Arbitration and Conciliation Act, 1996: s.11(6) – Appointment of arbitrator – Dispute between insurer and insured – Insurance claim – Repudiation of claim – Insurer declined to refer the disputes to arbitrator as requested by the claimant – Claimant filed application for appointment of arbitrator – High Court appointed arbitrator – Appeal by insurer – Held: The arbitration clause contained in the agreement between the parties clearly stated that if the insurer disputes the liability under or in respect of the policy, there can be no reference to the arbitrator – Insurer clearly disputed the liability to pay damages in toto – The dispute did not pertain to the quantum – Such a situation, falls within the concept of denial of disputes and non-acceptance of liability – Once the insurer disputed or not accepted the liability under or in respect of the policy, no difference or dispute could have been referred to arbitration – The only remedy is to institute a civil suit for mitigation of the grievances – Insurance.
Deeds and documents: Insurance policy – Interpretation of – Held: The parties are bound by the clauses enumerated in the policy and the court does not transplant any equity to the same by rewriting a clause – The Court can only interpret such stipulations in the agreement.
Allowing the appeal, the Court
HELD: 1. The arbitration clause contained in the agreement between the parties clearly states that once the insurer disputes the liability under or in respect of the policy, there can be no reference to the arbitrator. It is contained in the second part of the clause. The third part of the Clause stipulates that before any right of action or suit upon the policy is taken recourse to, prior award of the arbitrator/arbitrators with regard to the amount of loss or damage is a condition precedent. The High Court laid emphasis on the second part and, on that basis, opined that the second part and third part do not have harmony and, in fact, sound a discordant note, for the scheme cannot be split into two parts, one to be decided by the arbitration and the other in the suit. [Para 8] [832-E-G]
2. The parties are bound by the clauses enumerated in the policy and the court does not transplant any equity to the same by rewriting a clause. The Court can interpret such stipulations in the agreement. It is because they relate to commercial transactions and the principle of unconscionability of the terms and conditions because of the lack of bargaining power does not arise. The said principle comes into play in a different sphere. [Para 12] [833-D-E]
3. An arbitration clause is required to be strictly construed. Any expression in the clause must unequivocally express the intent of arbitration. It can also lay the postulate in which situations the arbitration clause cannot be given effect to. If a clause stipulates that under certain circumstances there can be no arbitration, and they are demonstrably clear then the controversy pertaining to the appointment of arbitrator has to be put to rest. In the instant case, Clause 13 categorically lays the postulate that if the insurer has disputed or not accepted the liability, no difference or dispute shall be referred to arbitration. The thrust of the matter is whether the insurer has disputed or not accepted the liability under or in respect of the policy. [Paras 24, 25] [840-D-F]
4. A reading of the communication, shows that the disputation squarely comes within Part II of Clause 13. The said Part of the Clause clearly spells out that the parties have agreed and understood that no differences and disputes shall be referable to arbitration if the company has disputed or not accepted the liability. The communication ascribes reasons for not accepting the claim at all. It is nothing else but denial of liability by the insurer in toto. It is not a disputation pertaining to quantum. The insurance-company has, on facts, repudiated the claim by denying to accept the liability on the basis of the aforesaid reasons. No inference can be drawn that there is some kind of dispute with regard to quantification. It is a denial to indemnify the loss as claimed by the respondent. Such a situation, falls on all fours within the concept of denial of disputes and non-acceptance of liability. It is not one of the arbitration clauses which can be interpreted in a way that denial of a claim would itself amount to dispute and, therefore, it has to be referred to arbitration. The parties are bound by the terms and conditions agreed under the policy and the arbitration clause contained in it. It is not a case where mere allegation of fraud is leaned upon to avoid the arbitration. It is not a situation where a stand is taken that certain claims pertain to excepted matters and are, hence, not arbitrable. The language used in the second part is absolutely categorical and unequivocal inasmuch as it stipulates that it is clearly agreed and understood that no difference or disputes shall be referable to arbitration if the company has disputed or not accepted the liability. The High Court has fallen into grave error by expressing the opinion that there is incongruity between Part II and Part III. The only remedy which the respondent can take recourse to is to institute a civil suit for mitigation of the grievances. If a civil suit is filed within two months hence, the benefit of Section 14 of the Limitation Act, 1963 will enure to its benefit. [Para 26] [841-B-H] Essar Steel India Limited v. The New India Assurance Co. Ltd MANU/MH/0542/2013 – distinguished.
The Vulcan Insurance Co. Ltd v. Maharaj Singh and another (1976) 1 SCC 943 : [1976] 2 SCR 62; Chloro Controls India Private Limited v. Severn Trent Water Purification Inc. and others (2013) 1 SCC 641 : [2012]
13 SCR 402; A. Ayyasamy v. A. Paramasivam and others (2016) 10 SCC 386 : [2016] 11 SCR 521 – held
inapplicable.
General Assurance Society Ltd. v. Chandumull Jain and another AIR 1966 SC 1644 : [1966] SCR 500; Oriental Insurance Co. Ltd. v. Samayanallur Primary Agricultural Co-op. Bank AIR 2000 SC 10 : [1999] 4 Suppl. SCR 329; United India Insurance Co. Ltd. v. Harchand Rai Chandan Lal (2004) 8 SCC 644 : [2004] 4 Suppl. SCR 662; M/s. Jumbo Bags Ltd v. M/s. The New India Assurance Co. Ltd 2016-2-L.W.769; Deep Trading Company v. Indian Oil Corporation and others (2013)
4 SCC 35 : [2013] 2 SCR 470; Datar Switchgears Ltd. v. Tata Finance Ltd. and another (2000) 8 SCC 151; Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC 638; Newton Engineering and Chemicals Limited v. Indian Oil Corporation Limited and others (2013) 4 SCC 44; Eagle Star and British Dominions Insurance Company v. Dinanath and Hemraj ILR 47 Bom 509 : AIR 1923 249 : 25 Bom LR 164 – referred to.
Scott v. Avery (1856) 25 LJ Ex 308 : 5 HLC 811 : 4 WR 746; Viney v. Bignold (1888) 20 QBD 171, 172; Caledonian Insurance Company v. Andrew Gilmour 1893 AC 85 : 9 TLR 146 : 57 JP 228; O’connor v. Norwich Union Fire and Life Insurance Society (1894)
2 Irish LR 723 : 28 Irish LT 95 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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