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TMI Blog1975 (10) TMI 116X X X X Extracts X X X X X X X X Extracts X X X X ..... dent no. 1 carries a business of manufacturing Bone Manure etc. in his mills at Khatauli. He entered into an arrangement with respondent no. 2 for taking advance of money on the security of the factory premises, machineries and the stock of goods. A mortgage deed was executed by him in favour of the respondent bank for that purpose. The Bank insured the mortgage properties from time to time with the appellant company under three insurance policies, the terms governing the same being identical. A fire is said to have broken out in the factory premises of respondent no. 1 in the night between 28-2-1963 and 1-3-1963 The Bank informed the Insurance Company about the fire. Thereupon representatives of the Bank and the Insurance Company and some surveyors visited the factory premises of 1-3-1963 and after. Respondent no. 1 claimed that due to fire he had suffered a loss of ₹ 24,800/- on account of damage to the fixed assets and ₹ 2,730,004.40 due to damage caused to the stock of goods. Eventually M/s. R. K. Bhandari & Sons, Surveyors of the Insurance Company wrote a letter dated 26th April, 1963 to respondent no. 1 informing him that they had assessed the total damage caused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 19-5-1964 in the Delhi Court. Appellant resisted it. On reading clauses 13, 18 and 19 of the Insurance Policies which are in identical terms and on appreciation of the other materials in the case 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 clause 19, the petition was barred by limitation . On appeal by respondent no. 1 the Delhi High Court has held-(1) Clause 18, does not include in its scope all kinds of differences or disputes that may arise between the parties in respect of the subject matter of the insurance policies. The scope of clause 18 is restricted to differences as to the amount of loss or damage. (2) Yet reference to arbitration is not ousted and the arbitration clause covers the dispute even if the company has repudiated the claim in toto. (3) The arbitration clause 18 is inoperative unless the conditions contained in clause 19 are satisfied and (4) the condition aforesaid was satisfied because respondent no. 1 had co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y such arbitrator, or Umpire of the amount of the loss or damage if 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." The correspondence between the parties makes it clear that at one time the surveyors had assessed the damages at ₹ 4,620/- in their letter dated 26-4-1963. But the said assessment was, in express terms, without commitment of any liability on the part of the Insurance Company. The Company, however, completely repudiated the liability under clause 13. Although the surveyors in their letter dated 26-4-1963 had raised a dispute as to the amount of any loss or damage alleged to have been suffered by respondent No. 1, the appellant at no point of time raised any such dispute. The appellant company in its letter dated the 5th and the 29th July, 1963 repudiated the claim altogether. Under clause 13 the company was not required to mention any reason for rejection of the claim nor did it mention any. But the repudiation of the claim could not amount to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earned counsel placed reliance upon certain decisions of the courts in India as also ill England. We shall presently show that on the facts and in the circumstances of this A clause like the last part of clause 18 making the award a condition precedent to any right of action or suit first came up for consideration in the case of Scott v. Avery([1915] Appeal Cases, 499) and since then such clauses are Commonly called Scott v. Avery clauses. Generally it has been found that it the arbitration clause is couched in a comprehensive language taking within its ambit any kind of dispute arising under the policy, then obtaining of an award by arbitration is a condition precedent to the starting of any other legal proceeding. A clause like Scott v. Avery has repeatedly, been held to be a valid one. "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 pages 57, 58 of Russell on Arbitration, Eighteen Edition). The said statement of the law, however, has been made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant his client could not commence any legal proceeding without going to arbitration. Only two may be noticed here: In Viney v. Bignold (1888) 20 Queen's Bench Division, 171) it was 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 with out an award obtained in an arbitration it was not maintainable. It should, however, be noticed that the language of arbitration clause 21 in that case was wide enough to cover any dispute and from the facts stated in the judgment it is nowhere to be found that the dispute raised by the company was not covered by the arbitration clause. If the dispute is such that can go to arbitration then no, action or suit can be commenced without obtaining an award. But the condition of obtaining a award prior to any action or suit can never be attracted if the dispute raised cannot be referred to arbitration and has got to be determined in a legal proceeding. The other case is the decision of the House of Lords in Caledonian Insurance Company v. Andrew Gilmour([1893] Appeal Cases, 85). That was again a case of a comprehensive arbitration clause and thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability on the policy there is no obligation on the assured to arbitrate as to the amount before commencing an action on the policy." To the same effect is to be found the statement of the law at pages 328 to 332 in the Fourth edition of Welford & otter-Barry's Fire Insurance. Following the decision of the House of Lords in Jureidini's case (supra) a Bench of the Bombay High Court in The Eagle Star and British Dominions Insurance Company v. Dinanath and Hemraj(I. L. R. 47 Bombay 509) while interpreting an identical clause 13 said at page 521: "But in clause 13 there are various contingencies set out which is 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 gives a right of action, the period of limitation provided for the suit being filed 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... false claim. The learned judge thought that even the restricted arbitration clause covering only the difference as to the amount of any loss or damage was "wide enough to include a case of some loss or damage as well as a case of no loss or damage." 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 the 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. We do not propose, as it is not necessary, to decide whether the action commenced by respondent no. 1 under section 20 of the Act for filing filing of the arbitration agreement and for appointment of arbitrators was barred under clause 19 of the policy. It has been repeatedly held that such a clause is not hit by section 28 of the Contract Act and is valid; vide-T ..... X X X X Extracts X X X X X X X X Extracts X X X X
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