Pragati Power Corporation Ltd. v. The Oriental Insurance Company Limited

to be considered by the Arbitral Tribunal. It is also contended that the judgment of the Supreme Court in Oriental Insurance Co. Ltd. v. Narbheram Power and Steel (P) Ltd. and United India Insurance Co. Ltd. v. Hyundai Engg. and Construction Co. Ltd. are not applicable to the present case, in view of the legal position that has emerged in the aftermath of Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 & Stamp Act, 1899, In re and also on account of the fact that the arbitration clauses that fell for consideration in those cases (unlike in the present case) contained words of negative import which expressly debarred/precluded arbitration in the event of the insurer not accepting its liability under the policy.

7. Reliance has also been placed on behalf of the petitioner on Payu Payments (P) Ltd. v. New India Assurance Co. Ltd., which has expressly recognised that in terms of the contemporary legal position, it is impermissible at the stage of considering a petition under Section 11 of the A&C Act to enter the arena of arbitrability of disputes.

8. The petitioner has also relied on a recent judgment of the Supreme Court, Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd. wherein it has been held that any arbitrary preconditions to an arbitration agreement are to be examined on the touchstone of Article 14 of the Constitution of India and can be struck down if found to be arbitrary, unreasonable or violative of Constitutional principles.

9. On the other hand, learned counsel for the respondent has opposed the present petition inter alia contending as under:

(i) Clauses akin to the arbitration clause in the present case have been construed by this Court in Vulcan Insurance Co. Ltd. v. Maharaj Singh; Oriental Insurance Co. Ltd. v. Narbheram Power and Steel (P) Ltd. and United India Insurance Co. Ltd. v. Hyundai Engg. and Construction Co. Ltd. It is contended that in the said cases it has been recognised that an arbitration clause is required to be strictly construed and where the clause precludes arbitration unless liability is admitted by the Insurance Company, the courts would give effect to such a covenant.

(ii) It is also contended that the judgment of the Supreme Court in Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd.[8] has no application to the facts of the present case inasmuch as there was no controversy in Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd. that the disputes between the parties were arbitrable; the controversy in Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd. was only with regard to the validity of a provision which provided for 7 per cent predeposit of the total claim amount as a precondition for invoking arbitration. It is contended that neither Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd. nor Central Organisation for Railway Electrification v. ECI SPIC SMO MCML (JV) A Joint Venture Co. militates against the position that it is permissible to prescribe that recourse to arbitration can be taken only in the event of the Insurance Company admitting its liability, the arbitrable dispute being only as regards the quantum of amount to which the insured is entitled.

(iii) Learned counsel for the respondent has sought to distinguish the judgment of a coordinate Bench of this Court in Payu Payments (P) Ltd. v. New India Assurance Co. Ltd. by contending that in terms of Interplay between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In re and SBI General Insurance Co. Ltd. v. Krish Spinning, the examination as regards the prima facie existence of an arbitration agreement has to be in the context of Section 7 of the A&C Act. Thus, the examination for the purpose of the present proceeding should be to see if there is an arbitration agreement between the parties “pertaining to the disputes” between the parties.

(iv) The respondent also relies upon an English judgment rendered by the Kings Bench Division, Commercial Court in DC Bars Ltd. v. QIC Europe (Comm) wherein the said Court has upheld the restrictive applications of an identically worded arbitration clause and has held that the same can be invoked only where the disputes involve assessment of quantum and not where the issue of liability is also in dispute. Reasons and conclusion

10. In the opinion of this Court, the present case is clearly covered by the decision of a coordinate Bench of this Court in Payu Payments (P) Ltd. v. New India Assurance Co. Ltd. In that case, the court dealt with a similar opposition to the Section 11 petition, based on the judgments of the Supreme Court in Oriental Insurance Co. Ltd. v. Narbheram Power and Steel (P) Ltd. and United India Insurance Co. Ltd. v. Hyundai Engg. and Construction Co. Ltd. By taking note of the position of law, as explicitly set out in SBI General Insurance Co. Ltd. v. Krish Spinning, it was specifically observed as under: (Payu Payments (P) Ltd. case, SCC OnLine Del paras 27, 30, 31, 33, 39-42 and 44)

27. I am unable to agree with the submissions of Dr George. For the first instance, the paragraps from the judgment in SBI General Insurance Co. Ltd. case, on which Dr George placed reliance, do not clearly say that, where the claim of the claimant in the arbitral proceedings relates to the respondent's liability to pay insurance, the referral court cannot refer the disputes to arbitration. ∗∗∗

30. There is nothing in the decision in SBI General Insurance Co. Ltd. case which holds that, where the claim of the insured party also relates to the liability of the Insurance Company, the dispute would not be arbitrable because of the exclusionary covenant in the insurance clause.

