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Wednesday, May 2, 2018

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.

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2268 OF 2018
(@ S.L.P. (C) No. 33621 of 2017)
Oriental Insurance Company Limited Appellant (s)
VERSUS
M/s Narbheram Power and Steel Pvt. Ltd. Respondent(s)
J U D G M E N T
Dipak Misra, CJI.
The respondent – M/s Narbheram Power and Steel Pvt.
Ltd. – had entered into a Fire Industrial all Risk Policy No.
31150/11/2014/65 in respect of the factory situated on plot
Nos. 11 and 13, Gundichapada Industrial Estate, District –
Dhenkanal, Odisha. In October 2013, there was a cyclone
2
named as “Phailin” which affected large parts of the State of
Odisha. Because of the said cyclone, the respondent suffered
damages which it estimated at Rs. 3,93,36,224.00. An
intimation was given to the appellant-insurer and it appointed
one Ashok Chopra & Company as surveyor which visited the
factory premises on 20th and 21st November, 2013. A series of
correspondences were exchanged between the respondent and
the insurer. On 22.12.2014, the respondent commented on the
surveyor‟s report and requested the appellant to settle its
claim. As ultimately the claim was not settled, the respondent
sent a communication dated 21.01.2017 intimating the
appellant that it had invoked the arbitration agreement and
requested it to concur with the name of the arbitrator whom it
had nominated.
2. The appellant replied to the said letter repudiating the
claim made by the respondent and declined to refer the
disputes to arbitration between the parties. As the insurer
declined to accede to the request made by the respondent, it
filed an application under Section 11(6) of the Arbitration and
Conciliation Act, 1996 (for brevity, „the 1996 Act‟) for
appointment of an arbitrator so that he could, along with the
3
arbitrator nominated by the respondent, proceed to appoint a
presiding arbitrator to adjudicate the disputes and differences
that had arisen between the parties.
3. The said application was contested by the insurer and the
High Court, considering the language employed in Clause 13 of
the policy and the reasons advanced while repudiating the
claim of the claimant, appointed a retired Judge of the High
Court as arbitrator. The said order is under assail by way of
special leave in this appeal.
4. We have heard Mr. P.K. Seth, learned counsel for the
appellant and Mr. Sachin Datta, learned senior counsel for the
respondent.
5. Placing reliance on Clause 13 of the policy, it is urged by
the learned counsel for the appellant that once the claim was
repudiated and the insurer had disputed or not accepted the
liability under or in respect of the policy, no difference or
dispute could have been referred to arbitration. It is his
further submission that the High Court has adopted an
erroneous approach in the interpretation of the said Clause by
expressing the view that it suffers from ambiguity and it needs
to be purposively read failing which the arbitration clause
4
becomes meaningless. Reliance has been placed on the
decisions in General Assurance Society Ltd. v. Chandumull
Jain and another 1 , Oriental Insurance Co. Ltd. v.
Samayanallur Primary Agricultural Co-op. Bank 2 and
United India Insurance Co. Ltd. v. Harchand Rai Chandan
Lal3.
6. Learned senior counsel for the respondent, per contra,
would contend that the order passed by the High Court is
absolutely impregnable and in the obtaining factual matrix, the
view expressed by the High Court cannot be found fault with.
He would further urge that the letter of repudiation, when
appositely understood, does not relate to disputation and
non-acceptance of the liability under or in respect of the policy
but, in fact, amounts to denial of the claim that basically
pertains to the quantum. Learned counsel has drawn a
distinction between liability and refusal of the claim not having
been substantiated. To bolster the submissions, he has placed
reliance on The Vulcan Insurance Co. Ltd v. Maharaj Singh

1
AIR 1966 SC 1644
2
AIR 2000 SC 10
3
(2004) 8 SCC 644
5
and another 4 , Chloro Controls India Private Limited v.
Severn Trent Water Purification Inc. and others 5 , A.
Ayyasamy v. A. Paramasivam and others 6 , M/s. Jumbo
Bags Ltd v. M/s. The New India Assurance Co. Ltd7 and
Essar Steel India Limited v. The New India Assurance Co.
Ltd8.
7. To appreciate the rival submissions, it is necessary to
scan and scrutinize the arbitration clause, that is, Clause 13 of
the policy. The said Clause reads as follows:-
“13. If any dispute or difference shall arise as to
the quantum to be paid under this policy
(liability being otherwise admitted) such
difference shall independently of all questions
be referred to the decision of a sole arbitrator to
be appointed in writing by the parties to or if
they cannot agree upon a single arbitrator
within 30 days of any party invoking
arbitration, the same shall be referred to a
panel of three arbitrator, comprising of two
arbitrators, one to be appointed by each of the
parties to the dispute/difference and the third
arbitrator to be appointed by such two
arbitrators and arbitration shall be conducted
under and in accordance with the provisions of
the Arbitration and Conciliation Act, 1996.

