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PETITIONER: VULCAN INSURANCE CO. LTD

       Vs.

RESPONDENT: MAHARAJ SINGH & ANOTHER

DATE OF JUDGMENT03/10/1975

BENCH: UNTWALIA, N.L. BENCH: UNTWALIA, N.L. ALAGIRISWAMI, A. GOSWAMI, P.K.

CITATION:  1976 AIR  287            1976 SCR  (2)  62  1976 SCC  (1) 943  CITATOR INFO :  D          1984 SC  15  (21)

ACT:      Arbitration Repudiation  of claim by insurer-No dispute raised about  quantum of  loss or damages-Remedy of insured, whether by suit or arbitration.

HEADNOTE:      The respondent-insured,  claimed  from  the  appellant- insurer a certain sum on the basis that he had suffered loss due to fire. The appellant repudiated the claim under cl. 13 of  the  policy.  The  respondent  thereupon  wrote  to  the appellant suggesting  arbitration on  the dispute as per cl. 18 of  the policy.  The appellant  however wrote back saying that since it had repudiated the claim of the respondent the arbitration clause  was  inoperative.  The  respondent  then filed an  application under  s 20  of the  Arbitration  Act, 1940, for  the filing  of the  arbitration agreement  in the Court and  for appointment  of arbitrators.  The trial court dismissed the petition as barred under cl. 19 of the policy. on appeal,  the High  Court set aside the order of the trial court and  remanded the  matter to  ii  for  appointment  of arbitration.      Allowing the appeal to this Court, ^      HELD:  (1)  The  difference  which  arose  between  the parties on  the appellant’s repudiation of the claim made by the respondent  was not  one to which the arbitration clause applies and  hence the  arbitration agreement  could not  be filed and no arbitrator could be appointed under s 20 of the Act. The  only remedy open to the respondent was to commence a suit within three months of the date of the repudiation to establish the insurer’s liability. [72 B-C].      (a) Clause 18 provides that if any difference arises as to the amount of any loss or damage such difference shall be referred to  arbitration. In the rejection of the claim made by the insured be on the ground that he had suffered no loss as a result of the fire or the amount of loss was not to the extent claimed by him then, and then only a difference-could have arisen  as to  the amount  of any loss or damage within the meaning of the clause. The dispute raised in the present

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case appertained  to the liability of the insurer to pay any amount whatsoever.  Such repudiation  of the claim could not amount to  the raising  of a dispute as to the amount of any loss or damage suffered by the insured. [66 G-H].      (b) As  per cl.  13, on  rejection of  the claim by the insurer, an  action or suit has to be commenced within three months from  the date  of  such  rejection.  Otherwise,  all benefits under  the policy stand forfeited. That is, as soon as there is a rejection of the claim, and not the raising of a dispute  as to  the amount of any loss or damage, the only remedy  open   to  the  claimant  is  to  file  a  suit  for establishing the  insurer’s liability.  It may be that after the liability of the insurer is so established, reference to arbitration under  cl. 18  will have  to be  resorted to for determination of the quantum of loss or damage. [67 A-C]      (2) The last part of cl. 18 provides that an award is a condition precedent  to any  right of action or suit. But it cannot on  that account be contended that even when there is a  repudiation   of  liability  the  matter  has  to  go  to arbitration first. If the arbitration clause is couched in a comprehensive language  taking within  its ambit any kind of dispute arising  under the  policy then  the obtaining of an award  by  arbitration  is  a  condition  precedent  to  the starting of any other legal proceeding. But, reading cls. 13 and 18  together, in  the present case. it must be held that on the  rejection or repudiation of the claim by the insurer me  insured   is  under  an  obligation  to  start  a  legal proceeding within  three months  of such rejection and hence the obtaining of an award 63 in such  cases cannot  be  a  condition  precedent.  If  the dispute is  such that  can  go to arbitration then no action or suit can be commenced without obtaining an award. But the condition of  obtaining an award prior to any action or suit can never  be attracted  if the  dispute  raised  cannot  be referred to  arbitration and  has got  to be determined in a legal proceeding. [67 D-E, G-68 B,G-H].      Scott v  Avery (185)  25 L.J.  Ex.  308.  5H.L.C.  811; Jureidini v.  National British  and Irish  Millers/Insurance Company Ltd.  [1915] Appeal Cases 499. Heyman and another v. Darwine Ltd.  [1942] 1  All England  Reports, 337;  Viney v. Bignold   [1888] 20  Queen’s Bench Division, 171; Caledonian Insurance Company  v. Adrew  Gilmour [1893] Appeal Cases, 85 and O’connor  v.  Norwich  Union  Fire  and  Life  Insurance Society (1894) 2 Irish Law Reports, 723; referred to.      The Eagle  Star and British Dominions Insurance Company v. Dinanath and, Hemraj, I.L.R. 47, Bombay, 509, approved.      Charanjit Lal Sodhi v. Messrs. Caledonian Insurance Co. Ltd.  and  another  [1969]  Accidents  Claims  Journal.  12, overruled.      (3) Clause  19 of  the policy  provides that in no case whatever shall  the insurer be liable for any loss or damage after the expiry of 12 months from the happening of the loss or damage  unless the claim is the subject of pending action or arbitration. the High Court is not right in its view that the claim  of the  insured was  not barred under this clause because of s. 37 (3) of the Arbitration Act. It is, however, not necessary  to decide whether the appellant’s application under s.  20 was barred by clause 19 or could be defeated on the ground  of the  extinction of  the  insurance  liability under clause  19. If  the  dispute  was  one  to  which  the arbitration clause  applied then the application under S. 20 could not  be dismissed  on the  ground that the claim would not ultimately  succeed either  on facts or in law, because, the matter  will have  to be  left for  the decision  of the

