2021 (4) TMI 1356 - HC - Indian Laws

Constitution of Arbitral Tribunal to adjudicate the disputes that have arisen between the parties in relation to the Contract Agreement - scope of examination under Section 11 of the A C Act at a pre-referral stage - whether the Contract Agreement stands discharged by the Settlement Agreement is required to be adjudicated by the Arbitral Tribunal constituted in terms of the Arbitration Clause as contained in the Contract Agreement? - HELD THAT - This Court is not required at this stage to give a conclusive finding as to the existence of an arbitration agreement between the parties. In one sense the Court would require to take a negative view if it finds that ex facie there is no Arbitration Agreement between the parties and accordingly the Court would reject the application under Section 11 of the Act. However in all other cases where an arguable case is made out by the applicant the parties are required to be referred to arbitration. It is clear that once it is apparent that the parties had entered into an agreement to refer the disputes to arbitration the dispute whether the same has been discharged by a settlement is required to be liberally construed in favour of relegating the parties to arbitration. Unless the Court comes to the conclusion that the dispute raised by the claimant with regard to the validity of the settlement is bereft of any merit; is not bona fide; or is a frivolous one the Court must relegate the parties to resolve the disputes in arbitration. In case where the Courts finds that the arbitration agreement does not exists the parties would nonetheless be entitled to agitate the disputes before Civil Courts. In this perspective once it is established that the parties had entered into an arbitration agreement the Courts must lean in favour of relegating the parties to that forum. Once it established that the parties had entered into an Arbitration Agreement the question whether the contract (including the arbitration clause) stood discharged by accord and satisfaction must be considered with the perspective whether the same is established without any detailed adjudicatory exercise. Thus unless the Courts concludes that the said disputes are ex facie unmerited and frivolous the parties must have their say before the agreed forum. It is apparent from the above that SPML had indicated that it was facing financial constraints on account of NTPC withholding the Bank Guarantees. NTPC on the other hand does not appear to have provided any substantial grounds for withholding the same. It however continued to persist with SPML that it would release the Bank Guarantees if SPML withdraws the disputes - SPML had invoked the arbitration clause and had sought reference of disputes to arbitration. It had also approached this court. Thus it would be difficult for SPML to establish that it was economically coerced to enter into the Settlement Agreement. However this Court is unable to accept that the dispute whether the Contract Agreement stood discharged/novated in terms of the Settlement Agreement is ex facie untenable insubstantial or frivolous. The present application cannot be rejected by relegating the petitioner to once again seek reference of the disputes before an adjudicator. SPML had requested NTPC to appoint an adjudicator but NTPC had not done so. Thus the contention that the present petition is pre-mature as the parties have not referred the disputes to an adjudicator is unmerited. The petition is disposed of.

Summary

Issues Involved:
1. Existence and validity of the Arbitration Agreement.
2. Alleged economic duress and coercion in the execution of the Settlement Agreement.
3. Compliance with pre-arbitral steps as per the dispute resolution mechanism in the Contract Agreement.

Detailed Analysis:

Issue 1: Existence and Validity of the Arbitration Agreement
The principal controversy revolves around whether the Settlement Agreement novated the Contract Agreement, thereby extinguishing the Arbitration Clause contained within it. NTPC contended that the Settlement Agreement superseded the Contract Agreement, rendering the Arbitration Clause void. Conversely, SPML argued that the Settlement Agreement was invalid due to economic coercion and undue influence, thus the Arbitration Clause in the Contract Agreement remained effective. The Court noted that the Arbitration Clause is a collateral term of the contract and remains operative unless the contract is legally non-existent. The Court emphasized that the question of novation and the validity of the Settlement Agreement should be determined by the Arbitral Tribunal.

Issue 2: Alleged Economic Duress and Coercion
SPML claimed that it was compelled to sign the Settlement Agreement under economic duress as NTPC withheld the release of Bank Guarantees despite the project's completion. The Court acknowledged that SPML had repeatedly requested the release of the Bank Guarantees and had indicated financial constraints due to their non-release. The Court found that the dispute regarding whether the Settlement Agreement was executed under duress was not frivolous or insubstantial and thus should be examined by the Arbitral Tribunal. The Court referred to precedents indicating that issues related to economic duress and coercion should be determined in arbitration rather than at the pre-referral stage.

Issue 3: Compliance with Pre-Arbitral Steps
NTPC argued that SPML had not exhausted the mandatory pre-arbitral steps as per the dispute resolution mechanism in the Contract Agreement, which required mutual consultation and reference to an adjudicator before arbitration. SPML had sent a letter demanding payment and requested the appointment of an adjudicator, which NTPC did not fulfill. The Court concluded that SPML had made sufficient attempts to resolve the disputes amicably and had invoked the arbitration clause after NTPC's failure to appoint an adjudicator. Consequently, the Court found that the petition was not premature and that SPML had complied with the pre-arbitral steps.

Conclusion:
The Court allowed the petition, appointing Justice Manmohan Singh as NTPC's nominated Arbitrator and directed both Arbitrators to jointly appoint the Presiding Arbitrator. The Court emphasized that the disputes regarding the validity of the Settlement Agreement and compliance with pre-arbitral steps should be resolved by the Arbitral Tribunal. The petition was disposed of in these terms.