Holding

When the insurer disputes or does not accept liability, the arbitration clause is inoperative and the dispute must be resolved by a civil suit, not by arbitration.

Summary

The appellant Oriental Insurance Company Ltd issued a fire industrial all‑risk policy to the respondent M/s Narbheram Power and Steel Pvt. Ltd. After a cyclone caused alleged losses, the insurer repudiated the claim, refusing to accept liability and declined to refer the dispute to arbitration. The insured invoked Clause 13 of the policy, which provides for arbitration of disputes concerning the quantum of loss, but also states that no dispute shall be referred to arbitration if the insurer disputes or does not accept liability. The insurer filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 for appointment of an arbitrator, and the Calcutta High Court appointed a retired judge as arbitrator. On appeal, the Supreme Court held that the insurer’s denial of liability amounted to a repudiation, not a dispute over quantum, and that the arbitration clause expressly excludes such matters from arbitration. Consequently, the High Court’s appointment of an arbitrator was erroneous and the appropriate remedy for the insured is a civil suit within the limitation period. The Supreme Court allowed the appeal and set aside the High Court order.

Issues considered

The scope of Clause 13 of the insurance policy: does a repudiation of liability fall within the arbitration clause?
Whether a denial of liability constitutes a 'dispute' referable to arbitration under the clause.
Whether an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 is maintainable when the insurer has disputed liability.
The correct remedy for the insured when the insurer repudiates the claim.

Legislation cited

Arbitration and Conciliation Act, 1996s. 11(6)
Limitation Act, 1963s. 14

Subjects

Arbitration clause interpretationInsurance claim repudiationSection 11(6) Arbitration ActCivil suit vs arbitrationPolicy clause constructionLimitation Act

Judgment

826 [2018]REPORTS
SUPREME COURT 4 S.C.R. 826 [2018] 4 S.C.R.

A ORIENTAL INSURANCE COMPANY LIMITED
v.
M/S. NARBHERAM POWER AND STEEL PVT. LTD.
(Civil Appeal No. 2268 of 2018)
B MAY 02, 2018
[DIPAK MISRA, CJI, A. M. KHANWILKAR AND
DR. D. Y. CHANDRACHUD, JJ.]
Arbitration and Conciliation Act, 1996: s.11(6) – Appointment
of arbitrator – Dispute between insurer and insured – Insurance
C
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
D 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
E
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
F
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
G 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
H
826
ORIENTAL INSURANCE COMPANY v. NARBHERAM POWER 827
AND STEEL

award of the arbitrator/arbitrators with regard to the amount of A
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.
B
[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 C
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 D
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 E
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] 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 G
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 H
828 SUPREME COURT REPORTS [2018] 4 S.C.R.

A 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,
B
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
C 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
D
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]
E 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
F 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
G 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.
H
ORIENTAL INSURANCE COMPANY v. NARBHERAM POWER 829
AND STEEL

SCR 662; M/s. Jumbo Bags Ltd v. M/s. The New India A
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
B
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 C
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. D
Case Law Reference
[1966] SCR 500 referred to Para 5
[1999] 4 Suppl. SCR 329 referred to Para 5
[2004] 4 Suppl. SCR 662 referred to Para 5 E
[1976] 2 SCR 62 held inapplicable Para 6
[2012] 13 SCR 402 held inapplicable Para 6
[2016] 11 SCR 521 held inapplicable Para 6
[2013] 2 SCR 470 referred to Para 13 F

(2000) 8 SCC 151 referred to Para 13
(2006) 2 SCC 638 referred to Para 13
(2013) 4 SCC 44 referred to Para 14
G
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2268
of 2018.
From the Judgment and Order dated 05.09.2017 of the High Court
at Calcutta in AP No. 229 of 2017.
H
830 SUPREME COURT REPORTS [2018] 4 S.C.R.