31. That apart, the argument of Dr George, at the highest, is a challenge to the arbitrability of the dispute. The Supreme Court, in SBI General Insurance Co. Ltd. case, has clearly held, inter alia in para 120 of the decision, that any question of arbitrability or nonarbitrability of the dispute has to be relegated to the Arbitral Tribunal. It is not possible, therefore, for this Court after SBI General Insurance Co. Ltd. case, to accept Dr George's contention, as doing so would amount to this Court returning a finding that the dispute is not arbitrable as the respondent has repudiated the petitioner's claim, which it cannot do, under Section 11(6). ∗∗∗

33. Apropos the decisions in Oriental Insurance Co. Ltd. case and United India Insurance Co. Ltd. case, these are both decisions which were rendered at a time when SBI General Insurance Co. Ltd. case had yet to be pronounced. They pertain to an era in which the scope of examination by a Section 11 court was radically different from the scope as it exists now. ∗∗∗

39. Both these decisions, therefore, were rendered at a time when the High Court, exercising jurisdiction under Section 11 of the 1996 Act, could enter into the arena of arbitrability of the dispute. That, indeed, was the law as it prevailed in several decisions prior to SBI General Insurance Co. Ltd. case, including, notably, Vidya Drolia v. Durga Trading Corpn.

40. The decision in SBI General Insurance Co. Ltd. case, however, has resulted in a paradigm shift in the scope of examination by a Section 11 court. As of today, a Section 11 court cannot examine the aspect of arbitrability of the dispute.

41. If this Court were to accept the submissions of Dr George and hold that the dispute that the petitioner seeks to be referred to arbitration cannot be referred because of the repudiation of the petitioner's claim by the respondent, it would amount to a finding that the petitioner's claims have, by reasons of their repudiation by the respondent, been rendered non-arbitrable. Such a finding would amount to this Court pronouncing on the arbitrability of the dispute while acting as a referral court. That this Court cannot do, in view of the law laid down in SBI General Insurance Co. Ltd. case, particularly para 120 thereof.

42. It may be noted that the Supreme Court has, in para 114 of the report in SBI General Insurance Co. Ltd. case, left no scope for doubt on this aspect at all, by observing that “the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of arbitration agreement and nothing else”. ∗∗∗

44. I am not, therefore, inclined to accord, to the decision in SBI General Insurance Co. Ltd. case, any interpretation which would dilute the intent of the said decision, which is to minimise the scope of examination at a Section 11 stage and to relegate as many issues in controversy as possible to the Arbitral Tribunal for decision. (emphasise supplied)

11. The above observations squarely apply to the objections raised by the respondent in the present case as well. As noted, Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In re and SBI General Insurance Co. Ltd. v. Krish Spinning have resulted in a paradigm shift in the scope of examination in proceedings under Section 11 of the A&C Act. It is now impermissible for a Section 11 court to dwell on the issues of “arbitrability” or the scope of the arbitration agreement.

12. Issues concerning arbitrability/non-arbitrability are required to be relegated to the Arbitral Tribunal. In SBI General Insurance Co. Ltd. v. Krish Spinning, the Supreme Court specifically took note of the fact that the position of law, as set out in Vidya Drolia v. Durga Trading Corpn.; NTPC Ltd. v. SPML Infra Ltd. (and other line of judgments) in terms of which it was permissible for a Section 11 court to weed out “ex facie non arbitration disputes” would not continue to hold good in view of the decision by a seven Judge Bench of the Supreme Court in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In re. It was specifically observed as under:

114. In view of the observations made by this Court in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In re, it is clear that 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. For this reason, we find it difficult to hold that the observations made in Vidya Drolia case and adopted in NTPC Ltd. v. SPML Infra Ltd. that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In re.

