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Chiranjiv Lal and ors. Vs. the Tropical Insurance Co. Ltd. - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtPunjab and Haryana High Court
Decided On
Case NumberF.A.F.O. No. 76 of 1950
Judge
Reported inAIR1952P& H63
ActsArbitration Act, 1940 - Sections 34
AppellantChiranjiv Lal and ors.
RespondentThe Tropical Insurance Co. Ltd.
Appellant Advocate D.K. Mahajan,; Hans Raj,; H.R. Mahajan and;
Respondent Advocate Bhagwat Dayal, Adv.
DispositionAppeal allowed
Cases ReferredHeyman v. Darwins
Excerpt:
.....to note that section 100-a introduced by 2002 amendment of the code starts with a non obstante clause. the purpose of such clause is to give the enacting part of an overriding effect in the case of a conflict with laws mentioned with the non obstante clause. the legislative intention is thus very clear that the law enacted shall have full operation and there would be no impediment. it is well settled that the definition of judgment in section 2(9) of c.p.c., is much wider and more liberal, intermediary or interlocutory judgment fall in the category of orders referred to clause (a) to (w) of order 43, rule 1 and also such other orders which poses the characteristic and trapping of finality and may adversely affect a valuable right of a party or decide an important aspect of a trial in..........that ft was opento either side to give notice and terminate therisk, but even according to this clause thecompany had to give proper notice before theliability under riot risk could be put an endto. there is an allegation on one side that,it was so terminated, and it is denied on theother side and this is not a matter whichcan be referred to arbitration. it will in anycase have to be decided by the court and if tarno other reason for this alone the court shouldhave refused to stay the suit.21. respondent's counsel then submitted that in any case the question of the determination of the amount of damages will have to be referred to arbitration and that should first be determined before the suit can be allowed to proceed for the simple reason that that is a 'sine quo non' of the right.....
Judgment:

Kapur, J.

1. This is a plaintiffs' appeal against an order passed by Mr. Tara Chand Gupta, Subordinate Judge, Delhi, staying the suit under Section 34 of the Indian Arbitration. Act.

2. The plaintiffs took out two policies with the Tropical Insurance Company Limited, one on the 30th of April, 1947, for Rs. 80,000/- and the other on the 17th of April, 1947, for Rs. 20,000/-. They included risk against damage due to fire or explosion caused by persons taking part in riots or civil commotion. Two of the terms of these policies have been referred to in the course of arguments, They are Clauses 10 and 18:

'10. This insurance may be terminated at any time at the request of the insured, in which case the company will retain the customary short period rate for the time the Policy has been in force. This insurance may also at anytime be terminated at the option of the Company, on notice to that effect being given to the insured, in which case the Company shall be liable to repay on demand a rateable proportion of the premium for the unexpired term from the date of the cancelment.'

'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 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 case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of notice in writing requiring an appointment, the other party shall be at liberty to appoint a sole arbitrator; and in case of disagreement between the arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or affect the authority or powers of the arbitrator, arbitrators or umpire respectively; and in the event of the death of an arbitrator, or, umpire another shall in each case may be appointed in his stead by the party or arbitrators (as the casemay be) by whom the arbitrator or umpire sodying was appointed. The costs of the referenceand of the award shall be in the discretion of the arbitrator, arbitrators or umpire making the award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon the policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained.'

3. It is alleged that on the 24th of August 1947, the stocks were looted and the building burnt down, and therefore liability under the policies incurred. On the 31st of August 1947, a telegram was sent to the Company saying that the factory had been looted andasking for assessment to be arranged and this was affirmed by a letter. On the 1st of September 1947, the Tropical Insurance Company, hereinafter termed 'the company' sent a letter to the plaintiffs repudiating any liabilityon the ground that the riot risk was not covered under the policy. This was reiterated in a letter of the 18th of September, 1947, which the Company wrote to the plaintiffs, who, however, did not accept this position of the Company and insisted that the riot risk was covered.

4. On the 1st of September, 1947, another letter was sent in which the Company stated that the riot risk was cancelled on the 14th of August and that a registered letter to this effect was sent to the last known address of the plaintiffs.

5. On the 29th September 1947, the plaintiffs wrote back to the defendant company that the two letters sent by them were contradictory, that no registered letter had been received and that the policies could not be terminated at least not without proper notice, and informed them that they will have recourse to a Court of law if their claim was not settled. On the same day by another letter the plaintiffs informed the Company that the whole factory had been burnt down and looted and that there was a 'total loss' and asked them to arrange for an early settlement of their claim. Nothing has been shown on this file that the Company ever challenged the amount of the loss before the suit was brought.

