Bombay High Court Upholds UPL Insurance Award, Holds Dispute Is Of 'Quantum' Not 'Liability'

On 22 April, the Bombay High Court held that it would not interfere under Section 34 of the Arbitration and Conciliation Act, 1996 where an arbitral tribunal adopts a plausible view that a dispute concerns “quantum” rather than “liability”, and upholds an arbitral award arising from an insurance claim under an Industrial All Risk Policy.

Justice Sandeep V. Marne dismissed the petition filed by United India Insurance Company Ltd and upheld the arbitral award in favour of UPL Ltd. He observed:

“The Arbitral Tribunal thus had ample material before it for arriving at the conclusion that the accident was the proximate cause for overhauling of GT Engine. By no stretch of imagination, can it be contended that the findings recorded by the Arbitral Tribunal are so grossly perverse that this Court must invalidate the Award in exercise of powers under Section 34 of the Arbitration Act.”

The dispute arose from a 16 September 2001 incident at UPL's Gujarat plant, where a gas turbine engine malfunctioned and required overhaul and repairs. Under the Industrial All Risk Policy, the insurer paid Rs. 7.69 crore towards material damage and business interruption but declined to cover the overhaul costs. UPL invoked arbitration, which resulted in an award granting Rs. 41.98 crore along with interest and Rs. 2 crore towards costs.

Before the High Court, the insurer argued that the claim for overhaul costs amounted to a denial of liability and therefore could not be arbitrated. UPL, on the other hand, contended that the entire claim arose from a single incident and could not be artificially split into separate heads.

Rejecting the insurer's stand, the Court noted that United India Insurance had never required UPL to submit separate claims for “incident repairs” and “overhauling” and had also not clearly segregated or repudiated liability at the payment stage. It held that the insurer's attempt to later bifurcate the claim was misplaced. It observed:

"The Petitioner itself never segregated the same into two claims. Therefore, the submission from Petitioner's standpoint, that incident claim and overhaul claim arose from distinct legal obligations is misplaced. Petitioner never directed Respondent to submit two separate claims for 'incident repairs' and for 'overhauling'. Therefore, non-sanction of remaining part would clearly be a dispute relating to quantum. More importantly even at the stage of issuing of the cheque, Petitioner did not state that it was disputing liability for overhaul claim by segregating the Respondent's claim in two parts.”

The Bench further observed that the dispute, at best, concerned the balance amount after partial payment, which constituted a question of quantum. It held that once an insurer admits and pays part of a claim, the remaining dispute cannot be treated as a complete denial of liability unless the claim is repudiated in toto.

Finding no perversity or jurisdictional error in the arbitral tribunal's reasoning, the Court held that no ground was made out for interference under Section 34 of the Arbitration Act.

Accordingly, the High Court dismissed the petition.

For Petitioner: Senior Advocate Sharan Jagtiani with Advocates Surbhi Agarwal, Netra Haldankar i/b Dhruve Liladhar & Co

For Respondent: Senior Advocate Shiraz Rustomjee with Advocates Shreya Parikh, Archit Jayakar, Pooja Yadav, Mihir Kakade, Kshitij Abbhi i/b Jayakar & Partners