Bharat Bank Ltd. and Another vs Ruby General Insurance Co. Ltd.

Falshaw, J.—The facts giving rise to this Letters Patent appeal are as follows. The firm Kartar Singh Amrik Singh owned a quantity of cotton which was lying stored in the godowns of a Ginning Factory at Jandiala, this cotton being hypothecated to the Amritsar Branch of the Bharat Bank Limited. The cotton was insured for a sum of Rs. 50,000/ - against damage by fire by means of a policy taken with Ruby General Insurance Company Limited on 21-12-1947, the policy being renewed on 13-02-1948, for a further period of three months. On the night between 20 and 21-03-1948, a fire took place in the godowns of the Ginning Factory in which it is alleged that the whole stock of cotton was destroyed. The news of this fire was conveyed to the Insurance Company by the interested Bank by means of a letter dated 22-03-1948. Thereafter a difference arose between the parties regarding the amount payable by the Insurance Company for the damage to the cotton. Negotiations went on for some time and on 21-01-1949, the Insurance Company made an offer to pay Rs. 22,500/ - in full and final settlement of the loss. It was stated by Mr. Baij Nath Chopra, Manager of the Insurance Company, in his evidence that notice had been served on the Insurance Company of the intention of the claimants to refer the matter to arbitration, but apparently no arbitrator was appointed by the parties and on 18-03-1949, the firm which owned the cotton and the Bank jointly filed an application in Court u/s 20, Arbitration Act. The application was resisted by the Insurance Company on grounds which gave rise to the following issues:

Has Bharat Bank applicant 1 no ''locus standi'' to bring the present application?

Is the present application within time?

Is the agreement not binding on Respondent so far as arbitration reference is concerned.

The first ''and'' the third of these points were decided in the Petitioners'' favour and no longer arise. The objection of the Insurance Company which gave rise to the second issue was based on Clause 19 of the conditions contained in the Insurance policy, which reads:

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.

This issue was only dealt with briefly by the learned Subordinate Judge, who came to the conclusion that the parties could not by mutual agreement alter the ordinary laws of limitation, and that in any case the application u/s 20, Arbitration Act, being filed within 12 months of the date of the fire which gave rise to the loss or damage could be regarded as a pending action. He accordingly ordered that the arbitration agreement contained in Clause 18 in the policy should be filed in Court and fixed ''a date for the parties'' statements regarding whether they could agree on any arbitrator. An appeal against this order was filed in this Court by the Insurance Company. The appeal was decided in the Company''s favour by Kapur J. on 06-07-1950 on the following findings as summarised at the end of his judgment:

That a limitation placed by the terms of a policy during which a claim can be made or after which excepting in certain contingencies the liability of the insurer will cease is not a condition which is void either under the Contract Act or under the Limitation Act.

The use of the word ''action'' in the terms and conditions of the policy is unfortunate as the word ''action'' is not used in Indian Law.

That the proceedings u/s 20 are not a suit even if the word ''action'' was equivalent to the word ''suit''.

That a pending suit is not an exception within the terms of Clause 19, and therefore, would be of no avail to the insured.

The present appeal has been filed against this order by the Bank and the Company which owned the cotton. The question on which the decision of the appeal turns is clearly divisible into two parts:

Whether the Clause 18 in the Insurance Policy which is intended to supersede the ordinary Laws of limitation is valid and enforceable; and

whether even if this clause is valid and enforceable, a petition u/s 20, Arbitration Act, filed in Court within 12 months of the date of the damage or loss is a "pending action.

It seems to me that this appeal can be decided without going into the first of these questions, on which the decision of the learned Single Judge appears to be based on good authority although ''prima facie'' the proposition involved would appear to me to be highly debatable. We have, however, not heard full arguments on this point and only heard arguments on the second point.

The learned Single Judge was no doubt correct in stating that the word ''action'' is not a word which is used in Indian Law, and therefore it would appear that the word must be given the meaning which it has in English law, on which point it does not seem to me that there can be any better authority than Halsbury''s Laws of England. The definition of the word ''action'' appears at the very beginning on p. 2 of Vol. I, Para 1, which reads:

An ''action'' according to the legal meaning of the term, is a proceeding by which one party seeks in a Court of justice to enforce some right against, or to restrain the commission of some wrong by, Anr. party. More concisely it may be said to be ''the legal demand of a right,'' or ''the mode of pursuing a right to judgment''. It implies the existence of parties, of an alleged right, of an alleged infringement thereof (either actual or threatened), and of a Court having power to enforce such a right.

In its wider meaning the term includes both civil and criminal proceedings; it was frequently so used by old writers, and the House of Lords has recognised that it is a generic term, inclusive, in its proper legal sense," of suits by the Crown, and comprehending, in legal phraseology, every suit, whether by a subject, or in the name of the Sovereign or by an information by the Attorney General on behalf of the Crown. It is, however, generally used in a more restricted or popular sense as denoting a civil action brought by a subject and commenced by writ or plaint.

