Citation Codes

Equivalent Citations

citation codes

Case Number

Civil Revn. No. 1063 of 1963

Attorney(S)

M.M. Gujadhar
K.B.N. Singh and S.B.N. Singh
for Opposite Part

Judges

Ramratna Singh, J.

Acts

See more information ...

Smart Summary

Summary of the Opinion — Revision Against Order of Small Cause Court, Arrah

Factual and Procedural Background

This application challenges an order of the Small Cause Court Judge at Arrah which rejected objections raised by the defendants (petitioners). Petitioner No. 1 is an Insurance Company with its head office in Bombay and branches in Calcutta and Patna; Petitioners Nos. 2 and 3 are those branches. The opposite party (plaintiff) insured his car for the period 29 June 1962 to 28 June 1963. The car was damaged in an accident at Arrah on 6 November 1962 and sent to Messrs Lawly Sen & Co. for repairs. The repair estimate was Rs. 325/-, and the repair bill presented after a 10% discount was Rs. 296.63 nP., which the opposite party paid on 15 November 1962.

A dispute arose between the opposite party and the Insurance Company regarding the amount of repair cost. The opposite party instituted a Small Cause Court suit at Arrah to recover the difference. The petitioners-defendants filed a petition that the plaintiff could not proceed without referring the dispute to arbitration in accordance with the policy terms; subsequently the Company also filed a petition contesting the competence (jurisdiction) of the Small Cause Court. Both petitions were rejected by the learned Small Cause Court Judge, and this revision application followed.

Legal Issues Presented

Whether the dispute between the insured (opposite party) and the Insurance Company falls within the arbitration agreement contained in the insurance policy (Clause MV, Condition No. 7) and therefore whether proceedings in the Small Cause Court should be stayed under Section 34 of the Arbitration Act, 1940.
Whether the Small Cause Court at Arrah had jurisdiction to entertain a suit "on a policy of insurance" under Section 15 of the Provincial Small Cause Courts Act read with Article 34 of the Second Schedule thereto.
Whether the Insurance Company had waived its right to claim reference to arbitration by subsequent conduct (specifically by filing a second petition questioning jurisdiction after filing the Section 34 petition).
Whether the plaintiff was entitled to claim less than Rs. 300/- without recourse to arbitration in view of a policy term authorizing repairs where estimated cost did not exceed Rs. 300/-.

Arguments of the Parties

Petitioners' (Defendants') Arguments — as presented in the opinion

Relying on Section 34 of the Arbitration Act, 1940, the petitioners contended that the present dispute is covered by the arbitration agreement in the policy (Clause MV, Condition No. 7) and therefore the proceedings should be stayed pending arbitration.
The policy is subject to Clause MV; the conditions (including Condition No. 7) control all terms of Clause MV and thus "all differences arising out of this Policy" are referable to arbitration.
The Insurance Company entered appearance and on 5 April 1963 filed a petition under Section 34 stating it was ready and willing to conduct arbitration; it had not otherwise taken steps in the suit before filing that petition, so there was no waiver of the right to arbitrate despite later filing a jurisdiction petition.
Relying also on Section 15 of the Provincial Small Cause Courts Act read with Article 34 of the Second Schedule, they argued that a Small Cause Court cannot take cognizance of a suit based on a policy of insurance (i.e., this suit was founded on the policy).

