Ruby General Insurance Co. Ltd. Vs.
Pearey Lal Kumar & ANR [1952] INSC 9 (25 February 1952)
FAZAL ALI, SAIYID BOSE, VIVIAN
CITATION: 1952 AIR 119 1952 SCR 501
CITATOR INFO :
RF 1962 SC1810 (4) R 1969 SC 488 (5) RF 1984
SC1072 (41) F 1985 SC1156 (45)
ACT:
Indian Arbitration Act (X of 1940), s.
33--Arbitration clause--Whether dispute "arises out of agreement
"--Tests--Plea that agreement is not applicable and does not subsist--No
dispute about the existence or validity or meaning--Jurisdiction of arbitrator
Application under s. 33--Maintainability.
HEADNOTE:
The appellant company insured a car belonging
to respondent No. 1 and issued a policy which contained, inter alia, the
following terms :--"All differences arising out of this policy shall be
referred to the decision of an arbitrator to be appointed by the
parties.......... If the company shall disclaim liability to the insured for
any claim hereunder and such claim shall not within twelve calendar months from
the date of such disclaimer have been referred to arbitration then the claim
shall have been deemed to have been abandoned and shall not be
recoverable." The car was lost, and the company through its Branch Manager
disclaimed liability on three different dates. The insured did not take any
action in regard to the appointment of an arbitrator until more than twelve
months after the last disclaimer by the company. The case of the company was
that the insured must be deemed to have abandoned his claim by virtue of the
contract of insurance policy while 'the respondent averred that there was never
any valid disclaimer by the company of its liability as the Branch Manager had
no authority to disclaim the liability and it could have been disclaimed only
by the resolution of the company. The company presented the present application
under see. 33 of the Indian Arbitration Act praying for a declaration that the
reference to arbitration was illegal and the award if made by the arbitrator
would not bind the company. It was contended on its behalf that the arbitration
clause had ceased to be 65 502 operative and the question as to the existence
and validity of the Arbitration agreement was triable by the court under sec.
33 of the Arbitration Act and not by the arbitrator.
Held, (i) that the point on which the parties
were in dispute was a difference "arising out of the policy ",
because recourse to the contract by which both the parties were bound was
necessary for the purpose of determining the matter in dispute between them as
there was no contention raised in the present case by either of the parties
that there was no contract entered into at all or that it was void ab initio,
and therefore the arbitrator had jurisdiction to decide the matter referred to
him. A contention that the arbitration agreement has ceased to be applicable or
that it no longer subsists will not oust the jurisdiction of the arbitrator.
(ii) No question of determining the effect of
the arbitration within the meaning of sec. 33 arose because there was no
dispute between the parties as to what it meant.
A.M. Mair and Co. v. Gordhandas Sagarmull
[1950] (S.C.R. 792), Heyman v. Darwins Ltd. ([1941] 1 A.E.R. 337), Mecaura v.
Northern Assurance Co. ([1925] A.C. 619), Stebbing v. Liverpool, London and
Globe Insurance Co. Ltd. ([1917], 2 K.B. 433) referred to.
CIVIL APPELLATE JURISDICTION: Civil Appeal
No. 163 of 1951. Appeal by special leave from the Judgment dated the 10th
April. 1951, of the High Court of Judicature for the State of Punjab at Simla
(Kapur J.) in Civil Revision No.
286 of 1950 arising out of Order dated the
24th March, 1950, of the Court of Subordinate Judge, 1st Class, Delhi, in an
Application under Section 33 of Indian Arbitration Act, X of 1940.
Rattan Lal Chawla (K. N. Agarwal, with him)
for the appellant.
Som Nath Chopra for the respondent.
