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1951 Supreme(P&H) 101
PUNJAB & HARYANA HIGH COURT
Kapur, J.
Chiranjiv Lal And Ors.
Versus
Tropical Insurance Co.Ltd.
First Appeal First Order No. 76 of 1950,
Decided On : JULY 12, 1951
A party cannot repudiate a contract and at the same time rely on a part of the contract, such as an arbitration clause, to its advantage.
Headnote:
ARBITRATION - STAY OF SUIT - INDIAN ARBITRATION ACT, 1940, SECTION 34 - CONDITION PRECEDENT - REPUDIATION OF CONTRACT - QUANTUM OF DAMAGES - JURISDICTION OF COURT.
Fact of the Case:
Plaintiffs filed a suit against the defendant insurance company for recovery of Rs. 1,00,000 under two insurance policies covering fire and explosion caused by riots or civil commotion. The company repudiated liability on the ground that the riot risk was not covered under the policy and had been terminated. The plaintiffs contended that the riot risk was covered and that the termination was not proper. The trial court stayed the suit under Section 34 of the Indian Arbitration Act, 1940, as the policies contained an arbitration clause.
Finding of the Court:
The High Court allowed the appeal and set aside the stay order. It held that there was no dispute as to the quantum of damages before the suit was brought, and therefore, nothing could be referred to arbitration. The defendant had repudiated the riot risk, and the arbitration clause did not cover such a dispute. The court also held that it was not a fit case for the exercise of jurisdiction under Section 34, and the defendant had not pleaded the condition precedent contained in the arbitration clause as a bar to the suit.
Issues: 1. Whether there was a dispute as to the quantum of damages before the suit was brought? 2. Whether the defendant had repudiated the riot risk and whether the arbitration clause covered such a dispute? 3. Whether it was a fit case for the exercise of jurisdiction under Section 34 of the Indian Arbitration Act, 1940? 4. Whether the defendant had pleaded the condition precedent contained in the arbitration clause as a bar to the suit?
Ratio Decidendi: 1. The court held that there was no dispute as to the quantum of damages before the suit was brought, as the defendant had not raised any objection to the amount of the claim before the suit was filed. Therefore, there was nothing to refer to arbitration. 2. The court held that the defendant had repudiated the riot risk by pleading that there was no such risk covered under the policy. The arbitration clause did not cover such a dispute, as it only applied to differences as to the amount of loss or damage. 3. The court held that it was not a fit case for the exercise of jurisdiction under Section 34 of the Indian Arbitration Act, 1940, as the defendant had repudiated the contract and the arbitration clause was not wide enough to cover the dispute. 4. The court held that the defendant had not pleaded the condition precedent contained in the arbitration clause as a bar to the suit, and in the circumstances of the case, the defendant was not entitled to ask that the question of damages be referred to arbitration.
Final Decision: The High Court allowed the appeal and set aside the stay order. The plaintiffs were awarded costs in both the High Court and the trial court.
Kapur, J.
1. This is a plaintiffs appeal against an order passed by Mr. Tara Chand Gupta, Subordinate Judge, Delhi, staying the suit under Section 34 of the Indian Arbitration. Act.
2. The plaintiffs took out two policies with the Tropical Insurance Company Limited, one on the 30th of April, 1947, for Rs. 80,000/- and the other on the 17th of April, 1947, for Rs. 20,000/-. They included risk against damage due to fire or explosion caused by persons taking part in riots or civil commotion. Two of the terms of these policies have been referred to in the course of arguments, They are Clauses 10 and 18:
"10. This insurance may be terminated at any time at the request of the insured, in which case the company will retain the customary short period rate for the time the Policy has been in force. This insurance may also at anytime be terminated at the option of the Company, on notice to that effect being given to the insured, in which case the Company shall be liable to repay on demand a rateable proportion of the premium for the unexpired term from the date of the cancelment."
"18. If any difference arises as to the amount of any loss or damage such difference shall independently of all other questions be referred to the decision of an arbitrator, to be appointed in writing by the parties in difference, or, if they cannot agree upon a single arbitrator, to the decision of two disinterested persons as arbitrators, of whom one shall be appointed in writing by each of the parties within two calendar months after having been required so to do in writing by the other party. In case either party shall refuse or fail to appoint an arbitrator within two calendar months after receipt of notice in writing requiring an appointment, the other party shall be at liberty to appoint a sole arbitrator; and in case of disagreement between the arbitrators, the difference shall be referred to the decision of an umpire who shall have been appointed by them in writing before entering on the reference and who shall sit with the arbitrators and preside at their meetings. The death of any party shall not revoke or affect the authority or powers of the arbitrator, arbitrators or umpire respectively; and in the event of the death of an arbitrator, or, umpire another shall in each case may be appointed in his stead by the party or arbitrators (as the case may be) by whom the arbitrator or umpire so dying was appointed. The costs of the reference and of the award shall be in the discretion of the arbitrator, arbitrators or umpire making the award. And it is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon the policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall be first obtained."
3. It is alleged that on the 24th of August 1947, the stocks were looted and the building burnt down, and therefore liability under the policies incurred. On the 31st of August 1947, a telegram was sent to the Company saying that the factory had been looted and asking for assessment to be arranged and this was affirmed by a letter. On the 1st of September 1947, the Tropical Insurance Company, hereinafter termed "the company" sent a letter to the plaintiffs repudiating any liability on the ground that the riot risk was not covered under the policy. This was reiterated in a letter of the 18th of September, 1947, which the Company wrote to the plaintiffs, who, however, did not accept this position of the Company and insisted that the riot risk was covered.
4. On the 1st of September, 1947, another letter was sent in which the Company stated that the riot risk was cancelled on the 14th of August and that a registered letter to this effect was sent to the last known address of the plaintiffs.
5. On the 29th September 1947, the plaintiffs wrote back to the defendant company that the two letters sent by them were contradictory, that no registered letter
