The Delhi High Court has upheld an arbitral award in favor of M/S Valley Iron & Steel Company Limited (Insured) against United India Insurance Company Limited (Insurer). The court dismissed the insurer’s petition under Section 34 of the Arbitration and Conciliation Act, which challenged the arbitral award directing the insurer to pay Rs. 33.26 crore to the insured. The court held that a discharge voucher or consent letter signed under economic duress does not bar arbitration.
The case concerned a Standard Fire and Special Perils Policy issued by the insurer to the insured, which covered its factory, machine, and building. After heavy floods caused substantial damage to the insured’s machinery and plant, the insured appointed a surveyor to assess the loss. The surveyor initially calculated the claim at Rs. 58.10 crore, but ultimately reduced the assessment to Rs. 10.45 crore. The insured signed a consent letter accepting the reduced amount as a full and final settlement.
However, the insured later alleged that the consent letter was obtained under economic duress and invoked an arbitration clause. The arbitral award directed the insurer to pay Rs. 33.26 crore to the insured, along with 9% interest. The insurer challenged the award, arguing that the consent letter constituted an accord and satisfaction, and that the insured’s protest letters were forged.
The court rejected the insurer’s contentions, holding that the execution of a consent letter does not bar arbitration if it was obtained under coercion. The court also held that surveyor reports are not conclusive and can be departed from. The court criticized the insurer’s approach of obtaining a discharge voucher prematurely and held that it was a violation of good faith to attempt to misuse the opportunity to pay less than it owes by demanding and enforcing a release when a mishap has happened.
The court also applied the doctrine of collateral lies, which holds that even if certain statements are false, they do not affect the merits of a genuine claim. The court endorsed this distinction and held that fraudulent claims vitiate indemnity, but collateral lies do not affect the indemnity if the core claim is valid. Ultimately, the court upheld the arbitral award, stating that it was well-reasoned and did not suffer from any perversity or patent illegality.