1952. February 25. The Judgment of the court
was delivered by FAZL ALI J.--This is an appeal by special leave against the
judgment of the Punjab High Court upholding the decision of a Subordinate Judge
of Delhi relating to a petition filed by the appellant-company under section 33
of the Indian Arbitration Act against the respondents, 503 The material facts
are these. On the 22nd April, 1947, the appellant company insured a car belonging
to the first respondent and issued a policy which fully sets out the terms and
conditions of the agreement relating to the insurance. The first respondent
left his car in a garage at Lahore and came away to India on the 31st July,
1947.
Subsequently, he learned about the loss of
his car, and sent a legal notice dated the 18th March, 1948, through his
advocate Mr. A.R. Kapur to the Head Office of the company at Calcutta, claiming
a sum of Rs. 7,000 for the loss of the car. On the 10th April, 1948, Mr. Kapur
received a letter from the Branch Manager of the Company's office at Amritsar
asking for information regarding certain matters stated in the letter. This
information appears to have been supplied on the 30th April, 1948. On the 26th
May, 1948, the company's Branch Manager at Amritsar wrote to the first
respondent repudiating the liability of the company for the loss of the car on
the ground that the loss was "due to communal riots which were going on in
the whole of Punjab" and was not covered by the agreement of insurance. A
similar letter was written again by the Branch Manager on the 3rd July, 1948,
to the first respondent, and another letter was written by one Mr. Rattan Lal
Chawla representing himself to be counsel for the company, to Mr. A.R. Kapur,
on the 1st August, 1948. On the 21st November, 1949, the first respondent wrote
a letter to the Branch Secretary of the Company's office at Calcutta, stating
that his claim was valid and nominating Mr. T.C. Chopra, Assistant Manager,
Lakshmi Insurance Company Ltd., Delhi, as arbitrator on his behalf and
requesting the company to appoint another person as arbitrator on its behalf.
Thereafter, the company presented an application on the 29th December, 1949, in
the court of the Senior Sub-judge, Delhi, under section 33 of the Indian
Arbitration Act, against the first respondent and Mr. T.C. Chopra, the
arbitrator, who is the second respondent in this appeal, praying for-504 (1) a
declaration to the effect that the reference to arbitration and the appointment
of respondent No. 2 as sole arbitrator was illegal;
(2) a declaration to the effect that if the
respondent No. 2 made any award it would not be binding on the company;and (3)
an injunction restraining the respondents Nos. 1 and 2 from taking any
proceeding in the matter and the respondent No. 2 from making any award.
Upon this petition, notice was issued to the
respondents, and an injunction was issued directing them not to file any award
till the date of the next hearing, which was fixed for 31st January, 1950. On
the 4th February, 1930, the first respondent wrote to the second respondent
(the arbitrator) that since no arbitrator had been appointed by the company and
since the company had refused to appoint any arbitrator, he (Mr. Chopra) was to
act as the sole arbitrator. On the 6th February, 1950, Mr. Chopra wrote to
inform the insurance company that he had been appointed sole arbitrator and
asked the company to send the statement of its case and to produce all the
evidence on the 14th February, 1950. On the 10th February, 1950, the insurance
company filed a petition before the Subordinate Judge, Delhi, praying that the
respondents be stopped from proceeding further in the matter so that its
application under section 33 may not become infructuous. On the 11th February,
the Subordinate Judge issued notice to the respondents fixing the 17th February
as the date of hearing and passed the following order:
"Moreover (till) the decision of this
application the arbitrator should not give or pronounce his award but should
continue the proceedings." On the 14th February, 1950, the second
respondent pronounced his award after making a note to the following effect:"
Mr. G.R. Chopra, the counsel of the defendants, sent a telephonic message at 12
A.M. requesting extension till 1 P.M. I agreed and accordingly I waited for 505
him and the plaintiff with his counsel also waited up to 1 P.M. Nobody turned
up on behalf of the defendants. I commenced the proceedings and took the
statement of the plaintiff and the documents that he had produced." He
made a further note at the end of the award to this effect :-"As after the
giving of the award a notice was served upon me not to give the award, I have
not sent any formal letter to the parties informing them of the award and its
costs." On the 24th March, 1950, the Subordinate Judge passed an order on
the company's application under section 33, dismissing it and holding that the
terms of clause 7 of the agreement "were comprehensive enough to include
the points of disputes between the parties now and as such are triable by the
arbitrator and not by the court." The Subordinate Judge concluded his
order by observing:
"I, therefore, hold that the reference
to the arbitration of the differences is perfectly valid and the points raised
by the parties to this application with regard to the abandonment of claim and
its becoming irrecoverable are to be decided by the arbitrator." The
judgment of the Subordinate Judge was upheld in revision by the Punjab High
Court and the company has now preferred an appeal to this court by special
leave.
