Arbitrator's Reliance On Unverified Evidence Violates Fundamental Policy Of India: Calcutta High Court

The bench further held that the arbitrator was not in a situation where an exact figure cannot be determined, and which would require a reasonable guesswork by the tribunal. Rather, it was a case where the tribunal arbitrarily granted an amount to the claimant without any material basis.

Brief Facts:

The matter pertained to dispute which arose from a claim by Sarada Rani Enterprises (Respondent) who sought insurance compensation for damage to cement bags stored in their godowns. The Respondent contended that it suffered significant business losses due to this damage and sought relief from Oriental Insurance Company Limited (Petitioner). The arbitral tribunal passed the award in favor of the Respondent. Feeling aggrieved, the Petitioner approached the High Court and challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996.

The Petitioner argued that the Arbitral Tribunal improperly discarded two key reports. These reports one prepared by the insurer's surveyor and another by an independent surveyor appointed by the court were critical to the case. Instead, the tribunal based its decision solely on Exhibit 'T', a letter from the Respondent to the Petitioner. The Petitioner claimed that this letter alone does not constitute adequate proof of the claim.

The Petitioner contended that the letter contained vague and contradictory information. While the letter mentioned a specific number of damaged cement bags, the amount was significantly less than the quantity claimed in the respondent's statement of claim.

Observations by the High Court:

The High Court noted that the evidence available before the Arbitral Tribunal primarily comprised four documents. The first was a letter which indicated that the Respodent was entitled to an amount in excess of Rs.60,00,000/-. The second document was a subsequent letter where the Petitioner claimed an amount of Rs. 1,13,27,208/- as on that date.

The third document was a report by the insurance's surveyor which assessed the loss at Rs. 8,68,611/- and the gross amount at Rs. 9,39,740/-. The tribunal chose not to rely on this report for two reasons. First, it was not proved in evidence which meant it could not be looked into. Secondly, it was not accepted by the Respondent itself. The fourth document was a report authored by the court-appointed surveyor who assessed the claim at Rs. 77,40,562/-. Although the Respondent accepted this report, the Arbitral Tribunal disbelieved it on cogent grounds.

Insofar as the report authored by surveyor was concerned, the High Court held that the arbitral tribunal was justified in refuting the same as it wasn't proved in evidence unlike two other documents which were formally proved.

Therefore, the High Court noted that the probative value of the report was doubted and the report was not accepted by the tribunal with sufficient justification.

Thus, what remained were two letters both written unilaterally by the Respondent. The High Court noted that there was no justifiable basis for why the tribunal chose the letter as the sole basis for granting the claim. The letter itself was vague in as much as it mentioned the entitlement of the Respondent to be in excess of Rs.60,000/- not specifically quantifying the exact amount of damages.

Moreover, the High Court noted that the Respondent made various claims at different points in time concerning the amount. In view of such inherent contradictions in the claims of the Respondent, the High Court held that no reliance can be placed on its unilateral claim as embodied in the letter.

The High Court held that it defies all principles of jurisprudence as to how the unilateral claim of the Respondent which does not even qualify as pleadings supported by due verification/affidavit could be equated with proof of such claim.

Further, the High Court held that this was not a situation where an exact figure cannot be arrived at and the tribunal was compelled to resort to reasonable guess-work. But, it held that it was case where the Tribunal relying on no material basis whatsoever arbitrarily granted an amount to the Respondent.

Further, the High Court referred to the decision of the Supreme Court in Dyna Technologies Private Limited Vs. Crompton Greaves Limited (2019) 20 SCC 1 and I-Pay Clearing Services Private Limited vs. ICICI Bank Limited (2022) 3 SCC 121 and held that the grounds contemplated in Section 34(4) refer not to cardinal jurisdictional errors but to mere dearth of reasoning on the part of the Tribunal.

The High Court held that the case was not one where there was a technical defect or scarcity of reason for which an opportunity might have been given to the Tribunal to cure such defect.

It held that the defect was incurable since there was no material at all before the Tribunal to grant any amount of compensation to the Respondent. The amount granted was without any material basis whatsoever and based arbitrarily on the unilateral claim made in correspondence by the Respondent,

Therefore, the High Court set aside the impugned award.

Case Title: Oriental Insurance Company Limited Vs M/S. Sarada Rani Enterprises

Case Number: A.P. No. 392 of 2012

Advocate for the Petitioner: Mr. Chayan Gupta, Adv. Mr. Sanjay Paul, Adv. Ms. Jaita Ghosh, Adv

Advocate for the Respondent: Mr. Suddhasatva Banerjee, Adv. Mr. Dwip Raj Basu, Adv. Mr. Aritra Basu, Adv. Mr. Ritoban Sarkar, Adv.

Date of Judgment: 19.07.2024

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