Can a Dispute be refered to Arbitration if the Clause prohibit such reference? NO says HC, Read Order

The Andhra Pradesh High Court has held that prohibiition to arbitrate in clause is akin to having no arbitration agreement at all.

The single-judge bench of Justice R. Raghunandan Rao in this view dismissed an application seeking appointment of Arbitrator as the Arbitration Agreement had a clear prohibition that the no disputes shall be referred to arbitration if the insurance company rejected the claim of liability.

The applicant which is a wholly owned Government of India undertaking, engaged in the business of Telecom Services and Operations, with a view to insuring itself against any losses that may arise out of loss of these mobile handsets, had obtained an Insurance Policy.

The applicant had subsequently raised a claim of Rs.77,22,372/- towards compensation for losses incurred which was refused by the respondent-Insurance Company.

The writ petition thus preferred was dismissed. Thereafter, the applicant invoked arbitration clause in the insurance policy calling upon the respondents to agree to the appointment of a former Judge of the Hon’ble High Court of Andhra Pradesh as a sole arbitrator, to resolve the disputes.

The respondent in its reply refused. On account of the said refusal, the applicant filed the present application under Section 11 of the Arbitration and Conciliation Act, 1996.

The respondent contended that the stipulation in clause 8 clearly stated that no dispute shall be referable to arbitration where the insurance company disputes or does not accept the liability under the policy. It was further being averred that there is no arbitration agreement under which the dispute relating to the claim of the applicant can be adjudicated.

Submitting that the question relating to the arbitrability of the dispute is a matter which should be referred to the arbitrator and the said question cannot be looked into by the Court at this stage, the respondent placed reliance on United India Insurance Co. Ltd. & ANR. Vs. Hyundai Engineering and Construction Co. Ltd. & Ors, 2018 Latest Caselaw 579 SC wherein the Supreme Court considered a situation where an application for appointment of an arbitrator was filed after an insurance company had repudiated the entire claim.

It was held that an application for appointment of an arbitrator would be maintainable where the dispute is in relation to the quantum of compensation and such an application would not be maintainable if the dispute relates to the very liability of the insurance company.

Mention was also given to Pravin Electricals Pvt. Ltd. Vs. Galaxy Infra and Engineering Pvt. Ltd., 2021 Latest Caselaw 131 SC in which following the judgement in Vidya Drolia Vs. Durga Trading Corporation, 2020 Latest Caselaw 659 SC, it was being held that where there is no arbitration clause, on the face of the agreement, the Court can reject an application for arbitration while the same would have to be left to the arbitrator to examine and decide, if it is a situation where some deeper consideration is required, to ascertain the existence of an arbitration agreement.

In view of the above, the Court stated that in the present case, the respondents have rejected the claim in toto and the prohibition set out in the arbitration clause would apply to the present facts of the case.

Noting that there would be no necessity to refer the matter to an arbitrator to decide on the arbitrability of the dispute, the application was accordingly dismissed.

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