The learned Single Judge, in an endeavour to understand the meaning of the word ''action'' as used in Clause 19 of the Policy in dispute, appears in his finding to have gone even beyond the position adopted on behalf of the Insurance Company. This seems to have resulted from the fact that in other clauses of the same Policy the word ''suit'' has also been used, apparently as being something distinct from an "action". These instances have been collected at one part of his judgment by the learned Single Judge who has carefully perused all the clauses of the Policy for instances of the use of the word ''action''. The results of his research are as follows:

In Clause 4 the opening words are "In any action, suit or other proceedings, the burden of proving."

Clause 6 begins with the words: "In any action, suit or other proceedings...."

In Clause 13 the words occur: "If the claim be made and rejected and an action or suit is not commenced within three months after such rejection."

Clause 18 is the clause which relates to the reference of any dispute between parties to arbitration and it concludes with the sentence: "It shall be a condition precedent to any right of action or suit upon this Policy that the award by such arbitrator, arbitrators or umpire of the amount of the loss or damage if disputed shall first be obtained."

The only other use of the word ''action'' is in the clause now under consideration No. 19. It is contended on behalf of the Respondent that in this clause the word ''action'' is to all intents and purposes synonymous with the word ''suit''. The learned Single Judge, however, has apparently come to the conclusion from the fact that in other clauses in the Policy ''suit'' and ''action'' have been used as separate terms, while in Clause 19 only the word ''action'' was used, that the word ''action'' was intended to mean something quite separate and distinct from a ''suit'' and that therefore even a regular suit instituted within one year of the loss or damage would not save the claimant''s rights under Clause 19. This, however, is not the case of the Respondent who conceded that a suit instituted within 12 months would come within the purview of Clause 19. It seems to me that it is impossible in construing the terms of the Insurance Policy to come to the conclusion that the word ''action'' has been used in various clauses without any meaning, and the fact that in the clauses listed above it has been used as an alternative to the word ''suit'', while in the clause under consideration it is used alone without the word ''suit'' as an alternative, is a strong indication that the two words are not intended to be interchangeable or synonymous. The word ''suit'' certainly has the more restricted meaning of the two words and therefore the inevitable conclusion is that the word ''action'' is intended to have a wider meaning than the word ''suit''. As a matter of fact, when he was asked what the meaning of the word ''action'' in the terms of the Policy was, the learned Counsel for the Respondent, although he tried to maintain that for the purpose of Clause 19 the word was synonymous to ''suit'', at Anr. time said that the word ''action'' must be taken to have its meaning in English Law. This meaning is obviously very wide indeed if we are to rely on the authority of Halsbury, than which it does not seem there can be any better authority. Indeed, the definitions of the word ''action'' contained in other Law Dictionaries and Lexicons appear to be based on Halsbury. In the circumstances I am of the opinion that the word ''action'' as used in Clause 19 in the Policy must be taken to have meaning wide enough to cover an application to a Court u/s 20, Arbitration Act, for the filing of an agreement to refer to arbitration. There is little or no case in law to help us in deciding the point. No Court in India appears to have given any decision on this particular point and the nearest English case, though not altogether on the point, is Cox v. Hoare (1907) 95 L.T. 121, in which it was held that the special case stated under the Arbitration Act of 1889 was within the definition of the word ''action''. There is, however, a provision in the English Arbitration Act of 1889 in Section 5 by which the intervention of the Court can be sought by one of the parties to an agreement to refer to arbitration, which is called a "submission" in the English Act, when difficulties arise between the parties about the appointment of an arbitrator or arbitrators or an umpire, and this section is the nearest approach in the English Act to Section 20 in the Indian Act. In the absence of any authority to the effect that an application to the Court u/s 5, English Act, would not amount to an "action", I am inclined to hold that such an application would amount to an "action" within the meaning of the definition of the word as given in the Halsbury.

One argument was advanced by the learned Counsel for the Appellant with which I cannot altogether agree. This argument was that even if the word ''action'' in the clause in dispute were held to be synonymous with suit, it would still cover an application u/s 20, Arbitration Act. The grounds on which this argument was based are that in Sub-Section 2 of Section 20 it is provided that the application should be in writing and shall be numbered and registered as a suit between one and more of the parties interested or claiming to be interested as plff. or plffs. and the remainder as deft. or defts., and elsewhere in the Act in Section 41-A it is laid down that the provisions of CPC shall apply to all proceedings before the Court and appeals under the Act. I do not, however, think it is necessary to embark on a long discussion on this subject, since whether an application u/s 20, Arbitration Act, becomes a suit or not by virtue of these provisions in the Act, I am of the opinion that such an application is covered by the word ''action''. Before concluding I do not think it would be out of place to remark that this litigation has made it clear that a good deal of time and trouble would be saved to parties and to Courts if Insurance Companies in this country did not merely copy clauses wholesale from English insurance policies, but drew up the conditions of their Policies so as to include only words which have a definite legal meaning in this country.

In the circumstances I would accept the appeal with costs and restore the order of the trial Court filing the arbitration agreement contained in Clause 18 of the Policy in Court and directing further proceedings.

The parties have been directed to appear in the trial Court on 28-05-1951.

Khosla, J.

I agree.