# VULCAN INSURANCE CO. LTD v. MAHARAJ SINGH & ANOTHER

- **Citation:** [1976] 2 S.C.R. 62
- **Court:** Supreme Court of India
- **Decided:** 1975-10-03
- **Case number:** Civil Appeal No. 2228 of 1972
- **Bench:** A. Alagiriswami, P. K. Goswami, N. L. U'.'Itwalli
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/vulcan-insurance-co-ltd-v-maharaj-singh-another-6866
- **Pages:** 11

## Headnote

Arbitrati0'11-Repudiatio11 of claim by insurer-No dispute raised
about
quantum of loss dr domfJge-Remedy of insured, whether by suit or arbi1ration.
The respondent-insured, claimed from the appeJlant-insurer a certain sum
on the basis that he. had suffered Joss due tQ fir~. The appellant repudiated
the claim under cl. 13 of the policy. The respondent thereupon wrote to the
appellant suggesting arbitration on the dispute as per cl. 18 of the policy.
The appellant. however, wrote back saying tbat since it had repudiated the claim
of the respondent the arbitration clause was inoperative. The respondent then
fi11:d an application under s. 20 of the Arbitration Act, J 940, for the filing
of the arbitration- agreement· in the Court and for appointment of arbitrators.
The trial court dismissed the petition as barred unde.r cl. 19 of the policy.
On appeal, the High Court set aside the order of the trial court and remanded
the matter to it for appointm.ent of arbitration.
D
Allowing the appeal to this Court,
E
F
G
H
HELD : ( 1) The difference which arose between the parties on the appellant's repudiation of the claim made by the respondent was not one to which
the arbitration clause applies and hence the arbitration agreement could not be
filed and no arbitrator could· be appointed under s. 20 of the Act. The only
remedy open to the respondent was to comm\mce a suit within three months
of the date of the repudiation to establish the insurer's liability. [72 B-C].
(a) Clause 18 prO\~des that if any difference arises as to the amount of
any loss or damage such difference
sh~ll be referred to arbitration. Jf
the
rejection of the claim made by the insured be on the ground that he had
suffer~d no loss as a result of the fire or the amount of loss was not to the
extent claimed by him tben, and then only a diffierence could have arisen as
to the amount of any loss or damage within the meaning of the clause. The
dispute raised in the present case appertained to the liability of the insurer to
pay any amount whatsoever.
Sucb repudiation of the claim could not amount
to the raising of a dispute as to the amount of any loss or damage suffered
by the insured. [66 G-H].
(b) As per cl. 13, on rejection of the claim by the insurer, an action or
suit has to be commenced withi.n three months from the date of such rejection; otherwise, all benefits under the policy stand forfeited.
That is, as soon
as there is a rejection of the claim, and not the raising of a dispu11e as to the
amount of any loss or damage, the only remedy open to the claimant is to file
a suit for establishing the insurer's liability. It may be that after the· liability
of the insurer is so ~stablished, reference to arbitration under cl. 18 will have
to be resorted to for determination of the quantum of loss or damage. [67 A-CJ.
(2) The last part of cl. 18 provides that an award is a condition precedent
to any right of action or suit.
But it cannot on that account be contended
1hat even when there is a repudiation of liability the matter has to go to
arbitration first.
If the arbitration clause is couched in a comprehensive language taking within its ambit any kind of dispute arising under the policy then
the obtaining of an award by arbitration is a condition precedent to the starting of any other legal proceeding.
But, reading els. 13 and 18 together, in
the present case. it must be held that on the rejection or repudiation of the
claim by tbe insurer the insured is under an obligation to start a legal proceed-'
ing within three months of such rejection and hence the obtaining of an award
•
i
ol.
I
VULCAN INSURANCE v. MAHARAJ SINGH (Untwalia, J.)
63
in such cases cannot be a condition precedent. If the di>pute is such that can
go to arbitration then no action or suit can be commenced without obtaining
an award.
But the condition of obtaining an award prior to any action or
suit can never be attracted if the dispute raised cannot be refurred to arbitration and has got to be determin

## Text

A
B
c
62
VULCAN INSURANCE CO. LTD
v.
