TaxTMI 
TaxTMI 
2024 (9) TMI 606
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....o. 209 of 2021 wherein the High Court after assigning detailed reasons for allowing the application filed by the Respondent for the appointment of an arbitrator, directed that the said application be listed before the appropriate bench in accordance with the roster for the purpose of passing appropriate order for appointment of arbitrator. 4. The SLP(C) No. 3792 of 2024 arises from the impugned judgment and order dated 01.12.2023 passed by the High Court of Gujarat at Ahmedabad in Arbitration Petition No. 209 of 2021 wherein relying upon the judgment and order dated 22.09.2023 referred to above passed by a co-ordinate bench in the self-same arbitration application, the High Court allowed the application of the Respondent for the appointment of an arbitrator and thereby appointed Justice K.A. Puj, former Judge of the High Court of Gujarat as an arbitrator to resolve the disputes between the parties. A. FACTUAL MATRIX 5. The Appellant, SBI General Insurance Co. Ltd., is a Private Sector General Insurance Company engaged in the business of providing general insurance to its customers, having one of its offices at 1st floor, Shukan Business Centre, Swastik Cross Road, C.G. Roa....
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....eyor accepting the assessment of loss made by the surveyor, i.e., at Rs. 84,19,579/-. In the consent letter, the Respondent stated that in view of the detailed discussion it had with the surveyor as regards the volumetric calculation of the quantity of cotton bales said to have been damaged, it was ready to accept the quantity to be 3,17,085.30 kg as against its initial claim of 4,41,111.58 kg. 12. After addressing the consent letter as aforesaid to the surveyor, the Respondent signed an advance discharge voucher dated 04.01.2019, confirming the receipt of Rs. 84,19,579/- from the Appellant as the full and final settlement towards their claim. The discharge voucher also stated, inter alia, that the Respondent was discharging the Appellant of the liability arising under its claim. 13. Subsequent to the signing of the advance discharge voucher, the Appellant released the claim settlement amount of Rs. 84,08,957/- on 31.01.2019. 14. Thereafter, in relation to the claim arising out of the second fire incident, the Appellant released a total amount of Rs. 4,86,67,050/- in three instalments. The third and final instalment of Rs. 2,23,67,050/- was released on 14.10.2019. 15. O....
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....u. Since we have not received the copy of surveyor report, we are unable to take further action. Once again, you are requested to provide the copy of survey report along with all enclosures thereof. Please consider this letter as a notice. Yours Faithfully For KRISH SPINNING 16. The Respondent, on the same day, sent an email to the Appellant with a copy of the aforesaid letter calling upon the Respondent to take appropriate and necessary action. The contents of the said email are reproduced hereinbelow: Sir, This is in reference to the above subject, today at around 04:00 pm, or personnel visited your office to hand over a letter requesting you to provide the complete survey report of our fire claim No. -513768 for loss dated 28/05/2018. You, in turn returned the letter without accepting it, asking to get the letter signed by our Mr. Ashwinkumar N. Kacha and resubmit the same. We wish to inform that Mr. Ashwinkumar Kacha is busy with medical emergency, and we will submit the letter signed by him, when he is relieved from the medical emergency. Attached herewith, is the copy of the said letter for your kind reference ....
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....e with loss workings reviewed with Mr. Kacha. Yours Sincerely For SBI General Insurance Company Ltd., (Sd) Authorized Signatory 18. On 02.03.2020, the Respondent issued a legal notice calling upon the Appellant to release the balance payment of the claim amount arising out of the first fire incident. The Respondent, in the said notice, alleged, inter alia, that he had signed the consent letter and the advance discharge voucher under the apprehension that if he would not have signed the said documents, then the claim in relation to the second fire incident, which was pending on the date of the signing of the discharge voucher, would have been detrimentally affected. Thus, the discharge voucher could be said to have been signed under coercion, undue influence, and without free will and volition of the Respondent. The Respondent further stated that it had sent the protest letter dated 25.10.2019 immediately after receiving the final instalment in relation to the claim arising out of the second fire incident. The Respondent further stated that in the event of the Appellant's denial or failure to pay the balance amount within a period of 15 day....
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....ator has to follow. Some pertinent observations made by the High Court are extracted hereinbelow: 6. Therefore, on one hand, the company has taken a stand that the Petitioner is paid the amounts due and payable under the policy and that there is no need to refer the disputes to the arbitration under Clause 13 of the policy, on the other hand, the Petitioner disputes such case on various grounds. It was stated that amount of Rs. 92,00,388/- is wrongfully deducted while making payment of Rs. 84,19,579/ inasmuch as total claim lodged was Rs. 1,76,19,967/-. 6.1 Therefore, the above aspects indeed travels to the adjudicatory realm, which is the function to be discharged by the arbitrator. When the claim is disputed, it is the arbitrator who may competently decide the claim. Arbitrability of the dispute is also to be decided by the arbitrator. While exercising the powers Under Section 8 of the Arbitration and Conciliation Act, 1996, such questions cannot be gone into by this Court and when there is an arbitration clause, the aspects are to be decided by the arbitrator for such purpose. 6.2 Following observations of the Supreme Court in Oriental Insurance Co. Lt....
