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REPORTABLE  

IN THE SUPREME COURT OF INDIA  

CIVIL APPELLATE JURISDICTION   

CIVIL APPEAL NO. 8146   OF  2018  (Arising out of SLP(C) No.4260/2018)  

 United India Insurance Co. Ltd. & Anr.      …..Appellant(s)          

:Versus:    

Hyundai Engineering and Construction  Co. Ltd. & Ors.              ....Respondent(s)  

J U D G M E N T  

A.M. Khanwilkar, J.  

1. The conundrum in this appeal is whether clause 7 of the  

subject Insurance Policy dated 5th September, 2007 posits  

unequivocal expression of the intention of arbitration or is  

hedged with a conditionality?  The learned Single Judge of the  

High Court of Judicature at Madras vide impugned judgment  

and order dated 30th November, 2017 in O.P. No.537/2017  

had held that post amendment of the Arbitration and

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Conciliation Act, 1966 (for short, “the Act”), with effect from  

23rd October, 2015 by insertion of sub-section 6A in Section  

11 of the Act, the limited mandate of the Court is to examine  

the factum of existence of an arbitration agreement. No more  

and no less. The learned Single Judge placed reliance on the  

two-Judge Bench decision of this Court in Duro Felguera,  

S.A. Vs. Gangavaram Port Limited,1 and another decision of  

its own High Court in Jumbo Bags Ltd. Vs. New India  

Assurance Co. Ltd.2  The appellants, however,  placed  

reliance on a three-Judge Bench decision of this Court in  

Oriental Insurance Company Limited  Vs. Narbheram  

Power and Steel Private Limited,3 where this Court had an   

occasion to construe a similar clause of an insurance policy   

as in the present case.  Relying on this  decision, it is urged  

that the impugned judgment cannot be countenanced and  

that the High Court ought to have dismissed the original  

petition filed by the respondents under Sections 11(4) & 11(6)  

of the Act read with   Rule 2 of the Appointment of Arbitrators  

                                                           1   (2017) 9 SCC 729  

2   2016 SCC OnLine Mad 9141 : (2016) 3 CTC 761 : (2016) 2 LW 769  

3   (2018) 6 SCC 534

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by the Chief Justice of Madras High Court Scheme, 1996, to  

declare the arbitrator nominated by the respondents herein as  

the sole arbitrator; or in addition, appoint one arbitrator on  

behalf of the appellants herein so as to adjudicate all the  

disputes inter se between the parties in terms of the Act.  

 2. Shorn of unnecessary facts, be it noted that the  

respondent Nos.1 and 2 constitute a Joint Venture (“JV”).  

Respondent No.3 awarded a contract on 29th September, 2006   

for design, construction and maintenance of a bridge across  

the River Chambal, which was to be completed within a period  

of 40 months and was commenced on 5th December, 2007 by  

the JV after respondent No.3 handed over the site to it.  After  

commencement of the work, a Contractor All Risk Insurance  

Policy (“CAR Policy”) dated 5th December, 2007 was obtained  

from the appellants covering the entire project, valued at  

Rs.2,13,58,76,000/-. The policy contained clause 7, which  

reads thus:   

“7. If any 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

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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 of whom one shall be appointed in  

writing by each of the parties within two calendar months  

after having been required so to do in writing by the other  

party in accordance with the provisions of the Arbitration  

Act, 1940, as amended from time to time and for the time  

being in force in case either party shall refuse or fail to  

appoint arbitrator within two calendar months after receipt  

of notice in writing requiring an appointment the other party  

shall be at liberty to appoint sole arbitrator and in case of  

disagreement between the arbitrators, the difference shall be  

referred to the decision of an umpire who shall have been  

appointed by them in writing before entering on the reference  

and who shall sit with the arbitrators and preside  at their  

meetings.   

It is clearly agreed and understood that no difference or  

dispute shall be referable to arbitration as herein before  

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 or  

umpire of the amount of the loss or damage shall be first  

obtained.    

It is also hereby further expressly agreed and declared  that  

if the Company shall disclaim liability to the insured for any  

claim hereunder and such claim shall not within 3 calendar   

months from the date of such disclaimer have been made the  

subject matter of a suit in a court of law, then the claim  

shall for all purpose be deemed to have been abandoned and  

shall not thereafter be recoverable hereunder.”  

                                                     (emphasis supplied)      

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3. During the construction of the bridge, on 24th December,  

2009, an accident occurred causing significant loss to the  

contractor. A detailed  claim for a sum of Rs.1,51,59,94,543/-  

was submitted by the JV to the appellants, in response to  

which the appellants appointed one Mr. S.  

