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Maharaj Singh Vs. Vulcan Insurance Co. Ltd and anr. - Court Judgment

LegalCrystal Citation
Overruled ByThe Vulcan Insurance Co. Ltd. Vs. Maharaj Singh and Anr.
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberF.A.O. No. 155-D of 1965, from order of S.S. Kanwar, Sub. , J. 1st Class, Delhi, D/- 16-3-1965
Judge
Reported inAIR1972Delhi182; [1973]43CompCas177(Delhi)
ActsArbitration Act, 1940 - Sections 2, 20 and 37(3); Indian Contract Act, 1872 - Sections 28
AppellantMaharaj Singh
RespondentVulcan Insurance Co. Ltd and anr.
Advocates: T.C.B.M. Lal and; Ramesh Chander, Advs
Cases ReferredPenukoda Rathakrishnamurthy v. Balasubramanian and Air
Excerpt:
.....assets of the factory as well as the stocks and raw materials kept in the factory premises as security for the loan. 2. it so happened that a fire broke out in the appellant's factory on the night between 28-2-1963 and 1-3-1963. the bank informed the insurance company of this fire and the representatives of the bank as well as the insurance company inspected the appellant's factory for the purpose of estimating the loss or damage caused by the fire. in case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipts of notice in writing requiring an appointment, the other party shall be at liberty to appoint a sole arbitrator; 7. the learned counsel for the appellant contends that the question of limitation as well as the question of the..........contained an arbitration clause under which any dispute between the parties with regard to the loss or damage suffered by the appellant as a result of any accidental fire would be referred to the arbitration of a single arbitrator agreed to by both the parties or in the event of the parties not agreeing to one arbitrator, to the arbitration of two arbitrators, one of whom was to be appointed by each party and in the event of either party not appointing his arbitrator, to the arbitration of a sole arbitrator appointed by one of the parties.2. it so happened that a fire broke out in the appellant's factory on the night between 28-2-1963 and 1-3-1963. the bank informed the insurance company of this fire and the representatives of the bank as well as the insurance company inspected the.....
Judgment:
1. The appellant herein is the sole proprietor of Khatauli ., (hereinafter referred to as the Bank) and executed a mortgage deed dated 10-11-1961 in favor of the Bank hypothecating the fixed assets of the factory as well as the stocks and raw materials kept in the factory premises as security for the loan. The Bank in turn insured the mortgaged property with the Vulcan Insurance Co. Ltd., (hereinafter referred to as the Insurance Company) under three insurance policies for a total amount of Rs.3,15,000/-. the relevant terms of these insurance policies would be referred to at a later stage. But, at this stage. It is sufficient to state that these policies contained an arbitration clause under which any dispute between the parties with regard to the loss or damage suffered by the appellant as a result of any accidental fire would be referred to the arbitration of a single arbitrator agreed to by both the parties or in the event of the parties not agreeing to one arbitrator, to the arbitration of two arbitrators, one of whom was to be appointed by each party and in the event of either party not appointing his arbitrator, to the arbitration of a sole arbitrator appointed by one of the parties.

2. It so happened that a fire broke out in the appellant's factory on the night between 28-2-1963 and 1-3-1963. The Bank informed the Insurance Company of this fire and the representatives of the Bank as well as the Insurance Company inspected the appellant's factory for the purpose of estimating the loss or damage caused by the fire. According to the appellant, he suffered a loss of Rs.24,800/- so far as the fixed assets were concerned and a loss of Rs.2,73,000/- and odd so far as the stocks including the raw materials were concerned. But according to the Insurance Company, the loss caused by the fire was assessed only At Rs.4620/-. when the appellant issued a notice to the Insurance Company calling upon it to pay the amount of Rs.2,97,800 and odd representating the loss suffered by him as a result of the fire, the Insurance Company replied totally repudiating this liability to pay any amount to the appellant. Thereupon, the appellant issued another notice to the Insurance Company calling upon it to refer the dispute to arbitration as per the terms of the insurance policies and also named one Shri K.N.Banerjee as arbitrator appointed by the appellant. The Insurance Company replied saving that since it had repudiated its liability to pay any amount to the appellant it was not agreeable to refer the dispute to arbitration and, thereforee, it did think it necessary to appoint any arbitrator on its behalf.

