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)

JUDGMENT

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 –

Signature Not Verified

Digitally signed by
CHETAN KUMAR
Date: 2018.05.02
12:27:11 IST

Dhenkanal, Odisha. In October 2013, there was a cyclone

Reason:
 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

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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. Ltd 7 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.

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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

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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. Avery 13 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