I.P. Mukerji, J.:— The Court: Mr. Gupta for the respondent has very strenuously tried to interpret the following arbitration clause in the agreement between the parties:
“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.
2. 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.
3. 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.”
4. The plaintiff's case is that their factory was insured against, inter alia, the peril of fire and special perils with the respondent insurance company. There was a cyclone in October, 2013 which caused heavy damage to the factory. The claim of the petitioner is based on this alleged loss.
5. The respondent insurer while rejecting the claim of the petitioner on 26 December, 2014 had advanced the following reasons:
“1. Alleged loss of imported coal is clearly an inventory shortage.
2. There was no actual loss of stock in process.
3. The damage to the sponge iron is due to inherent vice.
4. The loss towards buildings/sheds etc. are exaggerated to cover Insured maintenance.
5. As there is no material damage thus business interruption loss does not triggered.”
6. Learned counsel Mr. Gupta argued that since the company had disputed the liability there could be no arbitration at all. He said that the remedy for the petitioner was a suit. In order to maintain the suit the amount of loss or damages determined by the arbitrator must be first obtained.
7. There is no dispute that the arbitration clause is absolutely ambiguous. But it has to be interpreted logically. It applies to cases where the liability of the respondent in a particular insurance contract is not disputed. But the amount of claim is disputed. Say for example the plaintiff claimed loss for shipwreck. The respondent could flatly say they do not have any liability for such peril. Hence, the claim is not arbitrable. Here, there is denial of liability. Now, suppose there is fire in the plaintiff's factory. The insurance company denies that the peril at all occurred or that any damage was caused by the peril or that the amount of damage said to have been suffered by the petitioner was inflated. The alleged peril is covered by the policy. Hence, the respondent has potential liability. This defence would fall in the category of a liability for a particular occurrence [peril] not being denied but denial of the occurrence and thus the amount of liability. Such claims are covered by the arbitration clause. Otherwise, the arbitration clause does not make any sense at all.
8. Now, if one considers the last part of the arbitration clause that before filing a suit the claimant has to obtain an award with regard to the amount of loss and damages, one wonders what would be left to be determined in the suit if the amount of loss and damages was determined. Then is the suit court required to just determine whether the plaintiff is entitled to the loss or damage and the arbitrator to determine whether such loss and damage is not covered by the insurance policy? This would result in the claim being split into two parts; one to be decided in the arbitration and the other in the suit, which is most illogical.
9. I am firmly of the opinion that disputes have arisen between the parties as would specifically appear in the letter dated 26 December, 2014 of the respondent to the petitioner. These disputes are referable to arbitration.
10. The claim of the petitioner is about Rs. 4 crores.
11. In those circumstances, I appoint the Hon'ble Justice Prasenjit Mondal, a retired Judge of this Court as Arbitrator at a remuneration of Rs. 30,000/- per sitting to be shared equally by the parties. His lordship will fix the fees and charges of a clerk and stenographer which shall also be borne by the parties equally.
12. His lordship is requested to adjudicate upon the disputes between the parties enumerated in the petition and those arising from the statement of claim, counter-statement and counter-claim, if any.
13. I very humbly request the learned Arbitrator to enter upon the reference as soon as possible and to make and publish the award within one year of service of a copy of this order.
14. This application is, accordingly, disposed of.