From insurer's liability to arbitration appeal, here are key court orders

Curbs on invoking IBC in arbitration appeal

The Insolvency and Bankruptcy Code cannot be invoked when an arbitration award has been passed against an operational debtor and it is under appeal. The Supreme Court stated so in its judgment, K Kishan vs M/s Vijay Nirman Co, while setting aside the ruling of the National Company Law Tribunal and the appellate tribunal.  In this case, Vijay Nirman and another firm entered into a contract to build an additional two-lane highway on NH67. Disputes arose between them on various dues and they were referred to arbitration. The parties were not satisfied with the award and an appeal against the award was filed under Section 34 of the Arbitration and Conciliation Act. A petition was also filed before the tribunal under Section 9 of the Code.  The tribunal ruled that the appeal under the Arbitration Act was not relevant and there was no stay of the award.  On appeal, the Supreme Court stated that the tribunals were wrong. Its judgment, citing an earlier ruling, emphasised that “operational creditors cannot use the Insolvency Code either prematurely or for extraneous considerations or as a substitute for debt enforcement procedures".

Third party can challenge award

The Bombay High Court has ruled that a third party to an arbitration proceeding can move an appeal if it is affected by the award. The court passed the order under Section 37 of the Arbitration and Conciliation Act, 1996, when 13 petitions were moved in the high court in the case led by Prabhat Steel vs Excel Metal. Though the facts in each case were different, the question of law was common. The court stated the petitioner companies could not be sent to a civil court under the circumstances. It has been held by the Supreme Court and several high courts that when a party outside the arbitration proceedings is seriously prejudiced by an interim order, it can file an appeal. “It would be a travesty of justice if a party is driven to file a suit which would involve long and cumbersome proceeding when an order has been made directly affecting that party and redress can be had by filing an appeal which is permitted by law,” the high court stated. 

Reluctant arbitrator replaced

The Himachal Pradesh High Court has stated that mandate of an arbitrator shall be terminated and he shall be substituted by another arbitrator, if he is unable to perform his functions or for other reasons fails to act without undue delay. According to the Arbitration and Conciliation Act, when the mandate of an arbitrator terminates, a substitute arbitrator shall be appointed according to the rules applicable to the appointment of the arbitrator being replaced. In this case, Devki Nandan Steel Works vs HP State Electricity Board, the high court appointed a retired chief engineer as arbitrator. However, he did not show any interest in taking up the matter. The board also did not pursue the matter for more than four years “without any rhyme or justifiable reasons".  The judgment described the attitude of the engineer and the board as “cavalier”.  The high court, therefore, appointed a lawyer as arbitrator to speed up the arbitration.

Negligence limits insurer’s liability

The liability of an insurance company to pay compensation in a road accident death is limited if the driver was the owner and he was rash and negligent while causing his own death. The Supreme Court stated so in its judgment, National Insurance Company vs Ashalata Bhowmik. In this case, a young businessman drove his car rash, which ultimately led to his death on a bridge. His wife and children moved the motor accident claims tribunal, which awarded them Rs 1 million. The insurance company appealed to the High Court of Tripura, which asked the insurer to pay the amount. But on further appeal to the apex court, it set aside the tribunal’s order and limited the compensation to Rs 200,000.

Jurisdiction of consumer fora

The Calcutta High Court has asserted that the power of superintendence of a high court over the courts below is very wide, but that discretionary power must be used in exceptional circumstances. In this judgment,    Budge Budge Company Ltd vs National Insurance Company,  the West Bengal state consumer commission committed an error of jurisdiction. The Consumer Protection Act grants jurisdiction to hear complaints involving amounts up to Rs 10 million. The company sought damages for Rs 3.4 million, though the insurance cover was much more than Rs 10 million. The state commission did not take up the case as the insurance cover was for more than Rs 10 million. It held that the complaint must go the National Consumer Commission which has jurisdiction in higher amounts.  The company moved the high court arguing that the state commission had committed an error of jurisdiction and the high court should correct it. The high court stated that normally the appeal should go to the National Commission as the consumer has an alternative remedy there. But the high court could also exercise its discretionary power to correct errors committed by the state consumer commission. Therefore, the high court asked the state commission to decide the matter as it has jurisdiction.

Value of lost IVPs must be paid

The National Consumer Commission last week dismissed an appeal of the Superintendent of Post Offices and directed him to pay the maturity value of the Indira Vikas Patrikas which were lost by some claimants in Odisha. The postal authorities first argued before the consumer fora that the claimants were not consumers. The national commission rejected the contention and asserted that such a “blanket wall” could not be raised against those who lost their records. It was not fair in a sovereign, democratic and transparent society. The claimants had lost the IVPs and they had lodged police complaints. But, the claims on maturity were rejected. Several years have elapsed and the amount deposited still lies with the Postal Department. The judgment said: “It certainly cannot be the case of the Postal Department to appropriate the entire amount forever since the lost documents have not been submitted to them. It is but fair and reasonable that after proper verification and taking due precautions..., the department after securing its interests, should at least pay the maturity value after having not succeeded in the several rounds of litigation.”