MAHARAJ SINGH & ANOTHER
October 3, 1975
[A. ALAGIRISWAMI, P. K. GOSWAMI AND N. L. U'.'ITWALLI, JJ.J
Arbitrati0'11-Repudiatio11 of claim by insurer-No dispute raised
about
quantum of loss dr domfJge-Remedy of insured, whether by suit or arbi1ration.
The respondent-insured, claimed from the appeJlant-insurer a certain sum
on the basis that he. had suffered Joss due tQ fir~. The appellant repudiated
the claim under cl. 13 of the policy. The respondent thereupon wrote to the
appellant suggesting arbitration on the dispute as per cl. 18 of the policy.
The appellant. however, wrote back saying tbat since it had repudiated the claim
of the respondent the arbitration clause was inoperative. The respondent then
fi11:d an application under s. 20 of the Arbitration Act, J 940, for the filing
of the arbitration- agreement· in the Court and for appointment of arbitrators.
The trial court dismissed the petition as barred unde.r cl. 19 of the policy.
On appeal, the High Court set aside the order of the trial court and remanded
the matter to it for appointm.ent of arbitration.
D
Allowing the appeal to this Court,
E
F
G
H
HELD : ( 1) The difference which arose between the parties on the appellant's repudiation of the claim made by the respondent was not one to which
the arbitration clause applies and hence the arbitration agreement could not be
filed and no arbitrator could· be appointed under s. 20 of the Act. The only
remedy open to the respondent was to comm\mce a suit within three months
of the date of the repudiation to establish the insurer's liability. [72 B-C].
(a) Clause 18 prO\~des that if any difference arises as to the amount of
any loss or damage such difference
sh~ll be referred to arbitration. Jf
the
rejection of the claim made by the insured be on the ground that he had
suffer~d no loss as a result of the fire or the amount of loss was not to the
extent claimed by him tben, and then only a diffierence could have arisen as
to the amount of any loss or damage within the meaning of the clause. The
dispute raised in the present case appertained to the liability of the insurer to
pay any amount whatsoever.
Sucb repudiation of the claim could not amount
to the raising of a dispute as to the amount of any loss or damage suffered
by the insured. [66 G-H].
(b) As per cl. 13, on rejection of the claim by the insurer, an action or
suit has to be commenced withi.n three months from the date of such rejection; otherwise, all benefits under the policy stand forfeited.
That is, as soon
as there is a rejection of the claim, and not the raising of a dispu11e as to the
amount of any loss or damage, the only remedy open to the claimant is to file
a suit for establishing the insurer's liability. It may be that after the· liability
of the insurer is so ~stablished, reference to arbitration under cl. 18 will have
to be resorted to for determination of the quantum of loss or damage. [67 A-CJ.
(2) The last part of cl. 18 provides that an award is a condition precedent
to any right of action or suit.
But it cannot on that account be contended
1hat even when there is a repudiation of liability the matter has to go to
arbitration first.
If the arbitration clause is couched in a comprehensive language taking within its ambit any kind of dispute arising under the policy then
the obtaining of an award by arbitration is a condition precedent to the starting of any other legal proceeding.
But, reading els. 13 and 18 together, in
the present case. it must be held that on the rejection or repudiation of the
claim by tbe insurer the insured is under an obligation to start a legal proceed-'
ing within three months of such rejection and hence the obtaining of an award
•
i
ol.
I
VULCAN INSURANCE v. MAHARAJ SINGH (Untwalia, J.)
63
in such cases cannot be a condition precedent. If the di>pute is such that can
go to arbitration then no action or suit can be commenced without obtaining
an award.
But the condition of obtaining an award prior to any action or
suit can never be attracted if the dispute raised cannot be refurred to arbitration and has got to be determined in a legal proceeding. [67 D-E, G-68 B,
G-H].
Scott v. Avery ( 1856) 25 L.J. Ex. 308; 5H.L.C. 811; Jureidini v.
Nalional
Bn'.tish and Irish Millers Insurance Company Ltd. [1915] Appeal Cases 499;
Heyman and another v. Darwine Ltd. [1942] 1 All England Reports, 337;
Viney v. Bignold [1888] 20 Queen's Bench Division, 171; Caledonian Insurance
Company v. Andrew Gilmour (1893] Appeal Cases, 85 and O'connor v. Norwich
Union Fire and Life l11s11ra11ce Society (1894) 2
Irish
Law Reports,
723;
rei'erred to. ·
The Eagle Star and British Dominions [nsuwnce Company v. Dinanath and
Hrnzraj, I.LR. 47, Bombay, 509, approved.
