Mr. Vibhu Bakhru, J. - (1.) United India Insurance Co. Ltd (hereafter 'UIIC') has filed the present petition under Section 34 of the Arbitration and Conciliation Act, 1996 (hereafter 'the Act') inter alia praying that the arbitral award dated 07.11.2015 (hereafter 'the impugned award') passed by the Sole Arbitrator, Justice P.K. Bahri (Retd.) be set aside. By the impugned award, the arbitrator has allowed the claims made by THDC India Limited (hereafter 'THDC') in relation to the agreement dated 02.03.2001 executed by the parties herein.
(2.) The principal controversy urged on behalf of UIIC in this petition, concerns the arbitrator's finding that the insurance policy (hereafter 'the policy') stated to have been issued by UIIC and annexed to the Statement of Defence was not binding on THDC. Mr. De, the learned counsel for UIIC contended that the defences raised by the UIIC were in terms of the policy and the arbitrator had grossly erred in rejecting the same by holding that the same was not binding. It was urged that since the arbitrator had disregarded the terms of the policy, the impugned award is contrary to the terms of the contract between the parties and is thus, liable to be set aside.
(3.) Briefly stated, the relevant facts to address the controversy between the parties are as under: 3.1 THDC - a public sector enterprise - invited a tender (Tender No. THDC/RKSH/MCE/99-2000) for All Risks Comprehensive Marine-cum-Erection (MCE) Insurance Policy for Electrical and Mechanical Equipment, Computerised Control System, Hydro Mechanical Equipment and all other Associated/Auxiliary Equipment/connected systems for Tehri: HPP (Stage- 1) on 22.05.2000. UIIC's bid, which was submitted in response to the said invitation to tender, was accepted by THDC. The parties thereafter entered into an agreement dated 02.03.2001 (hereafter 'the Agreement') wherein total premium for the policy was fixed at Rs. 3,70,45,004/-. The same covered all imported and indigenous machinery and equipment, tools and any other material to be erected/installed in the project including spares thereof. 3.2 The total sum insured was Rs. 1,550.11 crores, which consisted of the following parts: JUDGEMENT_58_LAWS(DLH)12_2016.html 3.3 Although the insurance coverage of the policy was fixed from 29.09.2000 to 28.09.2003, however it could be extended and the premium was to be calculated on pro rata basis. The policy stood extended till 28.09.2007; that is, the date when above mentioned last two stages of the project were completed and the last unit was commissioned. It is stated that on 29.03.2007, while the trial of unit no.1 of the project was going on, Lightning Arrestor and Voltage Transformer(LAVT),Neutral Grounding Cubical and other accessories got damaged and therefore, UIIC appointed M/s Insurance Technical Services (hereafter 'the surveyor') to inspect the damaged components. 3.4 THDC, by a letter dated 11.07.2007, informed UIIC that all the units of the Project had been commissioned and requested to adjust the excess premium paid by THDC. On 31.08.2009, THDC raised a claim of Rs. 45,27,895/- towards the damaged components. 3.5 The surveyor submitted its final report on 04.06.2012 by holding that there was under insurance. The surveyor calculated the total cost of completion at Rs. 2,938.79 Crores on account of inflation as per the RBI Index and consequently assessed loss on account of damaged components at Rs. 19,67,412/-. 3.6 THDC issued a letter dated 29.06.2013 and called upon the UIIC to settle the claim of unlawful deduction of Rs. 18,51,853/- on account of under insurance and further refund the excess premium paid by THDC within 21 days of receipt of the said letter. 3.7 Thereafter, by a notice dated 25/26.10.2013, THDC invoked the arbitration clause - Clause 9.0 of the General Terms and Conditions governing the Offer - and appointed Justice P.K. Bahri (Retd.) as the Sole Arbitrator. 3.8 THDC raised 5 claims before the arbitrator, which are as follows: Claim No. 1 - Rs. 4527895/- as the loss incurred due to damage to LABT, NG Cubical and accessory of Unit No. 1. Claim No. 2 - Rs. 1 ,79,77,395/- on account of Excess premium paid to the respondent. Claim No. 3 - Rs. 2.50 lakhs towards the damages on account of unfruitful expenditure incurred by claimant. Claim No. 4 - Interest @ 18% per annum on the amounts claimed from the due date till the date of payment. Claim No. 5 - Costs of the present arbitration Proceedings. 3.9 UIIC, in its Statement of Defence, asserted that the parties were bound by the policy attached with the Statement of Defence and in terms of the policy, the surveyor's assessment was binding; consequently, THDC's claims ought to be rejected. 3.10 The Surveyor had proceeded on the basis that the cost of project was to be adjusted on account of inflation on the basis of the Index published by RBI and had, accordingly, computed the cost of the project at Rs. 2,938.79 crores. On the aforesaid basis, the surveyor had concluded that THDC had under-insured the project since it had paid the premium on the basis that the cost of the project to be Rs. 1,550.11 crores. Accordingly, the surveyor had assessed the loss at Rs. 19,67,412/-. The arbitrator rejected the aforesaid conclusion and accepted THDC's claim towards the damage of LAVT, NG Cubical and other accessories. The arbitrator held that the deduction of Rs. 18,51,853/- on account of under insurance, was unsustainable. According to the arbitrator, the cost of the project was to be ascertained on the basis of cost incurred. The arbitrator also noted that the cost of the project had been duly approved by the Central Electricity Authority and the total cost of the project was finally determined at Rs. 1,187.71 crores. 3.11 UIIC sought to support the report of the surveyor on the basis of the policy annexed with the Statement of Defence. The arbitrator considered the same and held that there was nothing on record to indicate that the policy was ever communicated to THDC or formed a part of the contract between the parties. 3.12 The arbitrator also allowed THDC's claim for excess premium paid. Admittedly, in terms of clause 6.1 of the Special Conditions of Contract forming a part of the Agreement, the premium payable was to be adjusted on the basis of the actual values to be declared by the insured and UIIC was liable to refund the excess premium paid within three months of the demand. The premium had been calculated on the projected cost of Rs. 1,550.11 crores but the cost finally determined was Rs. 1,187.71 crores; therefore, the arbitrator accepted that THDC was entitled to a refund of excess premium paid. Submissions ;