India: Applicability Of Section 11 (6A) Of The Arbitration And Conciliation Act, 1996 In Case Of An Conditional Arbitration Clause

The Hon'ble Supreme Court of India, recently1, while setting aside a judgment of the High Court of Judicature at Madras opined that an arbitration clause needs to be interpreted strictly and the matter shall not be referred to arbitration for a claim which the parties did not intent to arbitrate. The Hon'ble Supreme Court evaluated the applicability of sub-section 6A of Section 11 of the Arbitration & Conciliation Act, 1996 ('Act'), which was introduced by way of Arbitration and Conciliation (Amendment) Act, 2015 ("Act of 2015"). In brief, the said sub-section states that the Supreme Court or the High Court while considering any application under sub section (4) or sub section (5) or sub section (6) of Section 11, shall, notwithstanding any judgment, decree or order of any Court, confine to the examination of the existence of an arbitration agreement.


The Petitioner No. 1 & 2 constituted a Joint Venture (JV) and the Respondent No. 3 (NHAI) awarded a contract on 29.09.2006 to the JV for design, construction and maintenance of a bridge across the River Chambal, which was to be completed within a period of 40 months and was commenced on 5.12.2007 by the JV after Respondent No. 3 handed over the site to it. After commencement of the work, Contractor All Risk Insurance Policy (CAR policy) dated 5.12.2007 was obtained from the Respondent No. 1, United India Insurance Co. Ltd. (Insurer), covering the entire project valued at INR 213,58,76,000/-.

During the construction of the bridge, there was an accident onsite which resulted in huge losses and the same was intimated to the Insurer by NHAI. The Insurer thereafter proceeded to assess the loss by appointing a Surveyor and Loss Adjuster for the purpose. In addition, a Committee of Experts was set up by the Ministry of Road Transport and Highways, Government of India to enquire into the accident and the committee submitted its report on 07.08.2010. A final report was submitted by the Surveyor on 28.02.2011 concluding that the damage was on account of faulty design and improper execution of the project.

The Insurer took into account both these reports and vide communication dated 21.04.2011, intimated the petitioners that the claim put forth by the JV, was found to be not payable, and accordingly, stood repudiated. The JV nevertheless entered into correspondence with the Respondent No. 1 to reopen and re-assess its decision of repudiation of the claim but the Respondent No. 1 intimated that it was unable to "reconsider" the claim which has already been repudiated.

Thereafter, the JV on 29.05.2017 invoked the arbitration clause under Article 7 in the Insurance policy and nominated Dr. V.K. Agrawal as the Arbitrator and called upon the Insurer to either accept the nomination made by it or nominate its Arbitrator within 30 days from receipt of the letter. The Insurer, quoting Article 7 of the Policy rejected the reference to arbitration and consequent nomination of the Arbitrator and eventually, the Petitioners filed a petition under Sections 11(4) & 11(6) of the Act.


"The policy contained clause 7, which reads as follows:

  1. If any 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 an arbitrator to be appointed in writing by the parties in difference. ...........
  2. It is clearly agreed and understood that no difference or dispute shall be referable to arbitration as herein before provided, if the Company has disputed or not accepted liability under or in respect of this Policy.
  3. It is also hereby further expressly agreed and declared that if the Company shall disclaim liability to the insured for any claim hereunder and such claim shall not within 3 calendar months from the date of such disclaimer have been made the subject matter of a suit in a court of law, then the claim shall for all purpose be deemed to have been abandoned and shall not thereafter be recoverable hereunder."

(emphasis supplied)


The Hon'ble Madras High Court held that both the invocation of the arbitration clause and the rejection of the same by the Respondent No. 1 are post the changes brought in by the Act of 2015 and thus the Court is obligated to apply the provisions of Section 11(6A). It was held that, by insertion of sub-section 6A in Section 11 of the Act, the limited mandate of the Court is to examine the factum of existence of an arbitration agreement only and since an arbitration clause exists under the Insurance Policy, the Court is obliged to appoint an arbitrator for adjudication of disputes between the parties to the Insurance Policy.


The impugned judgment was challenged by the Insurer before the Hon'ble Supreme Court of India in Civil Appeal No. 8146 of 2018. The question to be considered by the Hon'ble Supreme Court was whether Clause 7 of the Insurance Policy dated 5th September, 2007 posits unequivocal expression of the intention of arbitration or is hedged with a conditionality?

The present case distinguishes the celebrated judgment of the Hon'ble Supreme Court in the case of Duro Felguera, S.A. Vs. Gangavaram Port Limited2, with respect to meaning and interpretation of Section 11 (6A) of the Act.

While placing its reliance on the latest judgment of the Three Judges Bench in the case of Oriental Insurance Company Limited Vs. Narbheram Power and Steel Private Limited3, the Hon'ble Supreme Court opined that the arbitration clause has to be interpreted strictly. Since Article 7 is a conditional expression of intent, such an arbitration clause will get activated only if the dispute between the parties is limited to the quantum to be paid under the policy. The liability should be unequivocally admitted by the insurer as that is the pre-condition and sine qua non for triggering the arbitration clause. In cases where the insurance company disputes or does not accept the liability under or in respect of the policy, there can be no arbitration as per the wordings of the arbitration clause as referred above. The appeal was thus allowed and the impugned judgment of the Hon'ble High Court of Judicature at Madras was set aside by the Hon'ble Supreme Court.


1. United India Insurance Co. Ltd. & Anr. vs. Hyundai Engineering and Construction Co. Ltd. & Ors., C.A. No. 8146 of 2018

2. (2017) 9 SCC 729

3. (2018) 6 SCC 534

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