A
B
Cizaranjit Lal Sodhi v. Messrs. Caiedonian Insurance Co. Ltd. and another
C
[1969]Acci<lents Claims Journal, 12, overruled.
'(3) Clause 19 of' the policy provide~ that in no case whatever shall the
insurer be liable for any Joss or damage after the expiry of 12 months from
the happening of the Joss or damage unless the claim is the subject of ~nding
action or arbitration. The High. Court is not right in its view that the claim
of the insured was r,'°t barred under this clause because of s. 37 (3) of the
Arbitration Act'.
It is, however, not necessary to decide whether the appellant's
application under s. 20 was barred by clause 19 or could be defeated on the
D
ground of the extinction of the insurer's liability under clause 19. If the
dispute was one to which the arbitration clause applies then the application
under s. 20 could not be dismiSsed on the ground that the claim would not
ultimately succeed either on facts or in law, because, the matter will have to
be left for the decision of the arbitrator. [71 D, F-72 A].
Wazirclwnd Mahajan mzd another v. Union of lizdia [1967] 1 S.CR.
303
(vide page 308), followed.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2228 of 1972.
Appeal by Special leave from the Judgment and Order dated the
7th October 1971 of the Delhi High Court in F.A.O. No.
155-D of
1965.
F. S. Nariman and V,ineet Kumar for the Appellant.
S. N. Andley, Miss Uma Mehta, Mrs. S. Bagga, S. K. Bagga,
Ramesh Chand and R. K. Mehta for Respondent No. 1.
S. K; Mehta, K. R Nagaraja and M. Qamaruddin and P. N. Puri
for Respondent No. 2.
The Judgment of the Court was delivered by
DNTWALIA, J.
This appeal by special leave was filed by . The
Vulcan Insurance Co. Ltd.
The general insurance business
of
the
Company was nationalised during the pendency of this appeal and,
therefore, in place of the original appellant was substituted United India
~ire and General Insurance Company Ltd. by order 28-2-1975 passed
~n CMP No. 84!/1975.
For the sake of fac_ility hereinafter
in
this
.iudgment by the appellant would be meant the original appellant company.. The respondent no. 1 in the appeal is Maharaj Singh, sole
proprietor of Khatauli Manure Mills, Khatauli, District Muzaffarnagar.
Respondent no. 2 is Punjab National Bank.
E
F
G
H
A
B
c
D
E
F
G
H
64
SUPREME COURT REPORTS
(1976] 2 S.C.R.
Respondent no. 1 carries a business of manufacturing Bone Mnnure
etc. in his mills nt Khatauli.
He entered into an nrrangemcnt with
respondent no. 2 for taking ndvance of money on the security of the
factory premises, machineries and the stock of goods.
A
mortgage
_ deed w.as executed by him in favour of the respondent bank for that
purpose.
The Bank insured the mortgage properties from time
to·
time with the appellant company under thri!e insurance policies, the
terms governing the same being identical.
A fire is said to have broken out in the factory premises of respondent no. l in the night between 28-2-1963 and 1-3-1963. The Bank
informed the Insurance Company about the fire.
Thereupon representatives of the Bank and the IllSurance Company and some surveyors
visited the factory premises 0 1.u 1-3-1963 and ·after. Respondent no.
1 claimed that due to fire he had suffered a loss of Rs. 24,800/- on
account of damage to the fixed assets and Rs. 2,730,004.40 due to
damage caused to the stock of goods. Eventually M/s. R. K. Bhandari
& Sons, Surveyors of the Insurance Company wrote a letter dated 26th
April, 1963 to respondent no. 1 informing him that they had assessed
the total damage caused to him due to fire at Rs. 4,620/-. They, however, added at the end of their Ietter-"This is without prejudice to the
terms and conditions of the policy and without any commitment of liability on the part of the Insurance Company." Further correspondence between the parties ensued and ultimately the appellant intimated
to respondent no. 1 by its letter dated 5th July, 1963-"Referring to
the previous correspondence relating to the above mentioned claim, we
regret to inform you that we repudiate the claim under the above mentioned oolicies." ·Respondent no. 1 seems to have written a letter
dated 22nd July, 1963 to the appellant, to which it sent a reply dated
29th July, 1963 categorically sta_ting-"We are advised ta repudiate
your claim inter alia under Clause 13 of the Fire Policies.
