ORIENTAL INSURANCE COMPANY LIMITED versus M/S. NARBHERAM POWER AND STEEL PVT. LTD.

[2018] 4 S.C.R.

AORIENTAL INSURANCE COMPANY LIMITED

M/S. NARBHERAM POWER AND STEEL PVT. LTD.

(Civil Appeal No. 2268 of 2018)

BMAY 02, 2018

[DIPAK MISRA, CJI, A. M. KHANWILKAR ANDDR. D. Y. CHANDRACHUD, JJ.]

Arbitration and Conciliation Act, 1996: s.11(6) – Appointmentof arbitrator – Dispute between insurer and insured – InsuranceCclaim – Repudiation of claim – Insurer declined to refer the disputesto arbitrator as requested by the claimant – Claimant filedapplication for appointment of arbitrator – High Court appointedarbitrator – Appeal by insurer – Held: The arbitration clausecontained in the agreement between the parties clearly stated thatDif the insurer disputes the liability under or in respect of the policy,there can be no reference to the arbitrator – Insurer clearly disputedthe liability to pay damages in toto – The dispute did not pertain tothe quantum – Such situation, falls within the concept of denialof disputes and non-acceptance of liability – Once the insurerdisputed or not accepted the liability under or in respect of theEpolicy, no difference or dispute could have been referred toarbitration – The only remedy is to institute civil suit for mitigationof the grievances – Insurance.

Deeds and documents: Insurance policy – Interpretation of –Held: The parties are bound by the clauses enumerated in the policyFand the court does not transplant any equity to the same by rewritinga clause – The Court can only interpret such stipulations in theagreement.

Allowing the appeal, the Court

GHELD: 1. The arbitration clause contained in the agreementbetween the parties clearly states that once the insurer disputesthe liability under or in respect of the policy, there can be noreference to the arbitrator. It is contained in the second part ofthe clause. The third part of the Clause stipulates that before anyright of action or suit upon the policy is taken recourse to, priorH

ORIENTAL INSURANCE COMPANY v. NARBHERAM POWERAND STEEL

award of the arbitrator/arbitrators with regard to the amount ofloss or damage is condition precedent. The High Court laidemphasis on the second part and, on that basis, opined that thesecond part and third part do not have harmony and, in fact, sounda discordant note, for the scheme cannot be split into two parts,one to be decided by the arbitration and the other in the suit.[Para 8] [832-E-G]

2. The parties are bound by the clauses enumerated in thepolicy and the court does not transplant any equity to the sameby rewriting clause. The Court can interpret such stipulationsin the agreement. It is because they relate to commercialtransactions and the principle of unconscionability of the termsand conditions because of the lack of bargaining power does notarise. The said principle comes into play in different sphere.[Para 12] [833-D-E]

3. An arbitration clause is required to be strictly construed.Any expression in the clause must unequivocally express theintent of arbitration. It can also lay the postulate in whichsituations the arbitration clause cannot be given effect to. If aclause stipulates that under certain circumstances there can beno arbitration, and they are demonstrably clear then thecontroversy pertaining to the appointment of arbitrator has to beput to rest. In the instant case, Clause 13 categorically lays thepostulate that if the insurer has disputed or not accepted theliability, no difference or dispute shall be referred to arbitration.The thrust of the matter is whether the insurer has disputed ornot accepted the liability under or in respect of the policy. [Paras24, 25] [840-D-F]4. reading of the communication, shows that thedisputation squarely comes within Part II of Clause 13. The saidPart of the Clause clearly spells out that the parties have agreedand understood that no differences and disputes shall be referableto arbitration if the company has disputed or not accepted theliability. The communication ascribes reasons for not acceptingthe claim at all. It is nothing else but denial of liability by theinsurer in toto. It is not disputation pertaining to quantum. Theinsurance-company has, on facts, repudiated the claim by denyingto accept the liability on the basis of the aforesaid reasons. No

