UNITED INDIA INSURANCE CO. LTD. & ANR. versus HYUNDAI ENGINEERING AND CONSTRUCTION CO. LTD. & ORS. on 21 August 2018

[2018] 12 S.C.R. 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 ANDDR. D.Y. CHANDRACHUD, JJ.]

Arbitration and Conciliation Act, 1996 – s.11(4) and s.11(6)– Arbitration clause – Examination of – Respondent No.3 awardeda contract for design, construction and maintenance of bridge to aJoint Venture (JV) constituted by the Respondent Nos.1 and 2 –After commencement of work, an insurance policy was obtainedfrom the appellants-insurer covering the entire project – Duringconstruction, an accident occurred causing significant loss to thecontractor – A detailed claim for a sum was submitted by the JV tothe appellants – Appellants found the claim not payable – Disputearose between the parties – Respondent Nos.1 and 2 filed apetition u/s. 11(4) & 11(6) of the Act for appointment of arbitrator,which was allowed by the High Court – On appeal, held: Thesubject clause 7 of the insurance policy was hedged with apre-condition expressly predicating that no difference or disputeshall be referable to arbitration, if the appellants disputed or didnot accept its liability under or in respect of the policy – Arbitrationclause has to be interpreted strictly and such an arbitration clausewill get activated or kindled only if the dispute between the partiesis limited to the quantum to be paid under the policy and liabilityshould be unequivocally admitted by the insurer – That is thepre-condition and sine qua non for triggering the arbitrationclause – On facts, the appellants completely denied their liabilityand 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 interpretedstrictly. The subject clause 7 is a conditional expression of intent.Such an arbitration clause will get activated or kindled only if thedispute between the parties is limited to the quantum to be paid

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Aunder the policy. The liability should be unequivocally admittedby the insurer. That is the pre-condition and sine qua non fortriggering the arbitration clause. To put it differently, anarbitration clause would enliven or invigorate only if the insureradmits or accepts its liability under or in respect of the concernedpolicy. That has been expressly predicated in the opening partBof clause 7 as well as the second paragraph of the same clause.Thus there can be no arbitration in cases where the insurancecompany disputes or does not accept the liability under or inrespect of the policy. [Para 13] [1098-C-E]

2. The appellants completely denied their liability andCrepudiated the claim of the JV (respondent Nos.1 & 2) in thecommunication to them. The reasons mentioned in thecommunications are specific. No plea was raised by therespondents that the policy or the said clause 7 was void. Theappellants repudiated the claim of the JV and denied theirDliability in toto under or in respect of the subject policy. It wasnot 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 liabilityto indemnify the loss as claimed by the JV, which falls in theexcepted category, thereby making the arbitration clauseEineffective and incapable of being enforced, if not non-existent.It is not actuated so as to make a reference to arbitration. Inother words, the plea of the appellants is about falling in anexcepted category and non-arbitrable matter within the meaningof the opening part of clause 7 and as re-stated in the secondFparagraph of the same clause. Thus, the dispute in question isnon-arbitrable and Respondent Nos.1 & 2 ought to have resortedto the remedy of a suit. [Paras 14 and 15] [1099-C-F]

Oriental Insurance Company Limited v. NarbheramPower and Steel Private Limited(2018) 6 SCC 534– relied on.G

Duro Felguera, S.A. v. Gangavaram Port Limited(2017) 9 SCC 729 ;Jumbo Bags Ltd. v. New IndiaAssurance Co. Ltd. 2016 SCC OnLine Mad 9141 ; UNITED INDIA INSURANCE CO. LTD. v. HYUNDAI ENGINEERINGAND CONSTRUCTION CO. LTD.

Vulcan Insurance Co. Ltd. v. Maharaj Singh and Anr.(1976) 1 SCC 943 : [1976] 2 SCR 62 – referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8146of 2018.

From the Judgment and Order dated 30.11.2017 of the High Courtof Judicature at Madras in O. P. No. 537 of 2017.