We regret
that survey report and any other reports. cannot be furnished tn you."
Respondent no. 1 thereupon wrote a letter dated 1-10-1963 to the
Insurance Company informing it that since it had repudiated
his
claim under clause 13 of the Insurance policy a difference had arisen
between the parties and hence respondent no. 1 proposed to appoint
one Shri K. N. Bannerjee as the sole arbitrator, to decide the disputes
as per the arbitration agreement incorporated in the policies.
He said
further that if the companv was not agreeable to the appointment of
Shri Banneriec as the sole arbitrator, he mav pe treated as a nominee
of resoondent no. 1 and the comnany mav aoooint its own. In reply
to the said Jetter datecl the 1st Octoher, 1963 the company wrote a
letter clatP-.<l 10th October. 1963 to resoondent no. 1 that since it had
repudiated his claim the arbitration clause in the policies was rendered
inon.,rat;ve and no arhitration proceeding could be commenced lw
appointment of anv arbitrator.
Re<nnndcnt no. 1 in the first instance filed the application under
sectirm ?O nf the Arbitration Act. 1940--hereinafter called the Act. on
20-1-1964 in the Court at Muza:ffarnagar in
Uttar Pradesh. The
•
r/
; '
)
'•
VULCAN INSURANCE v. MAHARAJ SINGH (Untwalia, J.)
65
appellant appeared and, inter alia, ~oo~ an obj~tion to the ju_risdiction
of that Court to entertain the apphcat1on. fa. v.1ew of a special clause
in the policies excluding the jurisdiction of courts ?th~r tha~ th~ court
at Delhi; the Muzaffarnagar court allowed that obiect10n •and directed
the return of the application by its order dated
1-5-1964.
Respondent no. 1 refiled it on 19-5-1964 in the
Delhi Court.
Appellant
resisted it.
On reading clauses 13, 18 and 19 of the Insurance Policies which
are in identical terms and on appreciation of the other materials in the
case the Trial Court at Delhi dismissed the application holding that the
1 dispute arising out. of the repudiation of thi:: liability under clause 13
by the Insurance company was within the scope of the arbitration
agreement contained in clause 18 and a reference -to arbitration could
be made, but, as per clause 19, the petition was barred by limitation.
On appeal by respondent no. 1 the Delhi High Court has held~
( 1) Clause 18 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.
Th<; scope of Clause 18 is restricted
to differences as to the amount of loss or damage.
(2) Yet reference
to arbitration is not ousted and the arbitration clause covers the dispute even if the company has repudiated the claim in toto.
(3) The
arbitration clause 18 is inoperative unless the conditions contained in
clause 19 are satisfied and ( 4) the condition aforesaid was
satisfied
because respondent no. 1 had- commenced the arbitration on the date
when he issued the notice dated the 1st October, 1963; as such. his
claim was the subject of a pending arbitration within the meaning of
clause 19.
The High Court. therefore, set aside the order of the Trial
Court and remanded the case to it for appointment of arbitrators under
section 20" of the Act. Hence this appeal by the Insurance Company.
It appears in this case that arguments have been advanced on either
side in the courts below as also in this Court widening the scope of
the matters in issue resulting in the missing of the crucial point in controversy.
Really only one point need be decided in this appeal and
that is this-whether in view of the repudiation of liability by the apellant under clause 13 of the lns_urance Policy, a dispute was raised
which could be referred to arbitr\[tion? Incidentally in this judgment
reference will be made to the other question as to whether the claim
of respondent no. 1 and the proceeding commenced by him were bar- _
red by clause _19.
In order to discuss and determine the questions which fall
for
determination in this appeal it is necessary to read the relevant clauses.
of the Insurance policies.