Ananthapadmanabhan, Surveyor and Loss Adjuster, for  

assessing the loss caused to the contractor. A final report was  

submitted by the Surveyor on 28th February, 2011 assessing  

the  loss as Rs.39,09,92,828/-, however,  with the finding that  

the damage was on account of the faulty design and improper  

execution of the project and not payable under the policy.  

Besides the stated report, a Committee of Experts was set up  

by the Ministry of Road Transport and Highways, Government  

of India, to enquire into the accident which then submitted its  

report on 7th August, 2010.    

 4. The appellants took into account both these reports and   

vide communication dated 21st April, 2011, intimated the  

respondents that the claim put forth by the JV,  was found to

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be not payable, and accordingly, stood repudiated. The said  

communication reads thus:   

“UNITED INDIA INSURANCE COMPANY LIMITED  

Divisional Office:010700  Post Box No.4528  

Ist Floor, Silingi Building Gram UNDIVSEVEN  134, Greams  Road  Phone:28290845/846  

Chennai-600 006   Telefax:044-28290844    Ref.:010700/CAR Claim/2011  21st April, 2011    

REGISTERED POST WITH ACKNOWLEDGE DUE  

M/s  National Highways of Authority of India  1-C-10 SFS Colony  

Talwandi, Kota  Rajasthan-324 005  

 Dear Sirs  

Kind Attn: Mr. Anoop Kulshreshtha, Project Director  

Re: Claim under Contractor‟s All Risk Policy  No.011900/44/07/03/60000001- Our Claim  

No.010703/44/09/03/90000007-Collapse of Cable  Stayed Bridge at Kota, Rajasthan.  

We refer to the above claim lodged by you under your  Contractor‟s All Risk Policy in respect of collapse of  

portion of bridge under construction on 24.12.2009.  

You are aware that immediately on intimation of the  

occurrence, our Company had deputed Mr. S Ananta  Padmanabhan, a duly licensed and well experienced  civil engineer surveyor for detailed survey as required  

by Insurance Act.  The surveyor had visited the site on  various occasions and was in contact and  

correspondence with you when various particulars,  information and records were obtained. Besides  enquiries with you the surveyor had also made other  

enquiries for information including the Government,   Police Authorities and gathered reports of the

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respective agencies. After detailed survey, the surveyor  had submitted his Final Report dated 28.2.2011 in  

respect of the claim.   

Besides the Survey Report, it also found that the  

occurrence was the subject matter of enquiry by a  Special Committee constituted by the Ministry of Road  

Transport and Highways, Govt. of India which had also  submitted a detailed report dated 7.8.2010.   

We find that there had been a collapse of the lateral  span P3-P4, P4 Pylon and main span structures from  S1-S10 segments which fell into the river.  

On a careful study of the records it is found that the  

collapsed portion was affected entirely due to faulty  design, besides defective workmanship and materials  in execution of the project. A few of the relevant factors  

are observed as under:-  

In execution of the project it is found that the junction  

at Pylon P4 was most critical and vulnerable which  had to be handled with due care and diligence.  An  

instable equilibrium had been caused at this junction,  due to shearing of the slab in the lateral span P3-P4  about 15 mts. From the P4 junction, which caused the  

tilting of the pylon, dragging with it the spans P3-P4,  P3-P2 and Piers P3, P4. The release of restraints on  

the movement of the bearings at P4 had not been  performed in manner necessary, contributing to a  massive failure. Lack of coordination and planning  

between various consultants and failure to properly  oversee the execution had been found.  

There had been change of allocation of work among  various joint venture partners which had played a key  

role in the quality of workmanship. Even at the  affected P4 location, construction of Pier P4 was the  responsibility of Hyundai Engg. & Construction Co.  

Whereas it was found to have been carried out by  Gatnmon India.  

There had also been change in the sequence of  operations in construction to make up for lost time,  

which adversely affected the stability of the P4 joint.  

The summary of the findings of the Enquiry committee  

is that the collapse was caused, inter alia, by             

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1) absence of stability devices during construction,     2) shortfall in design and 3) deficient workmanship.  

The Enquiry Committee have more particularly  observed that  

a) the contractors are responsible for all during the  

structure to reach a vulnerable stage, without taking  adequate precautions with respect to stability and  robustness of the partially completed structure and  

shortfall in the design.   b) Since they have been shortfalls at the design  responsibility also lies with.  

The available records and documents clearly reveal  

that the loss has occurred due to faulty design and  defective workmanship.  

We find that national Highways Authority of India have  in fact initiated action by issue of show cause notice  against the Contractors.  