4
(1976) 1 SCC 943
5
(2013) 1 SCC 641
6
(2016) 10 SCC 386
7
2016-2-L.W.769
8 MANU/MH/0542/2013
6
It is clearly agreed and understood that no
difference or dispute shall be referable to
arbitration as hereinbefore provided, if the
Company has disputed or not accepted liability
under or in respect of this policy.
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
award by such arbitrator/arbitrators of the
amount of the loss or damage shall be first
obtained.”
(Emphasis supplied)
8. When we carefully read the aforequoted Clause, it is quite
limpid that once the insurer disputes the liability under or in
respect of the policy, there can be no reference to the
arbitrator. It is contained in the second part of the Clause. The
third part of the Clause stipulates that before any right of
action or suit upon the policy is taken recourse to, prior award
of the arbitrator/arbitrators with regard to the amount of loss
or damage is a condition precedent. The High Court, as the
impugned order would show, has laid emphasis on the second
part and, on that basis, opined that the second part and third
part do not have harmony and, in fact, sound a discordant
note, for the scheme cannot be split into two parts, one to be
decided by the arbitration and the other in the suit.
7
9. Before we address the factum of repudiation and its
impact on the Clause, we think it appropriate to discuss the
authorities cited by the learned counsel for the parties. In
General Assurance Society Ltd. (supra), the Constitution
Bench, while dealing with the contract of insurance, has
opined that such a contract is entered into on the basis of
commercial transactions and while interpreting the documents
relating to a contract of insurance, the duty of the court is to
interpret the words in which the contract is expressed by the
parties because it is not for the court to make a new contract,
howsoever reasonable.
10. In Oriental Insurance Co. Ltd. (supra), a two-Judge
Bench has opined that insurance policy has to be construed
having reference only to the stipulations contained in it and no
artificial far-fetched meaning could be given to the words
appearing in it.
11. In United India Insurance Co. Ltd. (supra), the Court
has ruled that the terms of the policy shall govern the contract
between the parties and they are bound to abide by the
definitions given therein. That apart, the expression appearing
in the policy should be given interpretation with reference to
8
the terms of the policy and not with reference to the definitions
given in any other law because the parties have entered into
the contract with eyes wide open.
12. The aforesaid principles are in the realm of settled
position of law. The natural corollary of the said propositions
is that the parties are bound by the clauses enumerated in the
policy and the court does not transplant any equity to the same
by rewriting a clause. The Court can interpret such
stipulations in the agreement. It is because they relate to
commercial transactions and the principle of unconscionability
of the terms and conditions because of the lack of bargaining
power does not arise. The said principle comes into play in a
different sphere.
13. In this context, reference to the authority in Deep
Trading Company v. Indian Oil Corporation and others9,
would be instructive. A three-Judge Bench was dealing with
the right of the respondent No. 1 therein to appoint the
arbitrator after expiry of the time period. The Court referred to
Clause 29 of the agreement that provided for procedure for
appointment of the arbitrator. After referring to the authorities

9
(2013) 4 SCC 35
9
in Datar Switchgears Ltd. v. Tata Finance Ltd. and
another10 and Punj Lloyd Ltd. v. Petronet MHB Ltd.11, the
Court held:-
“19. If we apply the legal position exposited by this
Court in Datar Switchgears to the admitted facts, it
will be seen that the Corporation has forfeited its
right to appoint the arbitrator. It is so for the reason
that on 9-8-2004, the dealer called upon the
Corporation to appoint the arbitrator in accordance
with the terms of Clause 29 of the agreement but
that was not done till the dealer had made
application under Section 11(6) to the Chief Justice
of the Allahabad High Court for appointment of the
arbitrator. The appointment was made by the
Corporation only during the pendency of the
proceedings under Section 11(6). Such appointment
by the Corporation after forfeiture of its right is of no
consequence and has not disentitled the dealer to
seek appointment of the arbitrator by the Chief
Justice under Section 11(6). We answer the above
questions accordingly.”
14. In this regard, a reference to the authority in Newton
Engineering and Chemicals Limited v. Indian Oil
Corporation Limited and others12 is fruitful. In the said case,
there was an express, clear and unequivocal arbitration clause
between the parties which provided that disputes shall be
referred to the sole arbitration of the Executive Director