P. P. Malhotra, Ms. Meenakshi Arora, Sr. Advs., Mohit Paul, VineetMalhotra, Yasir Rauf, Vishal Gohri, Anugrah Niraj Ekka, ShubhenduKaushik, Aneesh Mittal, Ms. Shreya Sharma, Ms. Anupama Kaul,S. Ravi Shankar, Ms. Yamunah Nachiar, Ms. Bhanu Kapoor, Advs.for the appearing parties.

The Judgment of the Court was delivered by

A. M. KHANWILKAR, J. 1. The conundrum in this appeal iswhether clause 7 of the subject Insurance Policy dated 5[th] September,2007 posits unequivocal expression of the intention of arbitration or ishedged with a conditionality? The learned Single Judge of the HighCourt of Judicature at Madras vide impugned judgment and order dated30[th] November, 2017 in O.P. No.537/2017 had held that post amendmentof the Arbitration and Conciliation Act, 1966 (for short, “the Act”), witheffect from 23[rd] October, 2015 by insertion of sub-section 6A in Section11 of the Act, the limited mandate of the Court is to examine the factumof existence of an arbitration agreement. No more and no less. Thelearned Single Judge placed reliance on the two-Judge Bench decisionof 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, placedreliance on a three-Judge Bench decision of this Court in Oriental 1 (2017) 9 SCC 729

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

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AInsurance Company Limited Vs. Narbheram Power and SteelPrivate Limited,[3] where this Court had an occasion to construe a similarclause of an insurance policy as in the present case. Relying on thisdecision, it is urged that the impugned judgment cannot be countenancedand that the High Court ought to have dismissed the original petition filedBby the respondents under Sections 11(4) & 11(6) of the Act read withRule 2 of the Appointment of Arbitrators by the Chief Justice of MadrasHigh Court Scheme, 1996, to declare the arbitrator nominated by therespondents herein as the sole arbitrator; or in addition, appoint onearbitrator on behalf of the appellants herein so as to adjudicate all the disputes inter se between the parties in terms of the Act.C

2. Shorn of unnecessary facts, be it noted that the respondentNos.1 and 2 constitute a Joint Venture (“JV”). Respondent No.3 awardeda contract on 29[th] September, 2006 for design, construction andmaintenance of a bridge across the River Chambal, which was to becompleted within a period of 40 months and was commenced onD5[th] December, 2007 by the JV after respondent No.3 handed over thesite to it. After commencement of the work, a Contractor All RiskInsurance Policy (“CAR Policy”) dated 5[th] December, 2007 wasobtained from the appellants covering the entire project, valued atRs.2,13,58,76,000/-. The policy contained clause 7, which reads thus:

E“7. If any difference shall arise as to the quantum to be paidunder this Policy (liability being otherwise admitted) suchdifference shall independently of all other questions be referredto the decision of an arbitrator to be appointed in writing by theparties in difference, or if they cannot agree upon a singleFarbitrator to the decision of two disinterested persons asarbitrators of whom one shall be appointed in writing by each ofthe parties within two calendar months after having been requiredso to do in writing by the other party in accordance with theprovisions of the Arbitration Act, 1940, as amended from time totime and for the time being in force in case either party shallGrefuse or fail to appoint arbitrator within two calendar monthsafter receipt of notice in writing requiring an appointment the otherparty shall be at liberty to appoint sole arbitrator and in case ofdisagreement between the arbitrators, the difference shall be

referred to the decision of an umpire who shall have beenappointed by them in writing before entering on the reference andwho shall sit with the arbitrators and preside at their meetings.

It is clearly agreed and understood that no difference ordispute shall be referable to arbitration as herein beforeprovided, if the Company has disputed or not acceptedliability under or in respect of this Policy.

It is hereby expressly stipulated and declared that it shall be acondition precedent to any right of action or suit upon this policythat the award by such arbitrator, arbitrators or umpire of theamount of the loss or damage shall be first obtained.

It is also hereby further expressly agreed and declared that if theCompany shall disclaim liability to the insured for any claimhereunder and such claim shall not within 3 calendar monthsfrom the date of such disclaimer have been made the subjectmatter of a suit in a court of law, then the claim shall for allpurpose be deemed to have been abandoned and shall notthereafter be recoverable hereunder.”