6. On the 1st of December 1947, the plaintiffs brought a suit against the Company for recovery of Rs. 1,00,000 basing their claim on the policies of insurance. On the 22nd of January, 1948, the defendants made an application under Section 34 of the Indian Arbitration Act in which, for the first time, they disputed the amount of loss or damage and stated that under Clause 18 of the conditions of the policy the amount of loss was to be determined by arbitration and alleged that they were ready and willing to refer the question of damages to arbitration and asked for stay under Section 34 of the Indian Arbitration Act. In this connection I may also refer to the written statement of the defendant-company. In paragraph 6 they, pleaded that the riot and civil commotion risk was terminated and in paragraph 7 they stated that the loss had been fraudulently exaggerated. The Court as I have said above stayed the proceedings under Section 34 of the Indian Arbitration Act.

7. In the appeal it is submitted in the first instance that there was no dispute raised asto the quantum of damages before the suit Was brought and therefore there, was nothing which could be referred to arbitration In the 18th clause of the conditions of the policy it is stated that

'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.'

Towards the end of this clause it is stated that to a right of action or suit upon the policy award of an arbitrator, is a condition precedent and the amount of loss or damage, if disputed, has to be determined by an arbitrator in the first instance. The argument submitted is that as there was no difference between the parties as to the amount of damage nothing could be referred to arbitration and the condition precedent also was not operative because the determination of the loss or damage could only be made if there was a dispute. Reliance is placed on 'Dawoodbhai Abdulkader v. Abdulkader Ismailji', AIR (18) 1931 Bom 164, where it was held that if the existence of a difference or dispute is an essential condition for the arbitrator's jurisdiction and if there is no point for the arbitrator to decide, then a clause such as the one now in the present case would not exclude an action. In 'L. & N.W. & C. W. Joint Rly. Co. v. J. H. Billington, Ltd.', (1899) AC 79, the Railway Company was empowered to charge a reasonable sum for services rendered to a trader, and there was a provision to the following effect :

'any difference arising under this section shall be determined by an arbitrator to be appointed by the Board of Trade.'

The Company sued the trader for services rendered and a stay was applied for. It was held that as there was no difference existing between the parties before the action was brought the arbitrator had no jurisdiction in the matter. Lord Halsbury observed at p. 81 as follows :

'It would be a condition precedent to the arbitrator entering upon any form of inquiry there that the person who insisted that there was a difference should show that the difference had arisen before the submission to arbitration was made. That is a matter which has been repeatedly decided, and I should think that no lawyer would hesitate to say that that is the true condition of the law.'

In 'Field v. Longden & Sons', (1902) 1 KB 47, a workman, who was incapacitated from work due to an accident, received weekly payments by way of compensation. The employers promised to continue to pay him the weekly payments during the period of his incapacity, but the workman nevertheless filed a request for arbitration in the County Court under Section 1, Sub-section (3) of Workmen's Compensation Act which provided that if any question arises in proceedings under the Act regarding the liability to pay compensation, or the amount or duration of compensation, the question, if not settled by agreement, shall be settled by arbitration. The Court of appeal held that under the terms of that sub-section it was a condition precedent to the right to proceed to arbitration, that a question should have arisen as to compensation, and the question should not have been settled by agreement. Upon the facts of the case it appeared that no question had ever arisen, and that there was no subject-matter for arbitration and therefore theCounty Court Judge had no jurisdiction to make an award.

8. In 'Veelchand Chhaganlal v. Lieut. Liston', 38 Bom 638, it was held that as there was no point of difference between the parties no dispute as to the amount of instalment could foe referred to arbitration.

9. In 'Uttam Chand Saligram v. Jewa Mamooji', 46 Cal 534, it was held that the existence of a dispute, was an essential condition for the arbitrator's jurisdiction; there was no jurisdiction where there was no dispute between the parties.

10. 'Ladha Singh v. Jyoti Prasad Singha', ILR (1939) -2 >Cal 181, was then referred to. At p. 191, Mitter J., observed:

'On an analogous principle the stay of a suit will have to be refused if there could not be an arbitration at all. An arbitration presupposes a dispute or difference between the parties and, if there is no dispute or difference, there is no occasion for an arbitration, and a pending suit between the parties ought not to be stayed in such a case. This is a principle well established.'

I hold therefore that as there was no point of difference before the filing of the suit as to the amount of damages which the plaintiff had suffered, there was nothing to refer to arbitration.

