Delhi HC Upholds ₹33.26 Crore Award Against United India Insurance, Says Consent Letter Was Vitiated By Economic Duress

In the present case, the court was hearing a petition against an arbitral award by which the insurer was directed to pay the amount despite a full and final settlement being executed between the parties. The Tribunal held that since the consent letter was signed at the time when the insured had no other alternative except to execute the letter, it was vitiated by coercion.

Justice Jasmeet Singh held that “By no stretch of imagination, can it be explained as to how the insured on its own accepted a figure of Rs. 10.45 crores when neither the Survey Report nor any decision by the Respondent could have been formally finalized. This being so it was the bounden duty of the Respondent, being an insurer obliged to abide by norms of good faith… to return the voucher.”

It further held that although surveyor reports are statutorily recognised, they are not conclusive. The Court held that “the surveyor's report is not the last and final word… it is not so sacrosanct as to be incapable of being departed from.”

The court ultimately upheld the arbitral award directing payment of Rs. 33.26 crore in favor of the insured, stating that the award was well reasoned and did not suffer from any perversity or patent illegality.

Background

The insured obtained a Standard Fire and Special Perils Policy from the insurer, which covered its factory, machine and building. On the night of 26-27 August 2011, heavy floods caused substantial damage to its machinery and plant. The insured appointed protocol surveyors private limited to assess the loss. Initially, the claim was calculated at Rs. 58.10 crore on a reinstatement basis and Rs. 44.89 crore on market value basis.

However, the surveyor ultimately reduced the assessment to Rs. 10.45 crore on market value basis. On 18.01.2014, the insured signed a consent letter by which it accepted the amount of Rs. 10.45 crore as full and final settlement. Thereafter, the payments were also made. However, after nearly 42 months, the insured alleged that the consent letter was obtained under economic duress and invoked an arbitration clause. The Arbitral Award awarded Rs. 33.26 crore along with interest at 9% in favor of the insured which has been challenged in the present petition.

Contentions:

The Petitioner submitted that the consent letter constituted an accord and satisfaction and raising of protest after 34 months from the date of the last payment was fatal. It further contended that the protest letters which were relied upon by the Tribunal were forged and the insured remained silent for nearly 42 months before a challenge was mounted to the settlement. The findings of the Tribunal were based on assumptions. Relying on New India Assurance, it argued that belated claims of duress are not sufficient to re-open the settlements. It relied on section 64-UM of the Insurance Act, 1938 to contend that the settlement based on a licensed surveyor was binding on the insured.

Per contra, the Respondent submitted that the consent was obtained under economic duress and the interim payments were improperly withheld by the petitioner despite an interim survey. It was further argued that the report of the surveyor was arbitrary and collateral falsehoods did not efface a genuine claim.

It further argued that the insurer violated IRDAI guidelines by failing to release interim payments. The survey was delayed for two years which compelled the insured to enter into a settlement even before the surveyor's report was finalised.

Findings

The court held that the execution of a consent letter does not bar arbitration if it was obtained under coercion. A purported full and final settlement becomes arbitrable when it is affected by undue influence, fraud and other factors. Justice Singh further held that the findings of the Tribunal reflects a correct approach as the surveyors' reports carry persuasive value only and the courts are not bound by the findings of the surveyors. These reports must be assessed in light of the entire record.

The court criticised the insurer's approach of obtaining a discharge voucher prematurely. It held that “It is a violation of good faith to attempt to misuse the opportunity to pay less than it owes by demanding and enforcing a release, when a mishap has happened.”

It further held that the insured's accounts were declared Non Performing Assets and requests for interim payments were ignored leaving no choice but to sign the consent letter under threat of repudiation. It observed that “the Claimant had no alternative but to sign… refusal would have meant repudiation of the entire claim.”

On the allegations of the insurer that the protest letters were fabricated, the court applied the doctrine of collateral lies doctrine recognised in Verstool Dredging by the UK Supreme Court where it was held that even if certain statements were false, they would not affect the merits of the genuine claim. The High Court endorsed this distinction and held that fraudulent claims vitiate indemnity but collateral lies do not affect the indemnity if the core claim is valid.

Justice Jasmeet Singh further held that the insurers are bound by the principle of Uberrima Fides that is utmost good faith cannot take shelter behind procedural tactics to defeat genuine claims.

After rejecting the surveyor's assessments, the Tribunal independently fixed the indemnity at Rs. 43.22 crore, deducted Rs. 10.45 crore already paid to the insured and awarded Rs. 33.26 crore along with 9% interest. Justice Singh held that these findings of the Tribunal did not suffer from perversity or patent illegality.

Case Title: UNITED INDIA INSURANCE CO. LTD. versus M/S VALLEY IRON & STEEL CO. LTD

Citation: 2025 LiveLaw (Del) 1186

Case Number: O.M.P. (COMM) 194/2022

Order Date: 18/09/2025

For Petitioner: Mr. A.K.De, Ms. Ananya De, Ms. Chandni Sharma, Advs.

For Respondent: Mr. S.D. Singh, Mr. Kamla Prasad, Mrs. Meenu Singh, Mr. Siddharth Singh, Advs.

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