Supreme Court of India
UNITED INDIA INSURANCE CO. LTD. & ANR.versusHYUNDAI ENGINEERING AND CONSTRUCTION CO. LTD. & ORS.
- Citation
- 2018 INSC 732
- Decided
- 21 August 2018
- Disposal
- Appeal(s) allowed
- Bench
- DIPAK MISRA
Holding
An arbitration clause that is conditioned on the insurer’s admission of liability is ineffective where the insurer repudiates the claim, rendering the dispute non‑arbitrable.
Summary
The Supreme Court examined whether clause 7 of a Contractor's All Risk insurance policy constituted a valid arbitration clause. The clause stipulated that arbitration would apply only if the insurer admitted liability and a dispute arose over the quantum payable. The insurer, United India Insurance, had repudiated the claim, denying any liability, and communicated this to the insured. The Court held that because the insurer did not admit liability, the pre‑condition for triggering arbitration was not satisfied, making the dispute non‑arbitrable. Consequently, the High Court’s appointment of an arbitrator was set aside and the respondents were directed to pursue a civil suit. The appeal by the insurer was allowed.
Issues considered
- Whether clause 7 of the insurance policy is a valid arbitration clause or is conditioned on the insurer's admission of liability.
- Whether a dispute arising from the insurer's repudiation of a claim falls within the scope of the arbitration clause.
- Whether the High Court erred in appointing an arbitrator under Section 11(4) & 11(6) of the Arbitration and Conciliation Act, 1996.
- How an arbitration clause must be interpreted under the Arbitration and Conciliation Act, 1996.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 11(4), s. 11(6)
Subjects
arbitration clauseconditional arbitrationinsurance policyrepudiation of claimnon‑arbitrable disputeArbitration and Conciliation Actinterpretation of arbitration agreementpre‑condition of liability admission
Judgment
[2018] 12 S.C.R. 1085 1085
UNITED INDIA INSURANCE CO. LTD. & ANR. A
v.
HYUNDAI ENGINEERING AND CONSTRUCTION
CO. LTD. & ORS.
(Civil Appeal No. 8146 of 2018)
B
AUGUST 21, 2018
[DIPAK MISRA, CJI, A. M. KHANWILKAR AND
DR. D.Y. CHANDRACHUD, JJ.]
Arbitration and Conciliation Act, 1996 – s.11(4) and s.11(6)
– Arbitration clause – Examination of – Respondent No.3 awarded C
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
D
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 E
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
F
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. G
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 H
1085
1086 SUPREME COURT REPORTS [2018] 12 S.C.R.
A 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
B
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
C 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
D 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
E 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
F 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
G – 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 ;
H
UNITED INDIA INSURANCE CO. LTD. v. HYUNDAI ENGINEERING 1087
AND CONSTRUCTION CO. LTD.
Vulcan Insurance Co. Ltd. v. Maharaj Singh and Anr. A
(1976) 1 SCC 943 : [1976] 2 SCR 62 – referred to.
Case Law Reference
(2017) 9 SCC 729 referred to Para 1
(2018) 6 SCC 534 relied on Para 12 B
[1976] 2 SCR 62 referred to Para 11
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8146
of 2018.
C
From the Judgment and Order dated 30.11.2017 of the High Court
of Judicature at Madras in O. P. No. 537 of 2017.
P. P. Malhotra, Ms. Meenakshi Arora, Sr. Advs., Mohit Paul, Vineet
Malhotra, Yasir Rauf, Vishal Gohri, Anugrah Niraj Ekka, Shubhendu
Kaushik, Aneesh Mittal, Ms. Shreya Sharma, Ms. Anupama Kaul, D
S. Ravi Shankar, Ms. Yamunah Nachiar, Ms. Bhanu Kapoor, Advs.
for the appearing parties.