3. During the construction of the bridge, on 24[th] December, 2009,an accident occurred causing significant loss to the contractor. Adetailed claim for a sum of Rs.1,51,59,94,543/- was submitted by the JVto the appellants, in response to which the appellants appointed oneMr. S. Ananthapadmanabhan, Surveyor and Loss Adjuster, forassessing the loss caused to the contractor. A final report was submittedby the Surveyor on 28[th] February, 2011 assessing the loss asRs.39,09,92,828/-, however, with the finding that the damage was onaccount of the faulty design and improper execution of the project andnot payable under the policy. Besides the stated report, a Committee ofExperts was set up by the Ministry of Road Transport and Highways,Government of India, to enquire into the accident which then submittedits report on 7[th] August, 2010.

4. The appellants took into account both these reports and videcommunication dated 21[st] April, 2011, intimated the respondents that theclaim put forth by the JV, was found to be not payable, and accordingly,stood repudiated. The said communication reads thus:

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“UNITED INDIA INSURANCE COMPANY LIMITEDDivisional Office:010700Post Box No.4528Ist Floor, Silingi BuildingGram UNDIVSEVEN134, Greams RoadPhone:28290845/846Chennai-600 006Telefax:044-28290844Ref.:010700/CAR Claim/201121[st] April, 2011

REGISTERED POSTWITH ACKNOWLEDGE DUE

M/s National Highways of Authority of India1-C-10 SFS ColonyTalwandi, KotaRajasthan-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-Collapseof Cable Stayed Bridge at Kota, Rajasthan.

We refer to the above claim lodged by you under your Contractor’sAll Risk Policy in respect of collapse of portion of bridge underconstruction on 24.12.2009.

You are aware that immediately on intimation of the occurrence,our Company had deputed Mr. S Ananta Padmanabhan, a dulylicensed and well experienced civil engineer surveyor for detailedsurvey as required by Insurance Act. The surveyor had visitedthe site on various occasions and was in contact andcorrespondence with you when various particulars, informationand records were obtained. Besides enquiries with you the surveyorhad also made other enquiries for information including theGovernment, Police Authorities and gathered reports of therespective agencies. After detailed survey, the surveyor hadsubmitted his Final Report dated 28.2.2011 in respect of the claim.

Besides the Survey Report, it also found that the occurrence wasthe subject matter of enquiry by a Special Committee constitutedby the Ministry of Road Transport and Highways, Govt. of Indiawhich 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 whichfell into the river.

On a careful study of the records it is found that the collapsedportion was affected entirely due to faulty design, besides defectiveworkmanship and materials in execution of the project. A few ofthe relevant factors are observed as under:- In execution of the project it is found that the junction at Pylon P4was most critical and vulnerable which had to be handled withdue care and diligence. An instable equilibrium had been causedat this junction, due to shearing of the slab in the lateral spanP3-P4 about 15 mts. From the P4 junction, which caused thetilting of the pylon, dragging with it the spans P3-P4, P3-P2 andPiers P3, P4. The release of restraints on the movement of thebearings at P4 had not been performed in manner necessary,contributing to a massive failure. Lack of coordination and planningbetween various consultants and failure to properly oversee theexecution had been found.

There had been change of allocation of work among various jointventure partners which had played a key role in the quality ofworkmanship. Even at the affected P4 location, construction ofPier P4 was the responsibility of Hyundai Engg. & ConstructionCo. Whereas it was found to have been carried out by GatnmonIndia.

There had also been change in the sequence of operations inconstruction to make up for lost time, which adversely affectedthe stability of the P4 joint.

The summary of the findings of the Enquiry committee is that thecollapse was caused, inter alia, by 1) absence of stability devicesduring construction, 2) shortfall in design and 3) deficientworkmanship.

The Enquiry Committee have more particularly observed that

a) the contractors are responsible for all during the structureto reach a vulnerable stage, without taking adequate precautionswith respect to stability and robustness of the partially completedstructure and shortfall in the design.

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Ab) Since they have been shortfalls at the design responsibilityalso lies with.

The available records and documents clearly reveal thatthe loss has occurred due to faulty design and defectiveworkmanship.

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We find that national Highways Authority of India have in factinitiated action by issue of show cause notice against theContractors.

