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Bharat Bank Ltd. And Anr. v. Ruby General Insurance Co. Ltd.
Structured Summary of the Opinion
Factual and Procedural Background
The firm Kartar Singh Amrik Singh owned a quantity of cotton stored in the godowns of a Ginning Factory at Jandiala; this cotton was hypothecated to the Amritsar Branch of the Bharat Bank Limited. The cotton was insured for Rs. 50,000 under a policy with Ruby General Insurance Company Limited on 21-12-1947, renewed on 13-2-1948 for a further three months. A fire occurred on the night between 20 and 21-3-1948, during which it was alleged that the whole stock of cotton was destroyed. The interested Bank conveyed news of the fire to the Insurance Company by a letter dated 22-3-1943 (as stated in the opinion). Negotiations followed and on 21-1-1949 the Insurance Company offered Rs. 22,500 in full settlement.
Notice of intention to refer the matter to arbitration was given to the Insurance Company; no arbitrator was appointed. On 18-3-1949 the firm and the Bank jointly filed an application in Court under S. 20 of the Arbitration Act. The Insurance Company resisted the application, raising issues which included (1) whether the Bank had locus standi, (2) whether the application was within time, and (3) whether the arbitration agreement was binding on the respondent. The first and third issues were decided in favour of the petitioners at first instance and did not remain in dispute. The second issue concerned Clause 19 of the policy, which limited liability after twelve months unless the claim is the subject of pending action or arbitration.
The Subordinate Judge briefly held that the arbitration application under S. 20 filed within 12 months could be regarded as a pending action and ordered the arbitration agreement in Clause 18 to be filed in court. The Insurance Company appealed. Kapur J., in the appellate court, decided the appeal in the Insurance Company's favour on 6-7-1950, concluding that (inter alia) proceedings under S. 20 were not a suit and that a pending suit was not an exception within Clause 19. The firm and the Bank (the insured parties) then filed the present Letters Patent appeal against that appellate order.
Legal Issues Presented
- Whether Clause 18 in the Insurance Policy, which is intended to supersede the ordinary laws of limitation, is valid and enforceable.
- Whether, even if such a clause is valid and enforceable, a petition under S. 20 of the Arbitration Act filed in Court within twelve months of the date of the loss or damage amounts to a "pending action" within the meaning of Clause 19 of the policy.
Arguments of the Parties
Appellants' Arguments (the insured firm and the Bank)
- The petition under S. 20 of the Arbitration Act, being filed within twelve months of the loss, should be regarded as a "pending action" for the purpose of Clause 19 and therefore preserves their rights under the policy.
- It was also argued (by learned counsel for the appellants) that even if the word "action" were synonymous with "suit," the petition under S. 20 would nevertheless be covered because Sub-section 2 of S. 20 provides that the application shall be numbered and registered as a suit and because provisions of the Civil Procedure Code apply to proceedings under the Act (reference to s. 41-A of the Act was made in argument).
Respondent's Arguments (Ruby General Insurance Company)
- The Insurance Company contended that Clause 19 imposed a twelve-month limitation and that the present application was not within time because an application under S. 20 should not be treated as a "pending action" within Clause 19.
- The respondent contended that the word "action" in Clause 19 should be treated as distinct from a "suit" (and thus not cover the S. 20 application) — a view accepted by the appellate judge (Kapur J.) below.
Table of Precedents Cited
| Precedent / Authority | Rule or Principle Cited For | Application by the Court in This Opinion |
|---|---|---|
| Halsbury's Laws of England (Vol. I, para 1) | Definition and legal meaning of the word "action" — a wide definition encompassing proceedings by which a party seeks in a court to enforce a right; used as authoritative on the meaning of "action" in English law. | The court relied on Halsbury to conclude that the word "action" has a wide meaning (wider than "suit") and is apt to cover an application to court under S. 20 of the Arbitration Act for filing an agreement to refer to arbitration. |
| Cox v. Hoare, (1907) 95 L. T. 121 | Held that the "special case" stated under the English Arbitration Act of 1889 fell within the definition of the word "action." | The court cited Cox v. Hoare as the nearest English case supporting the proposition that certain arbitration-related proceedings may fall within the meaning of "action"; used as analogous authority to support treating an application under S. 20 as an "action." |
Court's Reasoning and Analysis
The court divided the core question into two parts (validity of the clause that alters ordinary limitation law; and whether an S. 20 petition is a "pending action") but expressly decided the appeal on the second point without resolving the first.