The Judgment of the Court was delivered by
A. M. KHANWILKAR, J. 1. The conundrum in this appeal is
whether clause 7 of the subject Insurance Policy dated 5th September, E
2007 posits unequivocal expression of the intention of arbitration or is
hedged with a conditionality? The learned Single Judge of the High
Court of Judicature at Madras vide impugned judgment and order dated
30th November, 2017 in O.P. No.537/2017 had held that post amendment
of the Arbitration and Conciliation Act, 1966 (for short, “the Act”), with F
effect from 23rd October, 2015 by insertion of sub-section 6A in Section
11 of the Act, the limited mandate of the Court is to examine the factum
of existence of an arbitration agreement. No more and no less. The
learned Single Judge placed reliance on the two-Judge Bench decision
of this Court in Duro Felguera, S.A. Vs. Gangavaram Port Limited,1
and another decision of its own High Court in Jumbo Bags Ltd. Vs. G
New India Assurance Co. Ltd.2 The appellants, however, placed
reliance on a three-Judge Bench decision of this Court in Oriental
1
(2017) 9 SCC 729
2
2016 SCC OnLine Mad 9141 : (2016) 3 CTC 761 : (2016) 2 LW 769 H
1088 SUPREME COURT REPORTS [2018] 12 S.C.R.
A Insurance Company Limited Vs. Narbheram Power and Steel
Private Limited,3 where this Court had an occasion to construe a similar
clause of an insurance policy as in the present case. Relying on this
decision, it is urged that the impugned judgment cannot be countenanced
and that the High Court ought to have dismissed the original petition filed
B by the respondents under Sections 11(4) & 11(6) of the Act read with
Rule 2 of the Appointment of Arbitrators by the Chief Justice of Madras
High Court Scheme, 1996, to declare the arbitrator nominated by the
respondents herein as the sole arbitrator; or in addition, appoint one
arbitrator on behalf of the appellants herein so as to adjudicate all the
disputes inter se between the parties in terms of the Act.
C
2. Shorn of unnecessary facts, be it noted that the respondent
Nos.1 and 2 constitute a Joint Venture (“JV”). Respondent No.3 awarded
a contract on 29th September, 2006 for design, construction and
maintenance of a bridge across the River Chambal, which was to be
completed within a period of 40 months and was commenced on
D 5th December, 2007 by the JV after respondent No.3 handed over the
site to it. After commencement of the work, a Contractor All Risk
Insurance Policy (“CAR Policy”) dated 5 th December, 2007 was
obtained from the appellants covering the entire project, valued at
Rs.2,13,58,76,000/-. The policy contained clause 7, which reads thus:
E “7. If any difference shall arise as to the quantum to be paid
under this Policy (liability being otherwise admitted) 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
F arbitrator to the decision of two disinterested persons as
arbitrators of whom one shall be appointed in writing by each of
the parties within two calendar months after having been required
so to do in writing by the other party in accordance with the
provisions of the Arbitration Act, 1940, as amended from time to
time and for the time being in force in case either party shall
G refuse or fail to appoint arbitrator within two calendar months
after receipt of notice in writing requiring an appointment the other
party shall be at liberty to appoint sole arbitrator and in case of
disagreement between the arbitrators, the difference shall be
3
(2018) 6 SCC 534
H
UNITED INDIA INSURANCE CO. LTD. v. HYUNDAI ENGINEERING 1089
AND CONSTRUCTION CO. LTD. [A.M. KHANWILKAR, J.]
referred to the decision of an umpire who shall have been A
appointed by them in writing before entering on the reference and
who shall sit with the arbitrators and preside at their meetings.
It is clearly agreed and understood that no difference or
dispute shall be referable to arbitration as herein before
provided, if the Company has disputed or not accepted B
liability under or in respect of this Policy.
It is hereby expressly stipulated and declared that it shall be a
condition precedent to any right of action or suit upon this policy
that the award by such arbitrator, arbitrators or umpire of the
amount of the loss or damage shall be first obtained. C
It is also hereby further expressly agreed and declared that if the
Company shall disclaim liability to the insured for any claim
hereunder and such claim shall not within 3 calendar months
from the date of such disclaimer have been made the subject
matter of a suit in a court of law, then the claim shall for all D
purpose be deemed to have been abandoned and shall not
thereafter be recoverable hereunder.”
(emphasis supplied)
3. During the construction of the bridge, on 24th December, 2009,
an accident occurred causing significant loss to the contractor. A E
detailed claim for a sum of Rs.1,51,59,94,543/- was submitted by the JV
to the appellants, in response to which the appellants appointed one
Mr. S. Ananthapadmanabhan, Surveyor and Loss Adjuster, for
assessing the loss caused to the contractor. A final report was submitted
by the Surveyor on 28 th February, 2011 assessing the loss as F
Rs.39,09,92,828/-, however, with the finding that the damage was on
account of the faulty design and improper execution of the project and
not payable under the policy. Besides the stated report, a Committee of
Experts was set up by the Ministry of Road Transport and Highways,
Government of India, to enquire into the accident which then submitted
its report on 7th August, 2010. G
4. The appellants took into account both these reports and vide
communication dated 21st April, 2011, intimated the respondents that the
claim put forth by the JV, was found to be not payable, and accordingly,
stood repudiated. The said communication reads thus:
