Case: ORIENTAL INSURANCE COMPANY LIMITED Vs. M/S NARBHERAM POWER AND STEEL PVT LTD

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.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 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.?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 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 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 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.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 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 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.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.5. As there is no material damage thus business interruption loss 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 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 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 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 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 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 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.

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

Explanation:
1[ds]It is our obligation to mention here that though the respondent has 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.20. We may presently refer to the decision of the Madras High 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 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 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 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.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 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.?Chandrachud J., in his concurring opinion, after referring to many an authority and literature in the field of arbitration, came toThe Arbitration and Conciliation Act, 1996, should in my view be interpreted so as to bring in line the principles underlying its 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 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 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.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 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 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 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 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 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 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 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 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.