11. The defendant-company by its letter in September 1947 took a two-fold position (1) that the policy did not cover riot risk at all and (2) that it had subsequently been put an end to. Mr. Mahajan submitted that if there was a repudiation of the contract, then no question of arbitration could arise, and he relied on a judgment of the House of Lords in 'Jurejdini v. National British and Irish Millers Insurance Co. Ltd.' 1915 A C 499. The facts of that case are not very dissimilar to the present one. A claim was made for indemnity for the loss of goods by fire under a policy, one of the conditions of which provided that if any difference arose as to the amount of loss, such difference should be referred to arbitration, and it was a condition precedent to the right to bring an action that the award of the arbitrator of the amount of the loss if disputed should be first obtained. It was held that the repudiation of the claim on a ground going to the root of the contract precluded the company from pleading the arbitration clause as a bar to an action to enforce the claim. In that case also there was a long correspondence with a view to settling the claim of the insured and proving the amount of the loss and a claim was made by the agent of the insured for a sum of 6250/-. The Insurance Company refused to admit the claim and after further correspondence definitely informed the insured that it totally rejected the claim. Lord Haldano L. C., observed at p. 505:

'But the present case, as I have already pointed out, is different; there has been in the proceedings throughout a repudiation on the part of the respondents of their liability based upon charges of fraud and arson, the effect of which, if they are fight, is that all benefit under the policy is forfeited. But one of the benefits is the right to go to arbitration under this contract, and to establish your claim in a way which may, to some people, seem preferable to proceeding in the Courts; and accordingly that is one of the things which the appellantshave, according to the respondents, forfeitedwith every other benefit under the contract.

* * * When the case went to trial it was beard before Darling J. and a special jury, and the jury found that the case of fraud and arson had broken down; they found for the plaintiffs upon those issues, and the learned Judge gave judgment , not that the case should go to arbitration, but for 3000 and I think that was probably right, the arbitration clause having gone with the repudiation.' Lord Dunedin at p. 507 said: 'I think it is perfectly clear that that article necessarily refers to an existing difference, not an historical difference; and it seems to me that when the attitude was taken up by these parties, which was taken up in the letters which have been read to us which the Lord Chancellor has referred to, in England, that they repudiated the claim altogether and said that there was no liability under the policy; that necessarily cut out the effect of Clause 17 as creating a condition precedent against all forms off action.'

This case was considered in another case by the House of Lords in 'Macaura v. Northern Assurance Co. Ltd.', 1925 A C 619. At p. 631 Lord Sumner said :

'There persons, who had repudiated the whole contract of insurance, afterwards relied on a limited arbitration clause contained in it, which required the amount payable to be determined by arbitration, and said that, until he had obtained such an award, the plaintiff could not complete his case. It was held that the defendants could not both repudiate the contract 'in toto' and require the performance of a part of it, which only became performable when liability was admitted or established. The present case is the converse.' Once again 'Jureidini's case', 1915 AC 499, was considered by the House of Lords in 'Heyman v. Darwins Ltd.', (1942) A C 356. Viscount Simon L. C., referring to the Jureidini's case said at pp. 364 and 365:-- 'But the arbitration clause in the policy was not framed so widely. It applied 'if any difference arises as to the amount of any loss or damage', and provided 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 if disputed shall be first obtained'. Lord Dunedin pointed out that the arbitration clause only applied to differences as to amount of loss, and, therefore, not to a claim which the respondent rejected altogether, whatever the loss might be. Lord Atkinson rested his judgment on this last point alone. Lord Parker concurred without distinguishing reasons. Lord Parmoor said expressly that no difference had arisen as regards matters which could come for decision under the arbitration clause and that consequently the clause had no application. It is on this second ground that I think the majority of the House should be regarded as having decided the appeal.'

12. In 'Toller v. Law Accident Insurance Society Ltd.', (1936) 2 All ER 952, referring to 'Jureidini's case', 1915 A C 499, Scott, L. J., said at p. 958:

'Where the repudiation is to either No. 1 or No. 2, I think the principles upon which 'Jureidini's case', was decided entitled the plaintiff to say : 'You cannot impose upon me an arbitration clause as a written submission in a contract which you either say never came into existence or have wholly repudiated'.'

13. In the present case the defendants have repudiated the contract in regard to the riot risk. In other words, their plea was that there was no contract at all between the parties. In these circumstances it is not open to them to repudiate the contract and yet to take advantage of that portion of the contract which refers to arbitration for the purpose of determination of the quantum of damages. As a matter of fact, 'Jureidini's case', 1915 AC 499, would also apply to the first point which I have considered above that as no difference had arisen in regard to the damages the clause was inapplicable and Lord Parmoor's speech is particularly relevant to that portion of the case.