H
1090 SUPREME COURT REPORTS [2018] 12 S.C.R.
A “UNITED INDIA INSURANCE COMPANY LIMITED
Divisional Office:010700 Post Box No.4528
Ist Floor, Silingi Building Gram UNDIVSEVEN
134, Greams Road Phone:28290845/846
Chennai-600 006 Telefax:044-28290844
B Ref.:010700/CAR Claim/2011 21st April, 2011
REGISTERED POST WITH ACKNOWLEDGE DUE
M/s National Highways of Authority of India
1-C-10 SFS Colony
C Talwandi, Kota
Rajasthan-324 005
Dear Sirs
Kind Attn: Mr. Anoop Kulshreshtha, Project Director
D Re: Claim under Contractor’s All Risk Policy No.011900/44/07/
03/60000001- Our Claim No.010703/44/09/03/90000007-Collapse
of Cable Stayed Bridge at Kota, Rajasthan.
We refer to the above claim lodged by you under your Contractor’s
All Risk Policy in respect of collapse of portion of bridge under
construction on 24.12.2009.
E
You are aware that immediately on intimation of the occurrence,
our Company had deputed Mr. S Ananta Padmanabhan, a duly
licensed and well experienced civil engineer surveyor for detailed
survey as required by Insurance Act. The surveyor had visited
the site on various occasions and was in contact and
F
correspondence with you when various particulars, information
and records were obtained. Besides enquiries with you the surveyor
had also made other enquiries for information including the
Government, Police Authorities and gathered reports of the
respective agencies. After detailed survey, the surveyor had
G submitted his Final Report dated 28.2.2011 in respect of the claim.
Besides the Survey Report, it also found that the occurrence was
the subject matter of enquiry by a Special Committee constituted
by the Ministry of Road Transport and Highways, Govt. of India
which had also submitted a detailed report dated 7.8.2010.
H
UNITED INDIA INSURANCE CO. LTD. v. HYUNDAI ENGINEERING 1091
AND CONSTRUCTION CO. LTD. [A.M. KHANWILKAR, J.]
We find that there had been a collapse of the lateral span P3-P4, A
P4 Pylon and main span structures from S1-S10 segments which
fell into the river.
On a careful study of the records it is found that the collapsed
portion was affected entirely due to faulty design, besides defective
workmanship and materials in execution of the project. A few of B
the relevant factors are observed as under:-
In execution of the project it is found that the junction at Pylon P4
was most critical and vulnerable which had to be handled with
due care and diligence. An instable equilibrium had been caused
at this junction, due to shearing of the slab in the lateral span C
P3-P4 about 15 mts. From the P4 junction, which caused the
tilting of the pylon, dragging with it the spans P3-P4, P3-P2 and
Piers P3, P4. The release of restraints on the movement of the
bearings at P4 had not been performed in manner necessary,
contributing to a massive failure. Lack of coordination and planning
between various consultants and failure to properly oversee the D
execution had been found.
There had been change of allocation of work among various joint
venture partners which had played a key role in the quality of
workmanship. Even at the affected P4 location, construction of
Pier P4 was the responsibility of Hyundai Engg. & Construction E
Co. Whereas it was found to have been carried out by Gatnmon
India.
There had also been change in the sequence of operations in
construction to make up for lost time, which adversely affected
the stability of the P4 joint. F
The summary of the findings of the Enquiry committee is that the
collapse was caused, inter alia, by 1) absence of stability devices
during construction, 2) shortfall in design and 3) deficient
workmanship.
G
The Enquiry Committee have more particularly observed that
a) the contractors are responsible for all during the structure
to reach a vulnerable stage, without taking adequate precautions
with respect to stability and robustness of the partially completed
structure and shortfall in the design.
H
1092 SUPREME COURT REPORTS [2018] 12 S.C.R.
A b) Since they have been shortfalls at the design responsibility
also lies with.
The available records and documents clearly reveal that
the loss has occurred due to faulty design and defective
workmanship.
B We find that national Highways Authority of India have in fact
initiated action by issue of show cause notice against the
Contractors.
The Kota Police had lodged FIR against various employees of
the Contractors/Sub contractors and submitted final report which
C supports the above observations.