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....an order for appointment of arbitrator was passed. The said order dated 01.12.2023 has been impugned by the Appellant in SLP(C) No. 3792 of 2024. B. SUBMISSIONS ON BEHALF OF THE APPELLANT 25. Mr. Ketan Paul, the learned Counsel appearing on behalf of the Appellant, submitted that a full and final settlement was arrived at between the parties thereby indicating that a distinct understanding was arrived at between them. No plea or assertion has been made by the Respondent, nor any prima facie evidence has been adduced to establish that the Appellant had made the execution of the discharge voucher a pre-condition to the payment of the claim, or offered the amount on a "take it or leave it basis". Seen thus, the test laid down by this Court in paragraph 52(iv) of the National Insurance Co. Ltd. v. Boghara Polyfab reported in 2008:INSC:1057 : (2009)1 SCC 267 can neither be said to have been alleged nor satisfied. 26. It was further submitted that there has been an inordinate delay on the part of the Respondent in levelling allegations of coercion. Such allegations came to be so levelled for the first time in the arbitration notice dated 02.03.2020, that is, almost 14 months aft....
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....ount of pendency of huge amount of claim with the Appellant, i.e., around Rs. 8 crore cumulatively arising out of the two claims. The Respondent was also under pressure from other financial institutions from whom loan had been availed. 31. The counsel further submitted that the circumstances were such that her client had to issue the discharge voucher, otherwise payment towards the admitted amount would not have been released and her client would have been put in immense difficulties. She submitted that mere signing of the discharge voucher by her client would not imply that there was consensus in arriving at the full and final settlement. The counsel submitted that the coercion, though subtle, was very much real and thus in such a situation where the settlement is not voluntary, but under duress, the arbitration Clause can be invoked to refer the disputes to arbitration. 32. The counsel also submitted that it cannot be said that there was an inordinate delay in raising the plea of coercion as the letter dated 25.09.2019 was sent by her client to the Appellant within 11 days of the receipt of final payment in relation to the second insurance claim. However, the Appellant prov....
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....ndition precedent to any right of action or suit upon this Policy that the award by such arbitrator/arbitrators of the amount of the loss or damaged shall be first obtained 36. A preliminary objection was raised on behalf of the Appellant that the arbitration Clause as contained in the insurance policy referred to above is not attracted in the present case as there is no admission of liability on the part of the Appellant, whereas the said arbitration Clause envisages reference to arbitration only in cases where liability is admitted and there is a dispute as regards the quantum of liability. 37. However, we find no merit in the aforesaid submission of the Appellant. It is evident from the record that the Appellant had admitted its liability with respect to the first claim and had even disbursed an amount of Rs. 84,19,579/- in pursuance of the signing of the advance discharge voucher by the Respondent. Thus, it is clearly a case of admission of liability by the Appellant. However, the quantum of liability is in dispute as the amount claimed by the Respondent is at variance with the amount admitted by the Appellant. Thus, the dispute being one of quantum and not of liability, ....
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....e form of a full and final discharge voucher or a No-Dues or a No- Claims Certificate issued by one of the parties acknowledging that there are no outstanding claims and that such a party has received the full and final payment to its satisfaction. In the insurance sector, the general practice is that the insurer obtains undated discharge vouchers from the insured in advance by making the insured to sign on dotted lines before processing the payment in respect of the claims of the insured. 42. The concept of discharge of a contract by "accord and satisfaction" is embodied in Section 63 of the Indian Contract Act, 1872, which provides that the promisee may, inter alia, accept any substituted obligation in place of the original promise made to him, and such acceptance on the part of the promisee would amount to the discharge of the contract. Section 63 along with the illustrations is reproduced hereinbelow: 63. Promisee may dispense with or remit performance of promisee.-Every promisee may dispense with or remit, wholly or in part, the performance of the promisee made to him, or may extend the time for such performance, or may accept instead of it any satisfaction which h....