·
"13. If the claim be in any respect fraudulent, or if any
false declaration lie made or used in support thereof, or if
any fraudulent mea.ns 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 occasibned by the wilful.
act, or with the connivance of the insured; or, if the claim
A
B
c
D
E
F
G
H
A
c
D
E
G
H
66
SUPREME COURT REPORTS
[1976] 2 S.C.R.
be ~ad.e and rejected and an ~tion .or suit be not commenced w1thm three months after such rejection or (in case of an
arbitration taking place in pursuance of th~ 18th condition of
this Policy) within three months after the Arbitrator or Arbitrators or Umpire shall h'ave made their award, all be~fit
under this Policy shall be forfeited."
"18. If any difference arises as to the amount of any Joss
or damage such difference shaU 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 agr~e upon a single Arbitrator to the decision of two
disinterested persons as Arbitrators ................. .
*
And it is hereby expr~sly stipulated and declared 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."
"19. Jn 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 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 26-4-1963.
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 26-4-1963 had raised
a dispute as to the amount of any loss or damage alleged to have been
suliered 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 for rejection of the
claim nor did it mention any. But the repudiation of the claim could
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.' Jn other words, the dispute raised by the company appertained
to iU, liability to pav anv amount of damage whatsoever.
Jn our
opinion, therefore, the dispute raised by the appellant company was
not covered by the arbitration clause.
' .~
•
•
•
VULCAN INSURANCE v. MAHARA.T SINGH ( Untw:ilia, .f.)
6 7
As per clause 13 on rejection of the c!aim b~ the compa_ny dll acti~n
or suit, meaning thereby a legal proceedmg which almost mvanab~y !n
India will be in the nature of a suit, has got to be commenced w1th111
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 n,ot the raising of a dispute as to the amount of any loss
A
B
oc damage, the only remedy open to the claimant is to commence a
legal proceeding, namely, a suit, for establishment of the company's
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 accord .. ·
ance with clause 18. But the arbitration clause, restricted as it is by the
C
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 at all.
·
Mr. S. N. Andley, learned counsel for respondent No. 1 submitted.
that in view of the last part of clause 18 which makes the aware! of an
•
arbitration\ a condition precedent to any right of action or suit, it should
[)
be held that even when there is a repudiation of liability, the matter has
.~
I
I
! .
to go to arbitration first.
In support of such a submission, learned
c0unsel placed reliance upon certain decisions of the courts in India as
aiso iii England. We shall presently show that on the facts and in the
circumstances of this case, none of them is of help to respondent No. 1.
A clause like the last part of clause 18 making the award a condition
E
precedent to any right of action or suit first came up for consideration
in the case of Scott v. Avery(') and since then such clauses are com-·
monly called Scott v. Avery clauses. Generally it has been found that
it the arbitration clause is couched in a comprehensive language taking
within its ambit any kind of dispute arising under the policy, then obtaining of an award by arbitration is a condition precedent to the starting
of any other legal proceeding. A clause like Scott v. A very has repeatF
edly been held to be a valid one.
"Even a clause of this type, however, is not absolute in effect: where the court orders that the arbitratio;1 agreement cease to have dfec: in relation to a particular dispute,
it has a discretion to order further that the Scott v. Avery clause cease
to have effect, too" (vide pages 57, 58 of Russell on Arbitration, Eighteenth Edition).
T11e said statement of the law, however, has been
made with reference to section 25 ( 4) of the English Arbitration Act,
G
1950. The corresponding provision in our Act is contained in section
36. But that apart, when an arbitration clause is not operative on the
dispute raised, as in this case, then it is wholly unreasonable, almost
impossible, to hold that still the parties have to obtain an award before
starti11g any legal proceeding.
What dispute will be referred to arbitration? The dispute raised is not within the purview of arbitration.
Reading clauses 13 and 18 together it must be held that on the
H
rejection or repudiation of the claim by the insurer,
the insured
(I) (1856) 25 L. J. 'Ex. 308; 5 H. L. C. 81 I.
A
B
c
D
E
F
GS
SUPREl\lE COURT REPORTS
[1976] 2 S.C.R.
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. 1t is not possible to go to arbitration for
determination of the said dispute. Clauses similar to the ones contained in claust.0s 13 and 18 in this case were the subject matter of consideration before the House of Lords in the case of Jurisdini v. National
British and Irish Millers Insurance Company, Limited('). The claim
made by the insured was rejected by the insurer as being fraudulent.
When the former brought an action the latter resisted it on the Scott v.