3. Thereupon, the appellant field an application in the Court of the Subordinate Judge, 1st Class, under Section 20 of the Arbitration Act (hereinafter referred to as the Act) for the filling of the arbitration agreement agreement embodied in the insurance policies and for referring the question regarding the quantum of the loss suffered by the appellant and the question of the liability of the Insurance Company to pay the said amount to the appellant to the arbitration of the arbitrators appointed by the parties or in case the Insurance Company was not willing to appoint an arbitrator, to the arbitration of the sole arbitrator to be appointed by the Court. The application was resisted by the Insurance Company on various grounds. It was contended that as the Insurance Company had repudiated its liability under C1, 13 of the insurance policy, it was not open to the appellant to ask that his claim for the reimbursement of the loss or damages suffered by him be referred to arbitration. It was further contended that the application filed by the appellant under Section 20 of the Act was barred by time. The learned Subordinate Judge framed the following issues:-

1. Whether this petition is not maintainable for the reasons given in para No.s 1 and 3 of the preliminary objections of the reply of respondent No.1

2. Whether the petition is barred by limitation.

3. Relief

The learned Subordinate Judge held issue No.1 in favor of the appellant. He gave his finding that notwithstanding the repudiation of the appellant's claim by the Insurance Company, the appellant was entitled to invoke the arbitration clause in the insurance policies. But he held issue No.2 against the appellant and recorded the finding that the period of limitation had been prescribed in clause 19 of the arbitration agreement and that the appellant had not filed the application within the period of limitation prescribed in the said clause. thereforee, on issue No. 3, he dismissed the application filed by the appellant. The appellant has filed the present appeal against the said order of the learned Subordinate Judge.

2. The contentions of the parties may briefly be stated. It is contended on behalf of the appellant that under the terms of insurance policies, any disputes arising between the parties with regard to the liability of the Insurance Company to pay to the appellant any loss or damage suffered by him have to be referred to arbitration under clause 18, that no time -limit was fixed under the insurance policies for referring such disputes to arbitration and that, in any case, the appellant had invoked the arbitration clause in the insurance policies within the time-limit mentioned in the said policies. On the other hand. It is contended on behalf of the respondent that it is only where is a dispute between the parties with regard to the amount of any loss or damage which is claimed by the appellant that such dispute can be referred to arbitration and that other disputes, as for instances, where the respondent had repudiated the appellant's claim in toto, could not be referred to arbitration. It is further contended that the arbitration clause itself cannot be invoked by the appellant after the period of time prescribed in the insurance policies.

3. In order to appreciate the contentions advanced on either side. It is necessary to consider the effect of the three relevant clauses in the insurance policies, namely, clauses 13, 18 and 19. These clauses are reproduced below:-

'13. If the claim be in any respect fraudulent, or if any false declaration be made or used in support thereof, or if any fraudulent means or devices are used by the Insured or any one acting on his behalf to obtain any benefit under this Policy; or, if the loss or damage be occasioned by the willful act, or with the connivance of the Insured; or, if the claim be made and rejected and an action or suit be not commenced within three months after such rejection, or (in case of an arbitration taking place in pursuance of the 18th condition of this policy) within three months after the Arbitrator or Arbitrators or Umpire shall have made their award, all benefit under this Policy shall be forfeited.

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 differences, 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 with in 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 receipts 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 be appointed in his stead by the party or Arbitrators (as the case may be) by whom the Arbitrator or Umpire so dying was appointed. The costs of the reference and 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 this Policy that the ward by such Arbitrator, Arbitrators or Umpire of the amount of the loss or damage if disputed shall be first obtained.

19. In no case whatever shall the Company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration.'

The first thing that is apparent from a perusal of the relevant clauses is that clause 18 under which disputes between the parties have to be referred to arbitration is not couched in general terms and it does not include in its scope all kinds of differences or disputes that may arise between the parties in respect of the subject-matter of the insurance policies. The scope of clause 18 is restricted to differences as to the amount of any loss or damage. I cannot, however, accept the contention advanced on behalf of the respondent that this clause will not apply when the Insurance Company had repudiated the appellant's claim in toto. As observed by T.V.R.Tatachari, J., in Charanjit Lal Sodhi v. Calendomian Insurance 1969 Acc 12

'Obviously, when one of the parties alleges that there was no loss or damage at all, i.e., that no loss or damage had occurred, the arbitrator has necessarily to decide the said aspect, and in case he comes to the conclusion that there was some loss or damage, he has to give his award regarding the quantum of the loss or damage. The consideration by him of the question as to whether any or damage had occurred, is only an earlier step in the process of the determination of the quantum of the loss or damage. In other words, the arbitrator has to decide and given his award both on the question as to whether there was any loss or damage, and the question as to the quantum of the loss or damage, if any.'

Therefore, in this case although the Insurance, Company had repudiated the appellant's claim in toto, the appellant's claim still fell within the scope of clause 18 and was referable to arbitration. But the scope of the arbitration proceedings would be to determine whether the appellant had sustained any loss or damage at all and if so, what was the quantum of loss or damage sustained by the appellant.

4. It is contended on behalf of the respondent that the claim of the appellant had been repudiate under clause 13 of the Insurance Policy and that in such cases the appellant had to commence an action or suit within three months after such repudiation. But clause 13 is again subject to clause 18 and if clause 18 has been invoked by the appellant, then, the appellant has the right to wait till the arbitrators make their award and for three months thereafter before commencing an action or suit against the Insurance Company. thereforee, the question is whether any time-limit has been placed for commencing the arbitration proceedings and if so, whether the appellant has commenced the arbitration proceedings within the time-limit prescribed under the insurance policy.