828SUPREME COURT REPORTS

Ainference can be drawn that there is some kind of dispute withregard to quantification. It is denial to indemnify the loss asclaimed by the respondent. Such situation, falls on all fours withinthe concept of denial of disputes and non-acceptance of liability.It is not one of the arbitration clauses which can be interpretedin way that denial of claim would itself amount to dispute and,Btherefore, it has to be referred to arbitration. The parties arebound by the terms and conditions agreed under the policy andthe arbitration clause contained in it. It is not case where mereallegation of fraud is leaned upon to avoid the arbitration. It isnot situation where stand is taken that certain claims pertainCto excepted matters and are, hence, not arbitrable. The languageused in the second part is absolutely categorical and unequivocalinasmuch as it stipulates that it is clearly agreed and understoodthat no difference or disputes shall be referable to arbitration ifthe company has disputed or not accepted the liability. The HighCourt has fallen into grave error by expressing the opinion thatDthere is incongruity between Part II and Part III. The only remedywhich the respondent can take recourse to is to institute civilsuit for mitigation of the grievances. If civil suit is filed withintwo months hence, the benefit of Section 14 of the LimitationAct, 1963 will enure to its benefit. [Para 26] [841-B-H]EEssar Steel India Limited v. The New India AssuranceCo. Ltd MANU/MH/0542/2013 – distinguished.

The Vulcan Insurance Co. Ltd v. Maharaj Singh andanother (1976) 1 SCC 943 : [1976] 2 SCR 62; ChloroControls India Private Limited v. Severn Trent WaterFPurification Inc. and others (2013) 1 SCC 641 : [2012]13 SCR 402; A. Ayyasamy v. A. Paramasivam and others(2016) 10 SCC 386 : [2016] 11 SCR 521 – heldinapplicable.

General Assurance Society Ltd. v. Chandumull Jain andGanother AIR 1966 SC 1644 : [1966] SCR 500; OrientalInsurance Co. Ltd. v. Samayanallur Primary AgriculturalCo-op. Bank AIR 2000 SC 10 : [1999] 4 Suppl. SCR 329; United India Insurance Co. Ltd. v. Harchand RaiChandan Lal (2004) 8 SCC 644 : [2004] 4 Suppl.

ORIENTAL INSURANCE COMPANY v. NARBHERAM POWERAND STEEL

SCR 662; M/s. Jumbo Bags Ltd v. M/s. The New IndiaAssurance Co. Ltd 2016-2-L.W.769; Deep TradingCompany v. Indian Oil Corporation and others (2013)4 SCC 35 : [2013] 2 SCR 470; Datar Switchgears Ltd.v. Tata Finance Ltd. and another (2000) 8 SCC 151;Punj Lloyd Ltd. v. Petronet MHB Ltd. (2006) 2 SCC638; Newton Engineering and Chemicals Limited v.Indian Oil Corporation Limited and others (2013) 4SCC 44; Eagle Star and British Dominions InsuranceCompany v. Dinanath and Hemraj ILR 47 Bom 509 :AIR 1923 249 : 25 Bom LR 164 – referred to.

Scott v. Avery (1856) 25 LJ Ex 308 : 5 HLC 811 : 4WR 746; Viney v. Bignold (1888) 20 QBD 171, 172;Caledonian Insurance Company v. Andrew Gilmour1893 AC 85 : 9 TLR 146 : 57 JP 228; O’connor v.Norwich Union Fire and Life Insurance Society (1894)2 Irish LR 723 : 28 Irish LT 95 – referred to.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2268of 2018.

From the Judgment and Order dated 05.09.2017 of the High Courtat Calcutta in AP No. 229 of 2017.

AP. K. Seth, Ms. Manjeet Chawla, Advs. for the Appellant.Sachin Datta, Sr. Adv., Salar M. Khan, Ms. Sridevi Panikkar,Parika Gupta, Amal Merin Kurian, Advs. for the Respondent.

The Judgment of the Court was delivered by

BDIPAK MISRA, CJI 1. The respondent – M/s NarbheramPower and Steel Pvt. Ltd. – had entered into Fire Industrial all RiskPolicy No. 31150/11/2014/65 in respect of the factory situated on plotNos. 11 and 13, Gundichapada Industrial Estate, District – Dhenkanal,Odisha. In October 2013, there was cyclone named as “Phailin” whichaffected large parts of the State of Odisha. Because of the said cyclone,Cthe respondent suffered damages which it estimated at Rs. 3,93,36,224.00.An intimation was given to the appellant-insurer and it appointed oneAshok Chopra & Company as surveyor which visited the factorypremises on 20[th] and 21[st ]November, 2013. series of correspondenceswere exchanged between the respondent and the insurer. On 22.12.2014,Dthe respondent commented on the surveyor’s report and requested theappellant to settle its claim. As ultimately the claim was not settled, therespondent sent communication dated 21.01.2017 intimating theappellant that it had invoked the arbitration agreement and requested itto concur with the name of the arbitrator whom it had nominated.

