The Bombay High Court dismissed the application of seeking the appointment of an arbitrator by interpreting the arbitration clause strictly. The Court has ruled that the arbitration clause is ineffective if the insurance company does not admit the liability as it is a sin qua non for invoking the arbitration clause.
Brief Facts:
The applicant had taken an insurance policy from the respondent and insured itself against various domains. On 6/8/2019, the insured property of the applicant was destroyed due to heavy rain. When the applicant claimed the insurance amount, the respondent sent a surveyor for inspection. The respondents repudiated the claim of the petitioner based on the report submitted by the Surveyor. Consequently, the applicant filed an application under Section 11 of the Arbitration and Conciliation Act, 1996, for the appointment of a Sole Arbitrator or an Arbitral Tribunal to adjudicate its claim.
Contentions of the Petitioner:
The learned Counsel submitted that deficiency of specific words in agreement, which otherwise fortifies the intention of the parties to arbitrate their disputes, cannot legitimize annulment of the arbitration clause. He relied upon the decision of Hon’ble Apex Court in case of State of Tripura vs. Province of East Bengal 1950, SCC 794, to submit that since the dispute has arisen between the parties, it must be made over to the arbitrator in the wake of the respondent, Insurance Company disputing the quantum of compensation.
Contentions of the Respondent:
It was contended by the learned Counsel of the Respondent that references to arbitration can be made under the said clause only when the insurance policy is accepted, and there exists a dispute about the quantum to be paid. However, in the present case, the admitted position being the insurance company had repudiated the claim fully as ‘No Claim’, and the liability was disputed by the company based on the observations of the Surveyor and chemical analyzer.
Observation of the Court
This Court, after the perusal of the surveyor report, noted that the applicant had breached the general condition of the policy and exaggerated the claim amount, by claiming many items which do not fall within the purview of the policy. The report clearly shows that the Insurance Company never disputed the quantum but disputed its liability in respect of the policy drawn by the applicant, thus making the dispute non-arbitrable in the wake of the policy.
The Court noted that whether there exists an Arbitration Agreement has to be discerned from the intention of the parties. However, after the perusal of clause 13 of the Policy, the deficiency of the words clearly shown the intention of the parties that the arbitration clause can be invoked only when the dispute between the parties is limited to the quantum of the compensation.
This Court had relied on United India Insurance Company Ltd and another Vs. Hyundai Engineering and Construction Company Ltd (2018), 17 SCC, 607, in which the Apex Court had dealt with a similar issue, held that the insurer's unequivocal admission of liability under the Policy was sine qua non for triggering the arbitration clause. Therefore, this Court, by applying the principle of law to the facts in hand, held that the Insurance Company has disputed and not accepted the liability under the Policy, the dispute is not arbitrable, as it does not revolve around the quantum to be paid under the Policy.
The decision of the Court:
The Bombay High Court dismissed the applicant's application seeking the arbitrator's appointment because the quantum of the compensation was not disputed.
Case Title: M/s. Mallak Specialities Pvt Ltd. vs The New India Assurance Co.Ltd.
Coram: Hon’ble Justice Bharati Dangre
Case no.: COMMERCIAL ARBITRATION APPLICATION NO. 65 OF 2022
Advocate for the Applicant: Mr. Siddhar Jain i/b Adv. Ramprakash Pandey a/w Ms. Sarita
Advocate for the Respondent: Mr.Rushab Vidyarthi a/w Mr. Asim Vidyarthi, Mr. Shasvat Vidyarthi and Mr. Parth Parikh & Ms. Ishita Bhole i/b. Mr. A.S. Vidyarthi
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