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Chiranjiv Lal v. Tropical Insurance Company Ltd.
Factual and Procedural Background
The plaintiffs purchased two fire insurance policies from Tropical Insurance Company Limited in April 1947 (one for Rs. 80,000 and the other for Rs. 20,000) which included cover for damage caused by persons taking part in riots or civil commotion. Clause 10 of the policies dealt with termination by either party on notice; Clause 18 required that "if any difference arises as to the amount of any loss or damage" the question of amount, if disputed, be referred to arbitration and that an award be a condition precedent to suit.
On 24 August 1947 the plaintiffs alleged their factory stocks were looted and the building burned. They notified the insurer by telegram on 31 August and by later letters. The insurer repudiated liability on 1 September 1947, stating the riot risk was not covered and later asserting that the riot risk had been cancelled on 14 August (a cancellation which the plaintiffs denied). The plaintiffs alleged "total loss" and requested settlement.
The plaintiffs sued the Company for Rs. 1,00,000 on 1 December 1947. On 22 January 1948 the defendants applied for a stay of the suit under section 34 of the Indian Arbitration Act, for the first time disputing the quantum and relying on Clause 18 to refer the amount of loss to arbitration. The Subordinate Judge granted a stay under section 34. The plaintiffs appealed; Kapur, J. heard the appeal and delivered the opinion summarized here.
Legal Issues Presented
- Whether Clause 18 (an arbitration clause requiring arbitration "if any difference arises as to the amount of any loss or damage" and making an award a condition precedent to suit) applies when no dispute as to the quantum of loss existed before the suit was instituted.
- Whether a repudiation of the contract by the insurer (i.e., denying liability or asserting the policy/cover was not in force) precludes the insurer from invoking the arbitration clause to obtain a stay of the suit.
- Whether the Court should exercise its discretion under section 34 of the Indian Arbitration Act to order a stay where (a) the only matter said to be arbitrable is quantum and (b) liability (or the existence of the contract/cover) is contested.
- Whether the insurer's failure to plead the arbitration clause's condition precedent (the award) as a bar to the suit affects the availability of a stay under section 34.
Arguments of the Parties
Appellant's (Plaintiffs') Arguments
- No dispute as to the amount of damages had arisen prior to the filing of the suit; therefore Clause 18 (the arbitration clause) did not apply because arbitration presupposes an existing dispute as to quantum.
- Reliance on several authorities (cited in the opinion) to the effect that an arbitrator has jurisdiction only if a dispute exists before submission to arbitration.
- Where the insurer has repudiated liability (i.e., denied the validity of the claim/policy), the insurer cannot invoke the arbitration clause selectively; repudiation that goes to the root of the contract precludes relying on the arbitration clause to bar a court action (relying on Jureidini and related authorities).
- Further, it was pointed out that the insurer had not challenged the amount of the loss prior to suit (no objection to quantum raised before suit), and in any event the insurer had not pleaded the condition precedent (award) as a bar to the suit in its written statement.
Respondent's (Defendant/Insurer) Arguments
- By application under section 34 the defendants contended that Clause 18 required that any dispute as to the amount of loss be referred to arbitration and that they were ready and willing to refer the damages question to arbitration; therefore a stay should be ordered.
- In the written statement the defendants pleaded (a) that the riot and civil commotion risk was terminated (i.e., cancelled) and (b) that the plaintiff's loss had been fraudulently exaggerated.
- Respondent's counsel argued that Clause 10 permitted termination of the riot risk by notice and that the Company had validly terminated the risk; on that basis the Company maintained it could deny liability and still require arbitration of amounts.