The Kota Police had lodged FIR against various employees ofthe Contractors/Sub contractors and submitted final report whichsupports the above observations.

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The policy does not cover the loss in the abovecircumstances. In fact the policy specifically excludes anyloss/damage caused by faulty design, defectiveworkmanship/material. Further, the revelations of theexpert body and the surveyors indicate willful acts/negligence in execution of work of such nature resulting inthe occurrence.

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In view of the above, we regret to inform you that the claimis found to be not payable and accordingly stands repudiated.

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Insurers reserve their right to rely upon any further or othermaterials/terms in support of the above conclusion and the abovecircumstances are not exhaustive of the basis for the abovedecision.

Thanking You

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Yours faithfully

Sd/-

Senior Divisional Manager

Copy to:

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1) M/s Hyundai Engineering & Construction Co. Ltd & GammonIndia Ltd., Chambal Bridge Project. Behind Tilam Sangh, RawatBhata Road, Kota Rajasthan-324010.

2) Regional Office-Technical-Engineering Dept.

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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 theappellants 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 saidcommunication reads thus:

“UNITED INDIA INSURANCE COMPANY LIMITED

HEAD OFFICE 24, WHITES ROAD CHENNAICIN:U93090TN1938GOI000108

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

Dt:17.04.2017

To

KA: Mr. Anupam Gupta

The Project DirectorM/s National Highways Authority of IndiaProject Implementation UnitA-575, Talwandi, Kota (Rajasthan)-324005

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-05/3909dt. 18.01.2017 and Contractor letter Ref: HZ-6718, dated04.02.2017 and also the subsequent meeting held at our officeChennai. On perusal of the documents provided, we find that nofurther points have emerged in support of the claim.

In view of the above we regret our inability to reconsiderthe claim which was repudiated.

Yours faithfully

(D. Nagalakshmi)Dy. General Manager

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ACC: KA: Mr. Haeng Kwon Kang

The Chief Project ManagerHyundai Engineering & Construction Co. Ltd.Chambal Bridge Project, Behind Tilam SanghRawat Bhata Road, Kota Rajasthan-324 010"

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6. As a sequel, the JV vide its letter dated 29[th] May, 2017informed the appellants that disputes had arisen between the appellantsand the JV and in view thereof it was invoking the arbitration clauseNo.7 contained in the Insurance Policy and had nominated Dr. V.K.CAgrawal as its Arbitrator. The appellants were also called upon to eitheraccept the name of the sole arbitrator or nominate its own arbitratorwithin 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 beingO.P. No.537/2017.D

7. The said petition was resisted by the appellants. It was urgedthat the subject clause 7 of the policy was hedged with a pre-conditionexpressly predicating that no difference or dispute shall be referable toarbitration, if the appellants disputed or did not accept its liability underor in respect of the policy. In other words, in case of repudiation of theEclaim by the appellants, the remedy of the insured was to file a suitwithin 3 months of such disclaimer. It was asserted that the appellantshad repudiated the liability vide letter dated 21[st] April, 2011. That is anindisputable fact. The communication sent by the appellants on 17[th] April,2017 was a mere reiteration and confirmation of the repudiation alreadyFcommunicated vide letter dated 21[st] April, 2011. It was specificallydenied that the said letter dated 17[th] April, 2017 was a final repudiationfor the purpose of calculating limitation as alleged by the applicants(respondent Nos.1 & 2). It was urged that the dispute raised was notone of quantum to be paid under the policy but on the very factum ofalleged loss not covered under the policy. By virtue whereof, the agree-Gment specifically excluded making a reference to arbitration.

8. Notwithstanding the stand taken by the appellants, the learnedSingle Judge of the High Court by the impugned judgment allowed thepetition filed by respondent Nos.1 & 2 and appointed Mr. Justice P.

Jyothimani, Former Judge, High Court of Judicature, Madras to act asan Arbitrator in the matter, having opined that arbitration agreementexisted in the form of clause 7 of the Insurance Policy, by relying mainlyon the decision in Duro Felguera, (supra) and Jumbo Bags Ltd.,(supra).

9. We have heard Mr. P.P. Malhotra, learned senior counselappearing for the appellants and Ms. Meenakshi Arora, learned seniorcounsel appearing for the respondents.

