M/s H.P. Spinning Mills Pvt. Ltd. v. United India Insurance Co. Ltd., 2025

The appellant, M/s H.P. Spinning Mills Pvt. Ltd., had purchased all assets of M/s Goel Spinning & Weaving Mills, which had taken three fire insurance policies from United India Insurance Co. Ltd..

On 13 April 2001, a major fire broke out in the insured factory, causing extensive damage to machinery and stock.

The insurer’s surveyor assessed the loss at ₹52.55 lakh, while the appellant claimed ₹1.21 crore.

A discharge voucher was signed by the appellant, which was later alleged to have been executed under coercion and undue pressure.

The dispute went to arbitration, where the Arbitral Tribunal awarded ₹40,84,716.25 to the insured with 9% interest till payment.

The insurer challenged the award under Section 34 of the Arbitration Act, arguing that Clause 6(b)(ii) of the insurance policy barred any legal action or arbitration if not initiated within 12 months from the date of loss.

The Single Judge accepted this argument and set aside the award, relying on pre-amendment precedents under Section 28 of the Contract Act.

The insured company filed the present appeal under Section 37 of the Arbitration and Conciliation Act, 1996.

The Division Bench of the Delhi High Court restored the arbitral award in favor of M/s H.P. Spinning Mills Pvt. Ltd., holding that the limitation clause (Clause 6(b)(ii)) in the insurance policy was void and unenforceable under Section 28 of the Contract Act.

The Court emphasized that any contractual stipulation that either shortens the statutory limitation period or extinguishes substantive rights after a period shorter than that prescribed by law is legally invalid.

The Court reiterated that its jurisdiction under Section 37 is narrow and supervisory in nature.

Referring to Punjab State Civil Supplies Corpn. Ltd., it observed that an appellate court cannot reappraise evidence or substitute its view for that of the arbitral tribunal.

The appellate court’s task is confined to checking whether the Section 34 court exceeded its jurisdiction or misapplied the law.

The Court found that the Single Judge wrongly relied on H.P. State Forest Co. Ltd. and Sujir Ganesh Nayak, both of which were decided before the 1997 amendment to Section 28.

It clarified that the amended Section 28 explicitly voids any clause that either:

• Limits the period for enforcing rights to a period shorter than statutory limitation; or

• Extinguishes rights or discharges liabilities after a specified period.

Therefore, the Single Judge’s reliance on pre-amendment law was legally untenable.

The Bench cited Indusind Bank Ltd., explaining that the 1997 amendment aimed to protect weaker contracting parties from oppressive, one-sided clauses often found in standard form contracts, particularly insurance policies.

The amendment was intended to ensure access to justice and prevent large corporations from contractually limiting legal recourse.

It was described as a substantive and remedial change, not a mere clarification.

Clause 6(b)(ii) of the insurance policy stated that no action or arbitration could be initiated after 12 months from the date of loss.

The Court held this clause manifestly void, as it extinguished the insured’s rights prematurely and contradicted statutory limitation periods under the Limitation Act and Arbitration Act.

Citing Oriental Insurance Co. Ltd. v. Sanjesh, the Court reaffirmed that such limitation-reducing clauses are violative of Section 28 and unenforceable in law.

The impugned order of the Single Judge was set aside.

The arbitral award in favor of the appellant was restored in full.

The Court declared Clause 6(b)(ii) of the insurance policy void, arbitrary, and unenforceable.