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)    

J U D G M E N T  

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 –  

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

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

3    

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. Ltd7 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.  

7    

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

12    

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. Avery13 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