Opposite Party's (Plaintiff's) Arguments — as presented in the opinion

The learned Advocate for the opposite party contended the dispute was beyond the ambit of the arbitration agreement and so not referable to arbitration.
It was argued that the petitioners (Insurance Company) had waived the right to claim reference to arbitration, pointing to subsequent conduct (the filing of a jurisdiction petition after the Section 34 petition).
Reliance was placed on Section 17 of the Provincial Small Cause Courts Act and the procedure under the Code of Civil Procedure to argue that objections under Section 34 or pleas regarding want of jurisdiction could not be raised before the defendant filed a written statement; Adam Sajan and Co. v. Asutosh Bandopadhya (AIR 1926 Cal 100) was cited in support of the contention that the suit was not based on the policy of insurance.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Gaya Electric Supply Co. Ltd. v. State of Bihar, AIR 1953 SC 182	Explains that a legal proceeding sought to be stayed under the arbitration statute must be in respect of a matter within the arbitration agreement; discusses how the scope of an arbitration clause is to be determined and quotes the two-part inquiry from Heyman v. Darwins (what the dispute is, and what disputes the clause covers).	The court relied on this authority to emphasize that whether the dispute is covered by the arbitration clause depends on the language of the arbitration clause and the circumstances; used to assess whether the present dispute falls within Clause MV's arbitration provision.
Heyman v. Darwins Ltd., 1942 AC 356	Sets out the analytical approach to decide whether a dispute falls within an arbitration clause (the two-part test referred to by Viscount Simon L.C.).	Cited within the Gaya Electric Supply decision and used by the court as part of the principle on determining the ambit of an arbitration clause.
Anderson Wright Ltd. v. Moran and Co., AIR 1955 SC 53	Discusses the conditions relevant to granting a stay under Section 34 of the Arbitration Act; identifies factors such as readiness to conduct arbitration and that it is not necessary that all listed conditions be fulfilled in a rigid manner.	The court applied the principles from this decision to hold that the Insurance Company had not waived the right to arbitration because it had filed the Section 34 petition promptly on 5 April 1963 and had stated readiness to conduct arbitration.
Middle East Trading Co., Bombay v. The New National Mills Ltd., Ahmedabad, AIR 1960 Bom 292	Referred to for principles related to arbitration/waiver (as noted by the opinion).	The court noted the decision was of assistance only in regard to principles but not directly decisive for the present facts.
Deluxe Film Distributors Ltd. v. Sukumar Kumar, AIR 1960 Cal 206	Referred to for principles relating to arbitration/waiver.	The court observed this decision was of no assistance except as to general principles.
Adam Sajan and Co. v. Asutosh Bandopadhya, AIR 1926 Cal 100	Cited by the opposite party to argue that the suit was not based on the policy of insurance and regarding applicability of procedural provisions (Article 34 of Sch. II).	The court found the facts of that case different and rejected the plea based on Article 34 of Schedule II on the grounds explained in the opinion; it did not accept the opposite party's reliance on that precedent for the present suit.

Court's Reasoning and Analysis

The court's analysis proceeded in multiple steps, applying statutory provisions, the terms of the insurance policy (Clause MV), and relevant precedents as follows:

Interpretation of Clause MV and Condition No. 7: The court observed that Clause MV (a printed form attached to the policy) contains several sections (I–III), headings "General Exceptions" and "No Claim Bonus", and eight conditions. The preamble states that the Policy and Schedule shall be read together and that defined expressions bear the same meaning throughout. Condition No. 7 expressly provides that "All differences arising out of this Policy shall be referred to the decision of an Arbitrator ..." and makes an award a condition precedent to any right of action against the Company. The court concluded that the conditions are part of Clause MV and control all terms of Clause MV to which the policy is subject; therefore differences in respect of any of the terms would be differences arising out of the policy and covered by the arbitration clause.
On the contention that Section I's term permitting repair without prior reference applied and removed any difference: The court rejected the opposite party's argument that the presence of a surveyor's inspection and advice to get the car repaired amounted to acceptance by the Company of the repair bill. The court also noted that the policy permitted authorization of repairs only when the estimated cost did not exceed Rs. 300/-, whereas the estimate in this case was Rs. 325/-. Although the final billed amount after discount was Rs. 296.63 nP., the court held that this reduced bill could not be equated with the "estimated cost" of repairs and thus the threshold in the repair authorization clause did not operate to take the dispute outside the arbitration clause.
Waiver and procedural conduct under Section 34 Arbitration Act: The petitioners filed an appearance on 5 April 1963 and, on the same date, filed a petition under Section 34 stating readiness to do everything necessary for proper conduct of arbitration and specifically referring to Condition No. 7. The court observed that the Insurance Company had not taken other steps in the suit after appearance and the Section 34 petition. Although the Company later (28 July 1963) filed a second petition questioning Small Cause Court jurisdiction, the court held that the later filing did not deprive the Company of the advantage of its earlier Section 34 petition and thus there was no waiver of the right to claim referral to arbitration.
Jurisdiction of Small Cause Court under Provincial Small Cause Courts Act: The court accepted the petitioners' contention based on Section 15 read with Article 34 of the Second Schedule that a Small Cause Court cannot take cognizance of a suit "on a policy of insurance." Because the plaintiff's claim for repair costs was made only on the strength of the policy, the court concluded that the Small Cause Court had no jurisdiction to entertain the suit. The opposite party's reliance on Section 17 and procedural arguments under the Code of Civil Procedure, and on Adam Sajan, were considered but the court found them inapplicable to the present facts.
Conclusion drawn from the above: Given that the dispute fell within Clause MV's arbitration clause and that the Small Cause Court lacked jurisdiction to hear a suit founded on the policy, the court held that the petitioners were entitled to a stay under Section 34 and that the proper course was to return the plaint to the plaintiff for presentation before the proper court.

