Sunday, 13 December 2015

Whether insurance companies can withhold admitted claim amount till insured gives receipt of full and final settlement?

The insurance companies cannot deny the payment of the
admitted claim amount to the insured unless a complete discharge is
given by the insured. The insistence of the insurance company to sign
a discharge voucher of full and final settlement before release of
admitted claim amounts to coercion and undue influence as defined in
Sections 15 and 16 of the Contract Act and such contracts are 
voidable under Section 19 and 19A of the Contract Act.
The withholding of the admitted amount by the insurance
companies unless complete discharge is given, amounts to deficiency
in service within the meaning of Section 2(1)(g) of the Consumer
Protection Act, 1986 as the insurance companies are not expected to
withhold the admitted claim amount till the insured gives the receipt
of full and final settlement.
IN THE HIGH COURT OF DELHI AT NEW DELHI
ARB.P. 459/2015
Date of Decision: 11th December, 2015
WORLDFA EXPORTS PVT.LTD. ..... Petitioner

versus
UNITED INDIA INSURANCE CO. LTD. ..... Respondent

CORAM:
HON'BLE MR. JUSTICE J.R. MIDHA
Dated;DECEMBER 11, 2015.


1. The petitioner is seeking appointment of an arbitrator under
Section 11(6) of the Arbitration and Conciliation Act, 1996.
2. Factual Matrix
2.1. The petitioner insured its factory at 449-450, HSIIDC, EPIP,
Kundli, Sonepat, Haryana - 131001 with the respondent under
Standard Fire and Special Perils Policy No.222700/11/11/11/
00000916 for the period 28th February, 2012 to 27th February, 2013.
2.2. On 25th October, 2012, a fire broke out in the insured premises
whereupon the petitioner lodged a claim with the respondent. The
respondent appointed M/s Cunningham Lindsey International Pvt.
Ltd. as surveyor to assess the petitioner’s loss on 27th October, 2012.
In February, 2013, the respondent appointed second surveyor, M/s
Jain Ambavat & Associates.
2.3. On 17th November, 2014, the surveyor assessed the petitioner’s
loss at Rs.6,04,36,887/- and sought the concurrence of the petitioner
whereupon the petitioner gave its concurrence vide letter dated 17th
November, 2014 and executed the undated discharge voucher. The
petitioner claims that the respondent forced it to give the concurrence.
According to the petitioner, the respondent refused to release the
assessed amount unless the concurrence was given and the petitioner,
who was suffering because of the inordinate delay of two years, gave
the concurrence under duress and coercion. The petitioner, in the letter
dated 17th November, 2014, clearly protested that the concurrence was
without prejudice to its rights under the policy. The petitioner also
reserved the right to invoke the arbitration in terms of the policy. The
relevant portion of the letter dated 17th November, 2014 is reproduced
hereunder:
“2. We hereby give concurrence to the net assessment of
Rs.6,04,36,887 (Rupees Six Crore Four Lacs Thirty Six
Thousand Eight Hundred & Eighty Seven Only) including reweighment
expenses amounting Rs.8,01,988, under the above
policy of United India Insurance Co. Limited.
3. Please note that the concurrence is without prejudice to
our/ insurers rights and subject to various terms and
conditions of the policy.”
 (Emphasis supplied)
2.4. On 7th July, 2015, i.e. eight months after the aforesaid
concurrence, the respondent released a sum of Rs. 5,62,32,959/- to the
petitioner. 
2.5. On 10th July, 2015, the petitioner protested that the receipt of
Rs. 5,62,32,959/- against their claim of Rs.12,69,51,063/- was under
duress and protest. The petitioner invoked the arbitration clause of the
policy with respect to the balance claim amount. The relevant portion
of the letter dated 10th July, 2015 is reproduced hereunder:
“In the process of settlement of claim, an inordinate delay has
been caused and our financial interest has been harmed. In
view of difficulties, delay and lack of transparency in sharing
the documents and information by the insurance company and
persons appointed by insurance company, we have been denied
an actual amount of indemnity under the contract of insurance
under this policy, since we claimed an amount of
Rs.126951063.00 and substantiated the same whereas we have
been given Rs.56232959.00 only.
We hereby invoke the provisions of arbitration clause of the
policy and seek appointment of an arbitrator which should be
fair and experienced to grant us the justice.
