Calcutta High Court
M/S. Satyanarayan Tea Company ... vs New India Assurance Company ... on 8 December, 2022
OD-19
AP/759/2022
IN THE HIGH COURT AT CALCUTTA
ORDINARY ORIGINAL CIVIL JURISDICTION
ORIGINAL SIDE
M/S. SATYANARAYAN TEA COMPANY PRIVATE LIMITED
Versus
NEW INDIA ASSURANCE COMPANY LIMITED
BEFORE:
The Hon'ble CHIEF JUSTICE PRAKASH SHRIVASTAVA
Date: 8th December, 2022.
Appearance:
Mr. Sarosij Dasgupta, Adv.
...for the petitioner
Mr. Saumalya Ganguli, Adv.
...for the respondent.
The Court: This application under Section 11 of the Arbitration &
Conciliation Act, 1996 has been filed for appointment of arbitrator to resolve the
dispute between the parties.
Learned counsel for the applicant has submitted that the arbitration
agreement in the form of the insurance policy being Annexure-C was executed
which contained the following arbitration clause :
"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 other questions be referred to the decision of a sole
arbitrator to be appointed in writing by the parties 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 3 arbitrators 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."
It has been pointed out by the learned counsel for the applicant that since
the dispute had arisen, therefore, the applicant had served the notice dated 7th
September, 2022 in terms of Section 21 of the Act invoking the arbitration clause
but in spite of service of notice, no response was received till the date of filing of
AP. Subsequently, the reply was received by the applicant.
Learned counsel for the respondent has raised a preliminary objection about
maintainability of the application under Section 11 of the Act in view of the fact
that the insurance claim of the applicant was rejected as "no claim".
Having heard the learned counsel for the parties and on perusal of the
record, it is noticed that vide communication dated 11th November, 2021, the
respondent had rejected the claim of the applicant holding that the claim was not
tenable and treating the claim to be "no claim".
The similar arbitration clause and same issue relating to appointment of
arbitrator under Section 11 of the Act where the insurance company had
repudiated the claim, had come up before the Madras High Court in the matter of
M/s. Jumbo Bags Ltd. -vs.- M/s. The New India Assurance Co. Ltd., reported in
2016-2-L.W. 769 wherein the Madras High Court had reached to the conclusion
that remedy of arbitration is not available when the claim is repudiated in toto.
The Madras High Court in this regard has held as under :
"25. Now turning to the arbitration clause, there are two parts of it, which make
the position abundantly clear. As to what can be referred to arbitration is
specified in the initial sentence of Clause-13 itself - the quantum to be paid
under the policy. This expression is specifically circumscribed by the
stipulation ''liability being otherwise admitted.'' Thus, unless the insurance
company admits that in principle they are liable, though the payment may be of
a lesser amount, that aspect has to be determined in arbitration. Interpreting
the contract to make any part of it otiose cannot be accepted, as a meaning
must be given to the words used in the contract. If the plea of the petitioner was
to be accepted, the aforesaid phrase ''liability be otherwise admitted'' would
become superfluous/otiose. If at all there was any doubt, that stands removed
by the second paragraph of Clause-13, which stipulates that it is ''clearly
agreed and understood'' that no difference or dispute would be referrable to
arbitration, if the company had ''disputed or not accepted the liability'', under
or in respect of the policy. It is not relevant as to why the respondent-Insurance
company has disputed or not accepted the liability, though Clause-8 provides
that if it is a fraudulent claim, the same can be rejected and all benefits under
the policy forfeited. It is the view of the respondent-company that this is a case
of fraudulent claim, which is liable to be rejected. Thus, once the company is of
the view that they are not liable to pay a penny not on the issue of
quantification, but on a concept, the arbitration Clause would stand excluded.
26. It may be noted that the rejection is on the basis of a clause of policy-
Clause-8. Further, though not directly relevant, it is not a mere ipse dixit of the
respondent, but it is based on the final report of the Surveyor appointed by the
respondent-Insurance company. The interim report of the Surveyor deputed by
another Insurance Company viz., ''United India Insurance Company'', in
relation to another claim lodged by the petitioner although arising out of the
same accident, under which part payments have been made by that Company
thus cannot support the case of the petitioner. The policies are different. One is
for plant and machinery and the other is for stocks insured by the respondent
herein. If there is absence of proof of existence of stock at sight or it is felt that
the claim for stocks is fraudulently made, the payment made towards loss to
the plant and machinery would not automatically entitle the insured to make a
claim in relation to stocks also. It cannot be lost sight of that we are dealing
with an Insurance policy.
27. The catena of Judgments referred to aforesaid show how insurance
contracts are to be read. The words in the contract would have to be read as
they are and it is not for this Court to re-construct and take its own import of
the contract on something not agreed to by the parties (General Assurance
Society Ltd. Vs. Chandumull Jain and another (AIR 1966 SC 1644).