5. According to the learned counsel for the respondent clause 19 of the insurance policy prescribes the period of limitation for commencing arbitration proceedings. On the other hand, it is contended on behalf of the appellant-

(I) that clause 19 does not govern clause 18;

(ii) that clause 19 is void being repulsive to Section 28 of the Contract Act; and

(iii) that, as a matter of fact, the appellant had commenced the arbitration proceedings within the period of time prescribed in clause 19.

Clause 18 read by itself does not prescribe any period within which the arbitration proceedings have to be commenced.

But, in my view, clause 18 has to be read with clause 19 because both these clauses relate to claims regarding loss or damage suffered by the insured. It stands to reason that a time-limit has to be fixed for referring disputes regarding the amount of any loss or damage for arbitration, because it would be difficult for the arbitrators to determine the amount of loss or damage if such disputes are referred after the lapse of a considerable period of time after the occurrence of the loss when it would be difficult for either of the parties to obtain evidence regarding such loss or damage. That such a restriction which is willingly placed by consent of both the parties is not opposed to public policy and is not void has been held by a Full Bench of the Punjab High Court in Pearl Insurance Co. v. Atma Ram, . thereforee reading clause 18 and 19 together, it must be held that the arbitration clause itself becomes inoperative unless the appellant satisfies the conditions contained in clause 19.

6. The question, thereforee, for consideration is whether the arbitration proceedings have been commenced within the time prescribed under clause 19. Under clause 19 the Insurance Company will not be liable for any loss or damage after the expiration of 12 months from the happening of the loss or damage unless the claim is the subject of a pending action or arbitration. In this case, the loss or damage occurred on 1-3-1963 and the petition under Section 20 of the Act was filed on 19-5-1964. The petition, has, thus, been filed beyond 12 months from the date of the occurrence. But, according to the learned counsel for the appellant, the arbitration had already been commenced by the appellant within this period in view of the fact firstly that the appellant had by his letter dated 1-10-1963 informed the Insurance Company that he had appointed his arbitrator and called upon the Insurance Company either to agree to the said arbitrator functioning as sole arbitrator or to appoint its own arbitrator and secondly, the appellant had actually filed a petition under Section 20 of the Act on 20th January, 1964 in the Court of the Subordinate Judge, Muzaffarnagar where the insured properties were situated. The word 'pending' used in clause 19 has been explained by the Supreme Court in Assarali Nazarali Singaporewalla v. State of Bombay, : 1957CriLJ605 as follows:-

'A legal proceeding is 'pending' as soon as commenced and until it is concluded, i.e., so long as the Court having original cognizance of it can make an order on the matter in issue, or to be dealt with, therein.'

Under Section 37(3) of the Act, 'an arbitration shall be deemed to be commenced when one party to the arbitration agreement serves on the other parties thereto, a notice requiring the appointment of an arbitrator.' And in Penukoda Rathakrishnamurthy v. Balasubramanian and Air 1949 Mad 559 it was held that the arbitration must be deemed to have commenced on the date when any party to a dispute applies to the Secretary of the Association under bye-law 5 for the invocation of arbitration. Applying the principles enunciated by the Supreme Court and the Madras High Court, it has to be held that the appellant had commenced the arbitration on the date when he issued the notice Ex, R/5 and that, thereforee, the appellant's claim was the subject of pending arbitration within 12 months of the occurrence of the event. The appellant's claim is, thus, not barred under clause 19 of the Insurance policy.

7. The learned counsel for the appellant contends that the question of limitation as well as the question of the liability of the Insurance Company to pay to the appellant the amount of loss or damage suffered by the latter should be left to the decision of the arbitrator or arbitrators. I cannot accept this contention in view of the language of clauses 13, 18 and 19. Under clause 18, the award of the arbitrator is only a condition precedent to the filing of a suit by the appellant against the Insurance Company. The award of the arbitrators would be binding on the parties only to this extent, namely, that if in the suit filed by the appellant, the Court holds that the Insurance Company is a liable to pay to the appellant the loss or damage suffered by him, then, a decree will have to be passed in favor of the appellant only in respect of the quantum of the loss or damage determined by the arbitrators. It will be within the jurisdiction of the Court in such suit to determine that question whether the Insurance Company is absolved form its liability to pay the amount of loss or damaged by reason of the conditions prescribed under clause 13.

8. The appellant has filed three applications, C.M.Nos. 41 to 43 of 1970 in this appeal on the basis of Section 37 of the Act for condensation of the delay in filing the application under Section 20 of the Act in case it is held that the application is barred by the time-limit fixed under clause 19 of the insurance policy. I have held that the application field by the appellant is not barred by time. thereforee, these applications become superfluous and they are dismissed.

9. In the result, the order of the learned lower Court is set aside and the case is remanded to him for the appointment of arbitrators under Section 20 of the Act. The appeal is allowed; but there shall be no order as to costs.

10. Appeal allowed.


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