A P. K. Seth, Ms. Manjeet Chawla, Advs. for the Appellant.
Sachin Datta, Sr. Adv., Salar M. Khan, Ms. Sridevi Panikkar,
Parika Gupta, Amal Merin Kurian, Advs. for the Respondent.
The Judgment of the Court was delivered by
B DIPAK MISRA, CJI 1. The respondent – M/s Narbheram
Power and Steel Pvt. Ltd. – had entered into a Fire Industrial all Risk
Policy No. 31150/11/2014/65 in respect of the factory situated on plot
Nos. 11 and 13, Gundichapada Industrial Estate, District – Dhenkanal,
Odisha. In October 2013, there was a cyclone named as “Phailin” which
affected large parts of the State of Odisha. Because of the said cyclone,
C the respondent suffered damages which it estimated at Rs. 3,93,36,224.00.
An intimation was given to the appellant-insurer and it appointed one
Ashok Chopra & Company as surveyor which visited the factory
premises on 20th and 21st November, 2013. A series of correspondences
were exchanged between the respondent and the insurer. On 22.12.2014,
D the respondent commented on the surveyor’s report and requested the
appellant to settle its claim. As ultimately the claim was not settled, the
respondent sent a communication dated 21.01.2017 intimating the
appellant that it had invoked the arbitration agreement and requested it
to concur with the name of the arbitrator whom it had nominated.

E 2. The appellant replied to the said letter repudiating the claim
made by the respondent and declined to refer the disputes to arbitration
between the parties. As the insurer declined to accede to the request
made by the respondent, it filed an application under Section 11(6) of the
Arbitration and Conciliation Act, 1996 (for brevity, ‘the 1996 Act’) for
appointment of an arbitrator so that he could, along with the arbitrator
F nominated by the respondent, proceed to appoint a presiding arbitrator
to adjudicate the disputes and differences that had arisen between the
parties.
3. The said application was contested by the insurer and the High
Court, considering the language employed in Clause 13 of the policy and
G the reasons advanced while repudiating the claim of the claimant,
appointed a retired Judge of the High Court as arbitrator. The said order
is under assail by way of special leave in this appeal.
4. We have heard Mr. P.K. Seth, learned counsel for the appellant
and Mr. Sachin Datta, learned senior counsel for the respondent.
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ORIENTAL INSURANCE COMPANY v. NARBHERAM POWER 831
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5. Placing reliance on Clause 13 of the policy, it is urged by the A
learned counsel for the appellant that once the claim was repudiated and
the insurer had disputed or not accepted the liability under or in respect
of the policy, no difference or dispute could have been referred to
arbitration. It is his further submission that the High Court has adopted
an erroneous approach in the interpretation of the said Clause by
B
expressing the view that it suffers from ambiguity and it needs to be
purposively read failing which the arbitration clause becomes meaningless.
Reliance has been placed on the decisions in General Assurance Society
Ltd. v. Chandumull Jain and another1, Oriental Insurance Co. Ltd.
v. Samayanallur Primary Agricultural Co-op. Bank 2 and United India
Insurance Co. Ltd. v. Harchand Rai Chandan Lal3. C
6. Learned senior counsel for the respondent, per contra, would
contend that the order passed by the High Court is absolutely impregnable
and in the obtaining factual matrix, the view expressed by the High Court
cannot be found fault with. He would further urge that the letter of
repudiation, when appositely understood, does not relate to disputation D
and non-acceptance of the liability under or in respect of the policy but,
in fact, amounts to denial of the claim that basically pertains to the
quantum. Learned counsel has drawn a distinction between liability and
refusal of the claim not having been substantiated. To bolster the
submissions, he has placed reliance on The Vulcan Insurance Co. Ltd
v. Maharaj Singh and another4, Chloro Controls India Private E
Limited v. Severn Trent Water Purification Inc. and others5, A.
Ayyasamy v. A. Paramasivam and others6, M/s. Jumbo Bags Ltd v.
M/s. The New India Assurance Co. Ltd 7 and Essar Steel India
Limited v. The New India Assurance Co. Ltd8.
7. To appreciate the rival submissions, it is necessary to scan and F
scrutinize the arbitration clause, that is, Clause 13 of the policy. The said
Clause reads as follows:-

1
AIR 1966 SC 1644
2
AIR 2000 SC 10 G
3
(2004) 8 SCC 644
4
(1976) 1 SCC 943
5
(2013) 1 SCC 641
6
(2016) 10 SCC 386
7
2016-2-L.W.769
8
MANU/MH/0542/2013
H
832 SUPREME COURT REPORTS [2018] 4 S.C.R.