- It was also argued that the quantum of damages was a sine qua non of the plaintiffs' right to sue under Clause 18 and thus the amount should first be determined by arbitration.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Dawoodbhai Abdulkader…Plaintiff; v. Abdulkader Ismailji…Defendant, A.I.R 1931 Bom. 164 | Where existence of a difference or dispute is an essential condition of an arbitrator's jurisdiction, no arbitration clause excludes action if there is no point for the arbitrator to decide. | Used to support the proposition that since no dispute as to quantum existed before the suit, Clause 18 did not operate to oust the court's jurisdiction. |
| L. & N.W and G.W Joint By. Company v. J.H Billington Ltd., 1899 A.C. 79 | An arbitrator's jurisdiction requires that the asserted difference must have arisen before submission to arbitration; a stay is improper if no such pre-existing difference existed. | Quoted (Lord Halsbury) to reinforce that a difference must have arisen before submission; applied to hold no stay where no pre-suit dispute on quantum existed. |
| Field v. Longden & Sons, 1902 1 K.B. 47 | Condition precedent to arbitration under statute or contract: a question must have arisen and must not have been settled by agreement; no subject-matter for arbitration if no question has arisen. | Relied upon to hold that no arbitration jurisdiction arose because no question as to quantum existed before suit. |
| Veelchand Chhaganlal v. Lieut. Liston, I.L.R. 38 Bom. 638 | Where there is no point of difference between the parties, no dispute as to amount can be referred to arbitration. | Applied as authority for the proposition that arbitration cannot be invoked where no dispute as to amount existed pre-suit. |
| Uttam Chand Saligram v. Jewa Mamooji, I.L.R. 46 Cal. 534 | Existence of a dispute is an essential condition for arbitrator's jurisdiction; absent dispute, no jurisdiction. | Used to support the holding that Clause 18 was inapplicable without a pre-existing dispute as to quantum. |
| Ladha Singh Bedi v. Kalyani Prasad Singh Deo, I.L.R. 1939 2 Cal. 181 | An arbitration presupposes a dispute; if there is no dispute the stay of a suit should be refused. | Relied upon as an established principle that arbitration requires a dispute and that a pending suit should not be stayed where no dispute exists. |
| Jureidini v. National British and Irish Millers Insurance Co. Ltd., 1915 A.C. 499 | If an insurer repudiates the contract (denies liability on grounds going to the root of the contract), it cannot then rely on an arbitration clause in the contract to bar an action to enforce the claim. | Applied directly: because the defendants repudiated the riot-risk coverage, they could not both repudiate liability and insist on the arbitration clause to obtain a stay. |
| Macaura v. Northern Assurance Co. Ltd., 1925 A.C. 619 | Defendants who repudiate the whole contract cannot at the same time require performance of a part (such as arbitration) that presupposes liability; arbitration clause cannot be used inconsistently with repudiation. | Quoted to illustrate that repudiation of the contract removes the arbitration benefit; cited to show that arbitration cannot be used to frustrate the consequences of repudiation. |
| Heyman v. Darwins' Ltd., 1942 A.C. 356 | Arbitration clause limited to differences as to amount; does not apply to a claim rejected altogether; majority held clause inapplicable where no difference arose under the terms of the clause. | Relied upon (and distinguished) to support the view that Clause 18 applied only to disputed amounts and not to a denial of liability; the present case fell within the rationale of Jureidini (repudiation) rather than Heyman. |
| Toller v. Law Accident Insurance Society Ltd., 1936 2 All E.R. 952 | Where repudiation is asserted, the plaintiff need not be compelled to submit to arbitration under a clause contained in a contract the existence or continuing operation of which is denied. | Cited to support the proposition that repudiation prevents enforcement of arbitration as a bar to suit. |
| O'Connor v. Norwich Union Insurance Society, 1894 2 Ir. R. 723 | Where no difference in the adjustment of loss had arisen, a stay must be refused even where an arbitration clause refers to adjustment of loss; arbitration inapplicable if no dispute existed. | Invoked to show that a stay was inappropriate because the only matter said to be arbitrable (adjustment/amount) had not been disputed before suit. |
| Shriram Hanutram v. Mohan Lal & Co., A.I.R. 1940 Bom. 93 | If the fact of the contract itself is disputed, arbitrators cannot decide that point and the Court in the normal course would refuse a stay. | Applied to hold that because the defendant disputed the existence/continuing operation of the riot-risk cover, the court should refuse a stay. |
| Bristol Corporation v. John Aird & Co., 1913 A.C. 241 | Where action embraces several items some of which arbitrator is disqualified from deciding, the court may allow action to proceed on those items and refer the others to arbitration; court can refuse a full stay. | Used to justify refusal of stay where only quantum was arbitrable and liability remained for the court to decide; supports partial adjudication by court instead of a stay. |
| Singaran Goal Syndicate Ltd. v. Balmakund Marwari, A.I.R. 1931 Cal. 772 | An action can proceed as to matters not referred to arbitration. | Relied upon to support allowing court proceedings to continue on issues not covered by the arbitration clause (for example, liability or termination). |
Court's Reasoning and Analysis
Kapur, J. conducted a stepwise analysis grounded in the terms of the policy (Clauses 10 and 18), the facts (timing of communications, alleged repudiation/cancellation, and the absence of any pre-suit challenge to quantum), and settled authorities on the scope and operation of arbitration clauses.