13. It was also observed as under:

122. Once an arbitration agreement exists between parties, then the option of approaching the civil court becomes unavailable to them. In such a scenario, if the parties seek to raise a dispute, they necessarily have to do so before the Arbitral Tribunal. The Arbitral Tribunal, in turn, can only be constituted as per the procedure agreed upon between the parties. However, if there is a failure of the agreed upon procedure, then the duty of appointing the Arbitral Tribunal falls upon the referral court under Section 11 of the Act, 1996. If the referral court, at this stage, goes beyond the scope of enquiry as provided under the section and examines the issue of “accord and satisfaction”, then it would amount to usurpation of the power which the parties had intended to be exercisable by the Arbitral Tribunal alone and not by the national courts. Such a scenario would impeach arbitral autonomy and would not fit well with the scheme of the Act,

1996.

14. It is also relevant that arbitration clauses that fell for consideration for the Supreme Court in Oriental Insurance Co. Ltd. v. Narbheram Power and Steel (P) Ltd. and United India Insurance Co. Ltd. v. Hyundai Engg. and Construction Co. Ltd. contained the following words of negative import: (Oriental Insurance Co. Ltd. case SCC p. 540 para 7) “It is clearly agreed and understood that no difference or dispute shall be referable to arbitration and hereinabove provided, if the Company has disputed or not accepted liability under or in respect of this policy.”

15. It is notable that such words of negative import are not to be found in the present arbitration agreement. Whether or not the same has any bearing on the scope of the arbitration agreement would require an interpretative exercise. Necessarily, such exercise is best left to be done by a duly constituted Arbitral Tribunal.”

13. Court also delved into the issue of the arbitration agreement being strictly construed and the impact of a condition in the agreement that insurance company must admit its liability under the policy before the insured can take recourse to the arbitration clause and held that the contention that an arbitration agreement is required to be strictly construed to preclude even appointment of an Arbitrator cannot be accepted. Even the question whether or not arbitration is precluded will hinge on interpretation of the arbitration agreement which must necessarily be done by the Arbitrator. All attendant factual aspects including validity/invalidity of ‘repudiation’ on the part of the insurance company and/or any other aspect having a bearing on the issue of arbitrability will also be the remit of an Arbitrator. Relevant passages from the judgment are as follows:- “16. Learned counsel for the petitioner has also sought to assail the precondition in the present arbitration agreement viz. that the Insurance Company must admit its liability under the policy before the insured can take recourse to the arbitration clause. It is further contended that the arbitration agreement cannot be construed/applied in a manner so as to permit the respondent to avoid arbitration on the basis of a self-serving, untenable repudiation.

17. The petitioner relies upon Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd. to contend that the arbitration clause in the policy be construed in a manner so that the right of the petitioner to seek arbitration, is not defeated on account of any arbitrary action of the respondent. For this purpose, reliance is sought to be placed on the following observations in Lombardi Engg. Ltd. v. Uttarakhand Jal Vidyut Nigam Ltd.: (SCC p. 391, para 83)

83. The concept of “party autonomy” as pressed into service by the respondent cannot be stretched to an extent where it violates the fundamental rights under the Constitution. For an arbitration clause to be legally binding it has to be in consonance with the “operation of law” which includes the Grundnorm i.e. the Constitution. It is the rule of law which is supreme and forms parts of the basic structure. The argument canvassed on behalf of the respondent that the petitioner having consented to the pre-deposit clause at the time of execution of the agreement, cannot turn around and tell the court in a Section 11(6) petition that the same is arbitrary and falling foul of Article 14 of the Constitution is without any merit.

18. Whether or not arbitration is precluded in the present case or whether the claims sought to be raised by the petitioner are liable to be resolved through arbitration in view of the aforesaid submissions of the petitioner, will hinge on the interpretation of the arbitration agreement. The same shall necessarily be done by a duly constituted Arbitral Tribunal. All attendant factual aspects, including the issue as to validity/invalidity of the “repudiation” on the part of the Insurance Company and/or any other aspect which has a bearing on the issue of arbitrability, will also necessarily be considered by a duly constituted Arbitral Tribunal.

19. This Court also finds it untenable to accept the contention of the respondent that an arbitration agreement is required to be “strictly construed” so as to preclude even appointment of an arbitrator. While observations to this effect may have been made in some earlier judgments, the contemporary view that has emerged is that where two interpretations are possible, the court must favour the one that gives effect to the agreement to arbitrate.

20. It has been observed by the Supreme Court in Chloro Controls India (P) Ltd. v. Severn Trent Water Purification Inc., as under: (SCC p. 692, para 96)

21. In MTNL v. Canara Bank, it was observed as under: (SCC p. 776, para 9.5)

9.5. A commercial document has to be interpreted in such a manner so as to give effect to the agreement, rather than to invalidate it. An “arbitration agreement” is a commercial document inter partes and must be interpreted so as to give effect to the intention of the parties, rather than to invalidate it on technicalities. xxx xxx xxx

26. It is again emphasised that in terms of the settled law, the scope of examination in the present proceedings is confined to ascertaining prima facie, the existence of an arbitration agreement. All other issues, including the objections raised by the respondent, are required to be dealt with by a duly constituted Arbitral Tribunal.”