A “13. If any dispute or difference shall arise as to the quantum to
be paid under this policy (liability being otherwise admitted) such
difference shall independently of all questions be referred to the
decision of a sole arbitrator to be appointed in writing by the parties
to or if they cannot agree upon a single arbitrator within 30 days
of any party invoking arbitration, the same shall be referred to a
B
panel of three arbitrator, comprising of two arbitrators, one to be
appointed by each of the parties to the dispute/difference and the
third arbitrator to be appointed by such two arbitrators and
arbitration shall be conducted under and in accordance with the
provisions of the Arbitration and Conciliation Act, 1996.
C It is clearly agreed and understood that no difference or dispute
shall be referable to arbitration as hereinbefore provided, if the
Company has disputed or not accepted liability under or in respect
of this policy.
It is hereby expressly stipulated and declared that it shall be a
D condition precedent to any right of action or suit upon this policy
that the award by such arbitrator/arbitrators of the amount of the
loss or damage shall be first obtained.”
(Emphasis supplied)

E 8. When we carefully read the aforequoted Clause, it is quite
limpid 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
F loss or damage is a condition precedent. The High Court, as the impugned
order would show, has 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.
G 9. Before we address the factum of repudiation and its impact on
the Clause, we think it appropriate to discuss the authorities cited by the
learned counsel for the parties. In General Assurance Society Ltd.
(supra), the Constitution Bench, while dealing with the contract of
insurance, has opined that such a contract is entered into on the basis of
commercial transactions and while interpreting the documents relating
H
ORIENTAL INSURANCE COMPANY v. NARBHERAM POWER 833
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to a contract of insurance, the duty of the court is to interpret the words A
in which the contract is expressed by the parties because it is not for the
court to make a new contract, howsoever reasonable.
10. In Oriental Insurance Co. Ltd. (supra), a two-Judge Bench
has opined that insurance policy has to be construed having reference
only to the stipulations contained in it and no artificial far-fetched meaning B
could be given to the words appearing in it.
11. In United India Insurance Co. Ltd. (supra), the Court has
ruled that the terms of the policy shall govern the contract between the
parties and they are bound to abide by the definitions given therein. That
apart, the expression appearing in the policy should be given interpretation C
with reference to the terms of the policy and not with reference to the
definitions given in any other law because the parties have entered into
the contract with eyes wide open.
12. The aforesaid principles are in the realm of settled position of
law. The natural corollary of the said propositions is that the parties are D
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. E

13. In this context, reference to the authority in Deep Trading
Company v. Indian Oil Corporation and others9, would be instructive.
A three-Judge Bench was dealing with the right of the respondent No. 1
therein to appoint the arbitrator after expiry of the time period. The
Court referred to Clause 29 of the agreement that provided for procedure F
for appointment of the arbitrator. After referring to the authorities in
Datar Switchgears Ltd. v. Tata Finance Ltd. and another10 and Punj
Lloyd Ltd. v. Petronet MHB Ltd.11, the Court held:-
“19. If we apply the legal position exposited by this Court in Datar
Switchgears to the admitted facts, it will be seen that the G
Corporation has forfeited its right to appoint the arbitrator. It is so
for the reason that on 9-8-2004, the dealer called upon the
9
(2013) 4 SCC 35
10
(2000) 8 SCC 151
11
(2006) 2 SCC 638
H
834 SUPREME COURT REPORTS [2018] 4 S.C.R.