The court's analysis proceeded as follows:
- The court accepted that the word "action" is not a term of art in Indian law and therefore must be given the meaning it bears in English law. For this purpose the court relied on Halsbury's definition, which treats "action" in a wide, sometimes generic sense, broader than the more restricted term "suit."
- The learned Single Judge below had focused on the fact that some clauses in the policy use the phrase "action, suit or other proceedings" while Clause 19 used only "action," and had drawn the inference that "action" must therefore mean something quite distinct from "suit." The appellate court rejected an extreme reading that would render a regular suit instituted within twelve months ineffective to save the insured's rights; indeed the respondent conceded that a suit within twelve months would suffice.
- Examining the policy as a whole, the court reasoned that the two words ("action" and "suit") were not used without meaning and that the use of "action" alone in Clause 19 indicated an intention to employ the broader meaning of "action." The word "suit" is the more restricted term; the court took "action" to be wider than "suit."
- Relying on Halsbury and the absence of contrary Indian authority, the court held that the word "action" in Clause 19 is wide enough to cover an application to the Court under S. 20 of the Arbitration Act for filing an agreement to refer to arbitration.
- The court noted an English case (Cox v. Hoare) in which a special case under the Arbitration Act 1889 was held to be within the definition of "action," and observed the English Act's S. 5 (which allows court intervention where parties have difficulties about appointing arbitrators) as analogous to Indian S. 20. In the absence of authority that an English S. 5 application would not be an "action," the court was inclined to hold that such an application would be an "action."
- The court also considered, but did not rest its decision upon, an argument that S. 20 applications are treated procedurally as suits (because they are to be numbered and registered as suits and Civil Procedure Code provisions apply). The court regarded this point as unnecessary to decide because it had already concluded that "action" in Clause 19 was wide enough to cover the S. 20 application.
- Finally, the court observed a practical remark that insurance companies would save time and avoid ambiguity by drafting policy clauses using words with definite legal meaning in India rather than copying English clauses wholesale.
Holding and Implications
Holding: The appeal was allowed. The court restored the order of the trial court directing that the arbitration agreement contained in Clause 18 of the policy be filed in court and directing further proceedings. The parties were ordered to appear in the trial court on 28-5-1951. (Khosla, J. concurred.)
Implications:
- Direct effect on the parties: The trial court's order requiring the arbitration agreement in Clause 18 to be filed in court was restored; further proceedings (including appearance on the specified date) were mandated. The insureds' S. 20 application, filed within twelve months of the loss, was held to constitute a "pending action" within the meaning of Clause 19 for the purposes of avoiding the twelve-month bar.
- Broader legal implications: The court's reasoning treats the word "action" as having a meaning broad enough to encompass an application under S. 20 of the Arbitration Act. The opinion notes a paucity of Indian authority on the point and relies on English authority and legal treatise definitions to reach its conclusion. The court did not expressly state that it was laying down a binding precedent beyond the parties, and the opinion contains an explicit observation that no Court in India had previously decided the precise point.
Note: This summary is confined strictly to the content and wording of the provided opinion and does not add information beyond what the opinion itself contains.
Judgement
FALSHAW, J. :- The facts giving rise to this Letters Patent appeal are as follows. The firm Kartar Singh Amrik Singh owned a quantity of cotton which was lying stored in the godowns of a Ginning Factory at Jandiala, this cotton being hypothecated to the Amritsar Branch of the Bharat Bank Limited. The cotton was insured for a sum of Rs. 50,000/- against damage by fire by means of a policy taken with Ruby General Insurance Company Limited on 21-12-1947, the policy being renewed on 13-2-1948, for a further period of three months. On the night between 20 and 21-3-1948, a fire took place in the godowns of the Ginning Factory in which it is alleged that the whole stock of cotton was destroyed. The news of this fire was conveyed to the Insurance Company by the interested Bank by means of a letter dated 22-3-1943. Thereafter a difference arose between the parties regarding the amount payable by the Insurance Company for the damage to the cotton. Negotiations went on for some time and on 21-1-1949, the Insurance Company made an offer to pay Rs. 22,500/- in full and final settlement of the loss. It was stated by Mr. Bail Nath Chopra, Manager of the Insurance Company, in his evidence that notice had been served on the Insurance Company of the intention of the claimants to refer the matter to arbitration, but apparently no arbitrator was appointed by the parties and on 18-3-1949, the firm which owned the cotton and the Bank jointly filed an application in Court under S. 20, Arbitration Act. The application was resisted by the Insurance Company on grounds which gave rise to the following issues:
