.S.
440 (U.S. S.Ct. 2006); Howsam v. Dean Witter Reynolds, Inc.,
537 U.S. 79, 84 (U.S. S.Ct. 2002); PacifiCare Health Systems,
Inc. v. Book, 538, U.S. 401 (U.S. S. Ct. 2003); Dillon v. BMO
Harris Bank, NA, 856 F.3d 330, 333 (4th Cir. 2017); Escobar v.
Celebration Cruise Operator, Inc., 805 F.3d 1279, 1288-89 (11th
Cir. 2015) - referred to.
[2024] 7 S.C.R.
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SBI General Insurance Co. Ltd. v. Krish Spinning
Books and Periodicals Cited
Gary B. Born, Internation Commercial Arbitration, 3rd Ed. (2021),
pp. 685, 696, 1251 - referred to.
List of Acts
Arbitration and Conciliation Act, 1996; Arbitration and Conciliation
(Amendment) Act, 2015; Arbitration Act, 1940; Limitation Act,
1963; Contract Act, 1872; UNCITRAL Model Law on International
Commercial Arbitration, 1985.
List of Keywords
Execution of a discharge voucher; Full and final settlement between
the parties; Invocation of arbitration; Judicial scrutiny; Application u/s.
11(6) of the Arbitration and Conciliation Act 1996; Plea of "accord
and satisfaction"; Effect of the decision of this Court in In Re:
Interplay Between Arbitration Agreements under the Arbitration and
Conciliation Act 1996 and the Stamp Act 1899; Powers of the referral
court u/s. 11 of the Act, 1996; Appointment of an arbitrator; Contract;
Discharge by performance; Discharge by "accord and satisfaction"
or by "full and final settlement"; Substantive contract; Presumption of
separability; Doctrine of separability; Principal of arbitral autonomy;
Principle of judicial non-interference; Principle of negative competencecompetence; Judicial interference under the Act, 1996; Arbitration
clause; Admission of liability; Quantum of liability; Deadwood claim.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7821 of 2024
From the Judgment and Order dated 01.12.2023 of the High Court
of Gujarat at Ahmedabad in PUAA No. 209 of 2021
With
Civil Appeal No. 7822 of 2024
Appearances for Parties
Saurav Agrawal, Madhav Misra, Ketan Paul, Arjun Bose, Ms. Shubhi
Pandey, Ms. Astha Nishad, Rajat Abhale, Rajat Chhabra, Shivam
Chaudhary, Ms. Chakshu Purohit, Advs. for the Appellant.
Rakesh Malhotra, Bharat Malhotra, Kushal Malhotra, Ms. Savita
Singh, Advs. for the Respondent.
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Judgment / Order of the Supreme Court
Judgment
J. B. Pardiwala, J.:
For the convenience of exposition, this judgment is divided into the
following parts: -
INDEX*
A.
FACTUAL MATRIX.............................................................. 3
B.
SUBMISSIONS ON BEHALF OF THE APPELLANT........ 14
C.
SUBMISSIONS ON BEHALF OF THE RESPONDENT..... 16
D.
ISSUES FOR DETERMINATION........................................
18
E.
ANALYSIS........................................................................... 19
i.
Whether the execution of a discharge voucher
towards the full and final settlement between
the parties would operate as a bar to invoke
arbitration?..................................................................
21
a. Whether the arbitration agreement contained in
a substantive contract survives even after the
underlying contract is discharged by "accord and
satisfaction"?........................................................... 25
ii. What is the scope and standard of judicial scrutiny
that an application under Section 11(6) of the Act,
1996 can be subjected to when a plea of "accord
and satisfaction" is taken by the defendant?............ 31
iii. What is the effect of the decision of this Court in
In Re: Interplay Between Arbitration Agreements
under the Arbitration and Conciliation Act 1996
and the Indian Stamp Act 1899 on the scope of
powers of the referral court under Section 11 of
the Act, 1996?.......................................................... 65
a. Arbitral Autonomy.................................................... 66
b. Negative Competence-Competence........................ 69
c. Judicial Interference under the Act, 1996............... 71
F.