A very clause. The House gave a unanimous opinion 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. The matter put in that form in some of the
speeches of the Law Lords does not seem to have received full approval
of the House in later decisions including the one in Heyman and another
v. Darwins Ltd.e) as it would appear from the speech of Lord Macmillan at page 346. But the real ratio of the decision which remains unshaken even till today is to be found in the speech of Lord Parmoor at
page 508 when his Lordship said that since no difference had arisen
which could be covered by arbitration clause 17 and the company had
raised an issue on which, if it had succeeded, the insured would have
lost all benefit under the policy, the arbitration clause had no applicatioP.
Learned cou11Sel for respondent No. 1 placed reliance upon some
decisions of the English courts in support of his contention that in spite
of the repudiation of the liability by the appellant his client could not
commence any legal proceeding without going to arbitration.
Only
two may be noticed here : Ini Viney v. Bignold( 3 ) it was held that the
determination of the amount.by arbitration was a condition precedent
to the right to recover on the policy and if any action was brought without an award obtained in an arbitration it was not maintainable.
It
should, however, be noticed that the language of arbitration clause 21
in that case was wide enough to cover any dispute and from the facts
stated in the judgment it is nowhere to be found that the dispute raised
by the company was not covered by the arbitration clause. If the dispute
is such that can go to arbitration then no action or suit can be commenced without obtaining an award. But the condition of obtaining an
award prior to any action or suit can never be attracted if the dispute
raised cannot be referred to arbitration and has got to be determined
in a legal proceeding. The other case is the decision ~f the House of
Lords in Caledonian Insurance Company v. Andrew Gilmvur{4). That
was again a case of a comprehensive arbitration clause and thus justifying the application of the Scott v. Avery clause as a bar to the mainc
tainability of an action without an award.
In O'connor v. Norwich Union Fire and Life Insurance Society(~)
the decision in the case of Viney v. Bignold (supra) was distinguished
{I) [1915] Appeal Cases, 499.
(2) (1942] l All England Reports, 337.
(3) (1888) 20 Queen's Bench Division, 171. (4) [1893] Appeal <;:ases, 85.
(5) (t 894) 2 Irish Law Reports, 723.
·'
•
"
•
)
{
VULCAN INSURANCE v. MAHARAJ SINGH (Untwalia, J.)
69
:and the Scott v. A very clause was held to be inapplicable because the
dispute raised was not covered by the arbitration clause. Holmes, J.
pointed out at page 728 :
..
"Now, if it was a term of the contract that a difference of
this kind was to be settled by arbitration, I should not hesitate
to stay the action ........................ , ........ .
But there is no provision in the plaintiff's policy that such a
controversy as has arisen is to be referred to arbitration.
There is a carefully drawn clause, by which it is agreed that
the amount to be paid, as distinguished from liability to pay
anything, is to be settled by arbitrators, and that no action
can be commenced until they shall have. determined such
amount. One result of this clause may be to render two proceedings necessary where there is a dispute as to the amount
of the loss as well as a denial of all liability; but this ought not
to be a ground of complaint to either of the parties who have
made it a term of the contract;"
We agree with this.
Mr. Andky placed reliance upon paragraphs 1983 to
1986 at
pages 964 and 965 of the Fifth edition of MacGillivray on Insurance
Law. On the basis of the decision in Scott v. Avery (supra) as also
certain other decisions it is said in paragraph 1983;
·
"There is a rule of law that parties cannot by their private
contract oust the jurisdiction of the court; but it has been held
that parties tO a contrac~ may nevertheless agree that no cause
. of action shall arise upon it until any matter in dispute between them shall have been determined by arbitration and
then only upon the arbitrators' award."'
The discussion in paragraph 1986 relates to 'whether arbitration is a
condition precede,1t or is merely ·a collateral agreement.
But the
relevant paragraph which applies on all fours to the facts of the case
on hand, as pointed out by Mr. F. S. Nariman, counsel for the apellant, is paragraph 1987 at page 966:
.
"As a rule, where the amount of the loss or damage is the
only matter which the parties refer to arbitration, then if the
insurers repudiate any liability on the policy there is no obligation on the assured to arbitrate as to the amount before
commencing an action on the policy."