The Kota Police had lodged FIR against various  

employees of the Contractors/Sub contractors and  submitted final report which supports the above  observations.  

The policy does not cover the loss in the above  circumstances. In fact the policy specifically  

excludes any loss/damage caused by faulty design,  defective workmanship/material. Further, the  

revelations of the expert body and the surveyors  indicate willful acts/negligence in execution of  work of such nature resulting in the occurrence.  

In view of the above, we regret to inform you that  the claim is found to be not payable and  

accordingly stands repudiated.  

Insurers reserve their right to rely upon any further or  other materials/terms in support of the above  conclusion and the above circumstances are not  

exhaustive of the basis for the above decision.  

Thanking You  

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Yours faithfully  

Sd/-  

Senior Divisional Manager    

Copy to:  

1) M/s Hyundai Engineering & Construction Co. Ltd &  

Gammon India Ltd., Chambal Bridge Project. Behind  Tilam Sangh, Rawat Bhata Road, Kota Rajasthan-

324010.  2) Regional Office-Technical-Engineering Dept.  3) Head Office-Technical-Engineering Dept.  

Regd. & Head Office: 24, Whites Road,   Chennai-600 014.”  

                                                      (emphasis supplied)    

5. The JV nevertheless entered into correspondence with  

the appellants to reopen and re-assess its decision of  

repudiation of the claim. Finally, the appellants informed the  

respondents that it was unable to “reconsider” the claim which  

has already been repudiated.  The said communication reads  

thus:   

“UNITED INDIA INSURANCE COMPANY LIMITED  

HEAD OFFICE 24, WHITES ROAD CHENNAI  

CIN:U93090TN1938GOI000108  

Ref:No.UIIC/ENGG/CLAIMS/17-18/01 Dt:17.04.2017  

To  

KA: Mr. Anupam Gupta  

The Project Director  

M/s National Highways Authority of India  

Project Implementation Unit  

A-575, Talwandi, Kota (Rajasthan)-324005

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Subject: CAR Insurance Policy  

No.011900/44/07/03/60000001.  

Settlement of Contractors claim  

No.010703/44/096/03/90000007.  

Dear Sir,  

We refer to your letter Ref:17011/27/2006-Kota/CAR/RJ-

05/3909 dt. 18.01.2017 and Contractor letter Ref: HZ-6718,  

dated 04.02.2017 and also the subsequent meeting held at  

our office Chennai. On perusal of the documents provided,  

we find that no further points have emerged in support of  

the claim.  

In view of the above we regret our inability to reconsider  

the claim which was repudiated.  

Yours faithfully  

(D. Nagalakshmi)  

Dy. General Manager  

CC:  KA: Mr. Haeng Kwon Kang  

The Chief Project Manager  

Hyundai Engineering & Construction Co. Ltd.  

Chambal Bridge Project, Behind Tilam Sangh  

Rawat Bhata Road, Kota Rajasthan-324 010”  

                                                    (emphasis supplied)  

6. As a sequel, the JV vide its letter dated 29th May, 2017  

informed the appellants that disputes had arisen between the  

appellants and the JV and in view thereof  it was invoking the  

arbitration clause No.7 contained in the Insurance Policy and  

had nominated Dr. V.K. Agrawal as its Arbitrator. The

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appellants were also called upon to either accept the name of  

the sole arbitrator or nominate its own arbitrator within 30  

days from the date of receipt of the communication.   

Eventually, respondent Nos.1 & 2 filed a petition under  

Sections 11(4) & 11(6) of the Act before the High Court of  

Judicature at Madras being O.P. No.537/2017.   

 7. The said petition was resisted by the appellants. It was  

urged that the subject clause 7 of the policy was hedged with a  

pre-condition expressly predicating that no difference or  

dispute shall be referable to arbitration, if the appellants  

disputed or did not accept its liability under or in respect of  

the policy.   In other words, in case of repudiation of the claim  

by the appellants, the remedy of the insured was to file a suit  

within 3 months of such disclaimer. It was asserted that the  

appellants had repudiated the liability vide letter dated 21st  

April, 2011. That is an indisputable fact. The communication  

sent by the appellants on 17th April, 2017 was a mere  

reiteration and confirmation of the repudiation already  

communicated vide letter dated 21st April, 2011. It was

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specifically denied that the said letter dated 17th April, 2017  

was a final repudiation for the purpose of calculating  

limitation as alleged  by the applicants (respondent Nos.1 & 2).  

It was urged that the dispute raised was not one of quantum  

to be paid under the policy but on the very factum of alleged  

loss not covered under the policy.  By virtue whereof, the  

agreement specifically excluded making a reference to  

arbitration.    