E2. The appellant replied to the said letter repudiating the claimmade by the respondent and declined to refer the disputes to arbitrationbetween the parties. As the insurer declined to accede to the requestmade by the respondent, it filed an application under Section 11(6) of theArbitration and Conciliation Act, 1996 (for brevity, ‘the 1996 Act’) forappointment of an arbitrator so that he could, along with the arbitratorFnominated by the respondent, proceed to appoint presiding arbitratorto adjudicate the disputes and differences that had arisen between theparties.

3. The said application was contested by the insurer and the HighCourt, considering the language employed in Clause 13 of the policy andGthe reasons advanced while repudiating the claim of the claimant,appointed retired Judge of the High Court as arbitrator. The said orderis under assail by way of special leave in this appeal.

4. We have heard Mr. P.K. Seth, learned counsel for the appellantand Mr. Sachin Datta, learned senior counsel for the respondent.H

5. Placing reliance on Clause 13 of the policy, it is urged by thelearned counsel for the appellant that once the claim was repudiated andthe insurer had disputed or not accepted the liability under or in respectof the policy, no difference or dispute could have been referred toarbitration. It is his further submission that the High Court has adoptedan erroneous approach in the interpretation of the said Clause byexpressing the view that it suffers from ambiguity and it needs to bepurposively read failing which the arbitration clause becomes meaningless.Reliance has been placed on the decisions in General Assurance SocietyLtd. v. Chandumull Jain and another[1], Oriental Insurance Co. Ltd.v. Samayanallur Primary Agricultural Co-op. Bank[2]and United IndiaInsurance Co. Ltd. v. Harchand Rai Chandan Lal[3].6. Learned senior counsel for the respondent, per contra, wouldcontend that the order passed by the High Court is absolutely impregnableand in the obtaining factual matrix, the view expressed by the High Courtcannot be found fault with. He would further urge that the letter ofrepudiation, when appositely understood, does not relate to disputationand 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 thequantum. Learned counsel has drawn distinction between liability andrefusal of the claim not having been substantiated. To bolster thesubmissions, he has placed reliance on The Vulcan Insurance Co. Ltd

v. Maharaj Singh and another[4], Chloro Controls India PrivateLimited 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. Ltd[7] and Essar Steel IndiaLimited v. The New India Assurance Co. Ltd[8].

7. To appreciate the rival submissions, it is necessary to scan andscrutinize the arbitration clause, that is, Clause 13 of the policy. The saidClause reads as follows:-

1 AIR 1966 SC 16442 AIR 2000 SC 103 (2004) 8 SCC 644

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

“13. If any dispute or difference shall arise as to the quantum tobe paid under this policy (liability being otherwise admitted) suchdifference shall independently of all questions be referred to thedecision of sole arbitrator to be appointed in writing by the partiesto or if they cannot agree upon single arbitrator within 30 daysof any party invoking arbitration, the same shall be referred to apanel of three arbitrator, comprising of two arbitrators, one to beappointed by each of the parties to the dispute/difference and thethird arbitrator to be appointed by such two arbitrators andarbitration shall be conducted under and in accordance with theprovisions of the Arbitration and Conciliation Act, 1996.

It is clearly agreed and understood that no difference or disputeshall be referable to arbitration as hereinbefore provided, if theCompany has disputed or not accepted liability under or in respectof this policy.

It is hereby expressly stipulated and declared that it shall be acondition precedent to any right of action or suit upon this policythat the award by such arbitrator/arbitrators of the amount of theloss or damage shall be first obtained.”

(Emphasis supplied)

E8. When we carefully read the aforequoted Clause, it is quitelimpid that once the insurer disputes the liability under or in respect ofthe policy, there can be no reference to the arbitrator. It is contained inthe second part of the Clause. The third part of the Clause stipulatesthat before any right of action or suit upon the policy is taken recourseto, prior award of the arbitrator/arbitrators with regard to the amount ofFloss or damage is condition precedent. The High Court, as the impugnedorder would show, has laid emphasis on the second part and, on thatbasis, opined that the second part and third part do not have harmonyand, in fact, sound discordant note, for the scheme cannot be split intotwo parts, one to be decided by the arbitration and the other in the suit.

