Sanjib Banerjee, J.:— In this request under Section 11 of the Arbitration and Conciliation Act, 1996, the petitioner says that a substantial part of the petitioner's claim under an insurance policy with the respondent was rejected and the resultant dispute is liable to be referred to arbitration.
The petitioner was in the process of commissioning a plant at Seraikela near Jamshedpur when a thunderstorm struck on March 27, 2008, seriously damaging a crane and an overhead watertank. It is not in dispute that the commissioning of the plant had not been completed by such time. The policy of insurance extended by the respondent was to remain in force during the period of commissioning, but was subject to the caveat that the portions of the plant commissioned would go out of the purview of the policy.
Following the petitioner's claim, a surveyor was appointed and the survey report of February 20, 2008 observed as follows on account of liability.
“As per the Commissioning Certificate bearing no. BI/KSPL/CRN/CCSC/06-07 dated 27.10.2006 issued by M/s. Bunty International (Annexure-A), the supplier, the affected 15/7.5 Ton EOT Crane of the Insured had been successfully and fully erected and commissioned at the Insured's SMS Plant on 27.10.2006 It was also noted at the Insured's plant that after being commissioned, the EOT Crane had been put into operation for the purpose of erection of Plant & Machinery at the SMS Plant. However, as per the terms and conditions of the policy, if a part of a plant or one or several machine/s is/are tested and put into operation the cover and consequently the liability of the Insurer for that particular part of the plant or machine ceases whereas it continues for the remaining parts which are not yet ready. Since the EOT Crane had been successfully commissioned prior to the occurrence of the reported loss, the liability of the Insurer in respect of the said Crane had already ceased to exist prior to the loss in view of the above condition and the loss in respect of the EOT Crane is accordingly not admissible.”
The surveyor was, therefore, of the opinion that the claim on account of the damaged crane did not fall within the scope of the insurance policy. Later in the report, the surveyor found that an amount of Rs. 25,363/- was payable on account of the damage to the overhead tank.
On April 29, 2008 the insurance company quoted from the policy to suggest that since the crane had already been commissioned the insurance company was not liable to entertain any claim in respect thereof. The following provision from the policy was quoted in the electronic mail of April 29, 2008 issued by the respondent to the petitioner:
“The liability of the Company shall commence, (notwithstanding any date to the contrary specified in the Schedule) only from the time after the unloading of the property specified in the Schedule from any conveyance at the site specified in the schedule and shall continue until immediately after the first test operation or test loading is concluded (whichever is earlier) but in no case beyond four weeks from the day on which after completion of erection a trial running is made and/or readiness for work is declared by the erectors/contractors, whichever is earlier. If however, a part of a plant or one or several machine/s is/are tested and put into operation the cover and consequently the liability of the Company for that particular part of the plant or machine ceases whereas it continues for the remaining parts which are not yet ready.”
The petitioner's version of things is evident from a previous mail of April 18, 2008 wherein the petitioner insisted that since the plant had not been commissioned and the crane was involved in doing work in connection with the commissioning of the plant, any damage to the crane was covered by the policy. The insurance company did not, however, relent and required the petitioner to obtain payment of the sum of Rs. 25,363/- upon signing the discharge voucher. The insurance company says that there can be no denial that the crane had been commissioned as the same would be evident from a commissioning certificate dated October 27, 2006 issued by the agency engaged by the petitioner for commissioning the plant.
The arbitration agreement between the parties is embodied in Clause 7 of the policy;
(7) If any dispute or difference shall arise as to the quantum to be paid under this Policy (liability being otherwise admitted) such difference shall independently of all other questions be referred to the decision of a sole arbitrator, to be appointed in writing by the parties to or, if they cannot agree upon a single arbitrator within 30 days of any party invoking Arbitration, the same shall be referred to a panel of three Arbitrators comprising of two Arbitrators-one to be appointed by each of the parties to the dispute/difference, and the third Arbitrator to be appointed by such two Arbitrators and arbitration shall be conducted under and in accordance with the provisions of the Arbitration and Conciliation Act, 1996.
It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as hereinbefore provided, if the Company has disputed or not accepted liability under or in respect of this Policy.
It is hereby expressly stipulated and declared that it shall be a condition precedent to any right of action or suit upon this Policy that the award by such Arbitrator/Arbitrators of the amount of the loss or damage shall be first obtained.”
The opening words of the agreement restrict the scope of reference to only disputes relating to the quantum to be paid under the policy. The words in parenthesis emphasise that if the liability against any head is in dispute, the matter would not be capable of being referred to arbitration. The second paragraph of the arbitration clause makes the scope of the arbitration agreement clear and it is restricted to any dispute arising out of the quantum payable by the insurance company. If the factum of liability is admitted but there is a dispute as to quantum of payment, the arbitration agreement comes into play.
The petitioner seeks to demonstrate that it was the entirety of the claim in excess of Rs. 37 lakh that was made by the petitioner against which the insurance company has offered a measly sum of Rs. 25,363/-. The petitioner says that the dispute is as to the quantum payable under the policy and there is no question the claim made in respect of the crane falling outside the scope of the arbitration agreement. In any event, the petitioner says that since a reference has to be made and the existence of the arbitration agreement is not in dispute, the matter may be left to be decided by the arbitral tribunal.
The arbitration agreement is unambiguous in the sense that it limits the scope of reference to only disputes relating to the quantum of payment. Since the liability in respect of the crane has been altogether denied, such dispute cannot be referred to arbitration when it is evident that the liability in such regard has not been admitted by the insurance company.
It is open to parties to limit the scope of the arbitration agreement. It is possible that some disputes arising out of the transaction between the parties be covered by the arbitration agreement and other disputes be kept outside the purview thereof. Since the liability in respect of the crane was not admitted by the respondent at any stage following the claim being lodged by the petitioner, it cannot be said that only because the petitioner made a combined claim on account of damage to the crane and the overhead tank, the award of a smaller amount than claimed has led to a dispute only as to the quantum by disregarding the denial of the liability on account of the crane as evident from the insurance company's immediate response to the claim.
The respondent has, however, fairly submitted that since it cannot be profitable for the petitioner to carry the claim for enhancement of the sum of Rs. 25,363/- in respect of the overhead tank to a reference, the respondent would not raise any objection by citing the arbitration agreement if the petitioner carries a suit in respect of the entirety of its claim.
It is found that the claim on account of the crane is beyond the scope of the arbitration agreement and the petitioner is left free to pursue any other remedy in respect thereof that may be available to the petitioner. However, the dispute in respect of the quantum on account of the overhead tank requires to be referred to arbitration and the matter is directed to be placed before the Hon'ble Designate of the Hon'ble the Chief Justice to constitute an arbitral tribunal in accordance with the agreement between the parties to adjudicate the disputes covered thereby relating only to the quantum on account of the overhead tank. It will, however, be open to the petitioner to jettison the present petition and file a combined action in respect of the entirety of the claim and, in such event, the respondent will remain bound by the submission made that no objection on account of the arbitration agreement in respect of the claim relating to the overhead tank will be raised in course of such action.
There will be no order as to costs.
Urgent certified photocopies of this order, if applied for, be given to the parties subject to compliance with all requisite formalities.