JUDGMENT

UNTWALIA, J.:— This appeal by special leave was filed by the Vulcan Insurance Co. Ltd. The general insurance business of the Company was nationalized during the pendency of this appeal and, therefore, in place of the original appellant was substituted United India Fire and General insurance Company Ltd. By order 28-2-l975 passed in CMP No. 84/1975. For the sake of facility hereinafter in this judgment by the appellant would be meant the original appellant company. The respondent No.1 in the appeal is Maharaj Singh, sole proprietor of Khatauli Manure Mills, Khatauli, District Muzaffarnagar. Respondent No. 2 is Punjab National Bank .

2. Respondent 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 stook 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.

3. 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 on 1-3-1963 and after. Respondent No, 2 claimed that due to fire he had suffered a loss of Rs. 24,800/- on account of damage to the fixed assets and Rs. 2,73,000.40 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 to him due to fire at Rs. 4,620/-. They however, added at the end of their letter,

"This is without prejudice to the terms and conditions of the policy and without any commitment of liability on the part of the Insurance Company:"

Further correspondence between the parties ensued and ultimately the appellant intimated to respondent No. 1 by its letter dated 5th July, 1963-

Referring to the previous correspondence relating to the above mentioned claim, we regret to inform you that we repudiate the claim under the above mentioned policies.

Respondent No.1 seems to have written a letter dated 22nd July, 1963 to the appellant, to which it sent a reply dated 29th July, 1963 categorically stating-

We are advised to repudiate your claim inter alia under Clause 13 of the Fire Policies. We regret that survey report and any other reports, cannot be furnished to you."

4. Respondent No, 1 thereupon wrote a letter dated 1-10-1963 to the 289 Insurance Company informing it that since it had repudiated his claim under Clause 13 of the Insurance policy a difference had arisen between the parties and hence respondent No. 1 proposed to appoint one Shri K. N. Bannerjee as the sole arbitrator, to decide the disputes as per the arbitration agreement incorporated in the policies. He said further that if the company was not agreeable to the appointment of Shri Bannerjee as the sole arbitrator, he may be treated as a nominee of respondent No, 1 and the company may appoint its own. In reply to the said letter dated the 1st October, 1963 the company wrote a letter dated 10th October, 1963 to respondent No, 1 that since it had repudiated his claim the arbitration clause in the policies was rendered inoperative and no arbitration proceeding could be commenced by appointment of any arbitrator.

5. Respondent No, 1 in the first instance filed the application under Sec 20 of the Arbitration Act, 1940 - hereinafter called the Act, on 20-1-1964 in the Court at Muzaffarnagar in Uttar Pradesh. The appellant appeared and, inter alia, took an objection to the jurisdiction of that Court to entertain the application. In view of a special clause in the