G9. Before we address the factum of repudiation and its impact onthe Clause, we think it appropriate to discuss the authorities cited by thelearned counsel for the parties. In General Assurance Society Ltd.(supra), the Constitution Bench, while dealing with the contract ofinsurance, has opined that such contract is entered into on the basis ofcommercial transactions and while interpreting the documents relatingH

ORIENTAL INSURANCE COMPANY v. NARBHERAM POWERAND STEEL [DIPAK MISRA, CJI]

to contract of insurance, the duty of the court is to interpret the wordsin which the contract is expressed by the parties because it is not for thecourt to make new contract, howsoever reasonable.

10. In Oriental Insurance Co. Ltd. (supra), two-Judge Benchhas opined that insurance policy has to be construed having referenceonly to the stipulations contained in it and no artificial far-fetched meaningcould be given to the words appearing in it.

11. In United India Insurance Co. Ltd. (supra), the Court hasruled that the terms of the policy shall govern the contract between theparties and they are bound to abide by the definitions given therein. Thatapart, the expression appearing in the policy should be given interpretationwith reference to the terms of the policy and not with reference to thedefinitions given in any other law because the parties have entered intothe contract with eyes wide open.

12. The aforesaid principles are in the realm of settled position oflaw. The natural corollary of the said propositions is that the parties arebound by the clauses enumerated in the policy and the court does nottransplant any equity to the same by rewriting clause. The Court caninterpret such stipulations in the agreement. It is because they relate tocommercial transactions and the principle of unconscionability of theterms and conditions because of the lack of bargaining power does notarise. The said principle comes into play in different sphere.

13. In this context, reference to the authority in Deep TradingCompany v. Indian Oil Corporation and others[9], would be instructive.A three-Judge Bench was dealing with the right of the respondent No. 1therein to appoint the arbitrator after expiry of the time period. TheCourt referred to Clause 29 of the agreement that provided for procedurefor appointment of the arbitrator. After referring to the authorities inDatar Switchgears Ltd. v. Tata Finance Ltd. and another[10]and PunjLloyd Ltd. v. Petronet MHB Ltd.[11], the Court held:-

“19. If we apply the legal position exposited by this Court in DatarSwitchgears to the admitted facts, it will be seen that theCorporation has forfeited its right to appoint the arbitrator. It is sofor the reason that on 9-8-2004, the dealer called upon the

9 (2013) 4 SCC 35

10 (2000) 8 SCC 151

11 (2006) 2 SCC 638

ACorporation to appoint the arbitrator in accordance with the termsof Clause 29 of the agreement but that was not done till the dealerhad made application under Section 11(6) to the Chief Justice ofthe Allahabad High Court for appointment of the arbitrator. Theappointment was made by the Corporation only during thependency of the proceedings under Section 11(6). Such appointmentBby the Corporation after forfeiture of its right is of no consequenceand has not disentitled the dealer to seek appointment of thearbitrator by the Chief Justice under Section 11(6). We answerthe above questions accordingly.”14. In this regard, reference to the authority in NewtonCEngineering and Chemicals Limited v. Indian Oil CorporationLimited and others[12] is fruitful. In the said case, there was an express,clear and unequivocal arbitration clause between the parties whichprovided that disputes shall be referred to the sole arbitration of theExecutive Director (Northern Region) of the respondent CorporationDand 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 arbitrationclause further provided that if none of them is able to act as an arbitrator,no other person should act as sole arbitrator and if the office of thesaid authority ceases to exist in the Corporation and the parties are unableEto arrive at any agreed solution, the arbitration clause would not surviveand has to be treated having worked its course. The Court, interpretingthe clause, expressed the view that in such situation, the Court has nopower to appoint an arbitrator for resolution of the disputes.

15. In The Vulcan Insurance Co. Ltd (supra), three-JudgeFBench was interpreting Clauses 13, 18 and 19 of the policy involvedtherein. For proper appreciation, we think it appropriate to refer to theClauses 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 falseGdeclaration be made or used in support thereof, or if any fraudulentmeans or devices are used by the insured or anyone acting on hisbehalf to obtain any benefit under this Policy; or, if the loss ordamage be occasioned by the wilful act, or with the connivance

12 (2013) 4 SCC 44H

ORIENTAL INSURANCE COMPANY v. NARBHERAM POWERAND STEEL [DIPAK MISRA, CJI]

of the insured; or, if the claim be made and rejected and an actionor suit be not commenced within three months after such rejection,or (in case of an arbitration taking place in pursuance of the 18thcondition of this Policy) within three months after the Arbitratoror Arbitrators or Umpire shall have made their award, all benefitunder this Policy shall be forfeited.