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....ontract stood discharged, it was not open to the Respondent to resile from the settlement and invoke the arbitration clause, as no obligations remained to be fulfilled under the contract pursuant to the discharge of the contract. In other words, it is the contention of the Appellant that as no arbitrable disputes remained after a full and final settlement was arrived at, there was nothing left to be referred to the arbitrator and hence the appointment of arbitrator being an exercise in futility, should not have been undertaken by the High Court. 45. To answer the aforesaid contention of the Appellant, the question that needs to be considered is whether the "full and final settlement" of claims arising under a contract, is by itself sufficient to preclude any future arbitration in respect of such settled claims? 46. It is indeed so that once a contract has been fully performed, it can be said to have been discharged by performance. Once the contract has been discharged by performance, neither any right to seek performance, nor any obligation to perform remains under it. 47. However, whether there has been a discharge of contract or not is a mixed question of law and fact, a....
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....t does not extinguish the arbitration agreement as it survives for the purpose of resolution of any outstanding claims arising out of the breach. It was observed thus: I am, accordingly, of the opinion that what is commonly called repudiation or total breach of a contract, whether acquiesced in by the other party or not, does not abrogate the contract, though it may relieve the injured party of the duty of further fulfilling the obligations which he has by the contract undertaken to the repudiating party. The contract is not put out of existence, though all further performance of the obligations undertaken by each party in favour of the other may cease. It survives for the purpose of measuring the claims arising out of the breach, and the arbitration Clause survives for determining the mode of their settlement. The purposes of the contract have failed, but the arbitration Clause is not one of the purposes of the contract. (Emphasis supplied) 53. Thus, even if the contracting parties, in pursuance of a settlement, agree to discharge each other of any obligations arising under the contract, this does not ipso facto mean that the arbitration agreement too would come to ....
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....(ii) Inasmuch as it is common that unless a discharge certificate is given in advance by the contractor, payment of bills are generally delayed, hence such a Clause in the contract would not be an absolute bar to a contractor raising claims which are genuine at a later date even after submission of such "no-claim certificate". (iii) Even after execution of full and final discharge voucher/receipt by one of the parties, if the said party is able to establish that he is entitled to further amount for which he is having adequate materials, he is not barred from claiming such amount merely because of acceptance of the final bill by mentioning "without prejudice" or by issuing "no-dues certificate". (Emphasis supplied) 57. The position that emerges from the aforesaid discussion is that there is no Rule of an absolute kind which precludes arbitration in cases where a full and final settlement has been arrived at. In Boghara Polyfab (supra), discussing in the context of a case similar to the one at hand, wherein the discharge voucher was alleged to have been obtained on ground of coercion, it was observed that the discharge of a contract by full and final settlement by issu....
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....bitrator under the Arbitration Act, 1940 was rendered by a two-Judge Bench of this Court in Damodar Valley Corporation v. K.K. Kar reported in 1973:INSC:205 : (1974) 1 SCC 141. It was observed, inter alia, that any dispute arising in relation to the validity of the discharge by "accord and satisfaction" would be covered by the arbitration agreement contained in the original contract, and thus should be referred to the arbitral tribunal for determination. The relevant observations are extracted hereinbelow: 4. On these facts the short question for determination is: where one of the parties refers a dispute or disputes to arbitration and the other party takes a plea that there was a final settlement of all claims, is the Court, on an application Under Sections 9(b) and 33 of the Act, entitled to enquire into the truth and validity of the averment as to whether there was or was not a final settlement on the ground that if that was proved, it would bar a reference to the arbitration inasmuch as the arbitration Clause itself would perish. xxx xxx xxx 6. It appears to us that the question whether there has been a full and final settlement of a claim under the contrac....
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......] (Emphasis supplied) 62. In Bharat Heavy Electricals Ltd. v. Amar Nath Bhan Prakash reported in (1982) 1 SCC 625 it was observed by this Court that the question whether there was discharge of the contract by "accord and satisfaction" or not is a dispute liable to be resolved by the arbitral tribunal and the court ought to appoint an arbitrator in such matters when a party approaches it seeking relief for the same. It was observed thus: 1. It appears from the order of the High Court impugned in the appeal that the High Court has not correctly appreciated the position that the question whether there was discharge of the contract by accord and satisfaction or not, is a dispute arising out of the contract and is liable to be referred to arbitration and hence the application of the Respondent Under Section 20 of the Indian Arbitration Act should have been allowed and the matters in dispute between the parties, including the question whether or not there was discharge of the contract by accord and satisfaction should have been referred to arbitration. (Emphasis supplied) 63. However, the position on the issue witnessed a change with subsequent decisions of this Co....