The points that were urged on behalf of the
appellant in this appeal are these: -(1) that the arbitration clause had ceased
to be operative and the question as to the existence and validity of the
arbitration agreement was triable by the court under section 33 of the
Arbitration Act and not by the arbitrator;
and (2) that the award was invalid and not
binding on the appellant, because it was pronounced in spite of the order of
the court dated the 11th February, 1950, directing the arbitrator not to
pronounce his award.
506 Clause 7 of the policy of insurance rims
as follows :--"All differences arising out of this policy shall 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 arbitrators one to be appointed in writing by each of the
parties within one calendar month after having been required in writing so to
do by either of the parties or in case the arbitrators do not agree of an
umpire appointed in writing by the arbitrators before entering upon the
reference. The umpire shall sit with the arbitrators and preside at their
meeting and the making of an award shall be a condition precedent to any right
of action against the company. if the company shall disclaim liability to the
insured for any claim hereunder and such claim shall not within twelve calendar
months from the date of such disclaimer have been referred to arbitration under
the provisions herein contained then the claim shall for all purposes be deemed
to have been abandoned and shall not thereafter be recoverable hereunder."
It will be noticed that this clause provides among other things that if the
company disclaimed liability to the insured for any claim under the policy and
such claim was not within twelve calender months from the date of such
disclaimer referred to arbitration, then the claim should be deemed to have
been abandoned and was not recoverable. The case of the company is that it
disclaimed liability for the loss of the car on three successive occasions,
namely, on the 26th May, 1948, the 3rd July, 1948, and the 1st August, 1948.
The first respondent however did not take any action in regard to the
appointment of an arbitrator until the 21st November, 1949, i.e, until more
than 12 months after even the last disclaimer by the company. For this reason,
the claim put forward by the first respondent must be deemed to have been
abandoned and he cannot recover anything from the company. On the other hand.
the case of the first respondent, which 507 is set out in. his affidavit dated
the 17th February, 1950, is that there was never any valid disclaimer by the
company of its liability. The position that he took up was that the Branch
Manager of the company had no authority to disclaim the liability, and it could
have been disclaimed only by a resolution of the company. Now these being the
respective contentions of the parties, the question is whether the point in
dispute fell to be decided by the arbitrator or by the court under section 33
of the Arbitration Act. Section 33 is to the following effect:-"Any party
to an arbitration agreement or any person claiming under him desiring to
challenge the existence or validity of an arbitration agreement or an award or
to have the effect of either determined shall apply to the Court and the Court
shall decide the question on affidavits:
Provided that where the Court deems it just
and expedient, it may set down the application for hearing on other evidence
also. and it may pass such orders for discovery and particulars as it may do in
a suit." The question to be decided is whether the point on which the
parties are in dispute is a difference "arising out of the policy" in
terms of clause 7 of the policy. The test for determining such a question has
been laid down in a series of cases and is a simple one. The test is whether
recourse to the contract by which the parties are bound is necessary for the
purpose of determining the matter in dispute between them. If such recourse to
the contract is necessary. then the matter must come within the scope of the
arbitrator's jurisdiction. In the present case, both the parties admit the
contract and state that they are bound by it. Indeed, the appellant-company, in
order to make good its contention, is obliged to rely and does rely on that
part of clause 7 of the policy which states that if the company should disclaim
liability and the claim be not referred to arbitration within 12 months of such
disclaimer, the claim shall be deemed to have been abandoned. Evidently, the
company cannot succeed without calling in aid this clause and 508 relying on
it. Again, the first respondent does not say that he is not bound by the clause
but states that the matter was referred to arbitration before any valid
disclaimer was made. The position therefore is that one party relying upon the
arbitration clause says that there has been a breach of its terms and the other
party, also relying on that clause, says that there has been no breach but on
the other hand the requirements of that clause have been fulfilled. Thus, the
point in dispute between the parties is one for the decision of which the
appellant is compelled to invoke to his aid one of the terms of the insurance
agreement. It is thus clear that the difference between the parties is a
difference arising out of the policy and the arbitrator had jurisdiction to
decide it, the parties having made him the sole judge of all differences
arising out of the policy.
