Contract clauses are not arbitration provisions

Written by Indu Bhan | Indu Bhan | Updated: Nov 21 2013, 11:24am hrs
Insurer issue to larger bench

Due to its inability to concur with its earlier decision in the case National Insurance Company Ltd vs Sinitha, a two-judge bench of the Supreme Court has referred a question relating to insurers liability in road accidents (scope of Section 163-A of the Motor Vehicles Act, 1988) to a larger bench. In Sinithas case, the apex court had held that the provision was founded under fault liability principle as it is open to the owner or the insurance company to oppose any claim by pleading fault ground.

However, the SC, in the case, United India Insurance Co Ltd vs Sunil Kumar, is of the opinion that the liability to compensate under Section 163-A is on the principle of no fault and, so, the question as to who is at fault is immaterial to an enquiry. It said that once it is established death or permanent disablement occurred and the vehicle is insured, the insurance company or the owner shall be liable to pay compensation. Stating this is a beneficial legislation, the court asserted the legislature never wanted the claimant to prove or establish negligence on the part of the owner or the driver as it would defeat the very purpose of the provision, which is to provide immediate relief to the victim.

Contractors lose appeals

In a setback to contractors who undertake government projects, the Supreme Court said that if the agreement provides for settlement of disputes through court, then the decision taken by a chief engineer cannot be treated as an award of the arbitrator. The use of words to approach the civil court for settlement of disputes makes it clear that final adjudicating authority in the case of a dispute is the civil court and not the chief engineer, it said in a batch of 23 cases lead by P Dasratharama Reddy Complex vs Government of Karnataka. Of the 23 appeals, 17 were filed by contractors who were awarded contracts by the Karnataka government for execution of particular project/works.

In the lead case, P Dasratharama Reddy was awarded contract for construction of bridge across Shimsha river in 1996. The firm did not complete the work alleging lack of cooperation on the part of chief engineer and claimed its dues. Soon after, it sought appointment of an arbitrator for settlement of disputes. However, the Karnataka High Court dismissed its plea on the grounds that if the contractor was not satisfied with the decision of the chief engineer it should approach a civil court and not take the arbitration route. So, the firm along with 22 others appealed to the apex court, which rejected the appeals. The state government argued that Clause 29 of the agreement and similar clauses in other agreements were in the nature of departmental dispute resolution mechanism and the same could not be treated as an arbitration clause.

Liquor licensees obligations

The Supreme Court in the case, Mary vs State of Kerala, has ruled that a liquor licensee cannot invoke the doctrine of fairness and revoke a statutory contract even if he/she could not conduct business due to reasons beyond his/her control. In this case, Mary had emerged as a successful bidder for liquor shops in an auction conducted under the Kerala Abkari Shops (Disposal in Auction) Rules, 1974. She had also deposited R7.68 lakh towards 30% of the bid amount. But she could not run the liquor shop in Kalady, the holy birth place of Adi Sankaracharya, as residents objected to the running of any such shop. Accordingly, she requested the revenue authorities to revoke her licence and refund her money.

The cause did not find favour with the excise department, which asked her to pay balance dues of R33.41 lakh with interest as per the terms of the contract. She then moved the Kerala High Court. While the single judge quashed the notices and directed refund of the security amount, the division bench held that the state was justified in forfeiting the amount as the offer was accepted by her. Marys appeal was also dismissed by the Supreme Court, which said that a statutory contract cannot be varied, added or altered by importing the doctrine of fairness. In a contract of the present nature, the licensee takes a calculated risk. Maybe the appellant (Mary) was not wise enough but in law, she cannot be relieved of the obligations undertaken by her under the contract.