Arbitration and Conciliation Act, 1996 – s.11(4) and s.11(6) – Arbitration clause – Examination of – Respondent No.3 awarded a contract for design, construction and maintenance of bridge to a Joint Venture (JV) constituted by the Respondent Nos.1 and 2 – After commencement of work, an insurance policy was obtained from the appellants-insurer covering the entire project – During construction, an accident occurred causing significant loss to the contractor – A detailed claim for a sum was submitted by the JV to the appellants – Appellants found the claim not payable – Dispute arose between the parties – Respondent Nos.1 and 2 filed a petition u/s. 11(4) & 11(6) of the Act for appointment of arbitrator, which was allowed by the High Court – On appeal, held: The subject clause 7 of the insurance policy was hedged with a pre-condition expressly predicating that no difference or dispute shall be referable to arbitration, if the appellants disputed or did not accept its liability under or in respect of the policy – Arbitration clause has to be interpreted strictly and such an arbitration clause will get activated or kindled only if the dispute between the parties is limited to the quantum to be paid under the policy and liability should be unequivocally admitted by the insurer – That is the pre-condition and sine qua non for triggering the arbitration clause – On facts, the appellants completely denied their liability and repudiated the claim of the JV in the communication to the JV – Thus, the dispute in question is non-arbitrable. Allowing the appeal, the Court
HELD: 1. The arbitration clause has to be interpreted strictly. The subject clause 7 is a conditional expression of intent. Such an arbitration clause will get activated or kindled only if the dispute between the parties is limited to the quantum to be paid under the policy. The liability should be unequivocally admitted by the insurer. That is the pre-condition and sine qua non for triggering the arbitration clause. To put it differently, an arbitration clause would enliven or invigorate only if the insurer admits or accepts its liability under or in respect of the concerned policy. That has been expressly predicated in the opening part of clause 7 as well as the second paragraph of the same clause. Thus there can be no arbitration in cases where the insurance company disputes or does not accept the liability under or in respect of the policy. [Para 13] [1098-C-E]
2. The appellants completely denied their liability and repudiated the claim of the JV (respondent Nos.1 & 2) in the communication to them. The reasons mentioned in the communications are specific. No plea was raised by the respondents that the policy or the said clause 7 was void. The appellants repudiated the claim of the JV and denied their liability in toto under or in respect of the subject policy. It was not a plea to dispute the quantum to be paid under the policy, which alone could be referred to arbitration in terms of clause 7. Thus, the plea taken by the appellants is of denial of its liability to indemnify the loss as claimed by the JV, which falls in the excepted category, thereby making the arbitration clause ineffective and incapable of being enforced, if not non-existent. It is not actuated so as to make a reference to arbitration. In other words, the plea of the appellants is about falling in an excepted category and non-arbitrable matter within the meaning of the opening part of clause 7 and as re-stated in the second paragraph of the same clause. Thus, the dispute in question is non-arbitrable and Respondent Nos.1 & 2 ought to have resorted to the remedy of a suit. [Paras 14 and 15] [1099-C-F] Oriental Insurance Company Limited v. Narbheram Power and Steel Private Limited (2018) 6 SCC 534 – relied on.
Duro Felguera, S.A. v. Gangavaram Port Limited (2017) 9 SCC 729 ; Jumbo Bags Ltd. v. New India Assurance Co. Ltd. 2016 SCC OnLine Mad 9141 ; Vulcan Insurance Co. Ltd. v. Maharaj Singh and Anr. (1976) 1 SCC 943 : [1976] 2 SCR 62 – 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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