CONCLUSION
84
* Ed. Note: Pagination as per the original Judgment.
[2024] 7 S.C.R.
849
SBI General Insurance Co. Ltd. v. Krish Spinning
1.
Leave granted.
2.
Since the issues raised in both the captioned appeals are the same,
the subject-matter also being the same and the parties are also the
same, they were taken up analogously for hearing and are being
disposed of by this common judgment and order.
3.
The SLP(C) No. 7220 of 2024 arises from the impugned judgment
and order dated 22.09.2023 passed by the High Court of Gujarat at
Ahmedabad in Arbitration Petition No. 209 of 2021 wherein the High
Court after assigning detailed reasons for allowing the application
filed by the respondent for the appointment of an arbitrator, directed
that the said application be listed before the appropriate bench in
accordance with the roster for the purpose of passing appropriate
order for appointment of arbitrator.
4.
The SLP(C) No. 3792 of 2024 arises from the impugned judgment
and order dated 01.12.2023 passed by the High Court of Gujarat
at Ahmedabad in Arbitration Petition No. 209 of 2021 wherein
relying upon the judgment and order dated 22.09.2023 referred to
above passed by a co-ordinate bench in the self-same arbitration
application, the High Court allowed the application of the respondent
for the appointment of an arbitrator and thereby appointed Justice
K.A. Puj, former Judge of the High Court of Gujarat as an arbitrator
to resolve the disputes between the parties.
A.
FACTUAL MATRIX
5.
The appellant, SBI General Insurance Co. Ltd., is a Private Sector
General Insurance Company engaged in the business of providing
general insurance to its customers, having one of its offices at 1st
floor, Shukan Business Centre, Swastik Cross Road, C.G. Road,
Navrangpura, Ahmedabad.
6.
The respondent, M/s Krish Spinning, is a partnership firm registered
under the provisions of the Indian Partnership Act, 1932, and is
engaged in the business of manufacturing and spinning of cotton
filaments at its factory premises situated at Survey No. 845, Ghodasar,
Nenpur, Taluka Memdabad.
7.
The respondent obtained a standard fire and special perils (material
damage) insurance policy from the appellant on 31.03.2018 for a
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total sum insured of Rs 7,20,00,000/- with the period of insurance
being 31.03.2018 to 30.03.2019.
8.
During the period of insurance cover, two incidents of fire took place
at the factory premises of the respondent, as a result of which the
respondent suffered loss of assets such as cotton stocks in the form
of raw materials, semi-finished goods, electrical installations, plant
and machinery.
9.
The first incident of fire took place on 28.05.2018 in which the
respondent claims to have suffered a total loss amounting to Rs
1,76,19,967/-. The second incident of fire took place on 17.11.2018
wherein the respondent claims to have suffered a total loss amounting
to Rs 6,32,25,967/-. It is pertinent to observe that the present appeals
pertain only to the dispute arising from the settlement of claim relating
to the first incident of fire which took place on 28.05.2018.
10. After the first incident of fire that took place, M/s Paresh Shah &
Associates was appointed as the surveyor by the appellant company
on 29.05.2018 under Section 64UM of the Insurance Act, 1938. The
surveyor visited the factory premises of the respondent on a number
of occasions between 29.05.2018 and 29.08.2018 for the purpose
of assessing the extent of loss suffered by the respondent in the
fire accident, and accordingly prepared the final survey report dated
30.12.2018. In the said report, it was inter alia observed that the
fire could not have been caused by any external factor, and that it
could have been caused by spontaneous combustion due to humid
temperatures. The quantum of loss suffered by the respondent, after
accounting for deductions under multiple heads was assessed by
the surveyor at Rs 84,19,579/-.
11. Although the respondent had initially submitted its claim bill dated
27.07.2018 claiming Rs 1,76,19,967/- from the appellant, yet on
24.12.2018, a consent letter was issued by the respondent to the
surveyor accepting the assessment of loss made by the surveyor,
i.e., at Rs 84,19,579/-. In the consent letter, the respondent stated
that in view of the detailed discussion it had with the surveyor as
regards the volumetric calculation of the quantity of cotton bales said
to have been damaged, it was ready to accept the quantity to be
3,17,085.30 kg as against its initial claim of 4,41,111.58 kg.