Holding and Implications

Holding:

Application allowed; the order of the learned Small Cause Court Judge is set aside.

Direct consequences and procedural directions (implications):

The learned Small Cause Court Judge is directed to return the plaint to the plaintiff-opposite party for presentation before the proper court.
This direction is given without prejudice to the right of the Insurance Company to raise the question of arbitration in that proper court (i.e., the Insurance Company may still seek reference to arbitration under Condition No. 7 of Clause MV).
As regards the dispute before the Small Cause Court, the court held that the petitioners are entitled to a stay of proceedings so long as the difference is not referred to arbitration in accordance with the arbitration agreement.
There was no order as to costs in the revision (the opinion states "In the circumstances, there will be no order for costs").
The opinion does not purport to lay down any broader or novel precedent beyond the direct effect on the parties; it addresses the disposition of the plaint and the interplay between the arbitration clause and Small Cause Court jurisdiction in the facts of this case.

Result recorded in the opinion: "Petition allowed."

Show full summary ...

The New India Assurance Co. Ltd. And Others v. Kamta Singh Opposite Party.

1. This application is directed against an order of the Small Cause Court Judge of Arrah, rejecting certain objections of the defendants who are petitioners in the case. Petitioner No. 1 is an Insurance Company whose head office is in Bombay and branches in Calcutta and Patna. Petitioners Nos. 2 and 3 are those branches. The opposite party insured his car with the said Insurance Company against loss, damage or accident for the period from the 29th June, 1962 to 28th June 1963. The car met an accident at Arrah on the 6th November, 1962, and was damaged. It was sent for repairs to Messrs Lawly Sen and Co., who estimated the cost of repairs at Rs. 325/-. Messrs Lawly Sen and Co., repaired the car and gave the plaintiff a bill for Rs. 296.63 nP. after giving a discount of 10 per cent., to which the Insurance Companies are generally entitled, and the opposite party paid ‘lie said amount to the repairing Company under a Cash Memo dated the 15th November 1962.

2. There was some difference between the opposite party and the Insurance Company regarding the amount of the cost of repair., The opposite party, therefore, instituted a Small Cause Court suit at Arrah for recovery of the said amount. The petitioners-defendants appeared in the suit and filed a petition stating that the plaintiff could not proceed with the suit without referring the alleged dispute to arbitration in accordance with the terms of the policy of insurance. After some time, the Company also filed another petition contending that a Small Cause Court was not competent to take cognizance of such a suit. Both the petitioners were rejected by the learned Small Cause Court Judge; hence this application in revision.

3. In support of the first objection, Mr. Gujadhar who appeared for the petitioners relied on Section 34 of the Arbitration Act, 1940, which reads as follows:

“Where any party to an arbitration agreement or any person claiming under him commences any legal proceedings against any other party to the agreement or any person claiming under him in respect of any matter agreed to be referred, any party to such legal proceedings may, at any time before filing a written statement or taking any other steps in the proceedings, apply to the judicial authority before which the proceedings are pending to stay the proceedings; and if satisfied that there is no sufficient reason why the matter should not be referred in accordance with the arbitration agreement and that the applicant was, at the time when the proceedings were commenced, and still remains, ready and willing to do all things necessary to the proper conduct of the arbitration, such authority may make an order staying the proceedings”.

