Summary
After completing a piping contract, the contractor obtained a completion certificate, issued a no-demand certificate and received final payment, but NTPC withheld its bank guarantees citing disputes on other projects. The contractor filed a writ petition for their release; during its pendency the parties executed a settlement agreement under which NTPC released the guarantees and the contractor withdrew the writ and undertook not to initiate arbitration. The contractor then repudiated the settlement alleging economic duress and obtained appointment of an arbitral tribunal under Section 11(6). The Supreme Court set aside the High Court's order, holding that the referral court's prima facie review, though narrow, must screen out ex facie meritless and dishonest claims, and that on these undisputed facts the plea of coercion was an afterthought and no arbitrable dispute subsisted.
Issues
- What is the scope of the pre-referral jurisdiction under Section 11(6) of the Arbitration and Conciliation Act, 1996 after insertion of sub-section (6A), and when may the referral court decline reference on the ground that disputes were settled by accord and satisfaction.
- Whether the High Court erred in referring to arbitration claims raised after a settlement agreement whose execution and implementation were undisputed, on an allegation of coercion and economic duress.
Provisions considered
- Section 11(6) and Section 11(6A), Arbitration and Conciliation Act, 1996The referral court's jurisdiction is confined to a primary inquiry into the existence and validity of the arbitration agreement and the applicant's privity to it, and a secondary prima facie inquiry into non-arbitrability, under which only manifestly and ex facie non-arbitrable, frivolous or dishonest claims may be rejected. (¶¶ 16, 18, 19, 21, 22, 25, 26, 27, 28)
Held
- Following Vidya Drolia, the arbitral tribunal is the preferred first authority on non-arbitrability; the referral court, rarely and as a demurrer, may reject claims that are manifestly and ex facie non-arbitrable. The scrutiny is prima facie, not a full review of contested facts, but the court must examine whether the assertion of arbitrability is bona fide; it should refuse reference only where there is not a vestige of doubt that the claim is non-arbitrable, and refer the dispute if there is the slightest doubt. (¶¶ 22, 23, 24, 25, 26, 27)
- This limited scrutiny through the eye of the needle is necessary to protect parties from being forced to arbitrate demonstrably non-arbitrable matters and to prevent wastage of resources; the court exercising Section 11(6) jurisdiction is not to act mechanically merely to deliver a purported dispute to the chosen arbitrator. (¶¶ 28, 49)
- The contractor raised no claims during the contract or before final payment; its writ petition only sought release of the bank guarantees and alleged no coercion; the settlement agreement was executed while it enjoyed the High Court's interim protection, was comprehensive and was implemented by release of the guarantees, after which the writ was withdrawn and only then arbitration sought. The allegations of coercion and economic duress were an afterthought lacking bona fides, the claims were ex facie meritless, frivolous and dishonest, and the High Court ought to have refused reference applying Vidya Drolia. (¶¶ 44, 45, 46, 47, 48, 49, 50)
Result
Appeal allowed; Delhi High Court decision dated 08.04.2021 in Arbitration Petition No. 477 of 2020 appointing an arbitral tribunal under Section 11(6) set aside; parties to bear their own costs.