We await your advice on the above subject. It is needless to say
that we have accepted the amount of claim paid to us on
07.07.2015 under stress, duress and protest, which should not
be treated as full and final settlement acceptable to us.”
2.6. Vide reply dated 03rd August, 2015, the respondent raised an
objection to the appointment of an arbitrator on the ground that the
payment of Rs. 5,62,32,959/- has been made in full and final
settlement to the petitioner and, therefore, no arbitral disputes survive
in the matter.
3. Submissions of the petitioner
3.1. The insurance sector in India is regulated by Insurance
Regulatory and Development Authority (IRDA) an autonomous body
constituted under IRDA Act, 1999. IRDA has, from time to time, ARB.P. 459/2015 Page 4 of 22
issued various rules and regulations prescribing guidelines to be
followed by insurance companies in settling the claims. The relevant
guidelines contained in IRDA (Protection of Policyholders Interests)
Regulations, 2002 are as under:
“9. Claim procedure in respect of a general insurance policy
(1) An insured or the claimant shall give notice to the insurer of
any loss arising under contract of insurance at the earliest or
within such extended time as may be allowed by the insurer. On
receipt of such a communication, a general insurer shall
respond immediately and give clear indication to the insured on
the procedures that he should follow. In cases where a surveyor
has to be appointed for assessing a loss/ claim, it shall be so
done within 72 hours of the receipt of intimation from the
insured.
(2) Where the insured is unable to furnish all the particulars
required by the surveyor or where the surveyor does not receive
the full cooperation of the insured, the insurer or the surveyor
as the case may be, shall inform in writing the insured about
the delay that may result in the assessment of the claim. The
surveyor shall be subjected to the code of conduct laid down by
the Authority while assessing the loss, and shall communicate
his findings to the insurer within 30 days of his appointment
with a copy of the report being furnished to the insured, if he so
desires. Where, in special circumstances of the case, either due
to its special and complicated nature, the surveyor shall under
intimation to the insured, seek an extension from the insurer for
submission of his report. In no case shall a surveyor take more
than six months from the date of his appointment to furnish his
report.
(3) If an insurer, on the receipt of a survey report, finds that it
is incomplete in any respect, he shall require the surveyor
under intimation to the insured, to furnish an additional report
on certain specific issues as may be required by the insurer.
Such a request may be made by the insurer within 15 days of
the receipt of the original survey report.
Provided that the facility of calling for an additional report by
the insurer shall not be resorted to more than once in the case ARB.P. 459/2015 Page 5 of 22
of a claim.
(4) The surveyor on receipt of this communication shall furnish
an additional report within three weeks of the date of receipt of
communication from the insurer.
(5) On receipt of the survey report or the additional survey
report, as the case may be, an insurer shall within a period of
30 days offer a settlement of the claim to the insured. If the
insurer, for any reasons to be recorded in writing and
communicated to the insured, decides to reject a claim under
the policy, it shall do so within a period of 30 days from the
receipt of the survey report or the additional survey report, as
the case may be.
(6) Upon acceptance of an offer of settlement as stated in subregulation
(5) by the insured, the payment of the amount due
shall be made within 7 days from the date of acceptance of the
offer by the insured. In the cases of delay in the payment, the
insurer shall be liable to pay interest at a rate which is 2%
above the bank rate prevalent at the beginning of the financial
year in which the claim is reviewed by it.”
3.2. The aforesaid regulations do not provide any penal
consequences for their breach which has led to inordinate delay in
settling claims of the insured, as is in the instant petition, where the
insurance company has taken more than three years to settle the claim.
In most cases, the insured is not even informed about how the claim is
being settled, or on what stage of settlement the case is pending, and
the insured is made a “take it or leave it” offer many years after the
mishap. The insured gets to know about the settlement amount at the
stage of signing the discharge voucher and at that point of time, the
insured after having languished for a considerable amount of time is
not left with any option but to sign on the dotted line and accept
whatever amount the insurance company is offering. It would
tantamount to compounding the miseries of the insured if in such a ARB.P. 459/2015 Page 6 of 22
situation, the insured is prevented from even seeking adjudication of
these disputes on the basis that a “discharge voucher” has been issued.
3.3. A discharge voucher executed under financial stress, duress and
coercion is void ab initio. However, much of the Court’s time and
resources are wasted in setting aside the discharge voucher and hence,
defeating the entire purpose of the arbitration clause being inserted in
the insurance policy.
