Sanchayita Lahkar

The High Court of Delhi Single Bench, of Justice Sachin Datta, directed the appointment of a Sole Arbitrator to adjudicate a dispute arising under a fire insurance policy. The order was passed in a petition filed under Section 11(6) of the Arbitration and Conciliation Act, 1996, amidst allegations of wrongful repudiation of claims by the insurer.

The court decisively held that a prima facie arbitration agreement existed and that all objections concerning arbitrability and jurisdiction must be addressed by the arbitral tribunal, not at the stage of judicial appointment under Section 11.

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The petitioner, MS Inox World Industries Pvt Ltd, had obtained a "Standard Fire and Special Perils Policy" (Policy No.12411458) issued by the respondent, IFFCO Tokio General Insurance Company Limited. The policy provided coverage for building, plant and machinery, furniture, fixtures, fittings, office equipment, and stock for the period from 13 January 2022 to 12 January 2023.

A fire incident occurred on the night of 23-24 February 2022. Following this, a surveyor appointed by the insurance company submitted a final report on 22 September 2023. Despite this, no compensation was released, and the claim was formally repudiated by the insurer through a letter dated 20 May 2024.

Subsequently, the petitioner issued an arbitration notice on 17 August 2024, alleging that the repudiation was contrary to law and failed to consider the survey report's findings. The notice cited Supreme Court decisions including UHD v. Roshan Lal Oil Mills Ltd., (2000) 10 SCC 19, and Shri Venkateshwara Syndicate v. Oriental Insurance Co. Ltd., (2009) 8 SCC 507, asserting that a surveyor's report cannot be ignored without reasons.

The petitioner further argued that the arbitration clause in the policy remained enforceable despite repudiation, stating: "As the repudiation of our client’s legitimate claims is illegal, it cannot subvert the arbitration clause envisaged in the insurance policy." The petitioner also referenced an IRDAI circular dated 27 October 2023 that updated arbitration clauses in fire policies.

No reply was received to the arbitration notice, prompting the current petition seeking appointment of a sole arbitrator.

The respondent opposed the petition, arguing that the arbitration clause was inapplicable unless liability under the policy was first admitted. Citing decisions such as Oriental Insurance Co. Ltd. v. Narbheram Power and Steel Pvt. Ltd. (2018) 6 SCC 534 and United India Insurance Co. Ltd. v. Hyundai Engineering (2018) 17 SCC 607, the respondent argued that arbitration clauses with such conditional phrasing must be strictly construed.

The respondent also cited an English decision, DC Bars Ltd. v. QIC Europe [2023] EWHC 245 (Comm), and sought to distinguish the Delhi High Court decision in Payu Payments Pvt. Ltd. v. New India Assurance Co. Ltd., 2024 SCC OnLine Del 6777.

The petitioner responded by referring to recent decisions, including Lombardi Engineering Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd., (2024) 4 SCC 341, where the Supreme Court stated that arbitration clauses must not be interpreted so as to permit avoidance of arbitration due to unilateral repudiation. Reliance was also placed on Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, (2024) 6 SCC 1 and SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754, which curtailed the scope of judicial interference under Section 11.

The court recorded that the arbitration clause in the insurance policy read:

"If any dispute or difference shall arise as to the quantum to be paid under this Policy (liability being otherwise admitted) such difference shall... be referred to the decision of a sole arbitrator..."

Justice Datta rejected the respondent's submission that arbitration was impermissible unless liability was accepted, noting that the language did not contain negative wording expressly excluding arbitration.

The court stated: "The arbitration clauses that fell for consideration... contained the following words of negative import: 'It is clearly agreed and understood that no difference or dispute shall be referable to arbitration... if the company has disputed or not accepted liability under... this policy.'"

"Such words of negative import are not to be found in the present arbitration agreement... Whether or not the same has any bearing... would require an interpretative exercise... best left to... the arbitral tribunal."

It further recorded that the scope of judicial inquiry under Section 11 had undergone a "paradigm shift" following the Supreme Court decision in Interplay (2024) 6 SCC 1:

"The scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of the arbitration agreement, and nothing else."

The court observed:"If the referral court, at this stage, goes beyond the scope... and examines the issue of 'accord and satisfaction', then it would amount to usurpation of the power... exercisable by the arbitral tribunal alone."

The court reaffirmed that issues concerning arbitrability or scope must be decided by the arbitrator:"The same shall necessarily be done by a duly constituted arbitral tribunal... including the issue as to validity / invalidity of the 'repudiation'."

Justice Datta also noted evolving legal standards discouraging restrictive interpretation of arbitration clauses. He cited Chloro Controls, (2013) 1 SCC 641; MTNL v. Canara Bank, (2020) 12 SCC 767; and Govind Rubber Ltd. v. Louis Dreyfus Commodities Asia (P) Ltd., (2015) 13 SCC 477. The opinion of Gary B. Born was quoted: "The 'restrictive' interpretative presumption is archaic and... generally not applied in contemporary decisions."

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Accordingly, the Court directed: "Mr. Justice (Retd.) L. Nageswara Rao, former Judge, Supreme Court of India  is appointed as the Sole Arbitrator to adjudicate the disputes between the parties."

"It shall be open to the respondent to raise all its objections as regards arbitrability, including the effect of the repudiation of claim, by filing an appropriate application under Section 16 of the Arbitration and Conciliation Act, 1996 before the learned Sole Arbitrator."

"The learned Sole Arbitrator may proceed with the arbitration proceedings subject to furnishing to the parties the requisite disclosures as required under Section 12 of the A&C Act."

"The learned Sole Arbitrator shall be entitled to fee in accordance with the IVth Schedule to the A&C Act; or as may otherwise be agreed to between the parties and the learned Sole Arbitrator."

"All rights and contentions of the parties are expressly reserved."

"Nothing in this order shall be construed as an expression of opinion by this Court on the merits of the case or the validity of the respondent’s repudiation of the petitioner’s claim."

Advocates Representing the Parties

For the Petitioner: Mr. Vijay Kasana, Mr. Chirag Verma, Mr. Vishal Chaudhary, Ms. Avlokita Rajvi, Ms. Lakshya Khanna

For the Respondent: Mr. Mrinal Ojha, Mr. Rajat Pradhan, Mr. Rishabh Agarwal, Ms. Nikita Rathi

Case Title: MS Inox World Industries Pvt Ltd v. IFFCO Tokio General Insurance Company Limited

Neutral Citation: 2025: DHC:3202

Case Number: ARB.P. 1549/2024

Bench: Justice Sachin Datta

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