2023 (4) TMI 652 - SC - Indian Laws

Settlement agreement resolved all disputes; arbitration application deemed abuse of process under Section 11(6)

NTPC LTD. Versus M/s SPML INFRA LTD.

The SC allowed the appeal, finding that the HC erred in permitting arbitration under Section 11(6) of the Arbitration Act. The Court held that allegations ... Coercion and economic duress - It is the case of Appellant NTPC that there were no subsisting disputes between the parties in view of the Settlement Agreement dated 27.05.2020 and that the application for arbitration is an afterthought and abuse of the process - HELD THAT:- This Court has consistently been holding that the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. In Pravin Electricals Pvt. Ltd. v. Galaxy Infra and Engg. Pvt. Ltd. [2021 (3) TMI 382 - SUPREME COURT], Sanjiv Prakash v. Seema Kukreja and Ors. [2021 (4) TMI 319 - SUPREME COURT], and Indian Oil Corporation Ltd. v. NCC Ltd., [2022 (7) TMI 974 - SUPREME COURT]the parties were referred to arbitration, as the prima facie review in each of these cases on the objection of non-arbitrability was found to be inconclusive. Following the exception to the general principle that the court may not refer parties to arbitration when it is clear that the case is manifestly and ex facie non-arbitrable, in BHARAT SANCHAR NIGAM LTD. & ANR. VERSUS M/S NORTEL NETWORKS INDIA PVT. LTD. [2021 (3) TMI 447 - SUPREME COURT] and Secunderabad Cantonment Board v. B. Ramachandraiah & Sons [2021 (3) TMI 612 - SUPREME COURT], arbitration was refused as the claims of the parties were demonstrably time-barred. The allegations of coercion and economic duress are not bona fide, and that there were no pending claims between the parties for submission to arbitration. The Respondent’s claim fits in the description of an attempt to initiate “ex facie meritless, frivolous and dishonest litigation” - There were no allegations of coercion or economic duress compelling SPML to withdraw any pending claims under the subject contract as a condition for the return of the Bank Guarantees. On the contrary, the only allegation by SPML was with respect to NTPC’s “illegal” action of interlinking the release of the Bank Guarantees with some other contracts. This was precisely the argument before the High Court, and, in fact, this submission is recorded by the High Court while issuing notice and injuncting NTPC. This fact clearly indicates that the plea of coercion and economic duress leading to the Settlement Agreement is an afterthought. This is a case where the High Court should have exercised the prima facie test to screen and strike down the ex-facie meritless and dishonest litigation. These are the kinds of cases where the High Court should exercise the restricted and limited review to check and protect parties from being forced to arbitrate - High Court has committed an error in allowing the application under Section 11(6) of the Act. High Court ought to have examined the issue of the final settlement of disputes. Appeal allowed. Issues Involved:1. Existence of subsisting disputes post-Settlement Agreement.2. Adherence to pre-arbitration procedures.3. Allegations of coercion and economic duress in the execution of the Settlement Agreement.4. Arbitrability of the dispute under Section 11(6) of the Arbitration and Conciliation Act, 1996.Summary:Issue 1: Existence of Subsisting Disputes Post-Settlement AgreementThe Supreme Court examined whether there were any subsisting disputes between NTPC and SPML after the Settlement Agreement dated 27.05.2020. It was found that SPML had issued a No-Demand Certificate on 12.04.2019, and NTPC had released the final payment in April 2019. Despite the Settlement Agreement, SPML later repudiated it and filed for arbitration, claiming coercion and economic duress. The Court concluded that the allegations of coercion and economic duress were not bona fide and that there were no pending claims between the parties for submission to arbitration. The claims raised by SPML were deemed to be an attempt to initiate 'ex facie meritless, frivolous and dishonest litigation.'Issue 2: Adherence to Pre-Arbitration ProceduresNTPC argued that SPML failed to follow the mandatory pre-arbitration procedure of first referring the disputes to an Adjudicator as per the Dispute Resolution Clause. The High Court rejected this contention, noting that SPML had indeed requested arbitration earlier, but NTPC failed to respond. The Supreme Court, however, emphasized the importance of adhering to the pre-arbitration procedures stipulated in the contract.Issue 3: Allegations of Coercion and Economic DuressSPML alleged that the retention of the Bank Guarantees compelled them to accept the terms of the Settlement Agreement under coercion and economic duress. The Supreme Court found these allegations to be an afterthought, as the Settlement Agreement was executed and implemented during the subsistence of the Writ Petition, and SPML had the protection of the Court. The sequence of events, including the release of the Bank Guarantees and the subsequent withdrawal of the Writ Petition, indicated that the allegations lacked bona fide.Issue 4: Arbitrability of the Dispute Under Section 11(6)The Supreme Court underscored the limited scope of judicial scrutiny at the pre-referral stage under Section 11(6) of the Act. The Court's role is confined to examining the existence of an arbitration agreement and whether the dispute is prima facie arbitrable. The Court concluded that the High Court erred in allowing the application under Section 11(6) without adequately applying the prima facie test to screen and strike down the ex-facie meritless and dishonest litigation.Conclusion:The Supreme Court set aside the decision of the High Court of Delhi in Arbitration Petition No. 477 of 2020, dated 08.04.2021, and allowed Civil Appeal No. 4778 of 2022. The parties were directed to bear their own costs.