10. The clause similar to the subject clause 7 of the InsurancePolicy came up for consideration before a three-Judge Bench of thisCourt in Oriental Insurance Company Limited (supra). After analysingthe legal principle expounded in a host of decisions, including thedecision in Jumbo Bags Ltd.(supra), the Court opined as follows:

“23. It does not need special emphasis that an arbitration clause isrequired to be strictly construed. Any expression in the clausemust unequivocally express the intent of arbitration. It can alsolay the postulate in which situations the arbitration clausecannot be given effect to. If a clause stipulates that undercertain circumstances there can be no arbitration, and theyare demonstrably clear then the controversy pertaining tothe appointment of arbitrator has to be put to rest.

24. In the instant case, Clause 13 categorically lays the postulatethat if the insurer has disputed or not accepted the liability, no differenceor dispute shall be referred to arbitration…..”

While adverting to the observation in paragraphs 28 and 32 of theJumbo Bags Ltd. (supra), the Court observed thus:

“19. We may presently refer to the decision of the Madras HighCourt in Jumbo Bags Ltd. In the said case, the learned ChiefJustice 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, beingnot covered by the clause cannot be over the subject-matter

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Aof arbitration, and the remedy of the insured in this case is onlyto institute a suit.’

And again : (SCC OnLine Mad para 32)

‘32. I am of the view that the remedy of arbitration is notavailable to the petitioner herein in view of the arbitration clauseBspecifically excluding the mode of adjudication of disputes byarbitration, where a claim is repudiated in toto. The remedy wouldthus only be of a civil suit in accordance with law.’

We concur with the said view.”

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11. The other decision heavily relied upon by the High Court andalso by the respondents in Duro Felguera (supra), will be of no avail.Firstly, because it is a two-Judge Bench decision and also because theCourt was not called upon to consider the question which arises in theDpresent case, in reference to clause 7 of the subject Insurance Policy.The exposition in this decision is a general observation about the effectof the amended provision and not specific to the issue underconsideration. The issue under consideration has been directly dealt withby a three-Judge Bench of this Court in Oriental Insurance CompanyLimited (supra), following the exposition in Vulcan Insurance Co. Ltd.EVs. Maharaj Singh and Anr.[4],which, again, is a three-Judge Benchdecision having construed clause similar to the subject clause 7 of theInsurance 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, 1963Fhad raised a dispute as to the amount of any loss or damagealleged to have been suffered by Respondent 1, the appellant atno point of time raised any such dispute. The appellantcompany in its letter dated July 5 and 29, 1963 repudiatedthe claim altogether. Under clause 13 the company was notrequired to mention any reason of rejection of the claimGnor did it mention any. But the repudiation of the claim couldnot amount to the raising of a dispute as to the amount ofany loss or damage alleged to have been suffered byRespondent 1. If the rejection of the claim made by the H4 (1976) 1 SCC 943

insured be on the ground that he had suffered no loss as aresult of the fire or the amount of loss was not to the extentclaimed by him, then and then only, a difference could havearisen as to the amount of any loss or damage within themeaning of clause 18. In this case, however, the companyrepudiated its liability to pay any amount of loss or damage asclaimed by Respondent 1. In other words, the dispute raised bythe company appertained to its liability to pay any amount ofdamage whatsoever. In our opinion, therefore, the dispute raisedby the appellant company was not covered by the arbitrationclause.

12. As per clause 13 on rejection of the claim by thecompany an action or suit, meaning thereby a legalproceeding which almost invariably in India will be in thenature of a suit, has got to be commenced within threemonths from the date of such rejection; otherwise, allbenefits under the policy stand forfeited. The rejection of theclaim may be for the reasons indicated in the first part of clause13, such as, false declaration, fraud or wilful neglect of the claimantor on any other ground disclosed or undisclosed. But as soon asthere is a rejection of the claim and not the raising of a dispute asto the amount of any loss or damage, the only remedy open to theclaimant is to commence a legal proceeding, namely, a suit, forestablishment of the company’s liability. It may well be that afterthe liability of the company is established in such a suit, fordetermination of the quantum of the loss or damage reference toarbitration will have to be resorted to in accordance with clause18. But the arbitration clause, restricted as it is by the useof the words ‘if any difference arises as to the amount ofany loss or damage’, cannot take within its sweep a disputeas to the liability of the company when it refuses to pay anydamage at all.”