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arbitrator. [71 D, F-72 A].      Wazirchand Mahajan and another v. Union of India [1967] 1 S.C.R. 303 (vide page 308), followed.

JUDGMENT:      CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2228 of 1972.      Appeal by  Special leave  from the Judgment order dated the 7th  October 1971  of the Delhi High Court in F.A.O. No. 155-D of 1965.      F. S. Nariman and Vineet Kumar for the Appellant.      S. N.  Andley, Miss  Uma Mehta,  Mrs. S.  Bagga, S.  K. Bagga, Ramesh Chand and R. K. Mehta for Respondent No. 1.      S. K. Mehta, K. R. Nagaraja and M. Qamaruddin and P. N. Puri for Respondent No. 2.      The Judgment of the Court was delivered by      UNTWALIA, J.  This appeal by special leave was filed by The Vulcan Insurance Co. Ltd. The general insurance business of the  Company was nationalised during the pendency of this appeal and therefore, in place of the original appellant was substituted United  India Fire and General Insurance Company Ltd by  order 28-2-1975  passed in  CMP No. 84/1975. For the sake  of  facility  hereinafter  in  this  judgment  by  the appellant would be meant the original appellant company. The respondent no.  1 in  the  appeal  is  Maharaj  Singh,  sole proprietor of  Khatauli  Manure  Mills,  Khatauli,  District Muzaffarnagar. Respondent no. 2 is Punjab National Bank. 64      Respondent no.  1 carries  a business  of manufacturing Bone Manure  etc. in  his mills at Khatauli. He entered into an arrangement  with respondent  no. 2 for taking advance of money on  the security  of the factory premises, machineries and the  stock of goods. A mortgage deed was executed by him in favour  of the respondent bank for that purpose. The Bank insured the  mortgage properties  from time to time with the appellant company  under three insurance policies, the terms governing the same being identical.      A fire  is said  to have  broken  out  in  the  factory premises of  respondent no. 1 in the night between 28-2-1963 and 1-3-1963  The Bank  informed the Insurance Company about the fire.  Thereupon representatives  of the  Bank  and  the Insurance Company  and some  surveyors visited  the  factory premises of  1-3-1963 and  after. Respondent  no. 1  claimed that due  to fire  he had suffered a loss of Rs. 24,800/- on account of  damage to  the fixed assets and Rs. 2,730,004.40 due to  damage caused to the stock of goods. Eventually M/s. R. K.  Bhandari &  Sons, Surveyors  of the Insurance Company wrote a  letter dated  26th April,  1963 to respondent no. 1 informing him that they had assessed the total damage caused to him  due to  fire at Rs. 4,620/-. They, however, added at the end  of their  letter-"This is  without prejudice to the terms  and   conditions  of   the  policy  and  without  any commitment  of  liability  on  the  part  of  the  Insurance Company." Further  correspondence between the parties ensued and ultimately  the appellant  intimated to respondent no. 1 by  its  letter  dated  5th  July,  1963-"Referring  to  the previous correspondence  relating  to  the  above  mentioned claim, we  regret to  inform you that we repudiate the claim under the  above mentioned policies." Respondent no. 1 seems to have  written a  letter dated  22nd  July,  1963  of  the appellant, to  which it  sent a  reply dated 29th July, 1963 categorically stating-"We  are  advised  to  repudiate  your claim inter  alia under  Clause 13  of the Fire Policies. We