The policy does not cover the loss in the above
circumstances. In fact the policy specifically excludes any
loss/damage caused by faulty design, defective
workmanship/material. Further, the revelations of the
D expert body and the surveyors indicate willful acts/
negligence in execution of work of such nature resulting in
the occurrence.
In view of the above, we regret to inform you that the claim
is found to be not payable and accordingly stands repudiated.
E
Insurers reserve their right to rely upon any further or other
materials/terms in support of the above conclusion and the above
circumstances are not exhaustive of the basis for the above
decision.
Thanking You
F
Yours faithfully
Sd/-
Senior Divisional Manager
G Copy to:
1) M/s Hyundai Engineering & Construction Co. Ltd & Gammon
India Ltd., Chambal Bridge Project. Behind Tilam Sangh, Rawat
Bhata Road, Kota Rajasthan-324010.
2) Regional Office-Technical-Engineering Dept.
H
UNITED INDIA INSURANCE CO. LTD. v. HYUNDAI ENGINEERING 1093
AND CONSTRUCTION CO. LTD. [A.M. KHANWILKAR, J.]
3) Head Office-Technical-Engineering Dept. A
Regd. & Head Office: 24, Whites Road,
Chennai-600 014.”
(emphasis supplied)
5. The JV nevertheless entered into correspondence with the
appellants to reopen and re-assess its decision of repudiation of the claim. B
Finally, the appellants informed the respondents that it was unable to
“reconsider” the claim which has already been repudiated. The said
communication reads thus:
“UNITED INDIA INSURANCE COMPANY LIMITED
HEAD OFFICE 24, WHITES ROAD CHENNAI C
CIN:U93090TN1938GOI000108
Ref:No.UIIC/ENGG/CLAIMS/17-18/01 Dt:17.04.2017
To
KA: Mr. Anupam Gupta
The Project Director D
M/s National Highways Authority of India
Project Implementation Unit
A-575, Talwandi, Kota (Rajasthan)-324005
Subject: CAR Insurance Policy
E
No.011900/44/07/03/60000001.
Settlement of Contractors claim No.010703/44/096/03/90000007.
Dear Sir,
We refer to your letter Ref:17011/27/2006-Kota/CAR/RJ-05/3909
dt. 18.01.2017 and Contractor letter Ref: HZ-6718, dated F
04.02.2017 and also the subsequent meeting held at our office
Chennai. On perusal of the documents provided, we find that no
further points have emerged in support of the claim.
In view of the above we regret our inability to reconsider
the claim which was repudiated. G
Yours faithfully
(D. Nagalakshmi)
Dy. General Manager
H
1094 SUPREME COURT REPORTS [2018] 12 S.C.R.
A CC: KA: Mr. Haeng Kwon Kang
The Chief Project Manager
Hyundai Engineering & Construction Co. Ltd.
Chambal Bridge Project, Behind Tilam Sangh
Rawat Bhata Road, Kota Rajasthan-324 010"
B (emphasis supplied)
6. As a sequel, the JV vide its letter dated 29 th May, 2017
informed the appellants that disputes had arisen between the appellants
and the JV and in view thereof it was invoking the arbitration clause
No.7 contained in the Insurance Policy and had nominated Dr. V.K.
C Agrawal as its Arbitrator. The appellants were also called upon to either
accept the name of the sole arbitrator or nominate its own arbitrator
within 30 days from the date of receipt of the communication.
Eventually, respondent Nos.1 & 2 filed a petition under Sections 11(4) &
11(6) of the Act before the High Court of Judicature at Madras being
O.P. No.537/2017.
D
7. The said petition was resisted by the appellants. It was urged
that the subject clause 7 of the 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. In other words, in case of repudiation of the
E claim by the appellants, the remedy of the insured was to file a suit
within 3 months of such disclaimer. It was asserted that the appellants
had repudiated the liability vide letter dated 21st April, 2011. That is an
indisputable fact. The communication sent by the appellants on 17th April,
2017 was a mere reiteration and confirmation of the repudiation already
F communicated vide letter dated 21st April, 2011. It was specifically
denied that the said letter dated 17th April, 2017 was a final repudiation
for the purpose of calculating limitation as alleged by the applicants
(respondent Nos.1 & 2). It was urged that the dispute raised was not
one of quantum to be paid under the policy but on the very factum of
alleged loss not covered under the policy. By virtue whereof, the agree-
G ment specifically excluded making a reference to arbitration.