 8. Notwithstanding the stand taken by the appellants, the  

learned Single Judge of the High Court by the impugned  

judgment allowed the petition filed by respondent Nos.1 & 2  

and appointed Mr. Justice P. Jyothimani, Former Judge, High  

Court of Judicature, Madras to act as an Arbitrator in the  

matter, having opined that arbitration agreement existed in  

the form of clause 7 of the Insurance Policy, by relying mainly  

on the decision in Duro Felguera, (supra) and Jumbo Bags  

Ltd., (supra).  

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9. We have heard Mr. P.P. Malhotra, learned senior counsel  

appearing for the appellants and Ms. Meenakshi Arora,  

learned senior counsel appearing for the respondents.   

 10. The clause similar to the subject clause 7 of the  

Insurance Policy came up for consideration before a three-

Judge Bench of this Court in Oriental Insurance Company  

Limited (supra). After analysing the legal principle expounded  

in a host of decisions, including the decision in Jumbo Bags  

Ltd. (supra), the Court opined as follows:   

“23. 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. 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.     24. 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…..”   

                                          (emphasis supplied)    

While adverting to the observation in paragraphs 28 and 32 of  

the Jumbo Bags Ltd. (supra), the Court observed thus:   

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 “19. We may presently refer to the decision of the Madras  

High Court in Jumbo Bags Ltd. In the said case, the learned  Chief Justice was interpreting clause 13 of the policy  

conditions. Referring to Vulcan Insurance Co. Ltd., he has  held thus: (Jumbo Bags Ltd. case, SCC OnLine Mad para 28)    

„28. …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 : (SCC OnLine Mad para 32)    

„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.‟  

 We concur with the said view.”   

                                                   (emphasis supplied)     

 11. The other decision heavily relied upon by the High Court  

and also by the respondents in Duro Felguera (supra), will be  

of no avail.  Firstly, because it is a two-Judge Bench decision  

and also because the Court was not called upon to consider  

the question which arises in the present case, in reference to  

clause 7 of the subject Insurance Policy. The exposition in this  

decision is a general observation about the effect of the  

amended provision and not specific to the issue under

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consideration. The issue under consideration has been directly  

dealt with by a three-Judge Bench of this Court in Oriental  

Insurance Company Limited (supra), following the exposition  

in Vulcan Insurance Co. Ltd.  Vs. Maharaj Singh and  

Anr.4, which, again, is a three-Judge Bench decision having  

construed clause similar to the subject clause 7 of the  

Insurance Policy. In paragraphs 11 & 12 of Vulcan Insurance  

Co. Ltd. (supra), the Court answered the issue  thus:  

“11. Although the surveyors in their letter dated April  

26, 1963 had raised a dispute as to the amount of any  

loss or damage alleged to have been suffered by  

Respondent 1, the appellant at no point of time raised  

any such dispute. The appellant company in its letter  

dated July 5 and 29, 1963 repudiated the claim  

altogether. Under clause 13 the company was not  

required to mention any reason of rejection of the  

claim nor did it mention any. But the repudiation of  

the claim could not amount to the raising of a  

dispute as to the amount of any loss or damage  

alleged to have been suffered by Respondent 1. If  

the rejection of the claim made by the insured be on  

the ground that he had suffered no loss as a result of  

the fire or the amount of loss was not to the extent  

claimed by him, then and then only, a difference  

could have arisen as to the amount of any loss or  

damage within the meaning of clause 18. In this case,  

however, the company repudiated its liability to pay any  

amount of loss or damage as claimed by Respondent 1.  

                                                           4   (1976) 1 SCC 943

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In other words, the dispute raised by the company  

appertained to its liability to pay any amount of damage  

whatsoever. In our opinion, therefore, the dispute raised  

by the appellant company was not covered by the  

arbitration clause.  

12. As per clause 13 on rejection of the claim  

by the company an action or suit, meaning thereby a  

legal proceeding which almost invariably in India  

will be in the nature of a suit, has got to be  

commenced within three months from the date of  

such rejection; otherwise, all benefits under the  

policy stand forfeited. The rejection of the claim may  

be for the reasons indicated in the first part of clause  

13, such as, false declaration, fraud or wilful neglect of  

the claimant or on any other ground disclosed or  

undisclosed. But as soon as there is a rejection of the  

claim and not the raising of a dispute as to the amount  

of 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.”  