4. As has been held in Gaya Electric Supply Co. Ltd. v. State of Bihar, AIR 1953 SC 182:

“………from the language of the section, it is quite clear that the legal proceeding which is sought to be stayed must be in respect of a matter which the parties have agreed to refer and which comes within the ambit of the arbitration agreement. Where, however, a suit is commenced us to a matter which lies outside the submission, the Court is bound to refuse a stay. In the words of Viscount Simon L.C in Heyman v. Darwins Ltd., 1942 AC 356 the answer to the question whether a dispute falls within an arbitration clause in a contract must depend on (a) what is the dispute, and (b) what disputes the arbitration clause covers, if the arbitration agreement is broad and comprehensive and embraces any dispute between the parties ‘in respect of the agreement, or in respect of my provision in the agreement, or in respect of anything arising out of it, and one of the parties seeks to avoid the contract, the dispute is referable to arbitration if the avoidance of the contract arises out of the terms of the contract itself. Where, however, the party seeks to avoid the contract for reasons dehors it, the arbitration clause cannot be resorted to as it goes along with other terms of the contract. In other words, a party cannot rely on a term of the contract to repudiate it and still say the arbitration clause should not apply. It he relies upon a contract, he must rely on it for all purposes. Where, however an arbitration clause is not so comprehensive and is not drafted in the broad language which was used in the House of Lords case, namely, ‘in respect of’ any agreement, or ‘in respect of something arising out of it’, that proposition does not hold good. The arbitration clause is a written submission agreed to by the parties in a contract and like every written submission to arbitration must be considered according to its language and in the light of the circumstances in which it is made”.

5. Mr. Gujadhar argued that the present dispute comes within the ambit of arbitration agreement contained in the Policy of Insurance. The learned Advocate for the opposite party, however, contended that it was beyond the ambit of arbitration agreement. He further submitted that the petitioners have waived the right to claim reference to arbitration. A: the end of the Policy in question, it is noted that it is subject to “clause MV”, which is a printed form attached to the Policy.

6. Clause MV consists of several sections. Section I deals with loss or damage. Section II deals with liability to third parties, Section III deals with medical expenses. Thereafter, there is a heading “General Exceptions” and then a heading ‘No claim Bonus’. These are the terms in Clause MV, Thereafter, there are eight conditions. The preamble of the conditions read thus:

“This Policy and the Schedule shall be read together and any word or expression to which a specific meaning has been attached in any part of this Policy or of the Schedule shall bear the same meaning wherever it may appear.” Then are mentioned the eight different conditions of which condition No. 7 is relevant and reads as follows:

“All differences arising out of this Policy shall 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 Arbitrators one to be appointed in writing by each of the parties within one calendar month after having been required in writing so to do by either of the parties or in case the Arbitrators do not agree of an Umpire appointed in writing by the Arbitrators before entering upon the reference. The Umpire shall sit with the Arbitrators and preside at their meeting and the making of an Award shall be a condition precedent to any right of action against the Company. If the Company shall disclaim liability to the Insured for any claim hereunder and such claim shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration under the provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder”.

7. The conditions are also a part of the form called Clause MV: and the Policy subject to Clause MV. Hence, it is manifest that all the terms contained in Clause MV relate to this Policy and all differences in respect of any of the terms would be differences arising out of this policy. I am unable to adept the contention of the learned Advocate for the opposite party that section 1 in the form called Clause MV is not controlled by the conditions. These conditions, in my opinion, control all the terms of CLAUSE MV to which the policy itself is subject. The learned Advocate drew my attention to a term in section 1 according to which the insured “may authorise the repair of the Motor Car necessitated by damage for which the Company may be liable under this Policy provided that the estimated cost of such repair does not exceed Rs. 300/-.” He submitted that, inasmuch the repairing cost did not exceed Rs. 300/- in this case and, as stated in paragraph 4 of the plaint the surveyor of the Insurance Company had come to Arrah and inspected the damaged car on the 8th November, 1962, and advised the plaintiff to send a claim petition and to get the car repaired and send the bill, the insurer was competent to get the car repaired and there could be no question of difference between him and the Insurance Company. But the mere fact that the surveyor of the Company inspected the damage and advised the plaintiff to send the car for repairs does not amount to acceptance by the surveyor or the Company any amount charged for repairs. Further, in the instant case, the ‘estimated cost’ of repairs exceeded Rs. 300/-, as it was Rs. 325/-. Of course, Messrs Lawly Sen and Co. gave a discount of ten per cent., at the time of submission of the bill; but the reduced amount of Rs. 296.63 nP. could not be said to be the estimated cost of repair.