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SBI General Insurance Co. Ltd. v. Krish Spinning
12. After addressing the consent letter as aforesaid to the surveyor, the
respondent signed an advance discharge voucher dated 04.01.2019,
confirming the receipt of Rs 84,19,579/- from the appellant as the full
and final settlement towards their claim. The discharge voucher also
stated, inter alia, that the respondent was discharging the appellant
of the liability arising under its claim.
13. Subsequent to the signing of the advance discharge voucher, the
appellant released the claim settlement amount of Rs 84,08,957/-
on 31.01.2019.
14. Thereafter, in relation to the claim arising out of the second fire
incident, the appellant released a total amount of Rs 4,86,67,050/- in
three instalments. The third and final instalment of Rs 2,23,67,050/-
was released on 14.10.2019.
15. On 25.10.2019, that is eleven days after the receipt of the third and
final instalment in relation to the claim arising out of the second fire
incident, the respondent dropped one letter by hand delivery at the
office of the appellant. The respondent, inter alia, stated in the said
letter that a copy of the surveyor's final assessment report was not
provided to it despite earlier requests. The respondent alleged that
it had to sign the final discharge voucher as it was badly in need of
money. The respondent further stated in its letter that it had been
unable to take any action due to non-receipt of the surveyor's report.
The appellant refused to accept the letter and returned it back to the
respondent. The contents of the letter are reproduced hereinbelow:
"Date:- 25/10/2019
To,
The Manager,
SBI General Insurance Company,
Ahmedabad.
Subject: - Fire claim no.513768 for loss dated 28/05/2018.
Respected Sir,
In connection to the above, we have requested you to
provide the copy of the complete survey report along
with all enclosures thereof to enable us to understand
the calculations made by the surveyor to arrive at the
gross and net loss / damage. Please note that despite our
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request, we have not received the copy of survey report,
which shows your arrogant approach.
At this stage, we wish to inform you that you have taken our
consent on the amount assessed by the surveyor. We have
signed the working sent by you. During the said period,
there was another fire in our factory, in which the entire
stock, building, plant and machinery have been damaged
and we were badly in need of money, hence considering
you being a reputed insurance company, you must have
examined the assessment made by the surveyor and on
that trust bearing in mind, we have signed the working
sheet of assessments and voucher is also signed by us
in your office as you have informed that we would get the
payment immediately. But the same was also delayed
beyond reasonable time.
Now, since our auditors and bankers would like to know
the grounds considering which, the balance amount of our
claim is not considered by you / surveyor, you are once
again requested to provide the copy of survey report along
with all the documents submitted to you by the surveyor,
based on which, the claim has been settled and paid by you.
Since we have not received the copy of surveyor report,
we are unable to take further action. Once again, you are
requested to provide the copy of survey report along with
all enclosures thereof.
Please consider this letter as a notice.
Yours Faithfully
For KRISH SPINNING"
16. The respondent, on the same day, sent an email to the appellant
with a copy of the aforesaid letter calling upon the respondent to
take appropriate and necessary action. The contents of the said
email are reproduced hereinbelow:
"Sir,
This is in reference to the above subject, today at around
04:00 pm, or personnel visited your office to hand over a
letter requesting you to provide the complete survey report
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SBI General Insurance Co. Ltd. v. Krish Spinning
of our fire claim no.-513768 for loss dated 28/05/2018.
You, in turn returned the letter without accepting it, asking
to get the letter signed by our Mr. Ashwinkumar N. Kacha
and resubmit the same.
We wish to inform that Mr. Ashwinkumar Kacha is busy with
medical emergency, and we will submit the letter signed
by him, when he is relieved from the medical emergency.
Attached herewith, is the copy of the said letter for your
kind reference and necessary action.