- Scope of Clause 18 and requirement of a pre-existing dispute: Clause 18 applied "if any difference arises as to the amount of any loss or damage" and made an arbitral award a condition precedent "if disputed." The court examined whether a dispute as to quantum had arisen prior to the suit. Finding that no difference as to amount had been raised by the defendants before the suit (the Company had repudiated liability rather than contested quantum), the court held there was nothing to refer to arbitration. The court relied on multiple authorities to support the proposition that arbitration presupposes a pre-existing dispute and that absent such a dispute an arbitration clause does not oust the court's jurisdiction.
- Repudiation of the contract by the insurer: The insurer had taken a twofold position in September 1947 — that the riot risk was not covered and that, alternatively, it had been cancelled. The court treated this as a repudiation going to the root of the contract with respect to riot risk. Applying Jureidini and related decisions, the court held that a party which repudiates the contract cannot retain the benefit of the arbitration clause selectively; repudiation precludes reliance on the clause to bar an action.
- Discretion under section 34 and separability of issues: Even assuming section 34 and the clause might be engaged, the court considered whether it should exercise its discretion to stay proceedings. Authorities and text cited indicated the court may refuse a stay where a substantial part of the claim is outside the submission, where liability (not merely quantum) is in dispute, or where the arbitration could deal only with quantum and not liability. Because the present dispute included denial of liability/termination (a matter for the court) and because the only arbitrable matter (quantum) had not been disputed pre-suit, the court concluded it should not order a stay.
- Pleading of the condition precedent: The defendants had not pleaded the award-as-condition-precedent (Clause 18) as a bar in their pleading. The court noted this omission, and, combined with repudiation and absence of pre-suit dispute on quantum, found no basis for a stay under section 34.
- Conclusion of law applied to facts: On these bases the court concluded the trial judge erred in ordering a stay and that the proper course was to set aside the stay and permit the suit to proceed in the trial court.
Holding and Implications
Holding: Appeal allowed; the order staying the suit under section 34 of the Indian Arbitration Act is set aside.
Direct consequences and orders made by the court (as stated in the opinion):
- The learned Judge's order granting a stay was held to be in error and was set aside.
- The plaintiff was awarded costs in the High Court and in the courts below.
- The parties were directed to appear in the trial Court on 30 July 1951, and the case was directed to be heard at an early date and finished as soon as possible.
Broader implications: The opinion applies established authorities concerning the scope of arbitration clauses and repudiation; it does not purport to create novel precedent beyond applying those principles to the present facts.
Kapur, J.:— 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 any time be terminated at the option of the Company, on notice 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. 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.
4. 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 had been received and that the policies could not be terminated at least not without proper notice, and informed them that they will have recourse to a court of law if their claim was not settled. On the same day by another letter the plaintiffs informed the Company that the whole factory had been burnt down and looted and that there was a “total loss” and asked them to arrange for an early settlement of their claim. Nothing has been shown on this file that the Company ever challenged the amount of the loss before the suit was brought.
5. On the 1st of December, 1947, the plaintiffs brought a suit against the Company for recovery of Rs. 1,00,000 basing their claim on the policies of insurance. On the 22nd of January, 1948, the defendants made an application under section 34 of the Indian Arbitration Act in which, for the first time, they disputed the amount of loss or damage and stated that under clause 18 of the conditions of the policy the amount of loss was to be determined by arbitration and alleged that they were ready and willing to refer the question of damages to arbitration and asked for stay under section 34 of the Indian Arbitration Act. In this connection I may also refer to the written statement of the defendant-company. In paragraph 6 they pleaded that the riot and civil commotion risk was terminated and in paragraph 7 they stated that the loss had been fraudulently exaggerated. The Court as I have said above stayed the proceedings under section 34 of the Indian Arbitration Act.