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regret that  survey report  and any  other reports cannot be furnished to you."      Respondent no.  1 thereupon  wrote a  letter dated 1-1- 1963 to  the Insurance  Company informing  it that since. it had repudiated  his claim  under clause  13 of the Insurance Policy a difference had arisen between the parties and hence respondent  no.  1  proposed  to  appoint  one  Shri  K.  N. Bannerjee as  the sole arbitrator, to decide the disputes as per the  arbitration agreement incorporated in the policies. He said further that if the company was not agreeable to the appointment of Shri Bannerjee as the sole arbitrator, he may be treated  as a nominee of respondent no. I and the company may point its own. In reply to the said letter dated the 1st October, 1963 the company wrote a letter dated 10th October. 1963 to respondent no. 1 that since it had reputed his claim the  arbitration   clause  in   the  policies  was  rendered inoperative and no arbitration proceeding could be commenced by appointment of any arbitrator.      Respondent no.  1  in  the  first  instance  filed  the application under  section 20  of the Arbitration Act. 1940- hereinafter called  the Act  on 20-1-1964  in the  Court  at Muzaffarnagar in Uttar Pradesh. The 65 appellant appeared and, inter alia, took an objection to the jurisdiction  of that Court to entertain the application. In view of  a special  clause in  the  policies  excluding  the jurisdiction of  courts other  than the  court at Delhi, the Muzaffarnagar court  allowed that objection and directed the return of  the application  by  its  order  dated  1-5-1964. Respondent no. 1 refiled it on 19-5-1964 in the Delhi Court. Appellant resisted it.      On reading  clauses 13,  18 and  19  of  the  Insurance Policies which are in identical terms and on appreciation of the other  materials in  the case  the Trial  Court at Delhi dismissed the  application holding  that the dispute arising out of  the repudiation  of the liability under clause 13 by the  Insurance   company  was   within  the   scope  of  the arbitration agreement contained in clause 18 and a reference to arbitration  could be  made, but,  as per  clause 19, the petition was barred by limitation .      On appeal  by respondent no. 1 the Delhi High Court has held-(1) Clause  18, does not include in its scope all kinds of differences  or  disputes  that  may  arise  between  the parties in  respect of  the subject  matter of the insurance policies.  The   scope  of   clause  18   is  restricted  to differences as  to the  amount of  loss or  damage. (2)  Yet reference to  arbitration is  not ousted and the arbitration clause covers the dispute even if the company has repudiated the  claim  in  toto.  (3)  The  arbitration  clause  18  is inoperative unless the conditions contained in clause 19 are satisfied and  (4) the  condition  aforesaid  was  satisfied because respondent  no. 1  had commenced  the arbitration on the date  when he  issued the  notice dated the 1st October, 1963; as  such, his  claim was  the  subject  of  a  pending arbitration within the meaning of clause 19. The High Court, therefore, set  aside the  order  of  the  Trial  Court  and remanded the case to it for appointment of arbitrators under section 20  of the  Act. Hence  this appeal by the Insurance Company.      It appears  in  this  case  that  arguments  have  been advanced on either side in the courts below as also, in this Court widening  the scope  of the matters in issue resulting in the  missing of  the crucial point in controversy. Really only one  point need  be decided  in this appeal and that is this-whether in  view of the repudiation of liability by the