3.4. There was no effective regulatory regime to keep a check on
insurance companies and to ensure that the rights of the insured are
not jeopardized during the process of claim assessment. Resultantly,
the insurance companies have developed an unfair trade practice of
insisting on discharge voucher/ no claim certificate as a pre-condition
of payment of the assessed amount to the insured. The necessary
safeguards, which are prevalent in other foreign jurisdictions with
regard to the enforcement of strict timelines, payment of amount
within a prescribed time period, payment of interim amount, are in
fact, practically non-existent. A practice has developed whereunder
the insured is asked to sign on a pre-prepared discharge voucher as a
pre-condition for receiving payment. This practice has been
commented upon in a number of judicial pronouncements that
furnishing of such discharge vouchers does not come in the way of
right to seek adjudication of unpaid / wrongfully denied claims
through arbitration or by taking recourse to the jurisdiction of the
consumer courts. Reliance is placed on National Insurance
Company Limited v. Boghara Polyfab Private Limited (2009) 1 SCC
267, CMD, NTPC Ltd. v. Reshmi Construction, Builders & ARB.P. 459/2015 Page 7 of 22
Contractors, (2004) 2 SCC 663, Oriental Insurance Co. Ltd. v.
Mercury Rubber Mills 2012 (127) DRJ 650, Pacific Garments Pvt.
Ltd. v. Oriental Insurance Co. Ltd. 2013 (133) DRJ 385, National
Insurance Company Ltd. v. Rajan Sood 2014 SCC Online NCDRC
443, Oriental Insurance Co. Ltd. V. Government Tool Room and
Training Centre (2008) CPJ 267(NC), R.L. Kalathia and Company
v. State of Gujarat, (2011) 2 SCC 400, Bharat Coking Coal Ltd. v.
Annapurna Construction, (2003) 8 SCC 154 and United India
Insurance Co. Ltd. v. K. Gangadharan, 2003 2 AWC 472 NC. In
Oriental Insurance Co. Ltd v. Government Tool Room and Training
Centre (supra), the National Consumer Disputes Redressal
Commission deprecated this practice of obtaining discharge vouchers
from the insured and holding it to be a full and final settlement.
3.5. In developed countries, there are strict provisions and
safeguards to protect the right of the insured and to ensure
transparency in the manner of processing claims due under insurance
policy. There are strict timelines which are binding on the insurance
companies; the process for assessment of claims is subject to strict
regulatory provisions which are designed to protect the insured
against harassment, unreasonableness and arbitrariness. No insurance
company is allowed to avoid payment of the legitimate amount due to
the insured and take shelter behind a so-called discharge voucher. The
reliance is placed on following legal position in different countries:
United Kingdom
3.5.1. Unfair Terms in Consumer Contracts Regulations 1999
prohibit the unfair practices to the detriment of the consumer.
A contract term which has not been individually negotiated is ARB.P. 459/2015 Page 8 of 22
regarded as unfair, if contrary to the requirements of good
faith, which causes significant imbalance on the parties’
rights and obligations under the contract to the detriment of
the consumer. In D & C Builders Ltd. v. Rees [1966] 2 QB
617, the Court held a contract entered into as a result of
economic duress (or illegitmate threat to the economic
interests of a party) as voidable.
United States
3.5.2. In United States, there are strict provisions which lay down
standard of prompt, fair and equitable settlement namely Fair
Claims Settlement Practices Regulations (California Code of
Regulations) and New York Code - Section 2601: Unfair
claim settlement practices; penalties.
3.5.3. In US, if an insurance company deprives an insured of its
legitimate claim amount in the guise of a release of discharge
voucher, it is exposed to bad faith action and in which
extremely high punitive damages can be slapped on the
insurance company.
3.5.4. In Cynthia Phelps v. State Farm Mutual Automobile
Insurance Company [United States Court of Appeals
decision dated June 13, 2012], the Court held that the
insurance company had violated Kentucky’s Unfair claims
Settlement Practices Act Section 304.12-230 Sub-sections (6)
& (7) by not attempting in good faith to effectuate prompt, fair
and equitable settlement of claims in which liability has
become reasonably clear and compelling insureds to institute
litigation to recover amounts due under an insurance policy
by offering substantially less than the amounts ultimately
recovered in actions brought by such insureds. The Court also
held that an extensive delay of three years for settlement of
claim amounted to bad faith.