14. As can be seen in M/s Inox World (supra), the Court relied on the judgement in Payu Payments (supra), where the Respondent argued that the arbitration clause would not apply since Respondent had repudiated Petitioner’s claim and relied on the judgments, which are relied upon by the Respondent in the instant case. Disagreeing with the Respondent, Court permitted the parties to appoint their nominee Arbitrators, who would then proceed to appoint the Presiding Arbitrator, holding that there was nothing in the decision in Krish Spinning (supra), which holds that where the claim of the insured party also relates to the liability of the insurance company, the dispute would not be arbitrable because of the exclusionary covenant in the insurance clause. It was observed that in Krish Spinning (supra), Supreme Court has clearly held, inter alia that any question of arbitrability or nonarbitrability of the dispute has to be relegated to the arbitral tribunal and holding otherwise would amount to this Court returning a finding that the dispute is not arbitrable as the Respondent has repudiated Petitioner's claim, which it cannot do under Section 11(6).

15. Significantly, Court distinguished the judgements relied upon the Respondent herein and held that apropos the decisions in Narbheram (supra) and Hyundai Engineering (supra) are both decisions which were rendered at a time when Krish Spinning (supra) had yet to be pronounced. They pertain to an era in which the scope of examination by a Section 11 Court was radically different from the scope as it exists now. In both these decisions, the High Court proceeded to refer the dispute to arbitration. In Narbheram (supra), a specific plea was raised before the High Court that, as the Insurance Company had repudiated claimant's claim, the High Court could not have appointed an arbitrator. The High Court, nonetheless, went ahead to do so. The Supreme Court found that the High Court could not have referred the dispute to arbitration in view the wording of the clause in that case. However, the decision in Krish Spinning (supra), has resulted in a paradigm shift in the scope of examination by a Section 11 Court and as of today, a Section 11 Court cannot examine the aspect of arbitrability of the dispute. Court highlighted that the Supreme Court has in para 114 of the report in Krish Spinning (supra), left no scope for doubt on this aspect at all, by observing that the scope of enquiry at the stage of appointment of arbitrator is limited to the scrutiny of prima facie existence of arbitration agreement, and nothing else.

16. In Pragati Power (supra), Court was dealing with same Clause 12 of IAR policy in a petition filed under Section 11(6) of the 1996 Act, where Respondent took a preliminary objection as to the arbitrability of the claims raised by the Petitioner on the ground that Respondent had denied its liability qua the claims through various communications and therefore, the claims being limited to the quantum of the amount payable could not be referred to arbitration. This objection was not accepted by the Court observing that scope of interference in a petition under Section 11(6) of the 1996 Act has been crystalized by the Supreme Court in Krish Spinning (supra), which has resulted in a significant shift in the landscape and a referral Court now has minimal interference. Relevant paragraphs of the judgment are as follows:- “8. The scope of interference of a Court exercising its power under Section 11 of the Arbitration and Conciliation Act, 1996, has now been crystallized by the Apex Court in the judgment of SBI General Insurance Co. Ltd. v. Krish Spinning, 2024 SCC OnLine SC 1754, which has resulted in a significant shift in landscape. In doing so, the Apex Court has rendered the following observations, which reads as under:- “114. In view of the observations made by this Court in In Re: Interplay (supra), it is clear that 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. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of “accord and satisfaction” under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re: Interplay (supra). xxx

118. Tests like the “eye of the needle” and “ex-facie meritless”, although try to minimise the extent of judicial interference, yet they require the referral court to examine contested facts and appreciate prima facie evidence (however limited the scope of enquiry may be) and thus are not in conformity with the principles of modern arbitration which place arbitral autonomy and judicial noninterference on the highest pedestal. xxx

123. The power available to the referral courts has to be construed in the light of the fact that no right to appeal is available against any order passed by the referral court under Section 11 for either appointing or refusing to appoint an arbitrator. Thus, by delving into the domain of the arbitral tribunal at the nascent stage of Section 11, the referral courts also run the risk of leaving the claimant in a situation wherein it does not have any forum to approach for the adjudication of its claims, if it Section 11 application is rejected. xxx

125. We are also of the view that ex-facie frivolity and dishonesty in litigation is an aspect which the arbitral tribunal is equally, if not more, capable to decide upon the appreciation of the evidence adduced by the parties. We say so because the arbitral tribunal has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral court. If the referral court is able to see the frivolity in the litigation on the basis of bare minimum pleadings, then it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at the same inference, most likely in the first few hearings itself, with the benefit of extensive pleadings and evidentiary material.”