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appellant under clause 13 of the Insurance Policy, a dispute was  raised   which  could  be  referred  to  arbitration  ? Incidentally in  this judgment reference will be made to the other question  as to  whether the claim of respondent no. I and the  proceeding commenced  by him were. barred by clause 19.      In order  to discuss  and determine the questions which fall for  determination in  this appeal  it is  necessary to read the relevant clause of the Insurance policies.           "13. If the claim be in any respect fraudulent, or      if any  false declaration  be made  or used  in support      thereof, or if any fraudulent means or devices are used      by the  insured or  any one  acting on  his  behalf  to      obtain any  benefit under  this Policy; or, if the loss      or damage  be occasioned by the wilful act. Or with the      connivance of the insured: or, if the claim 66      be made  and rejected  and an  action or  suit  be  not      commenced within  three months after such rejection, or      (in case of an arbitration taking place in pursuance of      the 18th  condition of this Policy) within three months      after the  Arbitrator or  Arbitrators or  Umpire  shall      have made  their award,  all benefit  under this Policy      shall be forfeited."           "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      *        *         *          *             *           And it is hereby expressly stipulated and declared      shall be  a condition  precedent to any right of action      upon this  policy that the award by such arbitrator, or      Umpire of  the amount of the loss or damage if shall be      first obtained."           "19. 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."      The correspondence  between the  parties makes it clear that at  one time  the surveyors had assessed the damages at Rs. 4,620/-  in their  letter dated  26-4-1963. But the said assessment was,  in express terms, without commitment of any liability on the part of the Insurance Company. The Company, however, completely  repudiated the  liability under  clause 13.      Although the  surveyors in their letter dated 26-4-1963 had raised  a dispute as to the amount of any loss or damage alleged to  have been  suffered by  respondent  No.  1,  the appellant at  no point  of time raised any such dispute. The appellant company  in its  letter dated the 5th and the 29th July, 1963  repudiated the claim altogether. Under clause 13 the company  was not  required to  mention  any  reason  for rejection of  the claim  nor did  it mention  any.  But  the repudiation of  the claim could not amount to the raising of a dispute  as to the amount if any loss or damage alleged to have been  suffered by respondent No. 1. If the rejection of the claim  made by  the insured be on the ground that he had suffered no  loss as  a result  of the fire or the amount of loss was  not to  the extent  claimed by him, then, and then only, a difference could have arisen as to the amount of any loss or  damage within  the meaning  of clause  18. In  this

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case, however,  the company  repudiated its liability to pay any amount of loss or damage as claimed by respondent No. 1. In  other   words,  the   dispute  raised   by  the  company appertained to  its liability  to pay  any amount  of damage whatsoever. In our opinion, therefore, the dispute raised by the appellant  company was  not covered  by the  arbitration clause. 67      As per  clause 13  on rejection  of the  claim  by  the company  an  action    or  suit,  meaning  thereby  a  legal proceeding which  almost invariably  in India will be in the nature of  a suit,  has got  to be  commenced  within  three months from  the date  of  such  rejection;  otherwise,  all benefits under  the policy stand forfeited. The rejection of the claim may be foe the reasons indicated in the first part of clause  13, such  as, false  declaration, fraud or wilful neglect of  the claimant or on any other ground disclosed or undisclosed. But  as soon  as there is a rejection of 13 the claim and  not the  raising of a dispute as to the amount of any loss  or damage, the only remedy open to the claimant is to  commence   a  legal  proceeding,  namely,  a  suit,  for establishment of  the company’s  liability. It  may well  be that after  the liability  of the  company is established in such a suit, for determination of the quantum of the loss or damage reference  to arbitration will have to be resorted to in accordance  with clause  18. But  the arbitration clause, restricted as  it is  by  the  use  of  the  words  "if  any difference arises  as to the amount of any loss or damages’, cannot take  within its  sweep a dispute as to the liability of the company when it refuses to pay any damage at all      Mr. S.  N. Andley, learned counsel for respondent No. 1 submitted that  in view  of the last part of clause 18 which makes the  award of  an arbitration a condition precedent to ally right  of action  or suit,  it should be held that even when there  is a repudiation of liability, the matter has to go to  arbitration first.  In support  of such a submission, learned counsel  placed reliance  upon certain  decisions of the courts  in India as also ill England. We shall presently show that  on the  facts and  in the  circumstances of  this case, none of them is of help to respondent No. 1      A clause  like the  last part  of clause  18 making the award a  condition precedent  to any right of action or suit first came  up for  consideration in  the case  of Scott  v. Avery(1) and  since then  such clauses  are Commonly  called Scott v.  Avery clauses. Generally it has been found that it the  arbitration   clause  is  couched  in  a  comprehensive language taking within its ambit any kind of dispute arising under the  policy, then obtaining of an award by arbitration is a  condition precedent to the starting of any other legal proceeding. A  clause like  Scott v.  Avery has  repeatedly, been held  to be  a valid  one. "Even a clause of this type, however is  not absolute  in effect:  where the court orders that the  arbitration agreement  cease  to  have  effect  in relation to  a particular  dispute. it  has a  discretion to order further  that the  Scott v. Avery clause cease to have effect, too"  (vide pages  57, 58 of Russell on Arbitration, Eighteen Edition).  The said  statement of the law, however, has been made with reference to section 25(4) of the English Arbitration Act,  1950. The  corresponding provision  in our Act is  contained in  section 36.  But that  apart, when  an arbitration clause  is not  operative on the dispute raised, as in  this case,  then it  is wholly  unreasonable,  almost impossible, to hold that still the parties have to obtain an award before  starting any  legal proceeding.  What  dispute will be  referred to arbitration ? The dispute raised is not