6. In appeal it is submitted in the first instance that there was no dispute raised as to the quantum of damages before the suit was brought and therefore there was nothing which could be referred to arbitration. In the 18th clause of the conditions of the policy it is stated that “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”. Towards the end of this clause it is stated that to a right of action or suit upon the policy award of an arbitrator is a condition precedent and the amount of loss or damage, if disputed, has to be determined by an arbitrator in the first instance. The argument submitted is that as there was no difference between the parties as to the amount of damage nothing could be referred to arbitration and the condition precedent also was not operative because the determination of the loss or damage could only be made if there was a dispute. Reliance is placed on Dawoodbhai Abdulkader…Plaintiff; v. Abdulkader Ismailji…Defendant. . A.I.R 1931 Bom. 164., where it was held that if the existence of a difference or dispute is an essential condition for the arbitrator's jurisdiction and if there is no point for the arbitrator to decide, then a clause such as the one now in the present case would not exclude an action. In L. & N.W and G.W Joint By. Company v. J.H Billington, Limited . 1899 A.C 79., the Railway Company was empowered to charge a reasonable sum for services rendered to a trader, and there was a provision to the following effect:—
“any difference arising under this section shall be determined by an arbitrator to be appointed by the Board of Trade.”
7. The Company sued the trader for services rendered and a stay was applied for. It was held that as there was no difference existing between the parties before the action was brought the arbitrator had no jurisdiction in the matter. Lord Halsbury observed at p. 81 as follows:—
“It would be a condition precedent to the arbitrator entering upon any form of inquiry there that the person who insisted that there was a difference should show that the difference had arisen before the submission to arbitration was made. That is a matter which has been repeatedly decided, and I should think that no lawyer would hesitate to say that is the true condition of the law.”
8. In Field v. Longden & Sons . 1902 1 K.B 47., a workman, who was incapacitated from work due to an accident, received weekly payments by way of compensation. The employers promised to continue to pay him the weekly payments during the period of his incapacity, but the workman nevertheless filed a request for arbitration in the County Court under section 1, sub-section (3) of Workmen's Compensation Act which provided that if any question arises in proceedings under the Act regarding the liability to pay compensation, or the amount or duration of compensation, the question, if not settled by agreement shall be settled by arbitration. The Court of appeal held that under the terms of that sub-section it was a condition precedent to the right to proceed to arbitration, that a question should have arisen as to compensation, and the question should not have been settled by agreement. Upon the facts of the case it appeared that no question had ever arisen, and that there was no subject-matter for arbitration and therefore the County Court Judge had no jurisdiction to make an award.
9. In Veelchand Chhaganlal v. Lieut. Liston . I.L.R 38 Bom. 638., it was held that as there was no point of difference between the parties no dispute as to the amount of installment could be referred to arbitration.
10. In Uttam Chand Saligram v. Jewa Mamooji . I.L.R 46 Cal. 534., it was held that the existence of a dispute was an essential condition for the arbitrator's jurisdiction; there was no jurisdiction where there was no dispute between the parties.
11. Ladha Singh Bedi v. Kalyani Prasad Singh Deo . I.L.R 1939 2 Cal. 181., was then referred to. At p. 191, Mitter, J., observed:
“On an analogous principle the stay of a suit will have to be refused if there could not be an arbitration at all. An arbitration presupposes a dispute or difference between the parties and, if there is no dispute or difference, there is no occasion for an arbitration, and a pending suit between the parties ought not to be stayed in such a case.
This is a principle well established.”
12. I hold therefore that as there was no point of difference before the filing of the suit as to the amount of damages which the plaintiff had suffered, there was nothing to refer to arbitration.
13. The defendant-company by its letter in September 1947 took a twofold position (1) that the policy did not cover riot risk at all and (2) that it had subsequently been put an end to. Mr. Mahajan submitted that if there was a repudiation of the contract, then no question of arbitration could arise, and he relied on a judgment of the House of Lords in Jureidini v. National British and Irish Millers Insurance Company, Limited . 1915 A.C 499.. The facts of that case are not very dissimilar to the present one. A claim was made for indemnity for the loss of goods by fire under a policy, one of the conditions of which provided that if any difference arose as to the amount of loss, such difference should be referred to arbitration, and it was a condition precedent to the right to bring an action that the award of the arbitrator of the amount of the loss if disputed should be first obtained. It was held that the repudiation of the claim on the ground going to the root of the contract precluded the company from pleading the arbitration clause as a bar to an action to enforce the claim. In that case also there was a long correspondence with a view to settling the claim of the insured and proving the amount of the loss and a claim was made by the agent of the insured for a sum of £. 6250. The Insurance Company refused to admit the claim and after further correspondence definitely informed the insured that it totally rejected the claim. Lord Haldane L.C, observed at page 505:—
“But the present case, as I have already pointed out, is different; there has been in the proceedings throughout a repudiation on the part of the respondents of their liability based upon charges of fraud and arson, the effect of which, if they are right, is that all benefit under the policy is forefeited. But one of the benefits is the right to go to arbitration under this contract, and to establish your claim in a way which may, to some people, seem preferable to proceeding in the Courts; and accordingly that is one of the things which the appellants have, according to the respondents, forefeited with every other benefit under the contract. * * * * * When the case went to trial it was heard before Darling J. and a special jury; and the jury found that the case of fraud and arson had broken down; they found for the plaintiffs upon those issues, and the learned Judge gave judgment, not that the case should go to arbitration, but for £. 3000 and I think that was probably right, the arbitration clause having gone with the repudiation.”