Thanks & Regards"
17. The appellant replied to the aforesaid letter as well as the email vide
the letter dated 07.11.2019 refuting the allegations of the respondent
by stating that the assessment of loss was personally explained by
the surveyor to the representative of the respondent who in turn
had taken an informed decision of accepting the settlement amount
and signing the consent letter and the advance discharge voucher.
A copy of the survey report was also provided to the respondent
along with the reply letter. The contents of the said reply letter are
reproduced hereinbelow:
"SBI GENERAL INSURANCE
Dt: 07/11/2019
To
M/s Krish Spinning
Survey No. 845, Nenpur Haidarvas Road,
Ghodsar Gam,
Tal: Mehmdabad,
Gujarat-387110
(M): 9377071329
Dear Sir,
Re: Claim No. 513768 under Policy No. 9006820 Date
of Loss: 28/05/2018 Sub: Reply of Your letter dated
25/10/2019
We refer to your letter dated 25/10/2019, wherein you
have made reference of previous communications asking
for copy of survey report. We have reviewed our records
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and we regret to inform that we are not able to locate any
communication in our record through which a request was
made seeking copy of Survey Report of Surveyor M/s
Paresh Shah & Associates. Unless proved otherwise, we
are accordingly considering your letter dated 25/10/2019
as first communication requesting for copy of survey report.
We reiterate that loss assessment was personally explained
to Mr. Ashwin kacha from your office on 24th December
2018 at our Ahmedabad office and only after understanding
the assessment, Mr. Kacha had taken an informed decision
of signing the consent letter. This consent letter was also
followed with an advance discharge voucher which was
submitted by your office in response to our settlement offer.
Furthermore, the payment remittance for claim settlement
amount was carried out on 8th January 2019 which is
within 15 days from the date of submission of consent
letter and thus there was no delay beyond reasonable
time as alleged in your letter.
As requested in your referred letter, we are pleased to
attach copy of survey report that forms basis of claim
remittance. You may also note that loss assessment arrived
by surveyor in attached survey report is in line with loss
workings reviewed with Mr. Kacha.
Yours Sincerely
For SBI General Insurance Company Ltd.,
(Sd)
Authorized Signatory"
18. On 02.03.2020, the respondent issued a legal notice calling upon
the appellant to release the balance payment of the claim amount
arising out of the first fire incident. The respondent, in the said
notice, alleged, inter alia, that he had signed the consent letter and
the advance discharge voucher under the apprehension that if he
would not have signed the said documents, then the claim in relation
to the second fire incident, which was pending on the date of the
signing of the discharge voucher, would have been detrimentally
affected. Thus, the discharge voucher could be said to have been
signed under coercion, undue influence, and without free will and
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SBI General Insurance Co. Ltd. v. Krish Spinning
volition of the respondent. The respondent further stated that it had
sent the protest letter dated 25.10.2019 immediately after receiving
the final instalment in relation to the claim arising out of the second
fire incident. The respondent further stated that in the event of
the appellant's denial or failure to pay the balance amount within
a period of 15 days, the legal notice should be treated as notice
invoking arbitration.
19. The appellant replied to the aforesaid legal notice on 16.03.2020
refuting the allegations made by the respondent, alleging them to
be mala fide and an after-thought. The appellant stated that the
discharge voucher signed by the respondent was unqualified and on
his own free will and volition. It was further stated by the appellant
that the amount being claimed by the respondent was not due in
the first place, thereby making the dispute not one of quantum but
one of liability, and therefore the arbitration agreement would not be
attracted to the dispute raised.
20. As the parties were unable to arrive at any amicable resolution of
the dispute, and as no arbitrator was nominated by the appellant
in response to the notice invoking arbitration, the respondent, on
25.10.2021 filed a petition for the appointment of arbitrator under
Section 11(6) of the Arbitration and Conciliation Act, 1996 (hereinafter
"the Act, 1996") before the High Court.
21. The case of the respondent before the High Court was that as against
the loss of Rs 1,76,19,967/- suffered by it, the appellant company
paid only Rs 84,19,579/- and thus it was not completely indemnified.
