Case: Union Of India Vs. Salween Timber Construction (India) &amp; Ors

be made or used in support of a claim all benefit under the policy should be forfeited. In answer to a claim by the assured, the insurers alleged that statements in the proposal and declaration were false. When the matter came before the arbitrator, the assured objected that this was not a difference in the arbitration and that the arbitrator had no power to determine whether the answers were true or not, or to determine any matters which called in question the validity of the policy. In holding that the arbitrator had jurisdiction to decide the matter, Viscount Reading. C. J. observed: If the company were seeking to avoid the contract in the true sense they would have to rely upon some matter outside the contract, such as a misrepresentation of some material fact, inducing the contract, of which force and effect are not declared by the contract itself. In that case the materiality of the fact and its effect in inducing the contract would have to be tried. In the present case the company are claiming the benefit of a clause in the contract when they say that the parties have agreed that the statements in question are material and that they induced the contract. If they succeed in escaping liability that is by reason of one of the clauses in the policy. In resisting the claim they are not avoiding the policy but relying on its terms. In my opinion, therefore, the question whether or not the statement is true is a question arising out of the policy. The principle has been reiterated by this Court in Ruby General Insurance Co. Ltd. v. Pearey Lal Kumar,(1952) 3 SCR 501=(AIR 1952 SC 119 ). In that case the appellant company insured a car belonging to respondent No. 1 and issued the policy which contained, inter alia, the following terms:- All differences arising out of this policy shall be referred to the decision of an arbitrator to be appointed by the parties. . ..If the company shall disclaim liability to the insured for any claim hereunder and such claim shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration then the claim shall have been deemed to have been abandoned and shall not be recoverable. The car was lost and company through its Branch Manager disclaimed liability on three different dates. The insured did not take any action in regard to the appointment of an arbitrator until more than twelve months after the last disclaimer by the company. The case of the company was that the insured must be deemed to have abandoned his claim by virtue of the contract of insurance policy while the respondent averred that there was never any valid disclaimer by the company of its liability as the Branch Manager had no authority to disclaim the liability and it could have been disclaimed only by the resolution of the company. The company made an application under Section 33 of the Indian Arbitration Act praying for a declaration that the reference to arbitration was illegal and the award if made by the arbitrator would not bind the company. It was contended on its behalf that the arbitration clause had ceased to be operative and the question as to the existence and validity of the arbitration agreement was triable by the court under Section 33 of the Arbitration Act and not by the arbitrator. The argument was rejected by this Court. It was held that the point on which the parties were in dispute was a difference arising out of the policy, because recourse to the contract by which both the parties were bound was necessary for the purpose of determining the matter in dispute between them. As there was no contention raised by either of the parties that there was no contract entered into at all or that it was void ab initio the arbitrator had jurisdiction to decide the matter referred to him. In our opinion, the principle applies to the present case and it follows at the dispute between the parties falls within the scope of the arbitration clause. 6. On behalf of the appellant reliance was placed upon the decision of Court of Appeal in Piercy v. Young, (1879) 14 Ch D 200 in which it was held that the clause that any differences or disputes that may arise between the partners shall be settled by an arbitrator does not include a dispute whether the partnership has been terminated, or whether certain shares have been paid on account to the partnership or to one partner alone. In our opinion, the principle does not apply in the present case where the question presented for determination is quite different. Counsel for the appellant also referred to Turnock v. Sartoris, (1889) 43 Ch D 150. In that case the lessor was under a covenant to supply his lessee with a specific quantity of water. The lease contained a comprehensive arbitration clause. Dispute having arisen as to the supply of water, an agreement was subsequently entered into binding the lessor to take certain steps to secure the supply and varying the rights of the parties in respect of the supply. The lessee brought an action alleging that the steps agreed upon had not been taken and that he had not been fully supplied with water and asking for an action of the damages to be taken. The lessor moved to have the action stayed. It was held that the disputed matters arose partly under the agreement and were outside the arbitration clause in the lease, and trial, even if all the matters for which damages were claimed could be brought within the arbitration clause it would not be proper to refer them to an arbitration who would not have the authority to construe the agreement to determine its effect upon the lease. It is manifest that the decision has no bearing upon the question presented for determination in the present case.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]We do not think that there is any justification for the argument put forward on behalf of the appellant. In our opinion, the claim made by the respondent firm was a claim arising out of thee test for determining the question is whether recourse to the contract by which both the parties are bound is necessary for the purpose of determining whether the claim of the respondent firm is justified or otherwise.If it is necessary to take recourse to the terms of the contract for the purpose of deciding the matter in dispute, it must be held that the matter is within the scope of the arbitration clause and the arbitrators have jurisdiction to decide this caseIn our opinion, the principle applies to the present case and it follows at the dispute between the parties falls within the scope of the arbitration clauseIn our opinion, the principle does not apply in the present case where the question presented for determination is quite different. Counsel for the appellant also referred toTurnock v. Sartoris, (1889) 43 Ch D. In that case the lessor was under a covenant to supply his lessee with a specific quantity of water. The lease contained a comprehensive arbitration clause. Dispute having arisen as to the supply of water, an agreement was subsequently entered into binding the lessor to take certain steps to secure the supply and varying the rights of the parties in respect of the supply. The lessee brought an action alleging that the steps agreed upon had not been taken and that he had not been fully supplied with water and asking for an action of the damages to be taken. The lessor moved to have the action stayed. It was held that the disputed matters arose partly under the agreement and were outside the arbitration clause in the lease, and trial, even if all the matters for which damages were claimed could be brought within the arbitration clause it would not be proper to refer them to an arbitration who would not have the authority to construe the agreement to determine its effect upon the lease. It is manifest that the decision has no bearing upon the question presented for determination in the present case.