14. Lord Dunedin at p. 507 said:—
“I think it is perfectly clear that article necessarily refers to an existing difference, not an historical difference; and it seems to me that when the attitude was taken up by these parties, which was taken up in the letters which have been read to us which the Lord Chancellor has referred to, in England,—that they repudiated the claim altogether and said that there was no liability under the policy; that necessarily cut out the effect of clause 17 as creating a condition precedent against all forms of action.”
15. This case was considered in another case by the House of Lords in Macaura v. Northern Assurance Company, Limited . 1925 A.C 619.. At p. 631 Lord Summer said:—
“There persons, who had repudiated the whole contract of insurance, afterwards relied on a limited arbitration clause contained in it, which required the amount payable to be determined by arbitration, and said that, until he had obtained such an award, the plaintiff could not complete his case. It was held that the defendants could not both repudiate the contract in toto and require the performance of a part of it, which only became performable when liability was admitted or established. The present case is the converse.”
16. Once again Jureidini's case was considered by the House of Lords in Heyman v. Darwins' Limited . 1942 A.C 356.. Viscount Simon L.C, referring to the Jureidini's case said at pp. 364 and 365:—
“But the arbitration clause in the policy was not framed so widely. It applied ‘if any difference arises as to the amount of any loss or damage,’ and provided that ‘it shall be a condition precedent to any right of action or suit upon this policy that the award by such arbitrator, arbitrators, or umpire of the amount of the loss or damage if disputed shall be first obtained.’ Lord Dunedin pointed out that the arbitration clause only applied to differences as to amount of loss, and, therefore, not to a claim which the respondent rejected altogether, whatever the loss might be. Lord Atkinson rested his judgment on this last point alone. Lord Parker concurred without distinguishing reasons. Lord Parmoor said expressly that no difference had arisen as regards matters which could come for decision under the arbitration clause and that consequently the clause had no application. It is on this second ground that I think the majority of the House should be regarded as having decided the appeal.”
17. In Toller v. Law Accident Insurance Society, Limited . 1936 2 All. E.R 952., referring to Juredini's case, Scott, L.J, said at p. 958:—
“Where the repudiation is to either No. 1 or No. 2, I think the principles upon which Jureidini's case was decided entitled the plaintiff to say You cannot impose upon me a arbitration clause as a written submission in a contract which you either say never came into existence or have wholly repudiated.”
18. In the present case the defendants have repudiated the contract in regard to the riot risk. In other words, their plea was that there was no contract at all between the parties. In these circumstances it is not open to them to repudiate the contract and yet to take advantage of that portion of the contract which refers to arbitration for the purpose of determination of the quantum of damages. As a matter of fact, Jureidini's case would also apply to the first point which I have considered above that as no difference had arisen in regard to the damages the clause was inapplicable and Lord Parmoor's speech is particularly relevant to that portion of the case.
19. It was next submitted that this is not a case in which the Court should exercise its jurisdiction to order stay of the proceedings even if section 34 is applicable to the facts of this case. Counsel relied on the observations of the Lord Chancellor in Macaura's case in Macaura v. Northern Assurance Co. Ltd. where it was indicated by his Lordship that conditions precedent such as contained in the present contract may be a defence to a suit but cannot be used for the purposes of stay. He next referred to a passage from Russel's Law on Arbitration at page 74 where it has been said—
“Further, the Court will exercise its discretion and refuse to stay the action in cases where a substantial part of the claim does not fall within the submission, and cannot conveniently be separated; or where the arbitrator can only decide the quantum of amount and not the liability (O'Connor v. Norwich Union & Co. . 1894 2 Ir. R. 723., London & North Western and Great Western Rail, Co. v. Billington).”
