Conditional Intention of Arbitration

3-Judge Bench [Hon’ble Justice Dipak Misra] in Oriental Insurance Company Limited, (2018) 6 SCC 534 opined: “It does not need special emphasis that an Arbitration Clause is required to be strictly construed. Any expression in the Clause must unequivocally express the intent of Arbitration. It can also lay the postulate in which situations the Arbitration Clause cannot be given effect to. If a Clause stipulates that under certain circumstances there can be no Arbitration, and they are demonstrably clear, then the controversy pertaining to the appointment of Arbitrator has to be put to rest.”

Thus, in United India Insurance Company Ltd. v. Hyundai Engineering and Construction Company Ltd., [Civil Appeal No. 8146 of 2018] a 3-Judge Bench [Hon’ble Justice Dipak Misra] interpreted the Arbitration Clause as a ‘conditional expression of intent’.

Such an Arbitration Clause will get activated or kindled 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. That is the pre-condition and sine qua non for triggering the Arbitration Clause. To put it differently, an Arbitration Clause would enliven or invigorate only if the Insurer admits or accepts its liability under or in respect of the concerned Policy. That has been expressly predicated in the opening part of the Clause as well as the second paragraph of the same Clause. Thus understood, there can be no Arbitration in cases where the Insurance Company disputes or does not accept the liability under or in respect of the Policy.”