A Corporation to appoint the arbitrator in accordance with the terms
of Clause 29 of the agreement but that was not done till the dealer
had made application under Section 11(6) to the Chief Justice of
the Allahabad High Court for appointment of the arbitrator. The
appointment was made by the Corporation only during the
pendency of the proceedings under Section 11(6). Such appointment
B
by the Corporation after forfeiture of its right is of no consequence
and has not disentitled the dealer to seek appointment of the
arbitrator by the Chief Justice under Section 11(6). We answer
the above questions accordingly.”
14. In this regard, a reference to the authority in Newton
C Engineering and Chemicals Limited v. Indian Oil Corporation
Limited and others12 is fruitful. In the said case, there was an express,
clear and unequivocal arbitration clause between the parties which
provided that disputes shall be referred to the sole arbitration of the
Executive Director (Northern Region) of the respondent Corporation
D and if the said authority was unable or unwilling to act as the sole arbitrator,
the matters shall be referred to the person designated by such ED (NR)
in his place who is willing to act as the sole arbitrator. The arbitration
clause further provided that if none of them is able to act as an arbitrator,
no other person should act as a sole arbitrator and if the office of the
said authority ceases to exist in the Corporation and the parties are unable
E to arrive at any agreed solution, the arbitration clause would not survive
and has to be treated having worked its course. The Court, interpreting
the clause, expressed the view that in such a situation, the Court has no
power to appoint an arbitrator for resolution of the disputes.
15. In The Vulcan Insurance Co. Ltd (supra), a three-Judge
F Bench was interpreting Clauses 13, 18 and 19 of the policy involved
therein. For proper appreciation, we think it appropriate to refer to the
Clauses of the policy that arose for consideration in the said authority.
They read as follows:-
“13. If the claim be in any respect fraudulent, or if any false
G declaration be made or used in support thereof, or if any fraudulent
means or devices are used by the insured or anyone acting on his
behalf to obtain any benefit under this Policy; or, if the loss or
damage be occasioned by the wilful act, or with the connivance
12
(2013) 4 SCC 44
H
ORIENTAL INSURANCE COMPANY v. NARBHERAM POWER 835
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of the insured; or, if the claim be made and rejected and an action A
or suit be not commenced within three months after such rejection,
or (in case of an arbitration taking place in pursuance of the 18th
condition of this Policy) within three months after the Arbitrator
or Arbitrators or Umpire shall have made their award, all benefit
under this Policy shall be forfeited.
B
x x x
18. If any difference arises as to the amount of any loss or damage
such difference shall independently of all other questions be
referred to the decision of an Arbitrator, to be appointed in writing
by the parties in difference, or, if they cannot agree upon a single C
Arbitrator to the decision of two disinterested persons as Arbitrators
....
* * *
And it is hereby expressly stipulated and declared that it shall be
a condition precedent to any right of action or suit upon this policy D
that the award by such Arbitrator, Arbitrators or Umpire of the
amount of the loss or damage if disputed shall be first obtained.
19. In no case whatever shall the company be liable for any loss
or damage after the expiration of twelve months from the
happening of the loss or damage unless the claim is the subject of E
pending action or arbitration.”
In the said case, the company repudiated its liability to pay any
amount of loss or damage as claimed by the claimant. The Court opined
that the dispute raised by the company appertained to its liability to pay
any amount of damage whatsoever and, therefore, the dispute raised by F
the appellant company was not covered by the arbitration clause. The
Court scanned the anatomy of Clauses 13 and 18 and then referred to
the decision in Scott v. Avery13 naming the clause to be Scott v. Avery
clause and quoted a passage from Russel on Arbitration which is to the
following effect:-
G
“Even a clause of this type, however, is not absolute in effect:
where the court orders that the arbitration agreement cease to
have effect in relation to a particular dispute, it has a discretion to
13
(1856) 25 LJ Ex 308 : 5 HLC 811 : 4 WR 746
H
836 SUPREME COURT REPORTS [2018] 4 S.C.R.

A order further that the Scott v. Avery clause cease to have effect
too. (Vide pp. 57, 58 of Russel on Arbitration, Eighteenth Edn.).
In the said case, reliance was placed on Viney v. Bignold 14
wherein it had been held that the determination of the amount by
arbitration was a condition precedent to the right to recover on the policy
B and if any action was brought without an award obtained in arbitration, it
was not maintainable. The other decision that was pressed into service
was Caledonian Insurance Company v. Andrew Gilmour15. The Court
commented that the said decision was dealing with a case that contained
a comprehensive arbitration clause and justified the applicability of Scott
C v. Avery as a bar to the maintainability of action without an award.
16. The three-Judge Bench noted that in O’connor v. Norwich
Union Fire and Life Insurance Society16, the decision in Viney v.
Bignold (supra) was distinguished and went on to reproduce a passage
from Holmes, J.:-
D “Now, if it was a term of the contract that a difference of this
kind was to be settled by arbitration, I should not hesitate to stay
the action ....
* * *
E But there is no provision in the plaintiff’s policy that such a
controversy as has arisen is to be referred to arbitration. There is
a carefully drawn clause, by which it is agreed that the amount to
be paid, as distinguished from liablity to pay anything, is to be
settled by arbitrators, and that no action can be commenced until
F they shall have determined such amount. One result of this clause
may be to render two proceedings necessary where there is a
dispute as to the amount of the loss as well as a denial of all
liability; but this ought not to be a ground of complaint to either of
the parties who have made it a term of the contract;”

G After reproducing the said passage, the Court concurred with the
said view.