28. In The Vulcan Insurance Co. Ltd case cited supra, the question of
repudiation of a claim and its arbitrability in the context itself was examined.
The dispute which is not referrable 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.
29. If a contra view is to be taken, it would amount to creation of an arbitration
clause over a subject matter where there is no such clause. It has already been
noticed that the Surveyor in a detailed report found various errors qua the
stocks with mismatch of quantity, doubtful purchase from doubtful new
suppliers, bogus transport bills, absence of matching of ledger accounts, inward
register not having genuine entries, provision of false documents for part of
purchase etc. The details of this are not required to be gone into in these
proceedings. Suffice to say, clause-8 was advised and was invoked by the
respondent for rejection of the claim in toto as a fraudulent claim.
30. The parties to the contract had specifically agreed both positively and by
exclusion in the Arbitration Clause that only if the Insurance company finds
that the claim exists, albeit of a different amount or a lesser amount, would the
question of arbitration apply and in such a situation where the claim is rejected
as fraudulent etc., recourse to arbitration is not available. The arbitration
clause has specifically been thus excluded in such a situation and this is in
consonance with the principle of Uberrima Fides applicable to an Insurance
Policy Good faith on the part of the insured. The principles in this behalf have
been explained in Vikram Greentech India Ltd, vs. New India Assurance
Company Ltd (2009(5) SCC 599).
31. Learned counsel for the respondent has rightly distinguished the Judgment
in Essar Steel Company Limited case which had a separate nature of policy and
the Insurance Clause itself was very different since the plea of the policy being
void ab initio was found to be an arbitrable dispute. This view of the Bombay
High Court is in its own facts is quite apparent from the judgment in Tainwala
Personal Care Products Pvt. Ltd., case supra. The learned Single Judge
observed that it was evident that it is only when the Insurer had admitted his
liability that there is a dispute or difference in respect of the quantum to be
paid under the policy that the dispute would be arbitrable.
32. 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."
Learned Counsel for the respondent has also pointed out the judgment of
the Bombay High Court in the matter of Tainwala Personal Care Products Pvt. Ltd.,
Mumbai -vs.- Royal Sundaram Alliance Insurance Co. Ltd., Mumbai reported in
2012 SCC Online Bombay 701 wherein considering the judgment of the Supreme
Court in the matter of Vulcan Insurance Co. Ltd. -vs.- Maharaj Singh reported in
(1976) 1 SCC 943, the Bombay High Court in similar circumstances has taken the
following view :
"3. Evidently on a plain reading of the aforesaid clause, it is evident that it is
only when the insurer has admitted its liability but there is a dispute or
difference in respect of the quantum to be paid under the policy that the
dispute would be arbitrable. In the present case, the insurer has not admitted
its liability and on the contrary has repudiated any liability by its letter dated
18 February, 2008. This aspect is covered by a Judgement of the Supreme
Court in The Vulcan Insurance Co. Ltd. v. Maharaj Singh, (1976) 1 SCC 943 :
AIR 1976 SC 287 where the Supreme Court held thus :
12. ............ But as soon as there is a rejection of the claim and not the
raising of a dispute as to the amount or any loss or damage, the only remedy
open to the claimant is to commence a legal proceeding, namely, a suit for
establishment of the company's liability. It may well be that after the liability of
the company is established in such a suit for determination of the quantum of
the loss or damage reference to arbitration will have to be resorted to in
accordance with Clause 18. But the arbitration clause, restricted as it is by the
use of the words "if any difference arises as to the amount of any loss or
damage", cannot take within its sweep a dispute as to the liability of the
company when it refuses to pay any damage at all.
In the Judgment in General Assurance Society Ltd. v. Chandmull Jain AIR
1966 SC 1644 the Supreme Court observed that if a cover note incorporated by
reference the terms and conditions of a future policy, it does not have to recite
the terms and conditions, but merely to refer to a particular standard policy. In
the present case, the cover note does not incorporate by reference the terms
and conditions of a standard policy. But what is more important is that even if
Clause 13 of the Standard Policy were to be regarded as being incorporated in
the cover note, no reference to arbitration could arise unless the insurer
admits its liability. In the present case, the insurer has repudiated liability. "
The arbitration clause provides for the remedy of arbitration in case if the
dispute is about quantum to be paid under the policy but in view of the above
judgment when the claim itself is repudiated or held to be "no claim", the
arbitration clause cannot be attracted.
Hence, the prayer made for appointment of arbitrator under Section 11 of
the Act cannot be granted.
Thus, AP/759/2022 is rejected, however, with liberty to the applicant to
avail such other remedies as available under the law.
(PRAKASH SHRIVASTAVA, C.J.)
s.pal/akg.