3.5.5. As in UK, there is a very strict regulatory framework of
assessment of claim to ensure that the interest of the insured
is not jeopardized or compromised as a result of unequal
bargaining position of the insurance company. The National
Association of Insurance Commissioners (NAIC’s) model
legislation covers unfair methods of competition and general ARB.P. 459/2015 Page 9 of 22
deceptive practices in the insurance business. The core
provisions of such statutes are general and justifiably broad
in scope. For example, there is a near uniform provision that
requires insurers to communicate “reasonably promptly”
with respect to claims, and the requirement to adopt and
implement “reasonable standards” for claims investigation.
This requirement is often supplemented by an obligation to
affirm or deny a claim within a “reasonable time.” These
statutes typically contain a prohibition against refusing to pay
claims without a “reasonable investigation,” and the essential
duty to negotiate “in good faith to effectuate prompt, fair and
equitable settlements of claims in which liability has become
reasonably clear. Many statutes also contain provisions
prohibiting insurers from “compelling insureds to institute
litigation…by offering substantially less than the amounts
ultimately recovered” when an insured makes a claim. The
regulations adopted by different states are based on these
model regulations. For example, Oklahoma imposes a fine,
enforced by the state Insurance Commissioner, between $100
and $5000 for each violation of its statute., while Nebraska
imposes a penalty upto $30,000 for each and every violation.
A number of States also allow punitive damages for private
claimants. Massachusetts’s bad-faith statute expressly permits
punitive damages up to twenty five percent of the underlying
bad faith claim. States that recently amended their bad faith
statutes have also significantly heightened available extracontractual
damages. For example, since 2007, Maryland had
increased penalties up to $750,000, and Washington has
enacted a treble damages multiplier for first party insurance
bad faith claims.
Singapore
3.5.6. The Singapore contains provision for safeguarding the rights
of the insured. Clause 7.2 of the Code of Practice imposes
strict timelines and procedural requirements to ensure that
claim is fairly and promptly assessed and the legitimate
amount paid to the insured.
3.5.7. A consumer who is not satisfied with his insurer can file a ARB.P. 459/2015 Page 10 of 22
dispute with the Financial Industry Disputes Resolution
Centre (FIDReC). FIDReC is an independent organisation
that offers services for the resolution of disputes between
consumers and insurers in an amicable and inexpensive
manner. A consumer who is not satisfied with the outcome of
the hearing can commence legal action against the insurer.
3.5.8. In Projection Pte. Ltd. v. Tai Ping Insurance Co. Ltd. [2001]
SGCA 28, the Singapore Court had taken note of the fact that a
discharge voucher is no more than an acknowledgment of the
receipt of the sum in full settlement of the claim, and, as is the
common practice of insurance companies, is prepared in
advance of the payment that had yet to be received. It is a
procedure normally adopted by insurance companies as a
follow-up to a settlement which they have agreed.
Australia
3.5.9. Australia has enacted a General Code of Practice for
Insurance. The Code is supported by a transparent and
independent governance framework to ensure Code
compliance is effectively monitored and enforced. The Code
imposes strict timelines on the insurance companies with
respect to settlement of claim. The insurance company is
required to make a decision on the claim within four months
from lodging of the claim. In the event, the claim is denied, the
insurance company has to provide reasons in writing for the
same and provide a copy of the survey report to the insured.
The insured may then choose to challenge the decision of the
insurance company and take recourse to an elaborate and
effective dispute resolution mechanism.
3.5.10.Under the provisions of the Code, the insurance company is
mandated to resolve all complaints and disputes quickly and
fairly and keep the insured informed of the progress of the
response to their complaint. It appears that usually the internal
dispute resolution team can sort out many problems the
insured may have, but if the dispute remains unresolved or the
insured is unhappy with the decision, the insured may make a
reference to the free and independent external dispute ARB.P. 459/2015 Page 11 of 22
resolution scheme administered by the Financial Ombudsman
Service (FOS).
3.5.11.The Financial Ombudsman Service (FOS) independently and
impartially examines general insurance disputes between
general insurance companies and customers. FOS is
independent and provides a free service for consumers. It can
mediate between the insurer and the consumer, and when
mediation is unsuccessful, an ombudsman can make a
determination. FOS decisions are legally binding on the
insurance company but the insured are not bound by its
decisions.
