Delhi High Court Sets Aside Rs 13.31 Crore Arbitral Award In Favour Of Jindal India Against Oriental Insurance

A Rs. 13.31 crore arbitral award in favour of Jindal India Limited has been set aside by the Delhi High Court in a dispute over insurance claims arising from a factory fire, with the court finding that the award went beyond the terms of the contract.

Justice Avneesh Jhingan underlined that an arbitrator's authority flows from the agreement between the parties. “The arbitrator cannot go beyond the terms of the contract,” the court said, adding that the methodology adopted to assess loss must conform to the policy.

The dispute arose out of an Industrial All Risk Policy issued by Oriental Insurance Company Ltd. to Jindal India Limited for the period January 13, 2017 to January 12, 2018. The policy covered fire risks and indemnity for business interruption losses, including Fire Loss of Profit.

On September 27, 2017, a fire broke out in the new unit of the company's aluminum foil division in West Bengal, leading to a claim of Rs 13.53 crore towards business interruption loss.

The policy set out two key components for calculating such loss: standard turnover and the rate of gross profit. Standard turnover, defined as the turnover of the twelve months immediately preceding the loss, allowed adjustments to reflect business trends and surrounding circumstances. The rate of gross profit, however, was fixed by the policy as the rate earned during the financial year immediately preceding the loss, without any scope for adjustment.

A surveyor initially assessed the loss at Rs.13.31 crore and later revised the figure upwards through additional reports. Questioning the approach adopted, Oriental Insurance appointed a second surveyor, who assessed the loss at Rs. 3.84 crore. That amount was paid.

Jindal India invoked arbitration, seeking Rs. 13.53 crore along with interest. By an award dated February 10, 2023, the arbitral tribunal accepted the higher assessment of Rs. 13.31 crore, after adjusting the amount already paid, and awarded interest at 7 per cent per annum in case of delay.

Before the High Court, the insurer argued that the surveyor had departed from the policy while calculating the rate of gross profit by relying on data from six months of FY 2017 to 2018 and applying trend-based adjustments, instead of using the financial year immediately preceding the loss, FY 2016 to 2017. It also pointed out that the surveyor had considered turnover of only two months instead of the twelve months required under the policy while determining standard turnover.

Jindal India defended the award, contending that the arbitrator had taken a plausible view and that the court should not reappreciate evidence. It pointed to market developments, including anti dumping duties, to justify the adjustments made.

The court reiterated that while it does not sit in appeal over arbitral awards, it is required to examine whether the award conforms to the contract.

On that standard, the methodology adopted for calculating the rate of gross profit could not be sustained. The court noted that while the policy permitted adjustments in determining standard turnover, no such flexibility existed for the rate of gross profit. Despite this, the surveyor calculated the rate using six months of FY 2017 to 2018 and applied trend adjustments, arriving at 31.64 percent.

Such an approach, the court held, was contrary to the policy, which required the rate to be based strictly on the financial year immediately preceding the loss. Accepting it resulted in awarding a claim beyond the contractual terms.

Holding that the surveyor's report was not in accordance with Section II of the policy and that the arbitrator erred in relying on it, the court set aside the arbitral award.

For Petitioner (The Oriental Insurance Company Ltd.): Advocate Abhishek K. Gola.

For respondent (Jindal India Limited): Advocate Ishaan Chhaya.