Summary
The Supreme Court set aside a Bombay High Court order refusing to appoint an arbitrator under Section 11 of the Arbitration and Conciliation Act, 1996 on the ground that the insured had signed a full and final discharge voucher, holding that whether the voucher was signed under economic duress and whether the balance claim survives are questions for the arbitral tribunal, and itself appointed a sole arbitrator in view of the lapse of time.
Issues
- Whether a dispute raised by an insured after giving a full and final discharge voucher to the insurer can be referred to arbitration.
- Whether a referral court under Section 11(6) of the 1996 Act may refuse appointment on the footing that acceptance of a settlement amount in full and final settlement amounts to accord and satisfaction.
Provisions considered
- Section 11(6) and Section 11(6A), Arbitration and Conciliation Act, 1996Following Duro Felguera and Vidya Drolia, after the 2015 amendment the referral court is to examine only whether an arbitration agreement exists, and should refer unless a party establishes a prima facie case of non-existence of a valid arbitration agreement ('when in doubt, do refer'). Applying Dicitex Furnishing, the court need only be prima facie convinced of the genuineness of a plea of coercion and cannot minutely test it, since rejecting the application would deny the claimant any forum. (¶¶ 35, 36, 37, 37.1, 41)
- Section 63, Indian Contract Act, 1872Noted, through SBI General Insurance v. Krish Spinning, as the basis of 'accord and satisfaction': a discharge of obligations under the substantive contract by settlement does not ipso facto end the arbitration agreement, and a dispute about the full and final settlement itself remains referable to arbitration. (¶ 38)
Held
- Nathani Steels, which held that a party to an amicable settlement cannot invoke arbitration unless the settlement is set aside in proper proceedings, was decided in the context of a bilateral negotiated settlement reduced to writing, a plea of mistake, and the Arbitration Act, 1940. As explained in Boghara Polyfab, where a 'no dues' certificate or full and final discharge voucher is insisted upon as a condition for release of admitted dues, the dispute remains arbitrable, and mere execution of such a voucher is no bar to arbitration when its validity is challenged on grounds of fraud, coercion or undue influence. (¶¶ 33, 33.1, 34)
- At the Section 11(6) stage the court's role is confined to seeing whether an arbitration agreement exists; it must refer unless a prima facie case of non-existence of a valid agreement is made out. Where the applicant pleads that a discharge voucher was signed under economic duress, the court has only to be prima facie convinced of the genuineness of that plea, which is to be established in the arbitral proceedings; pleadings in a Section 11(6) application cannot be conclusive on fraud, coercion or undue influence. (¶¶ 35, 36, 37, 37.1)
- Discharge of the substantive contract by accord and satisfaction does not extinguish the arbitration agreement unless the parties expressly so agree, and a dispute about the full and final settlement itself is a dispute arising out of the contract that may be referred to arbitration. The doctrine of Kompetenz-Kompetenz, under which the tribunal rules on its own jurisdiction including the existence and validity of the arbitration agreement, is now firmly embedded in Indian arbitration law; a tribunal may award costs against a party found to have abused the process by, for instance, pressing claims already discharged. (¶¶ 38, 39, 40)
- The High Court was wrong to reject the Section 11(6) applications. Whether the appellant was compelled by economic duress to sign the standardised voucher, and whether its claim to arbitration for the balance survives despite receipt of the settlement amount, fall within the domain of the arbitral tribunal. (¶¶ 41, 42)
Result
Appeals allowed; High Court order dated 02.12.2011 set aside; Justice (Retd.) Suresh Chandrakant Gupte appointed sole arbitrator having regard to the lapse of time, with parties to report to him by 15.05.2025; no order as to costs.