National Insurance Co. Ltd vs M/S. Boghara Polyfab Pvt.Ltd on 18 September, 2008 – Case Summary

In the case of National Insurance Co. Ltd vs M/S. Boghara Polyfab Pvt.Ltd on 18 September, 2008, the Supreme Court of India was faced with a dispute that revolved around the validity of a full and final discharge voucher issued by an insured party to the insurer. The case was presided over by Justice R.V. Raveendran and Justice Lokeshwar Singh Panta.

Facts of the Case

The respondent, M/s. Boghara Polyfab Pvt. Ltd., had obtained a standard Fire and Special Perils Policy from the appellant, National Insurance Co. Ltd., to cover its goods in its godowns situated at Surat. The sum insured was initially Rs. Three crores, which was later increased to Rs. Six crores. On 27.5.2004, the respondent requested the insurer to increase the sum insured by another Rs. six crores for a period of two months. The appellant issued an additional endorsement increasing the sum insured by another Rupees six crores, making it a total of Rupees twelve crores.

On 5.8.2004, the respondent reported loss/damage to their stocks due to heavy rains and flooding which took place on 2/3.8.2004 and made a claim in that behalf. The surveyor submitted a preliminary report dated 14.8.2004 followed by a final survey report dated 6.12.2004 according to which the net assessed loss (payable to respondent) was Rs.3,18,26,025/-.

The respondent alleged that the appellant forced the respondent to accept a lower settlement; that the appellant informed the respondent that unless and until the respondent issued an undated `Discharge voucher-in-advance’ (in the prescribed form) acknowledging receipt of Rs.2,33,94,964/- in full and final settlement, no amount would be released towards the claim.

Issues

The main issue in this case was whether a dispute raised by an insured, after giving a full and final discharge voucher to the insurer, can be referred to arbitration. The respondent claimed that the discharge voucher was signed under duress and coercion, and therefore, it was not valid.

Court’s Observations

The court observed that the existence of an arbitration clause in the contract was not in dispute. It provides that “if any dispute or difference shall arise as to the quantum to be paid under this policy (liability being otherwise admitted) such difference shall, independently to all other questions be referred to the decision of a sole Arbitrator.”

The court also observed that the question of whether there was accord and satisfaction, or whether there was discharge of a contract by performance, is itself a question that is clearly arbitrable. The court held that the decision of the Chief Justice on the issue of jurisdiction and the existence of a valid arbitration agreement would be binding on the parties when the matter goes to the arbitral tribunal.

The court concluded that the question of whether the discharge voucher was given voluntarily or under pressure or coercion, and that required to be settled by the Arbitral Tribunal. The court left open the question whether there was any coercion/undue influence in regard to issue of full and final settlement discharge voucher by the respondent, and permitted the parties to lead evidence before the arbitrator on that question.

This case is significant as it highlights the importance of the arbitration clause in insurance contracts and the circumstances under which a dispute can be referred to arbitration even after a full and final discharge voucher has been issued.