Emphasising that party autonomy in arbitration matters is of utmost importance, the Delhi High Court ruled that if an insurance policy was made after the referred IRDAI Circular and Gazette Notification and contains an arbitration clause, then the insurer cannot plead justification to issue an insurance policy containing an arbitration clause, unless the insurer (respondent) wanted to have an arbitration clause in its insurance policy.

The Court clarified that having signed the Insurance Policies after the IRDAI Circular came into existence and was duly gazetted shows that the respondent, despite the existence of the IRDAI Circular, chose to go ahead with the Insurance Policies containing the arbitration clauses. Hence, the respondent has given up its reliance on the IRDAI Circular for the Insurance Policies.

Since the arbitration clauses mandate a three-member Arbitral Tribunal and the petitioner has already nominated its nominee Arbitrator, the respondent shall appoint its Nominee Arbitrator within two weeks from the date of uploading of the order, added the Court.

A Single Judge Bench of Justice Jasmeet Singh observed that the respondent insurer had issued the Insurance Policies containing the arbitration clauses, and based on the Insurance Policies, the petitioner accepted the terms and conditions, paid the premium, and the receipt for the premium was issued, bringing into existence a concluded contract between the parties. Hence, the same amounts to an arbitration clause/ agreement under Section 7 of the Arbitration Act, 1996.

The Bench further observed that despite the IRDAI Circular having been in existence from October 27, 2023, the respondent did not mention the same in the Insurance Policies in question, which were from a period beginning from January 31, 2024. Since the IRDAI Circular was in existence on that date, there was no reason for the respondent to enter into the Insurance Policies with the petitioner containing the arbitration clauses.

The Single Judge noted that the reason for failure to include the IRDAI Circular dated October 27, 2023, in the original reply by the respondent is stated to be “inadvertent error and bona fide mistake”. However, the fact remains that on October 27, 2023, the IRDAI Circular was already promulgated, which was also gazetted on January 23, 2024.

Briefly, the respondent insurer had issued the Standard Fire and Special Perils Policies (Insurance Policies) in favour of the petitioner, wherein the sum insured was Rs. 104.73 crores and Rs. 15 crores, respectively. The General Conditions of Policy contained an arbitration clause that any dispute or difference arising as to the quantum to be paid under this policy (liability being otherwise admitted) shall independently be referred to the decision of a sole arbitrator.

During the course of work, a fire broke out in the premises of the petitioner, causing damage, which was duly reported to the respondent, claiming losses to the tune of Rs. 83.36 crores and Rs. 35.37 lacs. After going through the loss assessment summary suggested by the surveyor, at a loss of Rs. 42.55 crores and Rs. 25.12 lacs under the two Insurance Policies.

The petitioner, however, received a reduced amount of Rs. 42.16 crores and Rs. 25.12 lacs. Being dissatisfied, the petitioner invoked arbitration vide legal notice. As the respondent did not consent to the appointment of the Arbitrator, citing failure to include the IRDAI Circular dated October 27, 2023, the petitioner nominated its nominee Arbitrator and thereafter filed the petition.

Appearances:

Advocates Saurav Agarwal, Ritika Jhurani, Dinesh Sharma, Abhishek Kandwal, Prachi Dubey, Ujwal Sharma, Kiran Devrani, and Gauri Bansal, for the Petitioner

Senior Advocate Vishnu Mehra and Advocate Sanjay Kumar Chhetry, for the Respondent