It was also argued that the appellant had not explained why at the
time of obtaining the consent letter an amount of Rs 92,00,388/- was
deducted from the total amount claimed.
22. The appellant, on the other hand, contested the arbitration petition
filed by the respondent on the ground that the claim raised by the
respondent herein was stale and having once signed the consent
letter dated 24.12.2018, it was not open for it to turn around and
raise a dispute. The appellant also contended that it was open for the
court to look into the question of arbitrability at the stage of deciding
the Section 11 petition.
23. The High Court, having regard to the aforesaid submissions of the
parties, held that the dispute in question was falling in the realm of
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adjudication and the same is the function to be discharged by an
arbitrator. Placing reliance on the decision of this Court in Oriental
Insurance Company Ltd. v. Dicitex Furnishing Ltd. reported in
(2020) 4 SCC 621, the High Court held that if the dispute existing
between the parties could be referred to arbitration under the
arbitration agreement, then appointment of arbitrator has to follow.
Some pertinent observations made by the High Court are extracted
hereinbelow:
"6. Therefore, on one hand, the company has taken a
stand that the petitioner is paid the amounts due and
payable under the policy and that there is no need to
refer the disputes to the arbitration under clause 13 of
the policy, on the other hand, the petitioner disputes such
case on various grounds. It was stated that amount of Rs.
92,00,388/-is wrongfully deducted while making payment
of Rs. 84,19,579/ inasmuch as total claim lodged was Rs.
1,76,19,967/-.
6.1 Therefore, the above aspects indeed travels to the
adjudicatory realm, which is the function to be discharged
by the arbitrator. When the claim is disputed, it is the
arbitrator who may competently decide the claim.
Arbitrability of the dispute is also to be decided by the
arbitrator. While exercising the powers under section 8 of
the Arbitration and Conciliation Act, 1996, such questions
cannot be gone into by this Court and when there is an
arbitration clause, the aspects are to be decided by the
arbitrator for such purpose.
6.2 Following observations of the Supreme Court in
Oriental Insurance Company Ltd. vs. Dicitex Furnishing
Ltd. [(2020) 4 SCC 621], may be pertinently noticed,
"...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
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SBI General Insurance Co. Ltd. v. Krish Spinning
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 and plea 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 itsright event to approach
a civil court."
6.3 In the proceedings under section 8 of the Arbitration Act,
it is not the function of the Court to examine in detail, the
extant and nature of dispute, if dispute exist is referable to
the arbitration clause occurring in the agreement between
the parties, the appointment of arbitrator has to follow.
6.4 It is observed that this Court has not expressed any
opinion on merits of the dispute and arbitrability thereof.
6.5 In view of the above discussion, the prayer made in
the present application for appointment of arbitrator shall
have to be adverted to.
7. In the result, the Registry is directed to list the same
before the appropriate Bench in accordance with roster for
the purpose of passing the order regarding appointment
of arbitrator."
24. The aforesaid observations were made by the High Court in its
order dated 22.09.2023 which has been impugned by the appellant
in SLP(C) No. 7220 of 2024. After making the above quoted
observations in favour of the respondent, the High Court directed
that the arbitration application be listed before an appropriate bench
in accordance with the roster. In pursuance of the said order, the
matter came to be listed before the Chief Justice of the High Court,
wherein an order for appointment of arbitrator was passed. The
said order dated 01.12.2023 has been impugned by the appellant
in SLP(C)No. 3792 of 2024.
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B.
SUBMISSIONS ON BEHALF OF THE APPELLANT
25. Mr Ketan Paul, the learned counsel appearing on behalf of the
appellant, submitted that a full and final settlement was arrived at
between the parties thereby indicating that a distinct understanding
was arrived at between them. No plea or assertion has been made by
the respondent, nor any prima facie evidence has been adduced to
establish that the appellant had made the execution of the discharge
voucher a pre-condition to the payment of the claim, or offered the
amount on a "take it or leave it basis". Seen thus, the test laid down
by this Court in paragraph 52(iv) of the National Insurance Co. Ltd.
v.