Court’s decision
The Bombay High Court upheld the arbitral award and dismissed the Section 34 challenge filed by the Petitioner-insurer. The Court held that the arbitral tribunal had acted within its jurisdiction, followed the evidentiary record, and exercised permissible discretion while assessing technical claims involving hydraulic oil, thermic fluid, platens, and electrical components. The Court reiterated that a surveyor’s report is not binding, and tribunals may depart from it where material inconsistencies exist. The Court held that the tribunal had rightly relied upon documentary evidence showing the actual quantity of materials purchased for restarting the plant and had correctly rejected the insurer’s objections.
The Court clarified that an expert appointed under Section 26 of the Arbitration Act is not equivalent to a second surveyor under the Insurance Act. The tribunal’s decision to award 70 percent of the claim for hydraulic oil and thermic fluid was upheld as reasonable and supported by evidence. The Court found no perversity, patent illegality, or conflict with public policy. Consequently, the arbitral award remained undisturbed.
Bombay High Court’s Role in Arbitration
Facts
The Petitioner-insurer issued an industrial all-risk policy covering a manufacturing plant. A fire broke out in the plant’s hot press section, causing significant damage to multiple components, including platens, hydraulic systems, and thermic fluid lines. The Respondent immediately reported the incident, and a surveyor was appointed under Section 64-UM of the Insurance Act. The surveyor conducted three site inspections but prepared incomplete documentation, including failure to prepare a report after the first visit and refusal to sign a joint inspection record after the second visit.
The Respondent purchased large quantities of hydraulic oil and thermic fluid to restart operations. The surveyor allowed only 20 percent of the claim without reliable reasoning. Dissatisfied, the Respondent invoked arbitration. A three-member tribunal was constituted, and after examining witnesses and appointing an expert under Section 26, the tribunal awarded compensation for hydraulic oil, thermic fluid, platens, VFD AC Drive, and pressure transducers. The insurer challenged the award under Section 34 alleging arbitrariness and erroneous reliance on expert opinion.
Issues
- Whether the arbitral tribunal erred in rejecting the surveyor’s assessment and awarding higher compensation for hydraulic oil and thermic fluid.
- Whether appointment of an expert under Section 26 amounted to an impermissible second surveyor under Section 64-UM of the Insurance Act.
- Whether the award suffered from patent illegality or conflicted with the public policy of India.
- Whether the tribunal’s assessment of damage to platens and other components was based on evidence or constituted re-appreciation beyond permissible limits.
Petitioner’s arguments
The Petitioner argued that the tribunal departed from expert and surveyor assessments without valid reasons. It submitted that the surveyor and expert had approved only 20 percent and 25 percent respectively of the hydraulic oil and thermic fluid claim. The Petitioner asserted that awarding 70 percent was arbitrary. It further contended that the tribunal could not appoint an expert because the power to appoint a second surveyor lies only with the insurance regulator. The Petitioner argued that the tribunal ignored technical findings regarding VFD AC Drive and platens and had imposed its own assumptions contrary to binding precedent. The Petitioner further asserted that the award contradicted Supreme Court guidelines requiring deference to surveyor opinions unless disproved.
Respondent’s arguments
The Respondent argued that the surveyor’s report was perfunctory and internally inconsistent. The surveyor failed to document the first inspection, refused to sign the second report, and delayed the third visit by over thirteen months. The Respondent maintained that the surveyor inspected only two out of six damaged platens and ignored critical evidence. The Respondent emphasized that the expert’s opinion under Section 26 was not a second surveyor’s report but an independent technical aid to the tribunal. It argued that documentary evidence clearly demonstrated purchase of materials required to restart the plant, thereby disproving the surveyor’s assessment. The Respondent contended that the tribunal acted within its fact-finding powers and that Section 34 does not permit re-appreciation of evidence.
Analysis of the law
The Court applied Section 34 jurisprudence, emphasizing that review is extremely limited and does not permit reassessment of facts. It recognized that an arbitral tribunal may reject a surveyor’s report if it finds cogent reasons. The Court noted that surveyor reports are recommendatory and not binding on either party. The Court relied on Supreme Court principles permitting tribunals to apply broad evaluation or rough estimates when exact quantification is impossible. The Court also analyzed the nature of expert evidence under Section 26, holding that such appointment is independent of insurance regulatory mechanisms and is permissible where technical clarity is required.
Precedent analysis
The Court reviewed multiple precedents emphasizing that surveyor reports are not final and that tribunals may depart from them upon identifying inconsistencies. It relied on authorities stating that arbitral tribunals can compute compensation through reasonable estimation. The Court found that the tribunal’s reasoning aligned with principles in decisions permitting courts and tribunals to undertake approximate assessments where commercial practicality and available evidence justify such exercise.
Court’s reasoning
The Court held that the surveyor’s assessment lacked credibility because of delayed inspections, absence of documentation, and refusal to sign joint inspection reports. It noted that essential evidence supporting the Respondent’s purchase of materials was uncontested, demonstrating the scale of replacement required to restart operations. The Court held that awarding only 20 percent or 25 percent of the claim would disregard the actual operational needs shown by evidence. The Court found that the tribunal had applied a reasonable middle path by granting 70 percent, which avoided awarding the full amount while accounting for evidentiary limitations.
Regarding platens, the Court held that the surveyor inspected only a fraction of the damaged components and ignored technical indicators. The expert’s statements, supported by evidence, justified awarding compensation. The Court found no error in awarding claims for VFD AC Drive and pressure transducers because findings were rooted in the tribunal’s factual assessment. Ultimately, the Court held that the award displayed no perversity, irrationality, or illegality.
Conclusion
The Bombay High Court upheld the arbitral award, affirming that fact-based technical determinations by an arbitral tribunal cannot be re-examined under Section 34. It held that surveyor reports are not conclusive and tribunals may use expert assistance or reasoned estimation when evidence warrants deviation. The Court concluded that the tribunal acted within its jurisdiction, gave cogent reasons, and followed established legal standards. The petition was dismissed with no additional costs.
Implications
This judgment strengthens the autonomy of arbitral tribunals in technical insurance disputes. It underscores that tribunals may reject surveyor reports where they are incomplete or unreliable. It clarifies that Section 26 experts play a legitimate and independent role and are not constrained by insurance regulatory limitations. The ruling also reinforces minimal judicial interference under Section 34 and encourages insurers to maintain higher documentary and procedural rigour. The judgment will influence future disputes involving fire damage, industrial claims, quantification of consumables, and technical assessments where precise measurement is difficult.
