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A fire is said to have broken out in the factory premises of respondent no. 1 in the night between 28-2-1963 and 1-3-1963 The Bank informed the Insurance Company about the fire. Thereupon representatives of the Bank and the Insurance Company and some surveyors visited the factory premises of 1-3-1963 and after. Respondent no. 1 claimed that due to fire he had suffered a loss of Rs. 24,800/- on account of damage to the fixed assets and Rs. 2,730,004.40 due to damage caused to the stock of goods. Eventually M/s. R. K. Bhandari & Sons, Surveyors of the Insurance Company wrote a letter dated 26th April, 1963 to respondent no. 1 informing him that they had assessed the total damage caused to him due to fire at Rs. 4,620/-. They, however, added at the end of their letter-"This is without prejudice to the terms and conditions of the policy and without any commitment of liability on the part of the Insurance Company." Further correspondence between the parties ensued and ultimately the appellant intimated to respondent no. 1 by its letter dated 5th July, 1963-"Referring to the previous correspondence relating to the above mentioned claim, we regret to inform you that we repudiate the claim under the above mentioned policies." Respondent no. 1 seems to have written a letter dated 22nd July, 1963 of the appellant, to which it sent a reply dated 29th July, 1963 categorically stating-"We are advised to repudiate your claim inter alia under Clause 13 of the Fire Policies. We regret that survey report and any other reports cannot be furnished to you."

Respondent no. 1 thereupon wrote a letter dated 1-1- 1963 to the Insurance Company informing it that since. it had repudiated his claim under clause 13 of the Insurance Policy a difference had arisen between the parties and hence respondent no. 1 proposed to appoint one Shri K. N. Bannerjee as the sole arbitrator, to decide the disputes as per the arbitration agreement incorporated in the policies. He said further that if the company was not agreeable to the appointment of Shri Bannerjee as the sole arbitrator, he may be treated as a nominee of respondent no. I and the company may point its own. In reply to the said letter dated the 1st October, 1963 the company wrote a letter dated 10th October. 1963 to respondent no. 1 that since it had reputed his claim the arbitration clause in the policies was rendered inoperative and no arbitration proceeding could be commenced by appointment of any arbitrator.

13. Although the surveyors in their letter dated 26-4-1963 had raised a dispute as to the amount of any loss or damage alleged to have been suffered by respondent No. 1, the appellant at no point of time raised any such dispute. The appellant company in its letter dated the 5th and the 29th July, 1963 repudiated the claim altogether. Under clause 13 the company was not required to mention any reason for rejection of the claim nor did it mention any. But the repudiation of the claim could not amount to the raising of a dispute as to the amount if any loss or damage alleged to have been suffered by respondent No. 1. If the rejection of the claim made by the insured be on the ground that he had suffered no loss as a result of the fire or the amount of loss was not to the extent claimed by him, then, and then only, a difference could have arisen as to the amount of any loss or damage within the meaning of clause 18. In this case, however, the company repudiated its liability to pay any amount of loss or damage as claimed by respondent No. 1. In other words, the dispute raised by the company appertained to its liability to pay any amount of damage whatsoever. In our opinion, therefore, the dispute raised by the appellant company was not covered by the arbitration clause.

As per clause 13 on rejection of the claim by the company an action or suit, meaning thereby a legal proceeding which almost invariably in India will be in the nature of a suit, has got to be commenced within three months from the date of such rejection; otherwise, all benefits under the policy stand forfeited. The rejection of the claim may be foe the reasons indicated in the first part of clause 13, such as, false declaration, fraud or wilful neglect of the claimant or on any other ground disclosed or undisclosed. But as soon as there is a rejection of 13 the claim and not the raising of a dispute as to the amount of any loss or damage, the only remedy open to the claimant is to commence a legal proceeding, namely, a suit, for establishment of the company's liability. It may well be that after the liability of the company is established in such a suit, for determination of the quantum of the loss or damage reference to arbitration will have to be resorted to in accordance with clause 18. But the arbitration clause, restricted as it is by the use of the words "if any difference arises as to the amount of any loss or damages', cannot take within its sweep a dispute as to the liability of the company when it refuses to pay any damage at all Mr. S. N. Andley, learned counsel for respondent No. 1 submitted that in view of the last part of clause 18 which makes the award of an arbitration a condition precedent to ally right of action or suit, it should be held that even when there is a repudiation of liability, the matter has to go to arbitration first. In support of such a submission, learned counsel placed reliance upon certain decisions of the courts in India as also ill England. We shall presently show that on the facts and in the circumstances of this A clause like the last part of clause 18 making the award a condition precedent to any right of action or suit first came up for consideration in the case of Scott v. Avery(1) and since then such clauses are Commonly called Scott v. Avery clauses. Generally it has been found that it the arbitration clause is couched in a comprehensive language taking within its ambit any kind of dispute arising under the policy, then obtaining of an award by arbitration is a condition precedent to the starting of any other legal proceeding. A clause like Scott v. Avery has repeatedly, been held to be a valid one. "Even a clause of this type, however is not absolute in effect: where the court orders that the arbitration agreement cease to have effect in relation to a particular dispute. it has a discretion to order further that the Scott v. Avery clause cease to have effect, too" (vide pages 57, 58 of Russell on Arbitration, Eighteen Edition). The said statement of the law, however, has been made with reference to section 25(4) of the English Arbitration Act, 1950. The corresponding provision in our Act is contained in section 36. But that apart, when an arbitration clause is not operative on the dispute raised, as in this case, then it is wholly unreasonable, almost impossible, to hold that still the parties have to obtain an award before starting any legal proceeding. What dispute will be referred to arbitration ? The dispute raised is not within the purview of arbitration. Reading clauses 13 and 18 together it must be held that on the rejection or repudiation of the claim by the insurer, the insured is under an obligation to start a legal proceeding within three months of such rejection, and hence obtaining of an award in such a case cannot be a condition precedent. It is not possible to go to arbitration for determination of the said dispute. Clauses similar to the ones contained in clauses 13 and 18 in this case were the subject matter of consideration before the house of Lords ill the case of Jurisdini v. National British and Irish Millers Insurance Company, Limited(1). The claim made by the insured was rejected by the insurer as being fraudulent. When the former brought an action the latter resisted it on the Scott v. Avery clause. The House gave a unanimous opinion that the repudiation of the claim on a ground going to the root of the contract precluded the company from pleading the arbitration clause as a bar to an action to enforce the claim. The matter put in that form in some of the speeches of the Law Lords does not seem to have received full approval of the House in later decisions including the one in Heyman and another v. Darwins Ltd.(2) as it would appear from the speech of Lord Macmillan at page 346. But the real ratio of the decision which remains unshaken even till today is to be found in the speech of Lord Parmoor at page 508 when his Lordship said that since no difference had arisen which could be covered by arbitration clause 17 and the company had raised an issue on which, if it had succeeded, the insured would have lost all benefit under the policy, the arbitration clause had no application.