8. Notwithstanding the stand taken by the appellants, the learned
Single Judge of the High Court by the impugned judgment allowed the
petition filed by respondent Nos.1 & 2 and appointed Mr. Justice P.
H
UNITED INDIA INSURANCE CO. LTD. v. HYUNDAI ENGINEERING 1095
AND CONSTRUCTION CO. LTD. [A.M. KHANWILKAR, J.]
Jyothimani, Former Judge, High Court of Judicature, Madras to act as A
an Arbitrator in the matter, having opined that arbitration agreement
existed in the form of clause 7 of the Insurance Policy, by relying mainly
on the decision in Duro Felguera, (supra) and Jumbo Bags Ltd.,
(supra).
9. We have heard Mr. P.P. Malhotra, learned senior counsel B
appearing for the appellants and Ms. Meenakshi Arora, learned senior
counsel appearing for the respondents.
10. The clause similar to the subject clause 7 of the Insurance
Policy came up for consideration before a three-Judge Bench of this
Court in Oriental Insurance Company Limited (supra). After analysing C
the legal principle expounded in a host of decisions, including the
decision in Jumbo Bags Ltd. (supra), the Court opined as follows:
“23. 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 D
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.
E
24. 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…..”
(emphasis supplied)
While adverting to the observation in paragraphs 28 and 32 of the F
Jumbo Bags Ltd. (supra), the Court observed thus:
“19. We may presently refer to the decision of the Madras High
Court in Jumbo Bags Ltd. In the said case, the learned Chief
Justice was interpreting clause 13 of the policy conditions.
Referring to Vulcan Insurance Co. Ltd., he has held thus: G
(Jumbo Bags Ltd. case, SCC OnLine Mad para 28)
‘28. …The dispute which is not referable to arbitration, being
not covered by the clause cannot be over the subject-matter
H
1096 SUPREME COURT REPORTS [2018] 12 S.C.R.
A of arbitration, and the remedy of the insured in this case is only
to institute a suit.’
And again : (SCC OnLine Mad para 32)
‘32. I am of the view that the remedy of arbitration is not
available to the petitioner herein in view of the arbitration clause
B specifically excluding the mode of adjudication of disputes by
arbitration, where 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.”
C (emphasis supplied)
11. The other decision heavily relied upon by the High Court and
also by the respondents in Duro Felguera (supra), will be of no avail.
Firstly, because it is a two-Judge Bench decision and also because the
Court was not called upon to consider the question which arises in the
D present case, in reference to clause 7 of the subject Insurance Policy.
The exposition in this decision is a general observation about the effect
of the amended provision and not specific to the issue under
consideration. The issue under consideration has been directly dealt with
by a three-Judge Bench of this Court in Oriental Insurance Company
Limited (supra), following the exposition in Vulcan Insurance Co. Ltd.
E Vs. Maharaj Singh and Anr.4, which, again, is a three-Judge Bench
decision having construed clause similar to the subject clause 7 of the
Insurance Policy. In paragraphs 11 & 12 of Vulcan Insurance Co.
Ltd. (supra), the Court answered the issue thus:
“11. Although the surveyors in their letter dated April 26, 1963
F had raised a dispute as to the amount of any loss or damage
alleged to have been suffered by Respondent 1, the appellant at
no point of time raised any such dispute. The appellant
company in its letter dated July 5 and 29, 1963 repudiated
the claim altogether. Under clause 13 the company was not
required to mention any reason of rejection of the claim
G
nor did it mention any. But the repudiation of the claim could
not amount to the raising of a dispute as to the amount of
any loss or damage alleged to have been suffered by
Respondent 1. If the rejection of the claim made by the
H 4
(1976) 1 SCC 943
UNITED INDIA INSURANCE CO. LTD. v. HYUNDAI ENGINEERING 1097
AND CONSTRUCTION CO. LTD. [A.M. KHANWILKAR, J.]
insured be on the ground that he had suffered no loss as a A
result of the fire or the amount of loss was not to the extent
claimed by him, then and then only, a difference could have
arisen as to the amount of any loss or damage within the
meaning of clause 18. In this case, however, the company
repudiated its liability to pay any amount of loss or damage as
B
claimed by Respondent 1. In other words, the dispute raised by
the company appertained to its liability to pay any amount of
damage whatsoever. In our opinion, therefore, the dispute raised
by the appellant company was not covered by the arbitration
clause.