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....on similar to the one taken in Amar Nath (supra) was taken by this Court. It was held thus: 1. [...] Whether any amount is due to be paid and how far the claim made by the Appellant is tenable are matters to be considered by the Arbitrator. In fact, whether the contract has been fully worked out and whether the payments have been made in full and final settlement are questions to be considered by the Arbitrator when there is a dispute regarding the same. [...] 67. While the aspect of "accord and satisfaction" in the specific context of the appointment of arbitrator has been discussed by this Court on numerous occasions, we also deem it necessary to refer to and discuss some important decisions touching upon the contours of the power of the referral court Under Section 11 of the Act, 1996 as they directly affect the issue at hand. 68. The role to be played by the Chief Justice or his designate in the appointment of an arbitrator has been at the heart of number of decisions of this Court. In Konkan Railway Corporation Ltd. v. Rani Construction (P) Ltd. reported in 2002:INSC:56 : (2002) 2 SCC 388, a five-Judge Bench of this Court observed that the power exercised by the....
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....for example, a matter which is reserved for final decision of a departmental authority and excepted or excluded from arbitration). (ii) Merits or any claim involved in the arbitration. 71. The decision in Boghara Polyfab (supra) was followed in a number of subsequent decisions of this Court. In Union of India v. Master Construction Co. reported in 2011:INSC:328 : (2011) 12 SCC 349, this Court held that while deciding an application Under Section 11(6) of the Act, 1996, the referral court must satisfy itself that the allegations raised against the full and final discharge voucher were at least prima facie bona fide and genuine. Applying the said reasoning to the facts before it, this Court held that the dispute was not a bona fide one and declined to refer the matter to arbitration. The relevant extracts are reproduced hereinbelow: 18. In our opinion, there is no Rule of the absolute kind. In a case where the claimant contends that a discharge voucher or a no-claim certificate as been obtained by fraud and the other side contests the correctness, the Chief Justice must look into this aspect to find out at least, prima facie whether or not the dispute is bona fid....
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....our view no arbitrable dispute existed so as to exercise power Under Section 11 of the Act. The High Court was not therefore justified in exercising power Under Section 11 of the Act. (Emphasis supplied) 73. The net effect of the decisions in SBP & Co. (supra) and Boghara Polyfab (supra) was that the scope for interference available to the referral courts when acting Under Section 11 of the Act, 1996 was substantially expanded. The referral courts were conferred with the discretion to conduct mini trials and indulge in the appreciation of evidence on the issues concerned with the subject matter of arbitration. The Law Commission of India in its 246th report took note of the issue of significant delays being caused to the arbitral process due to enlarged scope of judicial interference at the stage of appointment of arbitrator and suggested as follows: i. First, that the power of appointment conferred upon the Chief Justice be devolved on to the Supreme Court and the High Court, as the case may be; and ii. Secondly, the power of appointment Under Section 11 be clarified to be an administrative power and not a judicial one. iii. Thirdly, the scope of i....
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....e arbitrator and this intention as incorporated in Section 11(6-A) ought to be respected. (Emphasis supplied) 77. Despite the decision in Duro Felguera (supra), this Court in United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd. reported in 2019:INSC:415 : (2019) 5 SCC 362, while dealing with the issue of "full and final settlement" in the context of appointment of an arbitrator, held that mere bald allegation by a party that the discharge voucher was obtained under coercion or undue influence would not entitle it to seek referral of the dispute to arbitration unless it is able to produce prima facie evidence of the same during the course of proceedings Under Section 11(6) of the Act, 1996. Important paragraphs from the said decision are extracted hereinbelow: 15. From the proposition which has been laid down by this Court, what reveals is that a mere plea of fraud, coercion or undue influence in itself is not enough and the party who alleged is under obligation to prima facie establish the same by placing satisfactory material on record before the Chief Justice or his Designate to exercise power Under Section 11(6) of the Act, which has been considered by....
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.... the learned Counsel for the Respondent that after insertion of Sub-section (6-A) to Section 11 of the Amendment Act, 2015 the jurisdiction of this Court is denuded and the limited mandate of the Court is to examine the factum of existence of an arbitration and relied on the judgment in Duro Felguera, S.A. v. Gangavaram Port Ltd. [Duro Felguera, S.A. v. Gangavaram Port Ltd., 2017:INSC:1026 : (2017) 9 SCC 729: (2017) 4 SCC (Civ) 764] The exposition in this decision is a general observation about the effect of the amended provisions which came to be examined under reference to six arbitrable agreements (five agreements for works and one corporate guarantee) and each agreement contains a provision for arbitration and there was serious dispute between the parties in reference to constitution of Arbitral Tribunal whether there has to be Arbitral Tribunal pertaining to each agreement. In the facts and circumstances, this Court took note of Sub-section (6-A) introduced by the Amendment Act, 2015 to Section 11 of the Act and in that context observed that the preliminary disputes are to be examined by the arbitrator and are not for the Court to be examined within the limited scope available....