Again in paragraph 22, after analysing the relevant judicialprecedents, the Court concluded as follows:

“22. The two lines of cases clearly bear out the two distinctsituations in law. A clause like the one in Scott v. Avery bars any

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Aaction or suit if commenced for determination of a dispute coveredby the arbitration clause. But if on the other hand a disputecropped up at the very outset which cannot be referred toarbitration as being not covered by the clause, then Scott v.Avery clause is rendered inoperative and cannot be pleadedas a bar to the maintainability of the legal action or suit forBdetermination of the dispute which was outside thearbitration clause.”

(Emphasis supplied)

13. From the line of authorities, it is clear that the arbitration clauseChas to be interpreted strictly. The subject clause 7 which is in parimateria to clause 13 of the policy considered by a three-Judge Bench inOriental Insurance Company Limited (supra), is a conditionalexpression of intent. Such an arbitration clause will get activated or kindledonly if the dispute between the parties is limited to the quantum to bepaid under the policy. The liability should be unequivocally admitted byDthe insurer. That is the pre-condition and sine qua non for triggering thearbitration clause. To put it differently, an arbitration clause wouldenliven or invigorate only if the insurer admits or accepts its liabilityunder or in respect of the concerned policy. That has been expresslypredicated in the opening part of clause 7 as well as the secondEparagraph of the same clause. In the opening part, it is stated that the“(liability being otherwise admitted)”. This is reinforced and re-stated inthe second paragraph in the following words:

“It is clearly agreed and understood that no difference or disputeshall be referable to arbitration as herein before provided, if theFCompany has disputed or not accepted liability under or inrespect of this Policy.”

Thus understood, there can be no arbitration in cases where theinsurance company disputes or does not accept the liability under or inrespect of the policy.G14.The core issue is whether the communication sent on

14. The core issue is whether the communication sent on21[st] April, 2011 falls in the excepted category of repudiation and denialof liability in toto or has the effect of acceptance of liability by theinsurer under or in respect of the policy and limited to disputation of

quantum. The High Court has made no effort to examine this aspect atall. It only reproduced clause 7 of the policy and in reference to thedictum in Duro Felguera (supra) held that no other enquiry can bemade by the Court in that regard. This is misreading of the said decisionand 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).

15. Reverting to the communication dated 21[st] April, 2011, wehave no hesitation in taking the view that the appellants completelydenied their liability and repudiated the claim of the JV (respondent Nos.1& 2) for the reasons mentioned in the communication. The reasons arespecific. No plea was raised by the respondents that the policy or thesaid clause 7 was void. The appellants repudiated the claim of the JVand 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 indemnifythe loss as claimed by the JV, which falls in the excepted category,thereby making the arbitration clause ineffective and incapable of beingenforced, if not non-existent. It is not actuated so as to make areference to arbitration. In other words, the plea of the appellants isabout falling in an excepted category and non-arbitrable matter withinthe meaning of the opening part of clause 7 and as re-stated in thesecond paragraph of the same clause.

16. In view of the above, it must be held that the dispute inquestion is non-arbitrable and respondent Nos.1 & 2 ought to haveresorted to the remedy of a suit. The plea of respondent Nos.1 & 2about the final repudiation expressed by the appellants videcommunication dated 17[th] April, 2017 will be of no avail. However,whether that factum can be taken as the cause of action for institutionof the suit is a matter which can be debated in those proceedings. Wemay not be understood to have expressed any opinion either way in thatregard.

17. Accordingly, we allow this appeal and set aside the impugnedjudgment and order and further dismiss the original petition No.537/2017filed by respondent Nos.1 & 2 before the High Court of Judicature at AB

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AMadras, with liberty to the said respondents to take recourse to a civilsuit for mitigation of its grievances, if so advised. We are not expressingany opinion either way on the merits of the issues to be answered in thesaid proceedings.

18. The appeal is allowed in the aforementioned terms with noBorder as to costs.

Ankit Gyan

Appeal allowed.

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