Subrogation Deed Does Not Terminate The Right Of The Assured To Initiate Arbitration Against The Wrongdoer: Delhi High Court

The Single Bench of Justice Sanjeev Sachdeva held that subrogation does not put an end to the right of the assured to initiate legal proceedings against the wrongdoer, it merely allows the insurer to step into the shoes of the insured to recover the damages.

Facts

The parties entered into two identical Warehousing & Logistics agreements wherein the respondent agreed to provide third-party logistics and warehousing services. Thereafter, a fire broke out which led to the loss of the petitioner's stocks and assets which gave rise to disputes between the parties.

The petitioner claimed compensation from the respondent for the loss suffered by it. The respondent contended that it has no liability to compensate the respondent. Accordingly, the petitioner invoked arbitration in both agreements.

The respondent did not consent to the appointment of the arbitrator and also failed to appoint its nominee arbitrator, therefore, the petitioner filed the applications under Section 11 of the A&C Act for the appointment of the arbitrator.

Objections To The Maintainability Of The Petition.

The respondent objected to the maintainability of the petition on the following grounds:

• The petitioner has executed a deed of subrogation-cum-assignment in favour of HDFC Ergo General Insurance Company Ltd. and in consideration, it has received the entire loss amount from the insurance company, therefore, there is no surviving claim against the respondent.
• The petitioner cannot maintain the claims against the respondent as it has assigned its right to the insurance company qua these claims.
• The arbitration agreement provides for settlement of disputes between the parties and insurance company is not a party to the arbitration agreement, therefore, there cannot be any arbitration between the respondent and the insurance company.

The petitioner disputed the contentions raised on behalf of the respondent and submitted as under:

• The agreement between the petitioner and the insurance company is mere an agreement for subrogation and there has not been complete assignment in favour of the insurance company.
• The petitioner is well within its right to take all the steps for the recovery of the damages and apply the same towards the settlement amount and retain the balance.
• The insurance company has also given an undertaking that they are not independently seeking to enforce any rights under the agreement and the claim, if any, would be in the name of and on behalf of the petitioner.

Analysis By The Court

The Court relied on the judgment of the Hon'ble Supreme Court in Economic Transport Organization Delhi v. Charan Spinning Mills Pvt. Ltd. (2010) 4 SCC 114, to hold that in an assignment, the assured gives upon its entire claim in favour of the insurer. The insurer can sue in its own name, moreover, it becomes entitled to the entire amount of damages recoverable from the wrongdoer whereas in subrogation, the insurer cannot independently take sue in its own name also its claim on the damages would be confined to the amount it has paid to the assured and the rest would be retained by the assured.

The Court held that the agreement between the petitioner and the insurance company is not an assignment simplicitor but a deed of subrogation cum assignment. It observed that in terms of the subrogation deed, the petitioner has retained the right to take appropriate action for the recovery of damages which is an attribute of the subrogation.

The Court further observed that the subrogation deed shows that any recovery made has to be first applied towards the settlement amount and the balance if any remaining is to be retained by the Petitioner. It held that had it been an assignment as contended by the respondent, the petitioner would have no right over the excess amount recoverable from the wrongdoer.

The Court held that deed between the parties was not an assignment but a mere subrogation.

The Court held that subrogation does not put an end to the right of the assured to initiate legal proceedings against the wrongdoer, it merely allows the insurer to step into the shoes of the insured to recover the damages.

The Court held that arbitration can be invoked by the petitioner against the respondent for recovery of damages in terms of Warehouse & Logistics agreements even after entering into a subrogation-cum-assignment agreement with an insurance company.

The Court left the issue of extinguishment of the claim of the petitioner due to it having received the settlement amount from the insurance company to be decided by the arbitrator.

Accordingly, the Court allowed the petitions.

Case Title: Fresenius Medical Care Dialysis Service India Pvt. Ltd. v. Kerry Indev Logistics Pvt. Ltd. Arb. P. No. 180 of 2022.

Citation: 2022 LiveLaw (Del) 637

Date: 04.07.2022

Counsel for the Petitioner: Dr. Amit George, Mr. Amrit Singh, Ms. Aakriti Dwivedi, Mr. Amol Acharya, Mr. Rayadurgam Bharat and Mr. P Harold, Advocates.

Counsel for the Respondent: Dr. R. Sunitha Sundar, Advocate

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