1. Has Bharat Bank applicant 1 no locus standi to bring the present application?
2. Is the present application within time?
3. Is the agreement not binding on respondent so far as arbitration reference is concerned.
2. The first and the third of these points were decided in the petitioners favour and no longer arise. The objection of the Insurance Company which gave rise to the second issue was based on Cl. 19 of the conditions contained in the Insurance policy, which reads:
"In no case whatever shall the company be liable for any loss or damage after the expiration of twelve months from the happening of the loss or damage unless the claim is the subject of pending action or arbitration."
This issue was only dealt with briefly by the learned Subordinate Judge, who came to the conclusion that the parties could not by mutual agreement alter the ordinary laws of limitation, and that in any case the application under S. 20, Arbitration Act, being filed within 12 months of the date of the fire which gave rise to the loss or damage could be regarded as a pending action. He accordingly ordered that the arbitration agreement contained in Cl. 18 in the policy should be filed in Court and fixed a date for the parties statements regarding whether they could agree on any arbitrator. An appeal against this order was filed in this Court by the Insurance Company. The appeal was decided in the Companys favour by Kapur J. on 6-7-1950 on the following findings as summarised at the end of his judgment:
1. That a limitation placed by the terms of a policy during which a claim can be made or after which excepting in certain contingencies the liability of the insurer will cease is not a condition which is void either under the Contract Act or under the Limitation Act.
2. The use of the word action in the terms and conditions of the policy is unfortunate as the word action is not used in Indian Law.
3. That the proceedings under S. 20 are not a suit even if the word action was equivalent to the word suit.
4. That a pending suit is not an exception within the terms of Cl. 19, and, therefore, would be of no avail to the insured.
3.The present appeal has been filed against this order by the Bank and the Company which owned the cotton. The question on which the decision of the appeal turns is clearly divisible into two parts:
1. Whether the Cl. 18 in the Insurance Policy which is intended to supersede the ordinary Laws of limitation is valid and enforceable; and
2. Whether even if this clause is valid and enforceable, a petition under S. 20, Arbitration Act, filed in Court within 12 months of the date of the damage or loss is a "pending action."
4. It seems to me that this appeal can be decided without going into the first of these questions, on which the decision of the learned Single Judge appears to be based on good authority although prima facie the proposition involved would appear to me to be highly debatable. We have, however, not heard full arguments on this point and only heard arguments on the second point.
5. The learned Single Judge was no doubt correct in stating that the word action is not a word which is used in Indian Law, and therefore it would appear that the word must be given the meaning which it has in English law, on which point it does not seem to me that there can be any better authority than Halsburys Laws of England. The definition of the word action appears at the very beginning on p. 2 of Vol. I, Para 1, which reads:
"An action according to the legal meaning of the term, is a proceeding by which one party seeks in a Court of justice to enforce some right against, or to restrain the commission of some wrong by, another party. More concisely it may be said to be the legal demand of a right, or "the mode of pursuing a right to judgment. It implies the existence of parties, of an alleged right, of an alleged infringement thereof (either actual or threatened), and of a Court having power to enforce such a right."
In its wider meaning the term includes both civil and criminal proceedings; it was frequently so used by old writers, and the House of Lords has recognised that it is a generic term, inclusive, in its proper legal sense, of suits by the Crown, and comprehending, in legal phraseology, every suit, whether by a subject, or in the name of the Sovereign or by an information by the Attorney General on behalf of the Crown. It is, however, generally used in a more restricted or popular sense as denoting a civil action brought by a subject and commenced by writ or plaint."
6. The learned Single Judge, in an endeavour to understand the meaning of the word action as used in Cl. 19 of the Policy in dispute, appears in his finding to have gone even beyond the position adopted on behalf of the Insurance Company. This seems to have resulted from the fact that in other clauses of the same Policy the word suit has also been used, apparently as being something distinct from an "action". These instances have been collected at one part of his judgment by the learned Single Judge who has carefully perused all the clauses of the Policy for instances of the use of the word action. The results of his research are as follows:
1. In Cl. 4 the opening words are "In any action, suit or other proceedings, the burden of proving." 2. Cl. 6 begins with the words: "In any action, suit or other proceedings ..................... "
3. In Cl. 13 the words occur:
"If the claim be made and rejected and an action or suit is not commenced within three months after such rejection.."