9. This Court also takes note of the judgments rendered by the Coordinate Benches in Payu Payments (supra) & Inox World Industries (supra), whereby the decision of the Apex Court in Krish Spinning (supra) has been graciously upheld and minimal interference has been made in adjudicating upon petitions filed under Section 11 of the Arbitration and Conciliation Act, 1996. Both these decisions squarely cover most of the contentions raised by the learned Senior Counsel for the Respondent in the present petition.

10. Yet, in order to duly pay heed to the arguments raised by the parties, this Court shall now examine the rival contentions of the parties in light of the array of case laws laying down the law on Section 11 of the Arbitration and Conciliation Act, 1996.

11. At the very outset, this Court notes that there exists a valid arbitration agreement under Clause 12 of the IAR Policy between the parties to the present petition. This has not been disputed by the learned Senior Counsel for the Respondent. Further, this dispute regarding arbitrability in no way alters the existence of the arbitration agreement, and as such, can be better adjudicated upon by the arbitral tribunal as a preliminary issue. Resultantly, in terms of Krish Spinning (supra), this sole observation that there exists an arbitration agreement is sufficient for this Court to appoint an Arbitrator to adjudicate upon the inter se disputes between the parties to the present Petition.

12. Though it has already been observed by the Coordinate Benches of this Court in Payu Payments (supra) & Inox World Industries (supra), this Court still deems it appropriate to observe that the decisions of the Apex Court in Hindustan Engineering (supra) and Narbheram Power (supra) no longer hold good on the law of scope of examination by a Section 11 Court. These decisions of the Apex Court were rendered prior in time to the Judgment of Krish Spinning (supra) and as such, the scope of a Section

13. Since it is well-settled that referral courts should normally follow the policy of „when in doubt, refer‟ and in view of the fact that disputes have certainly arisen between the parties, this Court is inclined to appoint an Arbitrator to adjudicate upon the disputes between the parties.

14. It is made clear that the observations made in this Order are squarely limited to the appointment of an Arbitrator. Needless to say, it is open for the Respondent to urge its contention inter alia regarding the arbitrability of disputes before the Arbitrator.”

17. In light of these judgments, Respondent cannot be heard to say that this Court should determine whether the disputes raised by the Petitioner are arbitrable or that there is accord and satisfaction and hence the claims cannot be referred for arbitration. In Krish Spinning (supra), the Supreme Court re-considered the scope of Section 11(6) of the 1996 Act and clarified that exercise of power under Section 11(6) of the 1996 Act would be limited to examining the existence of arbitration agreement and whether the petition is barred by limitation. This clarification was based on the decision of the seven-Judge Bench of the Supreme Court in Interplay Between Arbitration Agreements under Arbitration and Conciliation Act, 1996 and Stamp Act, 1899, In Re, (2024) 6 SCC 1. It was also observed that the dispute regarding accord and satisfaction does not pertain to existence of the arbitration agreement and can be adjudicated by the Arbitrator as a preliminary issue. Hence, the preliminary objections of the Respondent are rejected, being bereft of merit.

18. Accordingly, Ms. Justice Shalinder Kaur, former Judge of this Court (Mobile No. 9910384702) is appointed as the Sole Arbitrator to adjudicate the disputes between the parties. Arbitral proceedings will be held under the aegis of Delhi International Arbitration Centre (‘DIAC’). Fee of the Arbitrator shall be fixed as per fee schedule under DIAC (Administrative Cost & Arbitrators’ Fees) Rules 2018.

19. Learned Arbitrator shall give disclosure under Section 12 of the 1996 Act before entering upon reference.

20. It is made clear that this Court has not expressed any opinion on the merits of the case and all rights and contentions of the parties are left open. It is left open to the Respondent to raise the questions of arbitrability of the disputes as also alleged accord and satisfaction of the claims before the learned Arbitrator.

21. Petition is disposed of in the aforesaid terms.

JYOTI SINGH, J SEPTEMBER 10, 2025