12. As per clause 13 on rejection of the claim by the C
company an action or suit, meaning thereby a legal
proceeding which almost invariably in India will be in the
nature of a suit, has got to be commenced within three
months from the date of such rejection; otherwise, all
benefits under the policy stand forfeited. The rejection of the D
claim may be for the reasons indicated in the first part of clause
13, such as, false declaration, fraud or wilful neglect of the claimant
or on any other ground disclosed or undisclosed. But as soon as
there is a rejection of the claim and not the raising of a dispute as
to the amount of any loss or damage, the only remedy open to the
claimant is to commence a legal proceeding, namely, a suit, for E
establishment of the company’s liability. It may well be that after
the liability of the company is established in such a suit, for
determination of the quantum of the loss or damage reference to
arbitration will have to be resorted to in accordance with clause
18. But the arbitration clause, restricted as it is by the use F
of the words ‘if any difference arises as to the amount of
any loss or damage’, cannot take within its sweep a dispute
as to the liability of the company when it refuses to pay any
damage at all.”
(emphasis supplied) G
Again in paragraph 22, after analysing the relevant judicial
precedents, the Court concluded as follows:
“22. The two lines of cases clearly bear out the two distinct
situations in law. A clause like the one in Scott v. Avery bars any
H
1098 SUPREME COURT REPORTS [2018] 12 S.C.R.
A action or suit if commenced for determination of a dispute covered
by the arbitration clause. But if on the other hand a dispute
cropped up at the very outset which cannot be referred to
arbitration as being not covered by the clause, then Scott v.
Avery clause is rendered inoperative and cannot be pleaded
as a bar to the maintainability of the legal action or suit for
B
determination of the dispute which was outside the
arbitration clause.”
(Emphasis supplied)
13. From the line of authorities, it is clear that the arbitration clause
C has to be interpreted strictly. The subject clause 7 which is in pari
materia to clause 13 of the policy considered by a three-Judge Bench in
Oriental Insurance Company Limited (supra), 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
D 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
E paragraph of the same clause. In the opening part, it is stated that the
“(liability being otherwise admitted)”. This is reinforced and re-stated in
the second paragraph in the following words:
“It is clearly agreed and understood that no difference or dispute
shall be referable to arbitration as herein before provided, if the
F Company has disputed or not accepted liability under or in
respect of this Policy.”
Thus understood, 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.
G 14. The core issue is whether the communication sent on
21st April, 2011 falls in the excepted category of repudiation and denial
of liability in toto or has the effect of acceptance of liability by the
insurer under or in respect of the policy and limited to disputation of
H
UNITED INDIA INSURANCE CO. LTD. v. HYUNDAI ENGINEERING 1099
AND CONSTRUCTION CO. LTD. [A.M. KHANWILKAR, J.]
quantum. The High Court has made no effort to examine this aspect at A
all. It only reproduced clause 7 of the policy and in reference to the
dictum in Duro Felguera (supra) held that no other enquiry can be
made by the Court in that regard. This is misreading of the said decision
and the amended provision and, in particular, mis-application of the three-
Judge Bench decisions of this Court in Vulcan Insurance Co. Ltd.
B
(supra) and in Oriental Insurance Company Ltd. (supra).
15. Reverting to the communication dated 21st April, 2011, we
have no hesitation in taking the view that the appellants completely
denied their liability and repudiated the claim of the JV (respondent Nos.1
& 2) for the reasons mentioned in the communication. The reasons are
specific. No plea was raised by the respondents that the policy or the C
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 D
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 E
second paragraph of the same clause.
16. In view of the above, it must be held that the dispute in
question is non-arbitrable and respondent Nos.1 & 2 ought to have
resorted to the remedy of a suit. The plea of respondent Nos.1 & 2
about the final repudiation expressed by the appellants vide F
communication dated 17th April, 2017 will be of no avail. However,
whether that factum can be taken as the cause of action for institution
of the suit is a matter which can be debated in those proceedings. We
may not be understood to have expressed any opinion either way in that
regard. G
17. Accordingly, we allow this appeal and set aside the impugned
judgment and order and further dismiss the original petition No.537/2017
filed by respondent Nos.1 & 2 before the High Court of Judicature at
H
1100 SUPREME COURT REPORTS [2018] 12 S.C.R.
A Madras, with liberty to the said respondents to take recourse to a civil
suit for mitigation of its grievances, if so advised. We are not expressing
any opinion either way on the merits of the issues to be answered in the
said proceedings.
18. The appeal is allowed in the aforementioned terms with no
B order as to costs.
Ankit Gyan Appeal allowed.
C
D
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G
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