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within the purview of arbitration. Reading clauses 13 and 18 together  it   must  be   held  that  on  the  rejection  or repudiation of the claim by the insurer, the insured 68 is under  an obligation  to start  a legal proceeding within three months  of such  rejection, and  hence obtaining of an award in  such a case cannot be a condition precedent. It is not possible  to go  to arbitration for determination of the said dispute.  Clauses similar  to  the  ones  contained  in clauses 13  and 18  in this  case were the subject matter of consideration before  the house  of Lords  ill the  case  of Jurisdini v.  National British  and Irish  Millers Insurance Company, Limited(1).  The claim  made  by  the  insured  was rejected by the insurer as being fraudulent. When the former brought an  action the  latter resisted  it on  the Scott v. Avery clause.  The House  gave a  unanimous opinion that the repudiation of  the claim  on a  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. The  matter put  in that form in some of the speeches of the  Law Lords  does  not  seem  to  have  received  full approval of  the House  in later decisions including the one in Heyman  and another v. Darwins Ltd.(2) as it would appear from the  speech of Lord Macmillan at page 346. But the real ratio of the decision which remains unshaken even till today is to  be found  in the  speech of  Lord Parmoor at page 508 when his  Lordship said  that since no difference had arisen which could  be covered  by arbitration  clause 17  and  the company had  raised an  issue on which, if it had succeeded, the insured  would have  lost all  benefit under the policy, the arbitration clause had no application.      Learned counsel  for respondent  No. 1  placed reliance upon some  decisions of the English courts in support of his contention that in spite of the repudiation of the liability by the  appellant his  client could  not commence  any legal proceeding without  going to  arbitration. Only  two may  be noticed here:  In Viney  v. Bignold (3) it was held that the determination of  the amount  by arbitration was a condition precedent to  the right  to recover on the policy and if any action  was  brought  with  out  an  award  obtained  in  an arbitration it  was not maintainable. It should, however, be noticed that  the language  of arbitration clause 21 in that case was wide enough to cover any dispute and from the facts stated in  the judgment  it is  nowhere to be found that the dispute raised  by  the  company  was  not  covered  by  the arbitration clause.  If the  dispute is  such that can go to arbitration then no, action or suit can be commenced without obtaining an  award. But  the condition of obtaining a award prior to  any action  or suit  can never be attracted if the dispute raised cannot be referred to arbitration and has got to be  determined in  a legal  proceeding. The other case is the decision  of the  House of Lords in Caledonian Insurance Company v.  Andrew Gilmour(4).  That was  again a  case of a comprehensive arbitration  clause and  thus  justifying  the application of  the Scott  v. Avery  clause as  a bar to the maintainability of an action without an award.      In O’connor  v. Norwich  Union Fire  and life Insurance Society(5) the  decision in  the case  of Viney  v.  Bignold (supra) was distinguished (1) [1915] Appeal Cases, 499.       (2) [1942] 1 All England                                               Reports, 337 . (3) (1888) 20 Queen’s Bench Division, 171.     (4) [1893]    Appeal Cases, 85.(5) (1894) 2 Irish Law Reports, 723. 69 and the  Scott v.  Avery clause  was held to be inapplicable

