UNITED INDIA INSURANCE CO. LTD. & ANR. versus HYUNDAI ENGINEERING AND CONSTRUCTION CO. LTD. & ORS.

Citation: [2018] 12 S.C.R. 1085 · Decided: 21-08-2018 · Supreme Court of India · Bench: DIPAK MISRA · Disposal: Appeal(s) allowed

Cited by 4 judgment(s) · cites 1 · see the full citation network in Lexace

Judgment (excerpt)

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1085
UNITED INDIA INSURANCE CO. LTD. & ANR.
v.
HYUNDAI ENGINEERING AND CONSTRUCTION
CO. LTD. & ORS.
(Civil Appeal No. 8146 of 2018)
AUGUST 21, 2018
[DIPAK MISRA, CJI, A. M. KHANWILKAR AND
DR. D.Y. CHANDRACHUD, JJ.]
Arbitration and Conciliation Act, 1996 – s.11(4) and s.11(6)
– Arbitration clause – Examination of – Respondent No.3 awarded
a contract for  design, construction and maintenance of bridge to a
Joint Venture (JV) constituted by the Respondent Nos.1 and 2 –
After commencement of work, an insurance policy was obtained
from the appellants-insurer covering the entire project – During
construction, an accident occurred causing significant loss to the
contractor – A detailed claim for a sum was submitted by the JV to
the appellants – Appellants found the claim not payable – Dispute
arose between the parties – Respondent Nos.1 and  2 filed a
petition u/s. 11(4) & 11(6) of the Act for appointment of arbitrator,
which was allowed by the High Court – On appeal, held: The
subject clause 7 of the insurance 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 – Arbitration
clause has to be interpreted strictly and 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 and liability
should be unequivocally admitted by the insurer – That is the
pre-condition and sine qua non for triggering the arbitration
clause – On facts, the appellants completely denied their liability
and  repudiated the claim of the JV in the communication to the JV
– Thus, the dispute in question is non-arbitrable.
Allowing the appeal, the Court
HELD: 1. The arbitration clause has to be interpreted
strictly. The subject clause 7 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
 [2018] 12 S.C.R. 1085
  1085
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1086
SUPREME COURT REPORTS
[2018] 12 S.C.R.
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 well as the second paragraph of the same clause.
Thus 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. [Para 13] [1098-C-E]
2. The appellants completely denied their liability and
repudiated the claim of the JV (respondent Nos.1 & 2) in the
communication to them. The reasons mentioned in the
communications 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 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. Thus,  the dispute in question is
non-arbitrable and Respondent Nos.1 & 2 ought to have resorted
to the remedy of a suit. [Paras 14 and 15] [1099-C-F]
Oriental Insurance Company Limited  v. Narbheram
Power and Steel Private Limited (2018) 6 SCC 534
– relied on.
Duro Felguera, S.A. v. Gangavaram Port Limited
(2017) 9 SCC 729 ; Jumbo Bags Ltd. v. New India
Assurance Co. Ltd.  2016 SCC OnLine Mad 9141 ;
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1087
Vulcan   Insurance Co. Ltd.  v. Maharaj Singh and Anr.
(1976) 1 SCC 943 : [1976] 2 SCR 62 – referred to.
Case Law Reference
(2017) 9 SCC 729
    referred to
Para 1
(2018) 6 SCC 534
    relied on
Para 12
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