A large number of cases were cited before us
on behalf of the parties, but it is unnecessary to refer to them, since the
question which arises in this appeal is a simple one and is covered by the
statement of law which is to be found in the decision of this Court in A.M.
Mair & Co. v. Gordhandass Sagarmull C), and in a series of English authorities,
some of which only may be referred to. In Heyman v. Darwins, Ltd. (2) the law
on the subject has been very clearly stated in the following passage :"An
arbitration clause is a written submission, agreed to by the parties to the
contract, and, like other written submissions to arbitration, must be construed
according to its language and in the light of the circumstances in which it is
made. If the dispute is as to whether the contract which contains the clause
has ever been entered into at all, that issue cannot go to arbitration under
the clause, for the party who denies that he has ever entered into the contract
is thereby denying that he has ever joined in the submission. Similarly, if one
party to the alleged contract is contending that it is void ab initio (because,
for example, the making of such a contract is illegal)the arbitration (1)[1950]
S.C.R. 792. (2) [1941] 1 A.E.R.337,343 509 clause cannot operate, for on this
view the clause' itself is also void.
If. however, the parties are at one in
asserting that they entered into a binding contract, but a difference has
arisen between them as to whether there has been a breach by one side or the
other, or as to whether circumstances have arisen which have discharged one or
both parties from further performance, such differences should be regarded as
differences which have arisen 'in respect of,' or 'with regard to,' or 'under'
the contract, and an arbitration clause which uses these, or similar
expressions, should be construed accordingly." In Macaura v. Northern
Assurance Co. (1), the appellant had insured a large quantity of timber against
fire and the greater part of the timber having been destroyed by fire, he sued
the insurance company to recover the loss but the action was stayed and the
matter was referred to arbitration in pursuance of the conditions contained in
the policy. The arbitrator held that the claimant had no insurable interest in
the goods insured and disallowed the claim. One of the points raised in the
case was that the arbitrator had no jurisdiction to decide the matter, but that
contention was rejected by Lord Sumner in these words:"The defendants do
not repudiate the policy or dispute its validity as a contract; on the
contrary, they rely on it and say that according to its terms, express and
implied, they are, relieved from liability: see Stebbing's case(2), Woodall v. Pearl
Assurance Co.(3)...... It is a Fallacy to say that they assert the policy to be
null and void." In Stebbing v. Liverpool and London and Globe Insurance
Company Limited(2), to which reference was made by Lord Summer, the policy of
insurance contained a clause referring to the decision of an arbitrator
"all differences arising out of this policy ". It also (1) [1925]
A.C. 619. (3) [1919] 1 K.B. 593, (2) [1917] 2 K.B. 433, 66 510 contained a
recital that the assured had made a proposal and declaration as the basis of
the contract, and a clause to the effect that compliance with the conditions
indorsed upon the policy should be a condition precedent to any liability on
the part of the insurers. One of the conditions provided that if any false
declaration should be made or used in support of a claim all benefit under the
policy should be forfeited. In answer to a claim by the assured, the insurers
alleged that statements in the proposal and declaration were false. When the
matter came before the arbitrator, the assured objected that this was not a
difference in the arbitration and that the arbitrator had no power to determine
whether the answers were true or not, or to determine any matters which called
in question the validity of the policy. In holding that the arbitrator had
jurisdiction to decide the matter, Viscount Reading C.J. observed as follows:"
If the company were seeking to avoid the contract in the true sense they would
have to rely upon some matter outside the contract, such as a misrepresentation
of some material fact inducing the contract, of which the force and effect are
not declared by the contract itself. In that case the materiality of the fact
and its effect in inducing the contract would have to be tried. In the present