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because  the   dispute  raised   was  not   covered  by  the arbitration clause.  Holmes, J. pointed out at page 728:           "Now, if  it was  a term  of the  contract that  a      difference  of   this  kind   was  to   be  settled  by      arbitration,  I   should  not   hesitate  to  stay  the      action......................................But   there      is no  provision in  the plaintiff’s policy that such a      controversy  as   has  arisen  is  to  be  referred  to      arbitration. There  is a  carefully  drawn  clause,  by      which it  is agreed  that the  amount to  be  paid,  as      distinguished from  liability to pay anything, is to be      settled by  arbitrators, and  that  no  action  can  be      commenced until they shall have determined such amount.      One  result  of  this  clause  may  be  to  render  two      proceedings necessary  where there  is a  dispute as to      the amount  of the  loss as  well as  a denial  of  all      liability; but  this  ought  not  to  be  a  ground  of      complaint to  either of the parties who have 1, made it      a term of the contract;"      We agree with this.      Mr. Andley placed reliance upon paragraphs 1983 to 1986 at pages  964 and  965 of the Fifth edition of Mac Gillivray on Insurance  Law. On  the basis of the decision in Scott v. Avery (supra)  as also certain other decisions it is said in paragraph 1983;           "There is  a rule  of law  that parties  cannot by      their private  contract oust  the jurisdiction  of  the      court; but  it has been held that parties to a contract      may nevertheless  agree that  no cause  of action shall      arise upon  it until any matter in dispute between them      shall have been determined by arbitration and then only      upon the arbitrators’ award." The  discussion   in  paragraph-1986   relates  to   whether arbitration  is   a  condition  precedent  or  is  merely  a collateral  agreement.  But  the  relevant  paragraph  which applies on  all fours  to the  facts of the case on hand, as pointed out by Mr. F. S. Nariman, counsel for the appellant, is paragraph 1987 at page 966:           "As a rule, where the amount of the loss or damage      is  the   only  matter   which  the  parties  refer  to      arbitration,  then   if  the   insurers  repudiate  any      liability on  the policy  there is no obligation on the      assured to arbitrate as to the amount before commencing      an action on the policy." To the  same effect  is to be found the statement of the law at pages  328 to  332 in  the Fourth  edition of  Welford  & otter-Barry’s Fire Insurance.      Following  the  decision  of  the  House  of  Lords  in Jureidini’s case (supra) a Bench of the Bombay High Court in The Eagle  Star and  British Dominions  Insurance Company v. Dinanath  and  Hemraj(1)  while  interpreting  an  identical clause 13 said at page 521: (1) I. L. R. 47 Bombay 509. 70           "But in  clause 13 there are various contingencies      set out  which is  established entitle  the insured  to      bring an  action without  an award  having been made by      arbitrators. One  of these  contingencies  is  "if  the      claim be made and rejected" which if  established gives      a right  of action,  the period  of limitation provided      for the  suit being filed at three months from the date      of the  rejection. While it is also provided that where      arbitration takes place in pursuance of condition 18 of      the policy,  three months’ time should be allowed for a      suit to  be brought  after the  award  has  been  made.

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    Therefore it  is quite  obvious that  a right of action      accrued after the company rejected the claim. Naturally      that question would have first to be decided by suit as      under clause  18 that  question could  never have  been      referred to arbitration." We approve the law so enunciated by the Bombay High Court.      Mr. Andley  placed reliance  upon some decisions of the High Courts  in India  in  support  of  his  contention.  We briefly refer  to 4 of them. In the Great American Insurance Co. Ltd.  v. Bodh  Raj(1) some observations by Harnam Singh, J. with  whom Weston C.J. agreed in paragraph is do not seem to be quite accurate although on facts as found in paragraph 17 the case was rightly decided. The decision of Falshaw, J. in Great  American Insurance  Co. Ltd. v. Dina Nath(2) again relates to  the dispute which was held to have, on the facts of that  case fallen within the arbitration clause. It would appear from  the facts of the case, decided by Mathew, J. in The Vanguard  Fire and  General Insurance  Company  Limited, Madras v.  N. R. Sreenivasa Iyer, Trivandrum (3) that clause 7 of  the policy  was couched  in a  wide language  so as to cover the dispute and the difference including the one as to liability, which  arose  between  the  parties.  In  such  a situation on  a consideration  various authorities including the one in the case of Viney  v. Bignold (supra) the learned Judge said at page 275 column 1 :           "This  condition   may  either   mean   that   the      arbitrators   have to decide the question whether there      is any liability at all under the contract or that they      have to decide the quantum of that liability. In either      case  an  award  by  the  arbitrators  is  a  condition      precedent  to   any  right   of  action.  There  is  no      difference between a case where the arbitrators have to      decide the  question of the liability itself and a case      where he has to decide the question the quantum of that      liability. In  both cases  if the  contracts makes  the      decision of  the arbitrators a condition precedent that      has to be fulfilled before a suit can be instituted."      In Charanjit  Lal Sodhi v. Messrs. Caledonian Insurance Co. Ltd. and another,(4) a learned single Judge of the Delhi High Court (1) A.I.R. 1953 Punjab 50.    (2) A. T. R. 1957 Punjab, 152. (3) A.I.R. 1963 Kerala 270.      (4) (1969) Accidents Claims                                                 Journal, 12. 71 seems to  have gone  wrong in treating the dispute raised by the insurer as one falling under the arbitration clause. The company had  said that  the insured  had made a false claim. The  learned   judge  thought   that  even   the  restricted arbitration clause  covering only  the difference  as to the amount of  any loss  or damage was "wide enough to include a case of  some loss or damage as well as a case of no loss or damage."      The two  lines  of  cases  clearly  bear  out  the  two distinct situations  in law.  A clause like the one in Scott V.  Avery   bars  any   action  or  suit  if  commenced  for determination  of  a  dispute  covered  by  the  arbitration clause. But if on the other hand a dispute cropped up at the very outset which cannot be referred to arbitration as being not covered by the clause, then the Scott v. Avery clause is rendered inoperative  and cannot  be pleaded as a bar to the maintainability  of   the   legal   action   or   suit   for determination  of   the  dispute   which  was   outside  the arbitration clause.      We do  not propose,  as it  is not necessary, to decide whether the  action commenced  by  respondent  no.  1  under