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....erruled by Section 11(6-A) of the Act, 1996. The Court, while affirming the reasoning given in Duro Felguera (supra), observed thus: 10. This being the position, it is clear that the law prior to the 2015 Amendment that has been laid down by this Court, which would have included going into whether accord and satisfaction has taken place, has now been legislatively overruled. This being the position, it is difficult to agree with the reasoning contained in the aforesaid judgment [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., 2019:INSC:415 : (2019) 5 SCC 362: (2019) 2 SCC (Civ) 785], as Section 11(6-A) is confined to the examination of the existence of an arbitration agreement and is to be understood in the narrow sense as has been laid down in the judgment in Duro Felguera, SA [Duro Felguera, SA v. Gangavaram Port Ltd., 2017:INSC:1026 : (2017) 9 SCC 729: (2017) 4 SCC (Civ) 764] - see paras 48 & 59 11. We, therefore, overrule the judgment in Antique Art Exports (P) Ltd. [United India Insurance Co. Ltd. v. Antique Art Exports (P) Ltd., 2019:INSC:415 : (2019) 5 SCC 362: (2019) 2 SCC (Civ) 785] as not having laid down the correct law but dismiss this....
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....nal. 7.13. In view of the provisions of Section 16, and the legislative policy to restrict judicial intervention at the pre- reference stage, the issue of limitation would require to be decided by the arbitrator. Sub-section (1) of Section 16 provides that the Arbitral Tribunal may Rule on its own jurisdiction, "including any objections" with respect to the existence or validity of the arbitration agreement. Section 16 is as an inclusive provision, which would comprehend all preliminary issues touching upon the jurisdiction of the Arbitral Tribunal. The issue of limitation is a jurisdictional issue, which would be required to be decided by the arbitrator Under Section 16, and not the High Court at the pre-reference stage Under Section 11 of the Act. Once the existence of the arbitration agreement is not disputed, all issues, including jurisdictional objections are to be decided by the arbitrator. 7.14. In the present case, the issue of limitation was raised by the Respondent Company to oppose the appointment of the arbitrator Under Section 11 before the High Court. Limitation is a mixed question of fact and law. In ITW Signode (India) Ltd. v. CCE [ITW Signode (Ind....
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....nder Section 11 should be seen along with its 'validity' as specified Under Section 8. This Court also held that the exercise of power of prima facie judicial review to examine the existence of arbitration agreement also includes going into the validity of the arbitration agreement and this does not go against the principles of competence-competence and the presumption of separability. It further held that the prima facie review of the aspects related to non- arbitrability may also be undertaken. The relevant observations are extracted hereinbelow: 147.4. Most jurisdictions accept and require prima facie review by the court on non-arbitrability aspects at the referral stage. 147.5. Sections 8 and 11 of the Arbitration Act are complementary provisions as was held in Patel Engg. Ltd. [SBP & Co. v. Patel Engg. Ltd., 2005:INSC:526 : (2005) 8 SCC 618] The object and purpose behind the two provisions is identical to compel and force parties to abide by their contractual understanding. This being so, the two provisions should be read as laying down similar standard and not as laying down different and separate parameters. Section 11 does not prescribe any standar....
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....t states that the Limitation Act, 1963 shall apply to arbitrations as it applies to court proceedings. Sub-section (2) states that for the purposes of the Arbitration Act and Limitation Act, arbitration shall be deemed to have commenced on the date referred to in Section 21. Limitation law is procedural and normally disputes, being factual, would be for the arbitrator to decide guided by the facts found and the law applicable. The court at the referral stage can interfere only when it is manifest that the claims are ex facie time-barred and dead, or there is no subsisting dispute. All other cases should be referred to the Arbitral Tribunal for decision on merits. Similar would be the position in case of disputed "no-claim certificate" or defence on the plea of novation and "accord and satisfaction". As observed in Premium Nafta Products Ltd. [Fili Shipping Co. Ltd. v. Premium Nafta Products Ltd., 2007 UKHL 40 : 2007 Bus LR 1719 (HL)] , it is not to be expected that commercial men while entering transactions inter se would knowingly create a system which would require that the court should first decide whether the contract should be rectified or avoided or rescinded, as the case may....
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.... to check and protect parties from being forced to arbitrate when the matter is demonstrably "non- arbitrable" and to cut off the deadwood. The court by default would refer the matter when contentions relating to non- arbitrability are plainly arguable; when consideration in summary proceedings would be insufficient and inconclusive; when facts are contested; when the party opposing arbitration adopts delaying tactics or impairs conduct of arbitration proceedings. This is not the stage for the court to enter into a mini trial or elaborate review so as to usurp the jurisdiction of the Arbitral Tribunal but to affirm and uphold integrity and efficacy of arbitration as an alternative dispute resolution mechanism. (Emphasis supplied) 85. As is clear from the aforesaid extract, Vidya Drolia (supra) held that although the arbitral tribunal is the preferred first authority to determine the questions pertaining to non-arbitrability, yet the referral court may exercise its limited jurisdiction to refuse reference to arbitration in cases which are ex-facie frivolous and where it is certain that the disputes are non-arbitrable. 86. The decision of this Court in Vidya Drolia (supra) w....