4. Cl. 18 is the clause which relates to the reference of any dispute between parties to arbitration and it concludes with the sentence:
"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 first be obtained."
7. The only other use of the word action is in the clause now under consideration No. 19. It is contended on behalf of the respondent that in this clause the word action is to all intents and purposes synonymous with the word suit. The learned Single Judge, however, has apparently come to the conclusion from the fact that in other clauses in the Policy suit and action have been used as separate terms, while in Cl. 19 only the word action was used, that the word action was intended to mean something quite separate and distinct from a suit and that therefore even a regular suit instituted within one year of the loss or damage would not save the claimants rights under Cl. 19. This, however, is not the case of the respondent who conceded that a suit instituted within 12 months would come within the purview of Cl. 19. It seems to me that it is impossible in construing the terms of the Insurance Policy to come to the conclusion that the word action has been used in various clauses without any meaning, and the fact that in the clauses listed above it has been used as an alternative to the word suit, while in the clause under consideration it is used alone without the word suit as an alternative, is a strong indication that the two words are not intended to be interchangeable or synonymous. The word suit certainly has the more restricted meaning of the two words and therefore the inevitable conclusion is that the word action is intended to have a wide meaning than the word suit. As a matter of fact, when he was asked what the meaning of the word action in the terms of the Policy was, the learned counsel for the respondent, although be tried to maintain that for the purpose of Cl. 19 the word was synonymous to suit, at another time said that the word action must be taken to have its meaning in English Law. This meaning is obviously very wide indeed if we are to rely on the authority of Halsbury, than which it does not seem there can be any better authority. Indeed, the definitions of the word action contained in other Law Dictionaries and Lexicons appear to be based on Halsbury. In the circumstances I am of the opinion that the word action as used in Cl. 19 in the Policy must be taken to have meaning wide enough to cover an application to a Court under S. 20, Arbitration Act, for the filing of an agreement to refer to arbitration. There is little or no case in law to help us in deciding the point. No Court in India appears to have given any decision on this particular point and the nearest English case, though not altogether on the point, is Cox v. Hoare, (1907) 95 L. T. 121, in which it was held that the special case stated under the Arbitration Act of 1889 was within the definition of the word action. There is, however, a provision in the English Arbitration Act of 1889 in S. 5 by which the intervention of the Court can be sought by one of the parties to an agreement to refer to arbitration, which is called a "submission" in the English Act, when difficulties arise between the parties about the appointment of an arbitrator or arbitrators or an umpire, and this section is the nearest approach in the English Act to S. 20 in the Indian Act. In the absence of any authority to the effect that an application to the Court under S. 5, English Act, would not amount to an "action", I am inclined to hold that such an application would amount to an "action" within the meaning of the definition of the word as given in the Halsbury.
8. One argument was advanced by the learned counsel for the appellant with which I cannot altogether agree. This argument was that even if the word action in the clause in dispute were held to be synonymous with suit, it would still cover an application under S. 20, Arbitration Act. The grounds on which this argument was based are that in Sub-s. 2 of S. 20 it is provided that the application should be in writing and shall be numbered and registered as a suit between one and more of the parties interested or claiming to be interested as plff. or plffs. and the remainder as deft, or defts., and elsewhere in the act in s. 41-a it is laid down that the provisions of Civil P. C. shall apply to all proceedings before the Court and appeals under the Act. I do not, however, think it is necessary to embark on a long discussion on this subject, since whether an application under S. 20, Arbitration Act, becomes a suit or not by virtue of these provisions in the Act, I am of the opinion that such an application is covered by the word action. Before concluding I do not think it would be out of place to remark that this litigation has made it clear that a good deal of time and trouble would be saved to parties and to Courts if Insurance Companies in this country did not merely copy clauses wholesale from English insurance policies, but drew up the conditions of their Policies so as to include only words which have a definite legal meaning in this country.
9. In the circumstances I would accept the appeal with costs and restore the order of the trial Court filing the arbitration agreement contained in Cl. 18 of the Policy in Court and directing further proceedings.
10. The parties have been directed to appear in the trial Court on 28-5-1951.
11. Khosla, J. :- I agree.
Appeal allowed.
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