SHAHID KARIM, J. This appeal has been brought to lay a limited challenge to the judgment passed by the Insurance Tribunal Punjab on 11.6.2016. The learned counsel for the appellant (Askari) contends that this appeal is confined to the findings given by the Tribunal on issue No.3 as well as the relief regarding the grant of liquidated damages in terms of section 118 of the Insurance Ordinance, 2000 ("the Ordinance, 2000").
2. Issue No.3 as framed by the Tribunal reads as under:-
3. "Whether the insurances policies have any depreciation clause therein qua building etc. If so to what extent? OPR.
3. The arguments in this Court on behalf of Askari related to the general practice whereby a depreciation clause is to be read in all matters relating to insurance claim. This argument however cannot prosper for the simple reason that issue No.3 was precisely framed and required the respondent before the Tribunal (appellant in this appeal) to establish whether there was a depreciation clause in the insurance policy or not. None has been demonstrated to exist in the contract of insurance policy and so it cannot be argued by Askari that such a clause must be read in all insurance policies and on that basis for the Tribunal to conclude that the claim has to be so determined. The Tribunal has rightly returned the finding on the issue No.3 in favour of respondent No.1, Islam Lubricants (Pvt.) Ltd. (Islam Lubricants) and against the appellant.
4. Learned counsel for the appellant further alluded to certain observations made by the Tribunal in paragraph 16 of the judgment while deciding issue No.4. These relate to the deductions made by the surveyors on account of price variation and depreciation of building and machinery. The issue of depreciation has been dealt with in the preceding paragraph and the same justification applies, with greater force, to stunt the argument regarding deductions on account of price variation. It is otiose to argue that in the application itself; the only challenge is to depreciation and none else.
The Tribunal has decided these aspects in the broad context of issue No.4 and could have determined these issues while deciding the entitlement of the applicant under the policies. After all, the deductions were made in the surveyor's report and the Tribunal was merely analyzing whether they were justified to do so or not.
5. However, the deduction on account of salvage has been disallowed on the presumption that "the salvage/debris of building and machinery is to be taken by the respondent No.1 Askari General Company and same cannot be assessed to be deducted from the total amount of assessed losses." (page 13 of the judgment). This holding has no basis and is not borne out of the record. This issue is dependent upon who keeps the salvage and in this case there is no evidence to suggest that it was retained by the Insurance company. The surveyors were quite justified to deduct salvage from the claim on the notion that it will be retained by the claimant/respondent No. 1. It could not have been added back on the misplaced plea that "as the applicant is not willing to retain salvage, hence the salvage/debris (outcome of incident of fire) will be collected by the respondent No.1 Askari General Insurance Company." (End of paragraph 16). The impugned judgment to the extent of grant of claim in respect of salvage is set aside by deducting Rs.7.36,611/- from the decree passed by the Tribunal.
6. We now advert to the relief granted by the Tribunal with regard to the liquidated damages. This relief has its provenance in section 118 of the Ordinance, 2000 which provides that: "Payment of liquidated damages on late settlement of claims.--- (1) It shall be an implied term of every contract of insurance that where garment on a policy issued by an insurer becomes clue and the person entitled thereto has complied with all the requirements including the filing of complete papers, for claiming the payment the insurer shall, if he fails to make the payment within a period of ninety days from the date on which the payment becomes due or the date on which the claimant complies with the requirements, whichever is later, pay as liquidated damages a sum calculated in the manner as specified in subsection (2) on the amount so payable unless he proves that such failure was due to circumstances beyond his control.
Explanation: for the purposes of this subsection, failure or delay by any person in making payment (including without limitation payment under a contract of reinsurance) to an insurer shall not constitute circumstances beyond the control of the insurer.
(2) The liquidated damages payable under subsection (1) shall be payable for the period during which the failure continues and shall be calculated at monthly rests at the rate five per cent higher than the prevailing base rate.