18. If any difference arises as to the amount of any loss or damagesuch difference shall independently of all other questions bereferred to the decision of an Arbitrator, to be appointed in writingby the parties in difference, or, if they cannot agree upon singleArbitrator to the decision of two disinterested persons as Arbitrators....

And it is hereby expressly stipulated and declared that it shall bea condition precedent to any right of action or suit upon this policythat the award by such Arbitrator, Arbitrators or Umpire of theamount of the loss or damage if disputed shall be first obtained.

19. In no case whatever shall the company be liable for any lossor damage after the expiration of twelve months from thehappening of the loss or damage unless the claim is the subject ofpending action or arbitration.”

In the said case, the company repudiated its liability to pay anyamount of loss or damage as claimed by the claimant. The Court opinedthat the dispute raised by the company appertained to its liability to payany amount of damage whatsoever and, therefore, the dispute raised bythe appellant company was not covered by the arbitration clause. TheCourt scanned the anatomy of Clauses 13 and 18 and then referred tothe decision in Scott v. Avery[13] naming the clause to be Scott v. Averyclause and quoted passage from Russel on Arbitration which is to thefollowing effect:-

“Even clause of this type, however, is not absolute in effect:where the court orders that the arbitration agreement cease tohave effect in relation to particular dispute, it has discretion to

13 (1856) 25 LJ Ex 308 : 5 HLC 811 : 4 WR 746

Aorder further that the Scott v. Avery clause cease to have effecttoo. (Vide pp. 57, 58 of Russel on Arbitration, Eighteenth Edn.).

In the said case, reliance was placed on Viney v. Bignold[14]wherein it had been held that the determination of the amount byarbitration was condition precedent to the right to recover on the policyBand if any action was brought without an award obtained in arbitration, itwas not maintainable. The other decision that was pressed into servicewas Caledonian Insurance Company v. Andrew Gilmour[15]. The Courtcommented that the said decision was dealing with case that containeda comprehensive arbitration clause and justified the applicability of ScottCv. Avery as bar to the maintainability of action without an award.

16. The three-Judge Bench noted that in O’connor v. NorwichUnion Fire and Life Insurance Society[16], the decision in Viney v.Bignold (supra) was distinguished and went on to reproduce passagefrom Holmes, J.:-

“Now, if it was term of the contract that difference of thiskind was to be settled by arbitration, I should not hesitate to staythe action ....

But there is no provision in the plaintiff’s policy that such acontroversy as has arisen is to be referred to arbitration. There isa carefully drawn clause, by which it is agreed that the amount tobe paid, as distinguished from liablity to pay anything, is to besettled by arbitrators, and that no action can be commenced untilFthey shall have determined such amount. One result of this clausemay be to render two proceedings necessary where there is adispute as to the amount of the loss as well as denial of allliability; but this ought not to be ground of complaint to either ofthe parties who have made it term of the contract;”

GAfter reproducing the said passage, the Court concurred with thesaid view.

14 (1888) 20 QBD 171,172

15 1893 AC 85 : 9 TLR 146 : 57 JP 228

16 (1894) 2 Irish LR 723 : 28 Irish LT 95

ORIENTAL INSURANCE COMPANY v. NARBHERAM POWERAND STEEL [DIPAK MISRA, CJI]

17. Reliance was placed upon few paragraphs of the Fifth Editionof MacGillivray on Insurance Law by the learned counsel for therespondent. The said passage reads thus:-

“There is rule of law that parties cannot by their private contractoust the jurisdiction of the court; but it has been held that partiesto contract may nevertheless agree that no cause of action shallarise upon it until any matter in dispute between them shall havebeen determined by arbitration and then only upon the arbitrators’award.”

On behalf of the respondent, the following passage was taken aid

“As rule, where the amount of the loss or damage is the onlymatter which the parties refer to arbitration, then if the insurersrepudiate any liability on the policy there is no obligation on theassured to arbitrate as to the amount before commencing an actionon the policy.”

