From arbitration to ONGC's customs refund, here're the key court orders

Supreme Court has denounced the practice of government and its companies fighting legal battles in courts
Loyalty insurance cushions firm’s loss
The Supreme Court has asked Oriental Insurance to pay Rs 3.5 crore to National Bulk Handling Corporation, which suffered by a fraud committed by its employees. The corporation had taken a fidelity guarantee insurance. The policy covers fraud, theft, and other offences committed by the employees of a firm or institution. The insurance under it is for honesty, against negligence or for being faithful and loyal to its employers. The protection afforded is different from normal insurance policies. In this case, the corporation was a collateral management company, which undertook store commodities pledged by farmers, traders and manufacturers to get loans from banks. The claim arose when 601 barrels of mentha oil stored in a godown in Udhampur was found substituted with water. The corporation claimed compensation under the fidelity policy alleging that its employees were involved in the fraud. The corporation had also filed a police complaint. The insurer, however, argued that there was no evidence to prove that the employees committed the offence as the seals were intact. The court rejected the appeal and ruled that the policy covered employees’ fraud.

Glider is aircraft for insurance
The Supreme Court has directed an insurance company to pay Rs 1 crore to the mother of a youth who died while sightseeing in a glider in Canada. The youth was in a two-seater glider over British Columbia when it hit a Cessna aircraft, killing him and the pilot. The insurer rejected the claim arguing that a glider is not a standard aircraft carrying passengers and, therefore, it was not covered under the policy. It further argued that he was on a round trip with no destination and, therefore, he was not a ‘passenger’. The National Consumer Commission and the court rejected these contentions and ruled that a glider is an aircraft according to the Aircraft Act. The judgment in AXA General Insurance Co vs Priya Paul pointed out that the insurer had not excluded gliders from liability, while it had specifically excluded hang-gliding, ballooning, parachuting, and other adventure sports. The youth had ‘chartered’ the glider, according to the court. The term charter is not defined in either Indian or Canadian regulations. If the meaning is ambiguous, the interpretation should benefit the insured, the judgment said. It further stated that a person taking a round trip with no destination would still be a passenger, as one in a sightseeing bus which returns to the starting point.

Compensation rises with each appeal  
Assessing loss suffered by a victim of road accident is difficult for judges, but it would seem that with each appeal, the compensation goes up. In Kajal vs Jagdish Kumar, a 12-year-old schoolgirl was rendered 100 per cent disabled for life when a truck hit the motor vehicle in which she was travelling. The motor accident compensation tribunal awarded her Rs 11 lakh. On appeal before the Punjab and Haryana High Court, the amount was raised to Rs 25.78 lakh. On further appeal, the Supreme Court found that the courts below had erred in calculating the compensation on several counts and it was not “just and fair”, which was the principle prescribed in the Motor Vehicle Act. The court raised the compensation to Rs 62.27 lakh. The court ordered that the amount should be deposited in a fixed account in a public sector bank until she attains majority. The interest could be used to pay attendants and medical expenses.

Forfeiture should not be ‘extortionist’
The Calcutta High Court last week declared that though an employer of a work contract can impose a condition of forfeiture, it should be reasonable, not “punitive or extortionist”. A government company that calls for tender has an additional duty to strike a balance while forfeiting the earnest deposit, the judgment stated in the case RBL Infrastructure vs Rites. In this case, Damodar Valley Corporation engaged Rites for a road project. The latter called tenders and RBL bid for it. However, it had concealed some factors in the acceptance document, which was a breach of the terms of the offer. Rites, therefore, attempted to forfeit the entire Rs 50 lakh deposit, which led to the writ petition. The court stated that there indeed was an enforceable agreement and the breach is “established and unquestionable” but Rites did not suffer any substantial loss on account of that fault. Forfeiture should not lead to a “windfall” for the government entity. It should not unjustly enrich itself, especially because “contractors have, per force, to apply for obtaining work from government employers”.

Arbitration caught in legal knots
An arbitration which was caught in legal knots for 12 years will start now after the Division Bench of the Bombay high court set aside the order of the single judge bench. In this case, Antikeros Shipping Corporation vs Adani Enterprises, the Liberian shipping company alleged fuel supplied by the Indian firm did not meet the quantity and quality promised. It invoked arbitration but there were several questions involved like whether it was domestic or international arbitration and whether the high court could name an arbitrator when one party does not appoint its nominee. The disputes lasted seven years, but the single judge condoned the delay and passed an order favourable to Adani. The shipping company appealed to the division Bench, which made certain interesting remarks about Adani’s appeals, comparing them to “arrows” and “torpedoes”. While imposing Rs 5 lakh as legal costs on it, the judgment remarked: “The torpedo fired by the respondent is declared to be a dud and it sinks without hitting its target.”

ONGC struggles to get customs refund
Though the Supreme Court has denounced the practice of government and its companies fighting legal battles in courts, there is yet another judgment from the Gujarat High Court deciding a customs dispute between ONGC and the central government. ONGC imported certain equipment from Russia for exploration of hydrocarbon and Customs duty was paid in 1986. There was an excess payment of around Rs 22 crore, which was admittedly due. But the Kandla port authorities prevaricated on the refund, one main argument being that ONGC had not passed on the benefit to “consumers”. The court rejected this defence stating that there were no consumers in this case and the demand should be “deprecated, quashed and set aside”. It gave the authorities 30 days to calculate the dues with interest, after hearing ONGC. The court rejected the prayer of the authorities to grant more time to pay as there was already “inordinate delay” in the matter.

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