7. After hearing the learned counsel for the appellant we are inclined to set aside the findings as regards liquidated damages recorded by the Tribunal in the impugned judgment. Firstly, there was no specific issue framed by the Tribunal for the grant or otherwise of liquidated damages under section 118 of the Ordinance. Clearly, such a claim by its very nature would require evidence to be led and proof that the claimant in a given case is indeed entitled to the payment of liquidated damages on late settlement of claims. The mere fact that the claim has been settled belatedly does not ipso facto and without more give rise to the payment of liquidated damages under section 118 of the Ordinance. Indeed, the claimant and the insurer may disagree on a myriad of issues relating to payment on a policy issued by the insurer such as the time when the payment becomes due, the precise payment to be made to the claimant and whether if at all the claim is due to the claimant or not. All of these disputes may give rise to triable issues for which evidence and proof is required. It cannot be urged by any stretch of imagination that the sum of liquidated damages follows as a matter of course and as soon as the payment on a policy issued by an insurer becomes due in the estimation of the claimant. For instance, there may be a case as in the present appeal where the insurer seriously disputes the entire claim of the claimant. There is no doubt that the appellant indeed offered an amount of Rs.21 Million on the basis of survey report to be due to the respondent No.1 herein. This was firstly offered on 14.4.2009 which was declined by Islam Lubricants on 16.4.2009. This offer was repeated on a number of occasions but the respondent No.1 did not accept the said payment. It is also incredulous that the Tribunal did not require this payment to be deposited in a profit bearing account pending the decision of the application before the Tribunal which commenced on 17.7.2010 and was decided on 11.6.2016.
Moreover, the appeal filed by the appellant has also been pending since the year 2016 and a slay was issued by this Court on 01.07.2019. In the ultimate analysis, the insurance Tribunal did not grant the entire claim demanded in the application filed to the Tribunal and granted a reduced claim of Rs.2,74,03,800/-. Under these circumstances, the Tribunal did not advert its attention to the primary facts which constitute the basis on which liquidated damages ought to be awarded. Plainly, the purpose of section 118 of the Ordinance is to contain an inbuilt procedure for imposition of damages upon an insurer which shows contumacy and deliberate intent in denying the legitimate claim of a person. It is not applicable in a case where no contumacy or deliberate evasion is proved and the insurer merely sets up a bona fide defence regarding the claim of a person. To reiterate, Askari was always willing to make the payment of the claim based on the surveyor's report which was not agreed to by the respondent No.1 and so the respondent No.1 chose to file an application to the insurance Tribunal. Since the course to litigate was adopted by the respondent No.1, the appellant was left with no choice but to defend its stance before the Tribunal and in the instant case it has partly succeeded in this respect.
8. A close read of the provision of section 118 is also a testament to this line of reasoning. The entitlement of claimant is assured "unless he proves that such failure was due to circumstances beyond his control." This argument is further bolstered by the condition "if he fails to make the payment within a period of ninety days from the date of on which the payment became due...." In our opinion, which is based on respectable authority, the payment became due only upon its determination by a competent forum provided by law and in particular, if a dispute arises over the claim. That is, only when the claim crystallizes and a person becomes entitled to it. In a nub, the issue regarding grant or refusal of liquidated damages is a matter of evidence brought pro and contra and no decree can be passed unless a claim is established on a balance of probabilities.
9. Further, section 118 of the Ordinance, 2000 makes the payment of liquidated damages an implied term of every contact. The concept of liquidated damage clause is well entrenched: "Liquidated damages" is the sum which party to contract agrees to pay if he breaks some promise and which, having been arrived at by good faith effort to estimate in advance actual damage that will probably ensue from breach, is recoverable as agreed damages if breach occurs.
(25 Words and Phrases 552. Permanent edition)
10. Thus the underlying precondition for payment of liquidated damages is to establish that breach of a promise has occurred. That I would require evidence to be taken down. As explicated, this course was not followed by the Tribunal and therefore it went wrong in requiring Askari to pay liquidated damages.
11. In view of the above, this appeal is partly allowed. The findings of the Tribunal on issue No.3 are maintained. However, the relief granted by the Tribunal with regard to liquidated damages and salvage is set aside. The impugned judgment is modified to that extent.
12. Before parting with this judgment, we may clarify that in all applications to the insurance Tribunal a specific issue must be framed with regard to the grant or refusal of liquidated damages under section 118 of the Ordinance. Further, in case an amount is admitted to be due to a person by the insurer under a claim that amount should be deposited in a profit bearing account at the first opportunity by the Insurance Tribunal and to that extent the insurer should not be held liable for liquidated damages in any case. This order shall be transmitted to all the Insurance Tribunals across Punjab for compliance.