1975 (10) TMI 116 - SC - Indian Laws

Supreme Court: Dispute on Insurance Liability Not Arbitrable. Timely Legal Action Required.

Vulcan Insurance Co. Ltd Versus Maharaj Singh & Another

Vulcan Insurance Co. Ltd Versus Maharaj Singh & Another - 1976 AIR  287, 1976 SCR  (2) 62, 1976 SCC (1) 943 Issues Involved:1. Whether the repudiation of liability by the appellant under clause 13 of the Insurance Policy raised a dispute that could be referred to arbitration.2. Whether the claim of respondent no. 1 and the proceeding commenced by him were barred by clause 19 of the policy.Summary:Issue 1: Arbitrability of the Dispute under Clause 13The core issue was whether the repudiation of liability by the appellant under clause 13 of the Insurance Policy raised a dispute that could be referred to arbitration. The Supreme Court held that the dispute raised by the appellant company was not covered by the arbitration clause. The Court observed that the arbitration clause (Clause 18) was restricted to differences as to the amount of any loss or damage. Since the appellant repudiated its liability to pay any amount of loss or damage, the dispute was not about the amount but about the liability itself. Therefore, the arbitration clause did not apply. The Court emphasized that on rejection of the claim by the company, the insured must commence a legal proceeding within three months to establish the company's liability, as per clause 13. The Court cited various precedents, including *Scott v. Avery* and *Jureidini v. National British and Irish Millers Insurance Company, Limited*, to support its conclusion that the arbitration clause did not cover disputes regarding the insurer's liability to pay.Issue 2: Bar under Clause 19The Court did not find it necessary to decide whether the action commenced by respondent no. 1 under section 20 of the Arbitration Act, 1940, was barred under clause 19 of the policy. However, it noted that clause 19, which prescribes a period of twelve months for filing a claim, is not hit by section 28 of the Contract Act and is valid. The Court also mentioned that the period of three years prescribed in Article 137 of the Limitation Act, 1963, may apply to an application under section 20. The Court observed that the High Court was incorrect in its view that respondent no. 1's claim was not barred under clause 19 due to section 37(3) of the Arbitration Act. Ultimately, the Court concluded that the difference which arose between the parties on the company's repudiation of the claim 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.Conclusion:The Supreme Court allowed the appeal, set aside the judgments and orders of the lower courts, and dismissed respondent no. 1's application filed under section 20 of the Arbitration Act. The Court directed the parties to bear their own costs throughout.