Case: Vulcan Insurance Co. Ltd Vs. Maharaj Singh &amp; Another

claim. Naturally, that question would have first to be decided by suit, as under clause 18, that question could never have been referred to arbitration."We approve the law so enunciated by the Bombay High Court.17. Mr. Andley placed reliance upon some decisions of the High Courts in India in support of his contention. We briefly refer to four of them. In Great American Insurance Co. Ltd. v. Bodh Raj some observations by Harnam Singh J. with whom Weston C.J. agreed in paragraph 16 do not seem to be quite accurate although on facts as found in paragraph 17 the case was rightly decided. The decision of Falshaw J. in Great American Insurance Co. Ltd. v. Dina Nath again relates to the dispute which was held to have, on the facts of that case, fallen in the arbitration clause. It would appear from the facts of the case decided by Mathew J. in Vanguard Fire and General Insurance Co. Ltd. v. N. R. Sreenivasa Iyer that condition 7 of the policy was couched in a wide language so as to cover the dispute and the difference including the one as to liability, which arose between the parties. In such a situation, on a consideration of various authorities including the one in the case of Viney v. Bignold, the learned judge said at page 275, column 1:" This condition may either mean that the arbitrators have to decide the question whether there is any liability at all under the contractor that they have to decide the quantum of that liability. In either case an award by the arbitrators is a condition precedent to any right of action. There is no difference between a case where the arbitrators have to decide the question of the liability itself and a case where he has to decide the question of the quantum of that liability. In both cases if the contract makes the decision of the arbitrators a condition precedent that has to be fulfilled before a suit can be instituted."18. In Charanjit Lal Sodhi v. Caledonian Insurance Co. Ltd. a learned single judge of the Delhi High Court seems to have gone wrong in treating the dispute raised by the insurer as one falling under the arbitration clause. The company had said that the insured had made a false claim. The learned judge thought that even the restricted arbitration clause covering only the difference as to the amount of any loss or damage was " wide enough to include a case of some loss or damage as well as a case of no loss or damage".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 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 the Scott v. Avery clause is rendered inoperative and cannot be pleaded as a bar to the maintainability of the legal action or suit for determination of the dispute which was outside the arbitration clause.19. We do not propose, as it is not necessary, to decide whether the action commenced by respondent No. 1 under section 20 of the Act for the filing of the arbitration agreement and for appointment of arbitrators was barred under clause 19 of the policy. It has been repeatedly held that such a clause is not hit by section 28 of the Contract Act and is valid: vide Baroda Spinning and Weaving Co. Ltd. v. Satyanarayen Marine and Fire Insurance Co. Ltd., Dawood Tar Mahomed Bros. v. Queenland Insurance Co. Ltd. and Ruby General Insurance Co. Ltd v. Bharat Bank Ltd. Clause 19 has not prescribed a period of 12 months for the filing of an application under section 20 of the Act. There was no limitation prescribed for the filing of such an application under the Indian Limitation Act, 1908, or the Limitation Act, 1963. Article 181 of the former did not govern such an application. The period of three years prescribed in article 137 of the Act of 1963 may be applicable to an application under section 20. Nor are we concerned in this case to decide whether the time taken by respondent No. 1 in prosecuting his application in Muzaffarnagar court could be excluded under section 14(2) of the Limitation Act, 1963. Nor do we propose to decide whether the application under section 20 could be defeated on the ground of the extinction of the liability of the company under clause 19. We may, however, observe in passing that in view of the decision of this court in Wazir Chand Mahajan v. Union of India, if the difference which had arisen between the parties was the one to which the arbitration clause applied then the application under section 20 of the Act could not be dismissed on the ground that the claim would not ultimately succeed either on facts or in law. The matter will have to be left for the decision of the arbitrator. Without any discussion we may just state that the High Court is not right in its view that respondent No. 1s claim was not barred under clause 19 because of the provision of law contained in section 37(3) of the Act.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 companys repudiation of the claim made by respondent No. 1 was not one to which the arbitration clause applied and hence the arbitration agreement could not be filed and no arbitrator could be appointed under section 20 of the Act. Respondent No. 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 companys liability.20.

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

Explanation:
1[ds]The correspondence between the parties makes it clear that at one time the surveyors had assessed the damages at Rs. 4, 620 in their letter dated April 26, 1963. But the said assessment was, in express terms, without commitment of any liability on the part of the insurance company. The company, however, completely repudiated the liability under clause 13.Although the surveyors in their letter dated April 26, 1963, had raised a dispute as to the amount of any loss or damage alleged to have been suffered by respondent No. 1, the appellant at no point of time raised any such dispute. The appellant-company in its letter dated the 5th and the 29th July, 1963, repudiated the claim altogether. Under clause 13, the company was not required to mention any reason of rejection of the claim nor did it mention any. But the repudiation of the claim would not amount to the raising of a dispute as to the amount of any loss or damage alleged to have been suffered by respondent No. 1. If the rejection of the claim made by the insured be on the ground that he had suffered no loss as 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 claimed by respondent No. 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 arbitrationper clause 13 on rejection of the claim by the 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 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 establishment of the companys 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 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 atdispute raised is not within the purview of arbitration. Reading clauses 13 and 18 together, it must be held that on the rejection or repudiation of the claim by the insurer, the insured is under an obligation to start a legal proceeding within three months of such rejection, and hence obtaining of an award in such a case cannot be a condition precedent. It is not possible to go to arbitration for determination of the saiddo not propose, as it is not necessary, to decide whether the action commenced by respondent No. 1 under section 20 of the Act for the filing of the arbitration agreement and for appointment of arbitrators was barred under clause 19 of the policy. It has been repeatedly held that such a clause is not hit by section 28 of the Contract Act and isClause 19 has not prescribed a period of 12 months for the filing of an application under section 20 of the Act. There was no limitation prescribed for the filing of such an application under the Indian Limitation Act, 1908, orthe Limitation Act, 1963. Article 181 of the former did not govern such an application. The period of three years prescribed in article 137 of the Act of 1963 may be applicable to an application under section 20. Nor are we concerned in this case to decide whether the time taken by respondent No. 1 in prosecuting his application in Muzaffarnagar court could be excluded under section 14(2) ofthe Limitation Act, 1963. Nor do we propose to decide whether the application under section 20 could be defeated on the ground of the extinction of the liability of the company under clause 19. We may, however, observe in passing that in view of the decision of this court in Wazir Chand Mahajan v. Union of India, if the difference which had arisen between the parties was the one to which the arbitration clause applied then the application under section 20 of the Act could not be dismissed on the ground that the claim would not ultimately succeed either on facts or in law. The matter will have to be left for the decision of the arbitrator. Without any discussion we may just state that the High Court is not right in its view that respondent No. 1s claim was not barred under clause 19 because of the provision of law contained in section 37(3) of the Act.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 companys repudiation of the claim made by respondent No. 1 was not one to which the arbitration clause applied and hence the arbitration agreement could not be filed and no arbitrator could be appointed under section 20 of the Act. Respondent No. 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 companys liability.