3.5.12.A notable feature of the Australian Code is that it makes
provisions for insureds who are suffering from financial
hardships caused due to the event that triggered insurance. In
such cases, the Code mandates that the insurance company
should assess the claim quicker as well as provide interim
financial assistance to the insured.
4. Submissions of the respondent
4.1. The respondent is opposing the appointment of arbitrator on the
ground that no arbitral claim survives under the arbitration clause of
the policy on receipt of the assessed amount in full and final
settlement after execution of a discharge voucher.
5. Whether the insurance company can withhold the payment of
the assessed amount unless a complete discharge is given.
5.1. It is well known that the insurance companies do not release the
assessed claim amount to the insured unless the insured executes a
complete discharge voucher. The question has arisen with respect to
the legality of this practice.
5.2. There is no clause in the insurance policy that the amount
assessed by the insurance company shall not be paid unless complete
discharge is given. ARB.P. 459/2015 Page 12 of 22
5.3. No law permits the insurance company to withhold the payment
of the admitted amount unless the receipt of full and final settlement is
issued by the insured.
5.4. The amount assessed by the insurance company is the admitted
liability of the insurance company to the insured and the insurance
company is obliged to make the payment of the same to the insured
whether the insured accepts the assessment or not.
5.5. In Oriental Insurance Co. Ltd. v. Government Tool Room and
Training Centre, (2008) CPJ 267 (NC), the National Consumer
Disputes Redressal Commission held the practice of insurance
companies in not paying the claim amount without a discharge
voucher of full and final settlement as an unfair trade practice. The
National Commission directed the insurance companies to abandon
this practice. The National Commission further directed Insurance
Regulatory Development Authority (IRDA) to take appropriate action
so that the option/choice of the insured to approach the legal forum for
just settlement of his claims is not curtailed/ frustrated. The relevant
portion of the said judgment is reproduced hereunder:
“1. This case illustrates how the Insurance Company can
even harass the Government Department which is a part and
parcel of Union of India, i.e. Industries and Commerce, the
Government Tool Room and Training Centre.
2. The sole dispute in this first appeal is with regard to the
discharge voucher signed by the Vice Chairman of the
respondent with regard to the amount received from the
Insurance Company as full and final settlement.
xxx xxx xxx
5. It is to be stated that if the Government department is
required to accept the amount for one or other reason and 
sign the document as full and final settlement, think of the
fate of a consumer whose entire factory is gutted by fire; when
the banks are insisting for repayment of the loan amount and
the creditors are harassing the owner of the factory by various
means. In that set of circumstances, if a person requires the
money and signs the voucher as receipt of full and final of
claim, it amounts coercive practice by the Insurance
Company. Various such illustrations can be given but this is
only to highlight that wrong practice followed by the
Insurance Companies in not paying the single pie without
having a discharge voucher stating that the amount is
received by the claimant as full and final settlement of his
claim. In our view, it is a coercive practice. And, it is
suggested that the Insurance Companies may abandon this
practice and do not try to snatch away the right of the insured
to approach the legal forum for getting just and reasonable
reimbursement.
(1) In support of its claim the Managing Director of the
Government Tool Room and Training Centre, Bangalore,
has filed an affidavit to the effect that Insurance
Company informed that it was a standard format
prescribed by them and unless and until voucher was
signed, they would not release the fund. They also
informed that it would be always open for the
complainant to agitate the matter if they were not
satisfied with the amount but so far as Insurance
Company is concerned unless the voucher was signed the
issue of release of funds could not be made.
It appears that this wrong practice is required to be
given up by the Insurance Company or in any set of
circumstances we would suggest to IRDA to keep
control upon such unfair trade practice.
xxx xxx xxx
7. The Registry is directed to send copy of this order to
Shri C.S. Rao, Chairman of Insurance Regulatory
Development Authority, Hyderabad for taking
appropriate action so that option/choice of the insured ARB.P. 459/2015 Page 14 of 22
to approach the legal forum for just settlement of his
claim is not curtailed or frustrated.”
 (Emphasis supplied)
5.6. In National Insurance Company Limited v. Boghara Polyfab
Private Limited, (2009) 1 SCC 267, the Supreme Court held that the
procedure of the insurance company requiring the claimant to issue an
undated receipt (acknowledging receipt of a sum smaller than his
claim) in full and final settlement as a condition for releasing and
admitting lesser amount is unfair, irregular and illegal. Para 49 of the
said judgment is reproduced hereunder:-
“49. Obtaining of undated receipts-in-advance in regard to
regular/routine payments by government departments and
corporate sector is an accepted practice which has come to stay
due to administrative exigencies and accounting necessities.