8. It was then argued on behalf of the opposite party that the Insurance Company had waived its right of getting the dispute referred to an arbitration under Section 34 of the Arbitration Act inasmuch as the Company had also filed a petition questioning the jurisdiction of the Small Cause Court. In Anderson Wright Ltd. v. Moran and Co., AIR 1955 SC 53 it was held that, in order that a stay may be granted under section 34, it is not necessary that the following conditions should be fulfilled: (1) the proceeding must have been commenced by a party to an arbitration agreement against any other party to the agreement; (2) the legal proceeding which is sought to be stayed must be in respect of a matter agreed to be referred; the applicant for stay must be a party to the legal proceeding and he must have taken no step in the proceeding after appearance and that he should satisfy the court not only that he is but also was at the commencement of the proceedings ready and willing to do every thing necessary for the proper conduct of the arbitration; and (4) the Court must be satisfied that there is no sufficient reason why the matter should not be referred to an arbitration in accordance with the arbitration agreement, it appears that the Insurance Company entered appearance in the suit on the 5th April 1963; and on the same date filed a petition raising an objection on the basis of S. 34. In paragraph 8 of that petition, the Company said that at all material times it was, and still was, ready to do everything necessary for the proper conduct of the arbitration that might be held in accordance with the terms and conditions of the insurance. In this petition, it has referred specifically to the arbitration clause contained in condition No. 7 of Clause MV. The Insurance Company had not taken any other step in that proceeding so far. On the 28th July 1963 however, the Insurance Company filed the second petition questioning the jurisdiction of the Small Cause Court. The filing of this petition more than three months after the first petition under Section 34 of the Arbitration Act cannot, in my opinion, deprive the Insurance Company of the advantage that it wants to take of Section 34 of the Arbitration Act. Hence there was no waiver on the part of the Insurance Company. The learned Advocate referred in this connection also to two other decisions, viz., Middle East Trading Co., Bombay v. The New National Mills Ltd., Ahmedabad, AIR 1960 Bom 292 and Deluxe Film Distributors Ltd. v. Sukumar Kumar, AIR 1960 Cal 206 but they are of no assistance except in regard to the principles. In view of the foregoing discussions, I am unable to agree with the learned Small Cause Court Judge that the plaintiff was entitled in the instant easel to claim less than Rs. 300/- without any recourse to arbitration; and the petitioners are entitled to stay and it is a fit case where the Court must stay; the proceedings in the suit so long as the difference is not referred to arbitration in accordance with the arbitration agreement contained in condition No. 7 of Clause MV.

9. Mr. Gujadhar then relied on Section 15 of the Provincial Small Cause Courts Act read with Article 34 of the Second Schedule thereto. These provisions lay down that a Small Cause Court cannot take cognizance of a suit “on a policy of insurance” which apparently means a suit based on the Policy of Insurance. He contended that, inasmuch as, the plaintiff-opposite party can claim the amount incurred in the repairs to his damaged car on account of the accident only on the strength of the Policy, and not independently of it, a Small Cause Court cannot take cognizance of the suit. This contention is well founded. The learned Advocate for the opposite party relied however, on Section 17 of the Provincial Small Cause Courts Act, which lays down that the procedure prescribed in the Code of Civil Procedure shall, save in so far as is otherwise provided by that Code or by this Act, be the procedure followed in a Court of Small Causes in all suits cognizable by it and in all proceedings arising out of such suits. He argued that the objection under Section 34 of the Arbitration Act or the plea regarding want of jurisdiction in the Small Cause Court could not be raised before the Insurance Company filed its written statement. But the Code of Civil Procedure does not lay down that such objections cannot be taken before the defendant files his written statement. He cited the decision in Adam Sajan and Co. v. Asutosh Bandopadhya, AIR 1926 Cal 100 in support of his contention that the present suit was not based on the Policy of insurance. The facts in that case were different and his Lordship rejected the plea based on Article 34 of Sch. II on the ground that the suit before his Lordship was really a suit for damages against the Secretary of State and in the alternative, for failure to ensure safe carriage of the articles by goods train. In view of what has been stated above, the Small Cause Court had no jurisdiction to entertain the present suit.

10. In the result, the application is allowed, the order of the court below is set aside and the learned Small Cause Court Judge shall return the plaint to the plaintiff-opposite party for presentation before the proper court, without any prejudice to the right of the Insurance Company to raise the question of arbitration in that Court. In the circumstances, there will be no order for costs.

BH/AGT/R.G.D

11. Petition allowed.

The New India Assurance Co. Ltd. And Others v. Kamta Singh Opposite Party.

Summary of the Opinion — Revision Against Order of Small Cause Court, Arrah

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Petitioners' (Defendants') Arguments — as presented in the opinion

Opposite Party's (Plaintiff's) Arguments — as presented in the opinion

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

The New India Assurance Co. Ltd. And Others v. Kamta Singh Opposite Party.

Comments