1982 Supreme(Cal) 31

High Court Of Calcutta
SABYASACHI MUKHERJI, SUHAS CHANDRA SEN
NATIONAL INSURANCE CO.LTD. - Appellant
Versus
PUNAM CHAND JAIN - Respondent
A. F. O. O.  10  Of  1980
Decided On : 02/04/1982

A clause in a policy of insurance providing for reference of dispute to arbitration and making the obtaining of an award a condition precedent to any liability or right of action against the insurer is not void under Section 28 of the Contract Act.

Headnote:

ARBITRATION - Award - Setting aside - Error apparent on the face of the record - Clause in the policy of insurance providing for reference of dispute to arbitration and making the obtaining of an award a condition precedent to any liability or right of action against the insurer - Whether the clause is void under Section 28 of the Contract Act - Whether the arbitrator committed an error of law in holding that the clause was violative of Section 28 of the Contract Act - Held, that the clause was not void under Section 28 of the Contract Act and the arbitrator committed an error of law in holding that the clause was violative of Section 28 of the Contract Act - Award set aside.

Fact of the Case:

The appellant issued a policy of insurance against burglary and house breaking in favour of the respondent. There was an endorsement in respect of the amount and schedule of the articles insured under the Policy. The Policy contained an arbitration clause which made the obtaining of an award a condition precedent to any liability or right of action against the society in respect of any such difference. On the 19th Mar., 1973 the alleged burglary in respect of this claim had taken place. On the 29th Mar., 1973 the respondent submitted a claim for Rupees 37,400 in respect of the alleged loss due in the said alleged burglary. By a letter dated 2nd May, 1973, the insurer, the appellant herein, repudiated the liability. On the 14th July, 1973, there was a letter from the insurer's lawyer reiterating the repudiation of liability. Three months thereafter, on 24th Oct., 1973, the respondent referred the dispute to arbitration and appointed one Sri S. M. Chowdhury, as his arbitrator and called upon the appellant to appoint their arbitrator. On the 25th April. , 1974 an order passed in an application under Section 20 of the Arbitration Act, 1940 filed by the respondent No. 1, being Special Suit No. 1 of 1974, and the said agreement was ordered to he filed in Court and an order of reference was made in terms of the arbitration agreement. On the 9th Mar., 1976 an order was made appointing Mr. P. K. Roy, Barrister-at-Law, as the sole Arbitrator on a further application of the respondent No. 1 in the said Special Suit No. 1 of 1974. On the 23rd Mar., 1976 the sole Arbitrator had entered upon reference. On the 11th May, 1976 the arbitrator settled the issues. In his award dated 21st July, 1977 the arbitrator observed, inter alia, as follows:"and whereas upon going through the respective pleadings of the claimant and the respondent No. 1 and hearing respective submissions on behalf of the said parties, I settled the issues on May 11, 1976 as set out hereinafter. ""thereafter on the 21st July, 1977, the Arbitrator made his award. In the said award, after reciting the necessary facts of his appointment and the order of the High Court and after setting out what we have set out before, the Arbitrator observed, inter alia, as follows : "and whereas by construing the printed Condition 10 of the relevant Policy of Insurance being No. CBB/16191 dated April 7, 1972 I have come to the conclusion that the Last Part thereof limits the time within which the Insured may enforce his right under the Policy and hence void to that extent under Section 28 of the Indian Contract Act, 1972. ""then, he proceeded to answer the issues. It is also material to set out the issues, which the arbitrator has answered in the award which reads as follow Issues. Answers"1. Is the alleged claim of the claimant not maintainable or enforceable or recoverable on the grounds alleged in para 2 of the Counter Statement of the respondent No. 1 ? No. The claim is maintainable. 2. His the claimant any cause of action for the present Arbitration proceedings ? Yes. 4. (i) Was there any burglary and house breaking committed as alleged in para 7 of the Statement of Facts ? Yes. (ii) If so, did the unknown miscreants take away alleged 400 Kgs. of Nylon Hosiery and Iron rods alleged to be weighing approximately 1 ton alleged to be lying and stored at claimant's factory premises as alleged in para 7 of the Statement of Facts ? Re : Nylon Hosiery -- Yes. Re : Iron Rods -- No finding is warranted. (iii) If so were the 400 kgs. of Hosiery and from Rods weighing approximately 1 ton the properties of the claimant as alleged in para 7 of the Statement of Facts ? Re : Iron Rods -- No finding is warranted re : Nylon Hosiery -- Yes. 5. Was the respondent No. 1's disclaimer and/or rejection of the claimant's claim by. inter alia, letters dated 2nd May, 1973, 24th May, 1973 and 14th July, 1973 wrongful as alleged in paras 9, 10 and 11 of the Statement of Facts ? Yes. 6. To what relief, if any, is the claimant entitled ? Rs. 37,400/- being the value of 400 Kgs. of Nylon Hosiery. In the premises, the arbitrator awarded a sum of Rs. 37,400/- in favour of the claimant against the insurer with a direction that each party will pay and bear his/its own cost of reference. On the 17th Dec. , 1977, notice under Section 14 (2) of the Arbitration Act was issued. The said notice was addressed to all the parties and was to the following effect : ""to : 1. Punak Chand Jain. 2. National Insurance Co. Ltd. "" ( 3 ) STATE Bank of Bikaner and Jaipur. Take notice that the Award of the Arbitrator appointed in the matter of the above Arbitration Agreement had been filed on the 8th day of Dec. , 1977 and that the Court will proceed to pronounce judgment on such Award on the 31st day of Jan. , 1978. Dated the 17th day of Dec. , 1977. "" the reason why we have set out before the said notice is that from the said notice, it appears that the award had been filed on the 8th Dec. , 1977 but the said notice dated 17th Dec. , 1977 under Section 14 (2) of the Arbitration Act was served upon the parties on the 19th Dec. , 1977. On the 18th Jan. , 1978, the petition for setting aside the award was affirmed and it was noted as made on the same day. Thereupon the matter came up for hearing after filing of the affidavit before the learned trial Judge and by a judgment delivered and order passed by the learned trial Judge dismissed the application and up-held the award. This appeal, as we have mentioned hereinbefore, is on the said judgment and order.

Finding of the Court:

1. The clause in the policy of insurance providing for reference of dispute to arbitration and making the obtaining of an award a condition precedent to any liability or right of action against the insurer was not void under Section 28 of the Contract Act. 2. The arbitrator committed an error of law in holding that the clause was violative of Section 28 of the Contract Act.

Issues: 1. Whether the clause in the policy of insurance providing for reference of dispute to arbitration and making the obtaining of an award a condition precedent to any liability or right of action against the insurer was void under Section 28 of the Contract Act? 2. Whether the arbitrator committed an error of law in holding that the clause was violative of Section 28 of the Contract Act?

Ratio Decidendi: 1. A clause in a policy of insurance providing for reference of dispute to arbitration and making the obtaining of an award a condition precedent to any liability or right of action against the insurer is not void under Section 28 of the Contract Act. 2. An arbitrator commits an error of law in holding that a clause in a policy of insurance providing for reference of dispute to arbitration and making the obtaining of an award a condition precedent to any liability or right of action against the insurer is violative of Section 28 of the Contract Act.

Final Decision: The award of the arbitrator was set aside.