case the company are claiming the benefit of a clause in the contract when they
say that the parties have agreed that the statements in question are material
and that they induced the contract. If they succeed in escaping liability that
is by reason of one of the clauses in the policy. In resisting the claim they
are not avoiding the policy but relying on its terms. In my opinion, therefore,
the question whether or not the statement is true is a question arising out of
the policy." The main contention put forward on behalf of the appellant is
that the points in dispute fall outside the jurisdiction of the arbitrator,
firstly because the existence of the arbitration agreement is challenged, and
secondly, because the sole object of the application under section 33 of the
Arbitration Act is tO have the 511 effect of the arbitration agreement
determined. In our opinion, neither of these objections is sound. How can it be
held that the existence of the arbitration agreement is challenged, when both
parties admit that the clause in the policy which contains that agreement binds
them. It is neither party's case that there is no arbitration agreement in the
policy. On the ,:other hand, both parties admit that such agreement exists, and
each of them relies on it to support its case. It is true that the appellant
contends that the arbitration agreement has ceased to be applicable, but that
contention cannot be sustained without having recourse to the arbitration
agreement. It is said that the agreement no longer subsists, but that is very
different from saying that the agreement never existed or was void a initio and
therefore is to be treated as non-existent.
Again, no question of determining the effect
of the arbitration agreement arises, because there is no dispute between the
parties as to what it means. The language of the arbitration clause is quite
clear, and both, parties construe it in the same way. The real question between
them is whether the first respondent has or has not complied with the
conditions of the agreement. But this question does not turn on the effect of
the agreement. This is the view which has substantially been taken by the High
Court, and in our opinion it is correct.
The second point urged before us is that the
award is invalid, since it was made in spite of the court's injunction
directing the arbitrator not to pronounce any award.
This point however does not, in our opinion,
fall within the scope of this appeal. The application under section 33 of the
Arbitration Act, which is the subject of this appeal, was filed before the
award was pronounced. In that application, there is no reference to the award;
nor is there any reference to the circumstances which are now stated to
invalidate the award and which happened after the application was filed. The
learned counsel for the appellant made an application before us praying for the
amendment of the petition under section 38 by introducing certain 512
additional facts and adding a prayer for declaring the award to be invalid, but
it was rejected/by us. It should be stated that as early as the 24th March,
1950, the Subordinate Judge in dismissing the appellant's petition under
section 33, made the following observations :-"During the pendency of the
arbitration proceedings the arbitrator pronounced the award..... The award has
now been filed in the court of S. Mohinder Singh, Sub Judge, 1st class, Delhi.
Any objection against the award can be filed there. In this application in
which there is no prayer for setting aside the award, which exists, I do not
think it proper to decide the question of the validity of the award." In
our opinion, the Subordinate Judge correctly indicated the course which it was
open to the appellant in law to adopt for the purpose of questioning the
validity of the award, but not having taken that course and not having made any
application in the courts below for amending the petition under section 33, the
company cannot ask this court to go into the validity of the award by widening
the scope of the original petition. This court is always in favour of
shortening litigation, but it would be a very unusual step to allow the
petition under section 33 to be amended now and to decide a question involving
investigation of facts without having the benefit of the judgments of the courts
below.
In the result, the appeal fails and is
dismissed with costs.
Appeal dismissed.
Agent for the appellant: Ganpat Rai.
Agent for respondent No. 1.: S.D. Sekhri.
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