The reason for insisting upon undated voucher/receipt is that as
on the date of execution of such voucher/receipt, payment is not
made. The payment is made only on a future date long after
obtaining the receipt. If the date of execution of the receipt is
mentioned in the receipt and the payment is released long
thereafter, the receipt acknowledging the amount as having
been received on a much earlier date will be absurd and
meaningless. Therefore, undated receipts are taken so that it
can be used in respect of subsequent payments by incorporating
the appropriate date. But many a time, matters are dealt with so
casually that the date is not filled even when payment is made.
Be that as it may. But what is of some concern is the routine
insistence by some government departments, statutory
corporations and government companies for issue of undated
“no-dues certificates” or “full and final settlements vouchers”
acknowledging receipt of a sum which is smaller than the claim
in full and final settlement of all claims, as a condition
precedent for releasing even the admitted dues. Such a
procedure requiring the claimant to issue an undated receipt
(acknowledging receipt of a sum smaller than his claim) in ARB.P. 459/2015 Page 15 of 22
full and final settlement, as a condition for releasing an
admitted lesser amount, is unfair, irregular and illegal and
requires to be deprecated.”
(Emphasis Supplied)
5.7. In para 52(iv) of the judgment, the Supreme Court held such a
discharge voucher to be not voluntary but under duress, compulsion
and coercion. Relevant portion of para 52 is reproduced hereunder:-
“52. Some illustrations (not exhaustive) as to when claims are
arbitrable and when they are not, when discharge of contract
by accord and satisfaction are disputed, to round up the
discussion on this subject are:
xxx xxx xxx
(iv) An insured makes a claim for loss suffered. The claim is
neither admitted nor rejected. But the insured is informed
during discussions that unless the claimant gives a full and
final voucher for a specified amount (far lesser than the amount
claimed by the insured), the entire claim will be rejected. Being
in financial difficulties, the claimant agrees to the demand and
issues an undated discharge voucher in full and final
settlement. Only a few days thereafter, the admitted amount
mentioned in the voucher is paid. The accord and satisfaction
in such a case is not voluntary but under duress, compulsion
and coercion. The coercion is subtle, but very much real. The
“accord” is not by free consent. The arbitration agreement can
thus be invoked to refer the disputes to arbitration.”
(Emphasis supplied)
5.8. In Oriental Insurance Co. Ltd. v. Mercury Rubber Mills, 2012
(127) DRJ 650, the Division Bench of this Court held that the denial
of payment to the insured at the relevant time defeats the very purpose
of taking out the policy. The insurer has a superior bargaining
position as the insured having suffered a loss is faced with ‘take it or ARB.P. 459/2015 Page 16 of 22
leave it’ position. The Division Bench held that there was no question
of final accord of satisfaction to make the insured ineligible for
making a claim against the insurer.
5.9. In Pacific Garments Pvt. Ltd. v. Oriental Insurance Co. Ltd.,
2013 (133) DRJ 385, this Court rejected the similar plea of the
insurance company holding that the discharge voucher was not signed
by the insured of its own free will and accord but on account of
indebtedness to the banks.
5.10. In National Insurance Company Ltd. v. Rajan Sood, 2014
SCC OnLine NCDRC 443, the National Consumer Disputes
Redressal Commission rejected the similar plea of the insurance
company holding that the insured who had lost household goods in
fire accident and had been waiting for settlement of his claim for more
than a year, accepted the cheque offered by the insurance company in
full and final settlement, under coercion to salvage a part of the loss
suffered by him. Thus, the settlement relied upon by the insurance
company is not a settlement based on free consent and the insurance
company cannot take advantage of the same.
6. IRDA’s Circular dated 24th September, 2015
6.1. On 17th August, 2015, this Court issued notice to IRDA with
respect to unfair trade practice being indulged into by the insurance
companies despite the numerous judicial pronouncements mentioned
above. Relevant portion of the order dated 17th August, 2015 is
reproduced hereunder:
“2. Learned senior counsel for the petitioner submits that the
insurance companies are indulging in unfair trade practice of
insisting on a receipt of full and final settlement even to release ARB.P. 459/2015 Page 17 of 22
the admitted amount. Learned senior counsel refers to the
order dated 17th May, 2007 passed by the National Consumer
Disputes Redressal Commission in Oriental Insurance Co. Ltd.