14
(1888) 20 QBD 171,172
15
1893 AC 85 : 9 TLR 146 : 57 JP 228
16
(1894) 2 Irish LR 723 : 28 Irish LT 95
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ORIENTAL INSURANCE COMPANY v. NARBHERAM POWER 837
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17. Reliance was placed upon a few paragraphs of the Fifth Edition A
of MacGillivray on Insurance Law by the learned counsel for the
respondent. The said passage reads thus:-
“There is a rule of law that parties cannot by their private contract
oust the jurisdiction of the court; but it has been held that parties
to a contract may nevertheless agree that no cause of action shall B
arise upon it until any matter in dispute between them shall have
been determined by arbitration and then only upon the arbitrators’
award.”
On behalf of the respondent, the following passage was taken aid
of:- C
“As a rule, where the amount of the loss or damage is the only
matter which the parties refer to arbitration, then if the insurers
repudiate any liability on the policy there is no obligation on the
assured to arbitrate as to the amount before commencing an action
on the policy.” D
18. It is apt to mention here that the Bombay High Court in Eagle
Star and British Dominions Insurance Company v. Dinanath and
Hemraj17 had interpreted identical Clause 13. The High Court had
eventually ruled:-
“But in clause 13 there are various contingencies set out which if E
established entitle the insured to bring an action without an award
having been made by arbitrators. One of these contingencies is
‘if the claim be made and rejected’ which if established gives a
right of action, the period of limitation provided for the suit being
fixed at three months from the date of the rejection. While it is F
also provided that where arbitration takes place in pursuance of
Condition 18 of the policy, three months’ time should be allowed
for a suit to be brought after the award has been made. Therefore
it is quite obvious that a right of action accrued after the company
rejected the claim. Naturally that question would have first to be
decided by suit as under clause 18 that question could never have G
been referred to arbitration.”
This Court in The Vulcan Insurance Co. Ltd (supra) approved
the view of the Bombay High Court.
17
ILR 47 Bom 509 : AIR 1923 249 : 25 Bom LR 164
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838 SUPREME COURT REPORTS [2018] 4 S.C.R.

A 19. At this stage, we may state, in brief, the factual score in The
Vulcan Insurance Co. Ltd. case. In the said case, the respondent therein
had filed an application under Section 20 of the Arbitration Act, 1940 in
the Court at Muzaffarnagar in Uttar Pradesh. As objection was taken to
the jurisdiction of that Court, the respondent re-filed it in the Delhi Court.
The trial court at Delhi dismissed the application holding that the dispute
B
arising out of the repudiation of the liability under Clause 13 by the
insurance company was within the scope of the arbitration agreement
contained in Clause 18 and a reference to arbitration could be made, but,
as per Cause 19, the petition was barred by limitation. On an appeal
being preferred, the Delhi High Court reversed the judgment by opining
C that Clause 18 was restricted to differences as to the amount of loss or
damage; that reference to arbitration was not ousted and the arbitration
clause covered the dispute even if the insurance company had repudiated
the claim in toto; that the Arbitration Clause 18 was inoperative unless
the conditions contained in Clause 19 were satisfied; that the condition
mentioned therein was satisfied because the Respondent No. 1 had
D
commenced the arbitration on the date when he issued the notice dated
October 1, 1963; and that his claim was the subject of a pending arbitration
within the meaning of Clause 19. Being of this view, the High Court had
allowed the appeal. Dislodging the judgment of the High Court, this Court
ultimately held:-
E
“24. But in this case on a careful consideration of the matter we
have come to the definite conclusion that the difference which
arose between the parties on the company’s repudiation of the
claim made by Respondent 1 was not one to which the arbitration
clause applied and hence the arbitration agreement could not be
F filed and no arbitrator could be appointed under Section 20 of the
Act. Respondent 1 was ill-advised to commence an action under
Section 20 instead of instituting a suit within three months of the
date of repudiation to establish the company’s liability.”
It is our obligation to mention here that though the respondent has
G placed reliance upon the said authority, yet the same does not assist him.
On the contrary, it dispels the perception of ambiguity in Part II and Part
III of the arbitration clause as perceived by the High Court. That apart,
it throws light on the issue of repudiation.