14. It was then submitted that this is not a case in which the Court should exercise its jurisdiction to order stay of the proceedings even if Section 34 is applicable to the facts of this case. Counsel relied on the observations of the Lord Chancellor in 'Macaura's case' in 1925 AC 619 where it was indicated by his Lordship that conditions precedent such as contained in the present contract may be a defence to a suit but cannot be used for the purposes of stay. He next referred to a passage from Russel's Law on Arbitration at page 74 where it has been said:

'Further, the Court will exercise its discretion and refuse to stay the action in cases where a substantial part of the claim does not fall within the submission, and cannot conveniently be separated; or where the arbitrator can only decide the quantum of amount and not the liability ('O'Connor v. Norwich Union & Co.', (1894) 2 Ir R 723; 'London & North Western and Great Western Rail Cos. v. Billington', (1899) AC 79).'

15. In 'O'Connor v. Norwich Union Insurance Society', (1894) 2 Ir R 723, a fire policy contained a condition that if any difference arose in the adjustment of a loss the amount to be paid should be submitted to arbitration and that the assured should not be entitled to commence or maintain any action upon the policy until the amount of the loss had been so ascertained. There was a loss admittedly in excess of the amount of the policy, the only matter in dispute being whether the assured had violated another condition of tho policy. An application to stay an action on the policy being made, it was held that, no difference in the adjustment of the loss having arisen, a stay must be refused.

16. In 'Shriram Hanutram v. Mohanlal & Co.', AIR (27) 1940 Bom 93, Kania, J., observed at page 94 :

'If the fact of the contract itself is disputed the arbitrators cannot decide the point, and the Court in the normal course would refuse a stay.'

17. In the present case the defendant company had repudiated the riot risk firstly on the ground that the policy did not cover such a risk and secondly that subsequently it had been put an end to under the provisions of one of the conditions of the policy itself. In these circumstances in my opinion no ground has been made out for ordering the stay of the proceedings.

18. In any case no stay can be ordered Where the only matter which is the subject-matter of arbitration is the quantum of damages and not the liability to pay damages. In this connection counsel relied on a judgment of the House of Lords in 'British Corporation v. John Aird & Co.', 1013. AC 241, where it was held that where the action embraces several items all within the reference clause as to some of which the arbitrator is disqualified from acting, the Court should allow the action to proceed as to these items and allow the remaining items to be referred. Lord Parker of Waddington said at p. 261 :

'It is, I know, a common thing to stay an action as to one matter in dispute and at the same time to allow it to proceed as to another, notwithstanding that both matters are within the reference.'

19. In 'Singaran Coal Syndicate, Ltd. v. Balmukund Marwari', AIR (18) 1931 Cat 772 (2), it was held that an action can go on as to matters not referred to arbitration.

20. Mr. Bhagwat Dayal in reply submittedthat according to Clause 10 of the conditions ofthe policy the riot risk could be terminated byeither side and that the company had rightlyterminated this risk. It is true that ft was opento either side to give notice and terminate therisk, but even according to this clause thecompany had to give proper notice before theliability under riot risk could be put an endto. There is an allegation on one side that,it was so terminated, and it is denied on theother side and this is not a matter whichcan be referred to arbitration. It will in anycase have to be decided by the Court and if tarno other reason for this alone the Court shouldhave refused to stay the suit.

21. Respondent's counsel then submitted that in any case the question of the determination of the amount of damages will have to be referred to arbitration and that should first be determined before the suit can be allowed to proceed for the simple reason that that is a 'sine quo non' of the right to bring the present suit. To this argument there are two replies. Firstly, the condition as a bar to the suit has never been pleaded, and secondly, as I have already held the defendant has repudiated the contract in the sense that he has pleaded that there was no riot risk at all and, therefore, he cannot rely on a part of the contract and repudiate the other part. He is not entitled to have advantage of this clause, i.e., clause No. 18 of the policy.

22. I am, therefore, of the opinion (1) that before the suit was brought there was no dispute as to the Quantum of damages and therefore, nothing could be referred to arbitration, At least no objection was raised1 by the defendant as to the amount of the claim of the plaintiff before the suit was brought; (2) the defendant repudiated the riot risk and the arbitration clause is not wide enough to cover any and every kind of dispute and, therefore, the rule-laid down in 'Juredini's case', 1915 AC 499 applies, and the case does not fall within the rule laid down by Viscount Simon L. C. in 'Heyman v. Darwins', 1942 AC 356, and nothing can be referred to arbitration; (3) it is not a fit case in which the Court should exercise its jurisdiction under Section 34 even if that clause applied; (4) the defendant has not pleaded the condition precedent contained in Section 18 as a bar to the suit, nor in the circumstances of this case is he entitled to ask that the question of damages be referred to arbitration.

23. I am, therefore, of the opinion that the learned Judge was in error in staying the proceedings. I allow this appeal and set aside the order of the trial Court for stay. The plaintiff will have his costs in this Court and in the Court below.

24. The parties have been directed to appear in the trial Court on the 30th of July, 1951, and I direct that the case be heard at an early date and finished as soon as possible.


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