& Ors. v. The Government Tool Room & Training Centre,
(2007) NCDRC 41 directing the IRDA to take appropriate
action against the insurance companies with respect to the
aforesaid unfair trade practice. Learned senior counsel
submits that there is a gross violation of the aforesaid direction
by IRDA as well as the insurance companies.
3. On the oral prayer of the petitioner, IRDA is impleaded as
respondent no.2. Mr. D.K. Nag, learned counsel for respondent
no.2 accepts notice.
4. The competent officer of United India Insurance Company
Ltd. shall also remain present in Court along with the original
record and relevant policy of the insurance company with
respect to the release of the admitted amount. The senior
competent officer of IRDA shall remain present in Court on the
next date of hearing along with complete instructions on the
above aspect.”
6.2. On 24th September, 2015, IRDA issued a circular to all the
insurance companies directing them not to withhold the claim amount
where the liability is established. IRDA further directed the insurance
companies not to use the discharge vouchers as a means of estoppel
against the insured to seek higher compensation before any judicial
forum. Circular dated 24th September, 2015 is reproduced hereunder:
“INSURANCE REGULATORY AND DEVELOPMENT
AUTHORITY
Ref. No: IRDA/NL/CIR/Misc/173/09/2015
Date:24th September,2015
To
CEOs of all General Insurance Co.,
CircularARB.P. 459/2015 Page 18 of 22
Reg: Discharge Voucher in settlement of claim
The Insurance Companies are using ‘discharge voucher’
or “settlement intimation voucher” or in some other name, so
that the claim is closed and does not remain outstanding in
their books. However, of late, the Authority has been receiving
complaints from aggrieved policyholders that the said
instrument of discharge voucher is being used by the insurers in
the judicial for a with the plea that the full and final discharge
given by the policyholders extinguish their rights to contest the
claim before the Court.
While the Authority notes that the insurers need to keep
their books of accounts in order, it is also necessary to note that
insurers shall not use the instrument of discharge voucher as a
means of estoppels against the aggrieved policy holders when
such policy holder approaches judicial fora.
Accordingly insurers are hereby advised as under:
Where the liability and quantum of claim under a
policy is established, the insurers shall not withhold claim
amounts. However, it should be clearly understood that
execution of such vouchers does not foreclose the rights of
policy holder to seek higher compensation before any
judicial fora or any other fora established by law.
All insurers are directed to comply with the above
instructions.
 (Suresh Mathur)
Senior Joint Director”
(Emphasis supplied)
7. The position as it emerges
7.1. The insurance companies cannot deny the payment of the
admitted claim amount to the insured unless a complete discharge is
given by the insured. The insistence of the insurance company to sign
a discharge voucher of full and final settlement before release of
admitted claim amounts to coercion and undue influence as defined in
Sections 15 and 16 of the Contract Act and such contracts are 
voidable under Section 19 and 19A of the Contract Act.
7.2. The withholding of the admitted amount by the insurance
companies unless complete discharge is given, amounts to deficiency
in service within the meaning of Section 2(1)(g) of the Consumer
Protection Act, 1986 as the insurance companies are not expected to
withhold the admitted claim amount till the insured gives the receipt
of full and final settlement.
7.3. Despite well settled position of law, insurance companies are
indulging in unfair trade practices and therefore, the Court issued
notice to the IRDA on 17th August, 2015.
7.4. The IRDA has promptly set the controversy at rest by issuing
the circular dated 24th September, 2015. All insurance companies are
bound to comply with the circular dated 24th September, 2015 issued
by IRDA and shall not insist on discharge voucher for releasing the
admitted amount in view of the circular dated 24th September, 2015
issued by IRDA. However, in cases where such discharge voucher has
been already been taken, the insurance companies shall not raise any
objection to the maintainability of the claim on the basis of the
discharge voucher.
7.5. This Court hopes that the pending and future claims will no
longer consume the Court time for deciding this issue and to this
extent, the Court’s time will be saved and the claims on this account
shall not be delayed or denied.