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section 20  of the  Act for filing filing of the arbitration agreement and  for appointment  of  arbitrators  was  barred under clause  19 of  the policy. It has been repeatedly held that such  a clause is not hit by section 28 of the Contract Act and  is valid;  vide-The  Baroda  Spinning  and  Weaving Company  Limited   v.  The   Satyanarayan  Marine  and  Fire Insurance Company  Limited(1) Dawood  Tar Mahomed  Bros  and others v.  Queensland Insurance  Co. Ltd.(2)  and  The  Ruby General Insurance  Co. Ltd.  v. The  Bharat  Bank  Ltd.  and others(3). Clause  19 has  not prescribed  a  period  of  12 months for  the filing of an application under section 20 of the Act.  There was  no limitation prescribed for the filing of such an application under the Indian Limitation Act, 1908 or the  Limitation Act,  1963. Article 181 of the former did not govern  such an  application. The  period of three years prescribed in  Article  137  of  the  Act  of  1963  may  be applicable to  an application  under section  20. Nor are we concerned in  this case  to decide whether the time taken by respondent  no.   1  in   prosecuting  his   application  in Muzaffarnagar court could be excluded under section 14(2) of the Limitation  Act, 1963.  Nor  do  we  propose  to  decide whether the  application under  section 20 could be defeated on the  ground of  the extinction  of the  liability of  the company under clause 19. We may, however, observe in passing that in  view of  the decision  on this  Court in Wazirchand Mahajan and  another v.  Union of India(4) if the difference which had  arisen between  the parties  was the one to which the arbitration  clause applied  then the  application under section 20  of the  Act could not be dismissed on the ground that the  claim would not ultimately succeed either on facts or in  law. The matter will have to be left for the decision of the  arbitrator. Without any discussion we may just state that the High Court is not right in its (1) I.L.R. XXXVIII Bombay, 344.              (2) A.I.R.1949,                                               Calcutta, 390. (3) A.I.R. 1950 (East) Punjab 352. (4) [1967] 1 S. C. R. 303                                             (vide page 308). 6-L1276 SCI/75 72 view that  respondent no.  1’s claim  was not  barred  under clause 19  because of  the provision  of  law  contained  in section 37(3) of the Act      But in  this case  on a  careful consideration  of  the matter we  have come  to the  definite conclusion  that  the difference which  arose between the parties on the company’s repudiation of  the claim  made by  respondent no. 1 was not one to  which the  arbitration clause  applied and hence the arbitration agreement could not be filed and 3 no arbitrator could be  appointed under  section 20 of the Act. Respondent no. 1 was ill-advised to commence an action under section 20 instead of  instituting a  suit within  three months  of the date of repudiation to establish the company’s liability.      For the reasons stated above, we allow this appeal, set aside the  judgment and  orders  of  the  courts  below  and dismiss respondent , no. 1’s application filed under section 20 of  the Act.  Since he fails on technical grounds, in the circumstances of  the case,  we shall  direct the parties to pay and bear their own costs throughout. V.P.S.                                       Appeal allowed. 73