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ORIENTAL INSURANCE COMPANY v. NARBHERAM POWER 839
AND STEEL [DIPAK MISRA, CJI]

20. We may presently refer to the decision of the Madras High A
Court in M/s. Jumbo Bags Ltd. (supra). In the said case, learned Chief
Justice was interpreting Clause 13 of the policy conditions. Referring to
The Vulcan Insurance Co. Ltd. (supra), he has held thus:-
“The dispute which is not referable to arbitration, being not covered
by the clause cannot be over the subject matter of arbitration, and B
the remedy of the insured in this case is only to institute a suit.”
And again :-
“I am of the view that the remedy of arbitration is not available to
the petitioner herein in view of the arbitration clause specifically
excluding the mode of adjudication of disputes by arbitration, where C
a claim is repudiated in toto. The remedy would thus only be of a
civil suit in accordance with law.”
We concur with the said view.
21. In Essar Steel India Limited (supra), the learned Single Judge D
of the Bombay High Court was dealing with a situation where the insurer
had taken the stand that the policy was void ab initio. Repelling the
said stand, the learned Single Judge held that the disputes could be referred
to arbitration since the plea advanced by the owner could be decided by
the arbitrator. We do not intend to dwell upon the correctness of the said
decision as the issue involved in the present case is quite different. E
22. In A. Ayyasamy (supra), a two-Judge Bench was concerned
with the issue as to whether the plea of fraud can be adequately taken
care of by the arbitrator. Sikri. J., analyzing the facts, opined:-
“28. We, therefore, are of the opinion that the allegations of
F
purported fraud were not so serious which cannot be taken care
of by the arbitrator. The courts below, therefore, fell in error in
rejecting the application of the appellant under Section 8 of the
Act. Reversing these judgments, we allow these appeals and as a
consequence, application filed by the appellant under Section 8 in
the suit is allowed thereby relegating the parties to the arbitration.” G
Chandrachud J., in his concurring opinion, after referring to many
an authority and literature in the field of arbitration, came to hold:-
“53. The Arbitration and Conciliation Act, 1996, should in my view
be interpreted so as to bring in line the principles underlying its
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840 SUPREME COURT REPORTS [2018] 4 S.C.R.

A interpretation in a manner that is consistent with prevailing
approaches in the common law world. Jurisprudence in India must
evolve towards strengthening the institutional efficacy of
arbitration. Deference to a forum chosen by parties as a complete
remedy for resolving all their claims is but part of that evolution.
Minimising the intervention of courts is again a recognition of the
B
same principle.”
He has further held that the mere allegation of fraud in the factual
scenario was not sufficient to detract the parties from the obligation to
submit their disputes to arbitration keeping in view the letter and spirit of
the 1996 Act. The decision, in our considered view, is not applicable to
C the case at hand.
23. Though the learned counsel for the respondent has referred
to the case of Chloro Controls India Private Limited (supra), yet the
same need not be analyzed as it is not an authority remotely relevant for
deciding the lis in the present case.
D
24. It does not need special emphasis that 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
E arbitration, and they are demonstrably clear then the controversy
pertaining to the appointment of arbitrator has to be put to rest.
25. 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
F whether the insurer has disputed or not accepted the liability under or in
respect of the policy. The rejection of the claim of the respondent made
vide letter dated 26.12.2014 ascribes the following reasons:-
“1. Alleged loss of imported coal is clearly an inventory shortage.
2. There was no actual loss of stock in process.
G
3. The damage to the sponge iron is due to inherent vice.
4. The loss towards building/sheds etc. are exaggerated to cover
insured maintenance.

H
ORIENTAL INSURANCE COMPANY v. NARBHERAM POWER 841
AND STEEL [DIPAK MISRA, CJI]

5. As there is no material damage thus business interruption loss A
does not triggered.”
26. The aforesaid communication, submits the learned senior
counsel for the respondent, does not amount to denial of liability under or
in respect of the policy. On a reading of the communication, we think,
the disputation squarely comes within Part II of Clause 13. The said B
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. In the present case, we are not concerned with C
regard to whether the policy was void or not as the same was not raised
by the insurer. 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 D
by the respondent. Such a situation, according to us, 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 E
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 F
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 said analysis runs counter
to the principles laid down in the three-Judge Bench decision in The
Vulcan Insurance Co. Ltd (supra). Therefore, the only remedy which G
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.

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842 SUPREME COURT REPORTS [2018] 4 S.C.R.

A 27. In view of the aforesaid premised reasons, the appeal is allowed
and the order passed by the High Court is set aside. In the facts and
circumstances of the case, there shall be no order as to costs.

Devika Gujral Appeal allowed.
B

C

D

E

F

G

H