10 (2000) 8 SCC 151
11 (2006) 2 SCC 638
12 (2013) 4 SCC 44
10
(Northern Region) of the respondent Corporation and if the said
authority was unable or unwilling to act as the sole arbitrator,
the matters shall be referred to the person designated by such
ED (NR) in his place who is willing to act as the sole arbitrator.
The arbitration clause further provided that if none of them is
able to act as an arbitrator, no other person should act as a
sole arbitrator and if the office of the said authority ceases to
exist in the Corporation and the parties are unable to arrive at
any agreed solution, the arbitration clause would not survive
and has to be treated having worked its course. The Court,
interpreting the clause, expressed the view that in such a
situation, the Court has no power to appoint an arbitrator for
resolution of the disputes.
15. In The Vulcan Insurance Co. Ltd (supra), a three-Judge
Bench was interpreting Clauses 13, 18 and 19 of the policy
involved therein. For proper appreciation, we think it
appropriate to refer to the Clauses of the policy that arose for
consideration in the said authority. They read as follows:-
“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 anyone acting on his behalf
to obtain any benefit under this Policy; or, if the loss
11
or damage be occasioned by the wilful 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.
x x x
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 ....
* * *
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 award 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.”
In the said case, the company repudiated its liability to
pay any amount of loss or damage as claimed by the claimant.
The Court opined that the dispute raised by the company
appertained to its liability to pay any amount of damage
whatsoever and, therefore, the dispute raised by the appellant
12
company was not covered by the arbitration clause. The Court
scanned the anatomy of Clauses 13 and 18 and then referred
to the decision in Scott v. Avery13 naming the clause to be
Scott v. Avery clause and quoted a passage from Russel on
Arbitration which is to the following effect:-
“Even a clause of this type, however, is not absolute
in effect: where the court orders that the arbitration
agreement cease to have effect 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 pp. 57, 58 of Russel on Arbitration,
Eighteenth Edn.).
In the said case, reliance was placed on Viney v.
Bignold14 wherein it had been 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 arbitration, it was not
maintainable. The other decision that was pressed into service
was Caledonian Insurance Company v. Andrew Gilmour15.
The Court commented that the said decision was dealing with a
case that contained a comprehensive arbitration clause and

13 (1856) 25 LJ Ex 308 : 5 HLC 811 : 4 WR 746
14 (1888) 20 QBD 171,172
15 1893 AC 85 : 9 TLR 146 : 57 JP 228
13
justified the applicability of Scott v. Avery as a bar to the
maintainability of action without an award.
16. The three-Judge Bench noted that in O’connor v.
Norwich Union Fire and Life Insurance Society 16 , the
decision in Viney v. Bignold (supra) was distinguished and
went on to reproduce a passage from Holmes, J.:-
“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 liablity 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;”
After reproducing the said passage, the Court concurred
with the said view.

16 (1894) 2 Irish LR 723 : 28 Irish LT 95
14
17. Reliance was placed upon a few paragraphs of the Fifth
Edition of MacGillivray on Insurance Law by the learned
counsel for the respondent. The said passage reads thus:-
“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 contract 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.”
On behalf of the respondent, the following passage was
taken aid of:-
“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.”
18. It is apt to mention here that the Bombay High Court in
Eagle Star and British Dominions Insurance Company v.
Dinanath and Hemraj17 had interpreted identical Clause 13.
The High Court had eventually ruled:-
“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

17 ILR 47 Bom 509 : AIR 1923 249 : 25 Bom LR 164
15
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.”
This Court in The Vulcan Insurance Co. Ltd (supra)
approved the view of the Bombay High Court.
19. At this stage, we may state, in brief, the factual score in
The Vulcan Insurance Co. Ltd. case. In the said case, the
respondent therein had filed an application under Section 20 of
the Arbitration Act, 1940 in the Court at Muzaffarnagar in
Uttar Pradesh. As objection was taken to the jurisdiction of
that Court, the respondent re-filed it in the Delhi Court. The
trial court at Delhi dismissed the application holding that the
dispute arising out of the repudiation of the 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 Cause 19,
the petition was barred by limitation. On an appeal being
16
preferred, the Delhi High Court reversed the judgment by
opining that Clause 18 was restricted to differences as to the
amount of loss or damage; that reference to arbitration was not
ousted and the arbitration clause covered the dispute even if
the insurance company had repudiated the claim in toto; that
the Arbitration Clause 18 was inoperative unless the conditions
contained in Clause 19 were satisfied; that the condition
mentioned therein was satisfied because the Respondent No. 1
had commenced the arbitration on the date when he issued the
notice dated October 1, 1963; and that his claim was the
subject of a pending arbitration within the meaning of
Clause 19. Being of this view, the High Court had allowed the
appeal. Dislodging the judgment of the High Court, this Court
ultimately held:-
“24. 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 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
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.”
17
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.
18
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 to hold:-
19
“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.
20
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.”
21
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
22
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. 
23
27. In view of the aforesaid premised reasons, the appeal is
allowed and the order passed by the High Court is set aside. In
the facts and circumstances of the case, there shall be no order
as to costs.
 …………………………....CJI.
(Dipak Misra)
………………………….….J.
 (A.M. Khanwilkar)
……………………………..J.
(Dr. D.Y. Chandrachud)
New Delhi;
May 02, 2018

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