                                               (emphasis supplied)    

Again in paragraph 22, after analysing the relevant judicial  

precedents, the Court concluded as follows:

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“22. The two lines of cases clearly bear out the two distinct  situations in law. A clause like the one in Scott v. Avery bars  any action or suit if commenced for determination of a  dispute covered by the arbitration clause. But if on the  

other hand a dispute cropped up at the very outset  which cannot be referred to arbitration as being not  covered by the clause, then Scott v. Avery clause is  

rendered inoperative and cannot be pleaded as a bar to  the maintainability of the legal action or suit for  

determination of the dispute which was outside the  arbitration clause.”  

                                                                            (Emphasis supplied)  

12. From the line of authorities, it is clear that the  

arbitration clause has to be interpreted strictly. The subject  

clause 7 which is in pari materia to clause 13 of the policy  

considered by a three-Judge Bench in Oriental Insurance  

Company Limited (supra), is a conditional expression of  

intent. Such an arbitration clause will get activated or kindled  

only if the dispute between the parties is limited to the  

quantum to be paid under the policy.  The liability should be  

unequivocally admitted by the insurer. That is the pre-

condition and sine qua non for triggering the arbitration  

clause. To put it differently, an arbitration clause would  

enliven or invigorate only if the insurer admits or accepts its   

liability under or in respect of the concerned policy.  That has  

been expressly predicated in the opening part of clause 7 as

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well as the second paragraph of the same clause. In the  

opening part, it is stated that the “(liability being otherwise  

admitted)”.  This is reinforced and re-stated in the second  

paragraph in the following words:  

 “It is clearly agreed and understood that no difference or  dispute shall be referable to arbitration as herein before  

provided, if the Company has disputed or not accepted  liability under or in respect of this Policy.”     

Thus understood, there can be no arbitration in cases  

where the insurance company disputes or does not  

accept the liability under or in respect of the policy.  

  13. The core issue is whether the communication sent on  

21st April, 2011 falls in the excepted category of repudiation  

and denial of liability in toto or has the effect of acceptance of  

liability by the insurer under or in respect of the policy and   

limited to disputation of  quantum.   The High Court has made  

no effort to examine this aspect at all. It only reproduced  

clause 7 of the policy and in reference to the dictum in  Duro  

Felguera (supra) held that  no other  enquiry can  be made by  

the Court in that regard. This is misreading of the said

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decision and the amended provision and, in particular, mis-

application of the three-Judge Bench decisions of this Court in  

Vulcan Insurance Co. Ltd. (supra) and in Oriental  

Insurance Company Ltd. (supra).  

 14. Reverting to the communication dated 21st April, 2011,  

we have no hesitation in taking the view that the appellants  

completely denied their liability and repudiated the claim of  

the JV (respondent Nos.1 & 2) for the reasons mentioned in  

the communication. The reasons are specific. No plea was  

raised by the respondents that the policy or the said clause 7  

was void. The appellants repudiated the claim of the JV and  

denied their liability in toto under or in respect of the subject  

policy. It was not a plea to dispute the quantum to be paid  

under the policy, which alone could be referred to arbitration  

in terms of clause 7. Thus, the plea taken by the appellants is  

of denial of its liability to indemnify the loss as claimed by the  

JV,  which falls in the excepted category, thereby making the  

arbitration clause ineffective and incapable of being enforced,  

if not non-existent. It is not actuated so as to make a reference

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to arbitration. In other words, the plea of the appellants is  

about falling in an excepted category and non-arbitrable  

matter within the meaning of the opening part of clause 7 and  

as re-stated in the second paragraph of the same clause.  

 15. In view of the above, it must be held that the dispute in  

question is non-arbitrable and respondent Nos.1 & 2 ought to  

have resorted to the remedy of a suit. The plea of respondent  

Nos.1 & 2 about the final repudiation expressed by the  

appellants vide communication dated 17th April, 2017 will be  

of no avail. However, whether that factum can be taken as the  

cause of action for institution of the suit is a matter which can  

be debated in those proceedings. We may not be understood to  

have expressed any opinion either way in that regard.   

 16. Accordingly, we allow this appeal and set aside the  

impugned judgment and order and further dismiss the original  

petition No.537/2017 filed by respondent Nos.1 & 2 before the  

High Court of Judicature at Madras, with liberty to the said  

respondents to take recourse to a civil suit for mitigation of its  

grievances, if so advised. We are not expressing any opinion

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either way on the merits of the issues to be answered in the  

said proceedings.   

 17. The appeal is allowed in the aforementioned terms with  

no order as to costs.    

 .………………………….CJI.  

     (Dipak Misra)   

…………………………..….J.                (A.M. Khanwilkar)  

…………………………..….J.               (Dr. D.Y. Chandrachud)  

New Delhi;  

August 21, 2018.