18. It is apt to mention here that the Bombay High Court in EagleStar and British Dominions Insurance Company v. Dinanath andHemraj[17] had interpreted identical Clause 13. The High Court hadeventually ruled:-

“But in clause 13 there are various contingencies set out which ifestablished entitle the insured to bring an action without an awardhaving been made by arbitrators. One of these contingencies is‘if the claim be made and rejected’ which if established gives aright of action, the period of limitation provided for the suit beingfixed at three months from the date of the rejection. While it isalso provided that where arbitration takes place in pursuance ofCondition 18 of the policy, three months’ time should be allowedfor suit to be brought after the award has been made. Thereforeit is quite obvious that right of action accrued after the companyrejected the claim. Naturally that question would have first to bedecided by suit as under clause 18 that question could never havebeen referred to arbitration.”

This Court in The Vulcan Insurance Co. Ltd (supra) approvedthe view of the Bombay High Court.

17 ILR 47 Bom 509 : AIR 1923 249 : 25 Bom LR 164

A19. At this stage, we may state, in brief, the factual score in TheVulcan Insurance Co. Ltd. case. In the said case, the respondent thereinhad filed an application under Section 20 of the Arbitration Act, 1940 inthe Court at Muzaffarnagar in Uttar Pradesh. As objection was taken tothe jurisdiction of that Court, the respondent re-filed it in the Delhi Court.The trial court at Delhi dismissed the application holding that the disputeBarising out of the repudiation of the liability under Clause 13 by theinsurance company was within the scope of the arbitration agreementcontained in Clause 18 and reference to arbitration could be made, but,as per Cause 19, the petition was barred by limitation. On an appealbeing preferred, the Delhi High Court reversed the judgment by opiningCthat Clause 18 was restricted to differences as to the amount of loss ordamage; that reference to arbitration was not ousted and the arbitrationclause covered the dispute even if the insurance company had repudiatedthe claim in toto; that the Arbitration Clause 18 was inoperative unlessthe conditions contained in Clause 19 were satisfied; that the conditionmentioned therein was satisfied because the Respondent No. 1 hadDcommenced the arbitration on the date when he issued the notice datedOctober 1, 1963; and that his claim was the subject of pending arbitrationwithin the meaning of Clause 19. Being of this view, the High Court hadallowed the appeal. Dislodging the judgment of the High Court, this Courtultimately held:-E

“24. But in this case on careful consideration of the matter wehave come to the definite conclusion that the difference whicharose between the parties on the company’s repudiation of theclaim made by Respondent 1 was not one to which the arbitrationclause applied and hence the arbitration agreement could not beFfiled and no arbitrator could be appointed under Section 20 of theAct. Respondent 1 was ill-advised to commence an action underSection 20 instead of instituting suit within three months of thedate of repudiation to establish the company’s liability.”

It is our obligation to mention here that though the respondent hasGplaced 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 PartIII of the arbitration clause as perceived by the High Court. That apart,it throws light on the issue of repudiation.

ORIENTAL INSURANCE COMPANY v. NARBHERAM POWERAND STEEL [DIPAK MISRA, CJI]

20. We may presently refer to the decision of the Madras HighCourt in M/s. Jumbo Bags Ltd. (supra). In the said case, learned ChiefJustice was interpreting Clause 13 of the policy conditions. Referring toThe Vulcan Insurance Co. Ltd. (supra), he has held thus:-

“The dispute which is not referable to arbitration, being not coveredby the clause cannot be over the subject matter of arbitration, andthe remedy of the insured in this case is only to institute suit.”

And again :-

“I am of the view that the remedy of arbitration is not available tothe petitioner herein in view of the arbitration clause specificallyexcluding the mode of adjudication of disputes by arbitration, wherea claim is repudiated in toto. The remedy would thus only be of acivil suit in accordance with law.”

We concur with the said view.

21. In Essar Steel India Limited (supra), the learned Single Judgeof the Bombay High Court was dealing with situation where the insurerhad taken the stand that the policy was void ab initio. Repelling thesaid stand, the learned Single Judge held that the disputes could be referredto arbitration since the plea advanced by the owner could be decided bythe arbitrator. We do not intend to dwell upon the correctness of the saiddecision as the issue involved in the present case is quite different.