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....wn ex facie meritless, frivolous, and dishonest litigation. Limited jurisdiction of the courts would ensure expeditious and efficient disposal at the referral stage. At the referral stage, the Court can interfere "only" when it is "manifest" that the claims are ex facie time-barred and dead, or there is no subsisting dispute. [...] (Emphasis supplied) 88. The decision in Vidya Drolia (supra) was applied in the context of "accord and satisfaction" by a two-Judge Bench of this Court in Indian Oil Corporation Limited v. NCC Limited reported in 2022:INSC:735 : (2023) 2 SCC 539. It was held that although the referral court Under Section 11 of the 1996 Act may look into the aspect of "accord and satisfaction", yet it is advisable that in debatable cases and disputable facts, more particularly in reasonably arguable cases, the determination of whether accord and satisfaction was actually present or not should be left to the arbitral tribunal. This Court also expressed disagreement with the High Court which had held that post the insertion of Section 11(6-A) to the Act, 1996, the scope of interference of the referral court in a Section 11 petition was limited to the aspect of examini....
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....of 2022 arising out of SLP (C) No. 13161 of 2019 is concerned, the General Manager has decided/declared that the claims are not arbitrable since they had been settled and the arbitration agreement has been discharged under Clause 6.7.2.0 of GCC and no longer existed/subsisted. As observed hereinabove, the claims had been settled or not is a debatable and disputable question, which is to be left to be decided by the Arbitral Tribunal. Therefore, matters related to the notified claims in the facts and circumstances of the case also shall have to be left to be decided by the Arbitral Tribunal as in the fact situation the aspect of "accord and satisfaction" and "notified claims" both are interconnected and interlinked. (Emphasis supplied) 89. We find it difficult to agree with the dictum of law as laid in Indian Oil (supra). While the dictum in Vidya Drolia (supra) allows for interference by the referral court, it only allows so as an exception in cases where ex- facie meritless claims are sought to be referred to arbitration. However, the view taken in Indian Oil (supra) takes a position which was taken by this Court in Boghara Polyfab (supra), wherein it was held that the issue....
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.... decide all questions of non-arbitrability. In Pravin Electricals (P) Ltd. v. Galaxy Infra & Engg. (P) Ltd. [Pravin Electricals (P) Ltd. v. Galaxy Infra & Engg. (P) Ltd., 2021:INSC:166 : (2021) 5 SCC 671, paras 29, 30: (2021) 3 SCC (Civ) 307], Sanjiv Prakash v. Seema Kukreja [Sanjiv Prakash v. Seema Kukreja, 2021:INSC:229 : (2021) 9 SCC 732: (2021) 4 SCC (Civ) 597], and Indian Oil Corporation Ltd. v. NCC Ltd. [Indian Oil Corporation Ltd. v. NCC Ltd., 2022:INSC:735 : (2023) 2 SCC 539: (2023) 1 SCC (Civ) 88], 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 BSNL v. Nortel Networks (India) (P) Ltd. [BSNL v. Nortel Networks (India) (P) Ltd., 2021:INSC:175 : (2021) 5 SCC 738: (2021) 3 SCC (Civ) 352] (hereinafter "Nortel Networks") and Secunderabad Cantonment Board v. B. Ramachandraiah & Sons [Secunderabad Cantonment Board v. B. Ramachandraiah & Sons, 2021:INSC:186 : (2021) 5 SCC 705: (2021) 3 SCC (Civ) ....
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....to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable, and any interference by the referral court preventing such ex-facie meritless arbitration could be termed as legitimate. It was observed thus: 28. The limited scrutiny, through the eye of the needle, is necessary and compelling. It is intertwined with the duty of the Referral Court to protect the parties from being forced to arbitrate when the matter is demonstrably non-arbitrable. It has been termed as a legitimate interference by Courts to refuse reference in order to prevent wastage of public and private resources [Vidya Drolia v. Durga Trading Corporation, 2020:INSC:697 : (2021) 2 SCC 1, para 139: (2021) 1 SCC (Civ) 549]. Further, as noted in Vidya Drolia [Vidya Drolia v. Durga Trading Corporation, 2020:INSC:697 : (2021) 2 SCC 1: (2021) 1 SCC (Civ) 549], if this duty within the limited compass is not exercised, and the Court becomes too reluctant to intervene, it may undermine the effectiveness of both, arbitration and the Court [Vidya Drolia v. Durga Trading Corporation, 2020:INSC:697 : (2021) 2 SCC 1, para 139: (2021) 1 SCC (Civ) 549]. Therefore, this Court or a High....
