2011 (9) TMI 1082 - SC - Indian Laws

Arbitration agreement - Held that - Arbitration agreement contained in a contract cannot be invoked to seek reference of any dispute to arbitration, in the following circumstances, when the contract is discharged on account of performance, or accord and satisfaction, or mutual agreement, and the same is reduced to writing (and signed by both the parties or by the party seeking arbitration) (a) where the obligations under a contract are fully performed and discharge of the contract by performance is acknowledged by a full and final discharge voucher/receipt, nothing survives in regard to such discharged contract; (b) where the parties to the contract, by mutual agreement, accept performance of altered, modified and substituted obligations and confirm in writing the discharge of contract by performance of the altered, modified or substituted obligations; (c) where the parties to a contract, by mutual agreement, absolve each other from performance of their respective obligations (either on account of frustration or otherwise) and consequently cancel the agreement and confirm that there are no outstanding claims or disputes.

Issues Involved:
1. Maintainability of the arbitration applications under Section 11(5) & (9) of the Arbitration and Conciliation Act, 1996.
2. Whether there was a full and final settlement between the parties.
3. Applicability of the arbitration clause in the Purchase Agreement.

Detailed Analysis:

1. Maintainability of the Arbitration Applications:
The primary issue was whether the applications under Section 11(5) & (9) of the Arbitration and Conciliation Act, 1996 (Act 1996) were maintainable. The court referred to the precedent set in Bhatia International v. Bulk Trading S.A, which held that "the provisions of Part I of the Arbitration and Conciliation Act, 1996, would be equally applicable to international commercial arbitrations held outside India, unless any of the said provisions are excluded by agreement between the parties expressly or by implication." This principle was reaffirmed in subsequent cases like Indtel Technical Services Private Limited v. W.S. Atkins Rail Limited and Citation Infowares Limited v. Equinox Corporation. Despite a contrary view in Shreejee Traco (I) Pvt. Ltd. v. Paperline International Inc., the court followed the three-Judge Bench judgment in Bhatia International, thereby holding the application to be maintainable.

2. Full and Final Settlement:
The court examined whether there was a full and final settlement between the parties. The Purchase Agreement stipulated that the Fe content in the ore should not be less than 63%, and in case of a lower Fe content, the buyers had the right to reject the cargo or adjust the price. The respondents argued that the applicants had accepted a reduced payment of US$ 1.5 million as full and final settlement due to the lower Fe content. The applicants contended that this acceptance was an error. However, the court found that the applicants had instructed their banker to accept the payment as full and final settlement and did not raise any dispute for three months thereafter. The court cited several precedents, including Nathani Steels Ltd. v. Associated Constructions and National Insurance Company Limited v. M/s. Boghara Polyfab Private Limited, which established that once a settlement is voluntarily agreed upon and acted upon, it cannot be later disputed unless there is evidence of fraud, coercion, or misrepresentation. The court concluded that the applicants had accepted the settlement with their eyes open and without any coercion, thus the settlement was binding.

3. Applicability of the Arbitration Clause:
The Purchase Agreement contained an arbitration clause that required disputes to be settled amicably through friendly negotiations, and if unresolved, to be submitted to arbitration in a third country agreed upon by both parties. The applicants argued for arbitration in Singapore or Australia. However, the court found that since there was a full and final settlement, no dispute survived that could be referred to arbitration. The court emphasized the principle that a party cannot approbate and reprobate, meaning one cannot accept the benefits of a settlement and later challenge its validity. The doctrine of estoppel was applied, preventing the applicants from denying the binding effect of the settlement they had accepted.

Conclusion:
The court dismissed the applications, holding that the arbitration applications were maintainable but no dispute survived due to the full and final settlement reached between the parties. The applicants were estopped from challenging the settlement, and thus, the request for arbitration was denied.

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