20. In O'Connor v. Norwich Union Insurance Society, a fire policy contained a condition that if any difference arose in the adjustment of a loss the amount to be paid should be submitted to arbitration and that the assured should not be entitled to commence or maintain any action upon the policy until the amount of the loss had been so ascertained. There was a loss admittedly in excess of the amount of the policy, the only matter in dispute being whether the assured had violated another condition of the policy. An application to stay an action on the policy being made, it was held that, no difference in the adjustment of the loss having arisen, a stay must be refused.
21. In Shriram Hanutram v. Mohan Lal & Co. . A.I.R 1940 Bom. 93., Kania, J., observed at page 94—
“If the fact of the contract itself is disputed the arbitrators cannot decide the point, and the Court in the normal course would refuse a stay.”
22. In the present case the defendant company had repudiated the riot risk firstly on the ground that the policy did not cover such a risk and secondly that subsequently it had been put an end to under the provisions of one of the conditions of the policy itself. In these circumstances in my opinion no ground has been made out for ordering the stay of the proceedings:
23. In any case no stay can be ordered where the only matter which is the subject-matter of arbitration is the quantum of damages and not the liability to pay damages. In this connection counsel relied on a judgment of the House of Lords in Bristol Corporation v. John Aird & Co. . 1913 A.C 241., where it was held that where the action embraces several items all within the reference clause as to some of which the arbitrator is disqualified from acting, the Court should allow the action to proceed as to these items and allow the remaining items to be referred. Lord Parker of Waddington said at page 261—
“It is, I know, a common thing to stay an action as to one matter in dispute and at the same time to allow it to proceed as to another, notwithstanding that both matters are within the reference.”
24. In Singaran Goal Syndicate Ltd. v. Balmakund Marwari . A.I.R 1931 Cal. 772 2., it was held that an action can go on as to matters not referred to arbitration.
25. Mr. Bhagwat Dayal in reply submitted that according to clause 10 of the conditions of the policy the riot risk could be terminated by either side and that the company had rightly terminated this risk. It is true that it was open to either side to give notice and terminate the risk, but even according to this clause the company had to give proper notice before the liability under riot risk could be put an end to. There is an allegation on one side that it was so terminated and it is denied on the other side and this is not a matter which can be referred to arbitration. It will in any case have to be decided by the Court and if for no other reason for this alone the Court should have refused to stay the suit.
26. Respondent's counsel then submitted that in any case the question of the determination of the amount of damages will have to be referred to arbitration and that should first be determined before the suit can be allowed to proceed for the simple reason that is a sine quo non of the right to bring the present suit. To this argument there are two replies. Firstly, the condition as a bar to the suit has never been pleaded, and secondly, as I have already held the defendant has repudiated the contract in the sense that he had pleaded that there was no riot risk at all and, therefore, he cannot rely on a part of the contract and repudiate the other part. He is not entitled to have advantage of this clause i.e clause No. 18 of the policy.
27. I am, therefore, of the opinion (1) that before the suit was brought there was no dispute as to the quantum of damages and therefore, nothing could be referred to arbitration. At least no objection was raised by the defendant as to the amount of the claim of the plaintiff before the suit was brought;
(2) the defendant repudiated the riot risk and the arbitration clause is not wide enough to cover any and every kind of dispute and, therefore, the rule laid down in Jureidini's case applies, and the case does not fall within the rule laid down by Viscount Simon L.C in Heyman v. Darwins and nothing can be referred to arbitration;
(3) it is not a fit case in which the Court should exercise its jurisdiction under section 34 even if that clause applied;
(4) the defendant has not pleaded the condition precedent contained in section 18 as a bar to the suit, nor in the circumstances of this case is he entitled to ask that the question of damages be referred to arbitration.
28. I am, therefore, of the opinion that the learned Judge was in error in staying the proceedings and I allow this appeal and set aside the order of the trial Court for stay. The plaintiff will have his costs in this Court and in the Courts below. The parties have been directed to appear in the trial Court on the 30th of July, 1951, and I direct that the case be heard at an early date and finished as soon as possible.
29. Appeal allowed.
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