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....eking arbitration would have to prima facie establish that there was fraud or coercion involved in the signing of the discharge certificate. The position elaborated in Boghara Polyfab (supra) was adopted in a number of subsequent decisions, wherein it was held that a mere bald plea of fraud or coercion was not sufficient for a party to seek reference to arbitration and prima facie evidence for the same was required to be provided, even at the stage of the Section 11 petition. iv. The view taken by SBP & Co. (supra) and Boghara Polyfab (supra) was seen by the legislature as causing delays in the disposal of Section 11 petitions, and with a view to overcome the same, Section 11(6-A) was introduced in the Act, 1996 to limit the scope of enquiry Under Section 11 only to the extent of determining the "existence" of an arbitration agreement. This intention was acknowledged and given effect to by this Court in the decision in Duro Felguera (supra) wherein it was held that the enquiry Under Section 11 only entailed an examination whether an arbitration agreement existed between the parties or not and "nothing more or nothing less". v. Despite the introduction of Section 1....
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....996 and, inter alia, made poignant observations about the nature of the power vested in the Courts insofar as the aspect of appointment of arbitrator is concerned. Some of the relevant observations made by this Court in In Re: Interplay (supra) are extracted hereinbelow: 179. [...] However, the effect of the principle of competence-competence is that the arbitral tribunal is vested with the power and authority to determine its enforceability. The question of enforceability survives, pending the curing of the defect which renders the instrument inadmissible. By appointing a tribunal or its members, this Court (or the High Courts, as the case may be) is merely giving effect to the principle enshrined in Section 16. The appointment of an arbitral tribunal does not necessarily mean that the agreement in which the arbitration Clause is contained as well as the arbitration agreement itself are enforceable. The arbitral tribunal will answer precisely these questions. xxx xxx xxx 185. The corollary of the doctrine of competence-competence is that courts may only examine whether an arbitration agreement exists on the basis of the prima facie standard of review. The natu....
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....tion over matters expressly permitted under the Act, 1996. The negative aspect, on the other hand, prohibits the judicial authorities from intervening in the arbitral proceedings in situations where the arbitral tribunal has been conferred with exclusive jurisdiction. 98. What follows from the negative facet of arbitral autonomy when applied in the context of Section 16 is that the national courts are prohibited from interfering in matters pertaining to the jurisdiction of the arbitral tribunal, as exclusive jurisdiction on those aspects vests with the arbitral tribunal. The legislative mandate of prima facie determination at the stage of Sections 8 and 11 respectively ensures that the referral courts do not end up venturing into what is intended by the legislature to be the exclusive domain of the arbitral tribunal. 99. Gary B. Born Gary B. Born, Internation Commercial Arbitration, 3rd Ed. (2021), pp. 685 describes arbitral autonomy as intrinsically related to the 'right to arbitrate', which in turn is a concomitant of freedom of contract, liberty of association and personal autonomy. He describes "the right of parties to resolve their disputes, with one another, in ....
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.... codified based on the decision of Court of Appeal in Colmar Impex v. PAZ, reported in 1968 Rev. Arb. 149, 155 (Colmar Cour d'Appeal). In the said decision, it was observed that, "the principle is that the judge hearing a dispute has jurisdiction to determine his own jurisdiction. This necessarily implies that when that judge is an arbitrator, whose powers derive from the agreement of the parties, he has jurisdiction to examine the existence and validity of such agreement". 104. Supreme Court of the United States too has, on a number of occasions, consistently affirmed that by virtue of the separability presumption, where there is only a challenge to the validity or legality of the underlying contract, and no challenge to the existence, validity, or legality of the associated arbitration Clause itself, the claims should be referred to arbitration. [See: Prima Paint Corporation v. Flood & Conklin Manufacturing Co. reported in 388 U.S. 395 (U.S.S. Ct. 1967); Buckeye Check Cashing, Inc. v. Cardegna reported in 546 U.S. 440 (U.S.S. Ct. 2006)] 105. In the specific context of settlement of original contract, Gary Born Gary B. Born, Internation Commercial Arbitration, 3rd Ed. (2....