22. In A. Ayyasamy (supra), two-Judge Bench was concernedwith the issue as to whether the plea of fraud can be adequately takencare of by the arbitrator. Sikri. J., analyzing the facts, opined:-

“28. We, therefore, are of the opinion that the allegations ofpurported fraud were not so serious which cannot be taken careof by the arbitrator. The courts below, therefore, fell in error inrejecting the application of the appellant under Section 8 of theAct. Reversing these judgments, we allow these appeals and as aconsequence, application filed by the appellant under Section 8 inthe suit is allowed thereby relegating the parties to the arbitration.”

Chandrachud J., in his concurring opinion, after referring to manyan authority and literature in the field of arbitration, came to hold:-

“53. The Arbitration and Conciliation Act, 1996, should in my viewbe interpreted so as to bring in line the principles underlying its

Ainterpretation in manner that is consistent with prevailingapproaches in the common law world. Jurisprudence in India mustevolve towards strengthening the institutional efficacy ofarbitration. Deference to forum chosen by parties as completeremedy for resolving all their claims is but part of that evolution.Minimising the intervention of courts is again recognition of theBsame principle.”

He has further held that the mere allegation of fraud in the factualscenario was not sufficient to detract the parties from the obligation tosubmit their disputes to arbitration keeping in view the letter and spirit ofthe 1996 Act. The decision, in our considered view, is not applicable toCthe case at hand.

23. Though the learned counsel for the respondent has referredto the case of Chloro Controls India Private Limited (supra), yet thesame need not be analyzed as it is not an authority remotely relevant fordeciding the lis in the present case.D

24. It does not need special emphasis that an arbitration clause isrequired to be strictly construed. Any expression in the clause mustunequivocally express the intent of arbitration. It can also lay the postulatein which situations the arbitration clause cannot be given effect to. If aclause stipulates that under certain circumstances there can be noEarbitration, and they are demonstrably clear then the controversypertaining to the appointment of arbitrator has to be put to rest.

25. In the instant case, Clause 13 categorically lays the postulatethat if the insurer has disputed or not accepted the liability, no differenceor dispute shall be referred to arbitration. The thrust of the matter isFwhether the insurer has disputed or not accepted the liability under or inrespect of the policy. The rejection of the claim of the respondent madevide 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 coverinsured maintenance.

5. As there is no material damage thus business interruption lossdoes not triggered.”

26. The aforesaid communication, submits the learned seniorcounsel for the respondent, does not amount to denial of liability under orin respect of the policy. On reading of the communication, we think,the disputation squarely comes within Part II of Clause 13. The saidPart of the Clause clearly spells out that the parties have agreed andunderstood that no differences and disputes shall be referable to arbitrationif the company has disputed or not accepted the liability. Thecommunication ascribes reasons for not accepting the claim at all. It isnothing else but denial of liability by the insurer in toto. It is not disputationpertaining to quantum. In the present case, we are not concerned withregard to whether the policy was void or not as the same was not raisedby the insurer. The insurance-company has, on facts, repudiated theclaim by denying to accept the liability on the basis of the aforesaidreasons. No inference can be drawn that there is some kind of disputewith regard to quantification. It is denial to indemnify the loss as claimedby the respondent. Such situation, according to us, falls on all fourswithin the concept of denial of disputes and non-acceptance of liability.It is not one of the arbitration clauses which can be interpreted in waythat denial of claim would itself amount to dispute and, therefore, it hasto be referred to arbitration. The parties are bound by the terms andconditions agreed under the policy and the arbitration clause containedin it. It is not case where mere allegation of fraud is leaned upon toavoid the arbitration. It is not situation where stand is taken thatcertain claims pertain to excepted matters and are, hence, not arbitrable.The language used in the second part is absolutely categorical andunequivocal inasmuch as it stipulates that it is clearly agreed andunderstood that no difference or disputes shall be referable to arbitrationif the company has disputed or not accepted the liability. The High Courthas fallen into grave error by expressing the opinion that there isincongruity between Part II and Part III. The said analysis runs counterto the principles laid down in the three-Judge Bench decision in TheVulcan Insurance Co. Ltd (supra). Therefore, the only remedy whichthe respondent can take recourse to is to institute civil suit for mitigationof the grievances. If civil suit is filed within two months hence, thebenefit of Section 14 of the Limitation Act, 1963 will enure to its benefit.