Madras High Court Sets Aside ₹7.77-Crore Award Against New India Assurance

The Madras High Court has recently set aside a Rs 7.77-crore arbitral award passed against New India Assurance Company Limited, holding that the arbitral tribunal failed to properly examine whether the claimant had the right to maintain the insurance claim after transferring its entire business.

Allowing the insurer's challenge, Justice N. Anand Venkatesh held that the tribunal ignored a threshold issue going to the root of the dispute and returned findings that were “bereft of any materials” and based on “mere surmises and conjectures”.

The court held that the award “suffers from perversity and patent illegality”.

The dispute stemmed from insurance claims filed by Rajkumar Impex Private Limited, a cashew processor and exporter, under three policies covering raw cashew nuts, machinery, and its factory premises in Tamil Nadu.

In November 2015, floods caused extensive damage to its stocks and infrastructure. The insurer released Rs 1.5 crore as an interim payment, but disputes arose over the assessment of loss.

After prolonged correspondence, New India Assurance offered Rs 70.75 lakh as a final settlement. Aggrieved, the claimant invoked arbitration and claimed Rs 22.77 crore. By an award dated 23 October 2021, a three-member arbitral tribunal directed the insurer to pay Rs 7,77,12,349 with interest. A clarification order reiterating the award was passed on December 14, 2021.

Before the High Court, the insurer contended that Rajkumar Impex had entered into a Business Transfer Agreement dated 14 July 2016, under which it transferred its entire business along with assets, liabilities, and receivables to Rajkumar Cashew India Pvt. Ltd., and therefore lacked locus standi to continue the arbitration.

The court noted that the insurer had questioned the claimant's authority from the very beginning and had sought documents to establish whether it could independently prosecute the claim.

Despite an admission during evidence that no board resolution authorising the arbitration existed, the tribunal assumed authorisation and proceeded.

Justice Venkatesh held that the tribunal failed to appreciate the legal effect of the Business Transfer Agreement. Treating the transaction as a slump sale, the court observed, “Once it is a slump sale, every other account receivable will stand transferred to the purchaser. The insurance policy amount that is receivable from the petitioner will also obviously stand transferred to the new entity.”

The court further held that the tribunal violated Section 18 of the Arbitration and Conciliation Act by independently relying on records from the Ministry of Corporate Affairs website without putting the parties on notice.

Holding that the tribunal had not assigned any proper reasoning as to how it concluded that the claimant alone was entitled to receive the policy benefits, the court set aside the arbitral award dated October 23, 2021, and the clarification order dated December 14, 2021. The court also permitted New India Assurance to withdraw Rs 2.25 crore deposited pursuant to an interim order, along with accrued interest

For Petitioner: Advocate S.R. Sundar

For Respondent: Advocate V. Raghavachari, Senior Counsel for M/s. Sampathkumar & Associates