To the same effect is to be found the statement of the law at pages 328
to 332 in the Fourth edition of Welford & Otter-Barry's Fire Insurance.
Following the decision of the House of Lords in Jureidini's case
(supra) a Bench of the Boinbay High Court in The Eagle Star and
British Dominions Insurance Company v. Dinanath and
Hemraj(1)
while interpreting an identical clause 13 said at page 521 :
0) I. L. R. 47 Bombay 509.
A
B
c
D
E
F
G
H
A
B
c
D
E
F
G
H
70
SUPREME COURT REPORTS
(1976] 2 S.C.R.
"But in clause 13 there are various contingencies set out
which if established entitle the insured to bring an action without an award having been made by arbitrators. One of these
contingencies is "if the claim be made and rejected" which if
established gives a right of action, the period of limitation
provided for the suit being fixed at three months from the
date of the rejection.
While it is also provided that where
arbitration takes place in pursuance of condition 18 of the
policy, three months' time should be allowed for a suit to be
brought after the award has been made.
Therefore it is
quite obvious that a: right of action accrued after the company
rejected the 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.
Mr. Andky placed reliance upon some decisions of the High Courts
in India in support of liis contention. We briefly refer to 4 of tht<.m.
In The 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 Nathe) again relates
to the djspute which was held to have, on the facts of that case, fallen
within the arbitration clause. It would appear from the facts of the case
decided by Mathew, J. in The Vanguard Fire and General lns11ra11ce
Company Limited, Madras v. N. R. Sreenivasa Iyer,
Trivandrurn(")
that clause 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.
Rig11nld (:iuprn) the learned Judge said at page 275 column I :
"This condition may either mean that the arbitrators
have to decide the question whether there is anv liability
at all under the contract or that they have to decide the
quantum of that liability.
[n either case .an award by tAc
arbitrators is a condition precedent to any right o[ 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."
In Charanjit Lal Sodhi v. Messrs.
Caledonian
Insurance
Co.
Ltd. and another,(4 ) a learned single Judge of'the Delhi High Court
(!) A, T. R. 1953 Punjab 50.
(3) A. T. R. 1963 Kerala 270.
(2) A. l. R. 1957 Punjab, 152.
(4) (1969) Accidents Claims Journal, 12.
•
•
·'
•
\
!
VULCAN INSURANCE v. MAHARAJ SINGH ( Untwalia, J.)
71
) ,i
seems to have gone wrong in treating the dispute raised by the insurer as one failing 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 ;imount 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 ont the two 'distinct situations
in law.
A clause like the one in Scott v. A very 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. A very 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.
)
..
{
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 arbitratioll/ agreement and for appointment of
arbitrators was barred under clause 1.9 of the policy.
lt has been
repeatedly held that such a clause is not hit by section 28 of the
Contract Act and is valid; vide-The Baroda Spinning and Weaving
Company Limited v. The Satyanarayan Marine and Fire Insurance
Company, Limited('); Dawood Tμr Mahomed Bros
and others v.
Queensland Insurance Co. Ltd.(2) and The Ruby General Insurance
Co. Ltd. v. The Bharat Bank Ltd. and others(B), aause 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
lndia;n
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 ' W azirchand
Mahajan and .another v. Union of India(4) if the difference which
had arisen between the parties · was
the one to which
the
arbitration clause applied then the
applicatio11J 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
h~ve t? be left for. the decision of the. arbitrator.
Without
any
d1scuss1on we may iust state that the High Court is not right in its
(1) J. L. R. xxxvm Bombay, 344.
(3) A. I. R. 1950 (East) Pu'njab 352.
6-Ll276 SCI/75
(2) A. I. R. 1949, Calcutta, 390.
(4) [1967] l S. C.R. 303 (vide page 308).
A
B
c
D
E
F
H.
A
B
c
72 .
SUPREME COURT REPORTS
(1976] 2 S.C.R.
view that respondent no. l's 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 company's 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 company's liability.
For the reasons stated above, we allow this appeal, set
aside
the judgment and orders of the .courts below and dismiss respondent
no. l's application filed under section 20 of the Act. Since he fails
on technical grounds, in the
circumstances of the case, we shall
direct the. parties to pay and bear their own costs throughout.
V.P.S.
Appeal al/owed.
•
•
'-. r