7.6. IRDA shall ensure that the insurance companies do not indulge
in the unfair trade practice any more. In Yashpal Luthra v. United
India Insurance Limited. III (2010) ACC 130, this Court noticed that ARB.P. 459/2015 Page 20 of 22
the insurance companies were openly flouting the directions issued by
Tariff Advisory Committee (TAC) and Insurance Regulatory and
Development Authority (IRDA) with respect to their liability towards
the occupants in a car and pillion rider on a two wheeler under a
comprehensive/package policy. This Court, therefore, issued notice to
IRDA whereupon IRDA issued a fresh circular dated 16th November,
2009. IRDA thereafter convened a meeting on 26th November, 2009
of all the insurance companies who admitted their liability in respect
of the occupants in a private car and pillion rider of two wheelers
under a comprehensive/package policy. All the insurance companies
agreed to comply with the circular dated 16th November, 2009 issued
by IRDA and to withdraw the contrary plea taken before various
claims tribunals. The insurance companies further agreed to withdraw
all appeals filed by them before various High Courts in which a
contrary plea had been taken. Yashpal Luthra v. United India
Insurance Limited and Anr. (Supra) was approved by the Supreme
Court in National Insurance Company Ltd. v. Balakrishnan AIR
2013 SC 473 and Oriental Insurance Company Ltd. v. Surendra
Nath Loomba AIR 2013 SC 483. This Court is of the view that it
would be appropriate for the IRDA to convene a meeting of all the
insurance companies to ensure the compliance of their circular dated
24th September, 2015.
7.7. IRDA is directed to convene a meeting of all the insurance
companies to record their undertaking to abide by the circular dated
24th September, 2015. The meeting shall be convened by IRDA
within 10 days at a convenient venue at New Delhi. Mr. Dayan ARB.P. 459/2015 Page 21 of 22
Krishnan, Senior Advocate, is appointed as a Court Observer for the
said meeting. Mr. D.K. Nag, learned counsel for IRDA shall also
attend the said meeting. The Court Observer shall place the report of
the meeting before this Court on 22nd December, 2015.
8. Conclusion
8.1. There is a valid arbitration agreement between the parties
contained in clause 13 of the insurance policy. The disputes have
arisen between the parties as the respondent has paid Rs. 5,62,32,959/-
to the petitioner against their claim of Rs.12,69,51,063/-. The
petitioner has validly invoked the arbitration vide letter dated 10th
July, 2015.
8.2. The respondent’s objection to the appointment of the arbitrator
is not sustainable in view of the catena of judgements discussed in
para 5 above and IRDA’s circular dated 24th September, 2014. That
apart, there is no merit in the respondent’s objection because the
petitioner, in its letter dated 17th November, 2014, agreed to accept the
part payment without prejudice to its rights and subject to the terms
and conditions of the policy, meaning thereby that the petitioner
reserved its right to claim the balance amount in terms of the policy.
8.3. The petition is allowed and Justice Mukul Mudgal (Retd.) is
appointed as the sole arbitrator to adjudicate the disputes between the
petitioner and respondent No.1 including their claims as well as
counter claims.
8.4. The learned arbitrator shall ensure the compliance of the
Arbitration and Conciliation (Amendment) Ordinance, 2015 before
commencement of the arbitration.ARB.P. 459/2015 Page 22 of 22
8.5. IRDA is not a necessary party with respect to the disputes
between the petitioner and respondent No.1 and, therefore, is not
required to appear before the learned Arbitrator.
8.6. This matter will remain on Board for the limited purpose of
receiving the compliance report of the IRDA and passing, if need be,
any orders thereon.
8.7. List for reporting compliance as a part heard matter on 22nd
December, 2015.
8.8. This Court appreciates the assistance rendered by Mr. D.K.
Nag, Advocate for IRDA. This Court also appreciates the prompt
action taken by the officers of IRDA namely T.S. Vijayan, Chairman,
Ms. Pournina Gupte, Member Non-Life, H. Ananthakrishnan, J.D.
Legal, Y.S. Prasad, OSD (Legal), Suresh Mathur, JD. (Non-Life), Ms.
Yagnapriya, J.D. and Mukesh Sharma, J.D. (In-charge) Delhi R.O. in
issuing the circular dated 24th September, 2015.
8.9. Copy of this judgment be given dasti to ld. counsels for the
parties, the learned Court Observer as well as to Mr. D.K. Nag,
learned counsel for IRDA under signature of Court Master. Copy of
this judgment be sent to the learned Arbitrator.
J.R. MIDHA, J.
DECEMBER 11, 2015.
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