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.... been exclusively conferred upon the High Court and the Supreme Court. ii. Under Section 37, an appeal lies against the refusal of the judicial authority to refer the parties to arbitration, whereas no such provision for appeal exists for a refusal Under Section 11. iii. The standard of scrutiny provided Under Section 8 is that of prima facie examination of the validity and existence of an arbitration agreement. Whereas, the standard of scrutiny Under Section 11 is confined to the examination of the existence of the arbitration agreement. iv. During the pendency of an application Under Section 8, arbitration may commence or continue and an award can be passed. On the other hand, Under Section 11, once there is failure on the part of the parties in appointing the arbitrator as per the agreed procedure and an application is preferred, no arbitration proceedings can commence or continue. 110. The scope of examination Under Section 11(6-A) is confined to the existence of an arbitration agreement on the basis of Section 7. The examination of validity of the arbitration agreement is also limited to the requirement of formal validity such as the requirement t....
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....of prima facie existence of the arbitration agreement, and nothing else. For this reason, we find it difficult to hold that the observations made in Vidya Drolia (supra) and adopted in NTPC v. SPML (supra) that the jurisdiction of the referral court when dealing with the issue of "accord and satisfaction" Under Section 11 extends to weeding out ex-facie non-arbitrable and frivolous disputes would continue to apply despite the subsequent decision in In Re: Interplay (supra). 115. The dispute pertaining to the "accord and satisfaction" of claims is not one which attacks or questions the existence of the arbitration agreement in any way. As held by us in the preceding parts of this judgment, the arbitration agreement, being separate and independent from the underlying substantive contract in which it is contained, continues to remain in existence even after the original contract stands discharged by "accord and satisfaction". 116. The question of "accord and satisfaction", being a mixed question of law and fact, comes within the exclusive jurisdiction of the arbitral tribunal, if not otherwise agreed upon between the parties. Thus, the negative effect of competence-competence wo....
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.... tribunal. The Court observed that, "since we do not know how the arbitrator will construe the remedial limitations, the question... whether they render the parties' agreements unenforceable is better left for initial arbitral consideration". This doctrine has also been affirmed by judgments of the U.S. lower courts in cases of Dillon v. BMO Harris Bank, NA reported in 856 F.3d 330, 333 (4th Cir. 2017) and Escobar v. Celebration Cruise Operator, Inc. reported in 805 F.3d 1279, 1288-89 (11th Cir. 2015) wherein it was reasoned that the issues of U.S. statutory law and arbitrability should be submitted first to arbitration, with the possibility of subsequent judicial review in recognition and enforcement proceedings. 121. In a case with similar facts but where an arbitration agreement is not in existence, the claimant would have the recourse to approach a civil court with its claims. Even in such proceedings before the civil court, it would be open to the Defendant to put forward the defence of "accord and satisfaction" on the basis of the discharge voucher. Similarly, it would be open to the claimant to allege that the voucher had been obtained under fraud, coercion or undue i....
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.... parties to refrain from filing bulky pleadings in matters pertaining to Section 11. Seen thus, if the referral courts go into the details of issues pertaining to "accord and satisfaction" and the like, then it would become rather difficult to achieve the objective of expediency and simplification of pleadings. 125. We are also of the view that ex-facie frivolity and dishonesty in litigation is an aspect which the arbitral tribunal is equally, if not more, capable to decide upon the appreciation of the evidence adduced by the parties. We say so because the arbitral tribunal has the benefit of going through all the relevant evidence and pleadings in much more detail than the referral court. If the referral court is able to see the frivolity in the litigation on the basis of bare minimum pleadings, then it would be incorrect to doubt that the arbitral tribunal would not be able to arrive at the same inference, most likely in the first few hearings itself, with the benefit of extensive pleadings and evidentiary material. 126. Before, we close the matter, it is necessary for us to clarify the dictum as laid in M/s. Arif Azim Co. Ltd. v. M/s. Aptech Ltd. reported in 2024:INSC:155,....
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....at while considering the issue of limitation in relation to a petition Under Section 11(6) of the Act, 1996, the courts should satisfy themselves on two aspects by employing a two-pronged test - first, whether the petition Under Section 11(6) of the Act, 1996 is barred by limitation; and secondly, whether the claims sought to be arbitrated are ex-facie dead claims and are thus barred by limitation on the date of commencement of arbitration proceedings. If either of these issues are answered against the party seeking referral of disputes to arbitration, the court may refuse to appoint an arbitral tribunal. 132. Insofar as our observations on the second issue are concerned, we clarify that the same were made in light of the observations made by this Court in many of its previous decisions, more particularly in Vidya Drolia (supra) and NTPC v. SPML (supra). However, in the case at hand, as is evident from the discussion in the preceding parts of this judgment, we have had the benefit of reconsidering certain aspects of the two decisions referred to above in the light of the pertinent observations made by a seven-Judge Bench of this Court in In Re: Interplay (supra). 133. Thus, w....