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2024 (9) TMI 606 - SC - Indian LawsBar to invoke arbitration - execution of a discharge voucher towards the full and final settlement between the parties - scope and standard of judicial scrutiny that an application Under Section 11(6) of the Act, 1996 can be subjected to when a plea of accord and satisfaction is taken by the Defendant - effect of the decision of this Court in In Re IN RE. INTERPLAY BETWEEN ARBITRATION AGREEMENTS UNDER THE ARBITRATION AND CONCILIATION ACT, 1996 AND THE INDIAN STAMP ACT, 1899 2023 (12) TMI 897 - SUPREME COURT (LB) on the scope of powers of the referral court Under Section 11 of the Act, 1996. Whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoke arbitration? - HELD THAT - The Appellant has contested that once a full and final settlement was arrived at between the parties, the insurance contract between the parties could be said to have been discharged. Once the contract 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. 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 - However, whether there has been a discharge of contract or not is a mixed question of law and fact, and if any dispute arises as to whether a contract has been discharged or not, such a dispute is arbitrable as per the mechanism prescribed under the arbitration agreement contained in the underlying contract. Whether the arbitration agreement contained in a substantive contract survives even after the underlying contract is discharged by accord and satisfaction ? - HELD 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 NATIONAL INSURANCE CO. LTD. VERSUS M/S. BOGHARA POLYFAB PVT. LTD. 2008 (9) TMI 864 - SUPREME COURT , 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 issuance of a discharge voucher or a no-dues certificate extends only to those vouchers or certificates which are validly and voluntarily executed. Thus, if the party said to have executed the discharge voucher or the no dues certificate alleges that the execution was on account of fraud, coercion or undue influence exercised by the other party and is able to establish such an allegation, then the discharge of the contract by virtue of issuance of such a discharge voucher or no dues certificate is rendered void and cannot be acted upon. Once the full and final settlement of the original contract itself becomes a matter of dispute and disagreement between the parties, then such a dispute can be categorised as one arising in relation to or in connection with or upon the original contract which can be referred to arbitration in accordance with the arbitration Clause contained in the original contract, notwithstanding the plea that there was a full and final settlement between the parties. What is the scope and standard of judicial scrutiny that an application Under Section 11(6) of the Act, 1996 can be subjected to when a plea of accord and satisfaction is taken by the Defendant? - HELD THAT - The position after the decisions in M/S MAYAVTI TRADING PVT. LTD. VERSUS PRADYUAT DEB BURMAN 2019 (9) TMI 1548 - SUPREME COURT and VIDYA DROLIA AND OTHERS VERSUS DURGA TRADING CORPORATION 2020 (12) TMI 1227 - SUPREME COURT is that ordinarily, the Court while acting in exercise of its powers Under Section 11 of the Act, 1996, will only look into the existence of the arbitration agreement and would refuse arbitration only as a demurrer when the claims are ex-facie frivolous and non-arbitrable. What is the effect of the decision of this Court in In Re Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1966 and the Indian Stamp Act 1899 on the scope of powers of the referral court Under Section 11 of the Act, 1996? - HELD THAT - A seven-Judge Bench of this Court, in In Re Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1966 and the Indian Stamp Act 1899 speaking eruditely through one of us, Dr. Dhananjaya Y. Chandrachud, Chief Justice of India, undertook a comprehensive analysis of Sections 8 and 11 respectively of the Act, 1996 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. Once an arbitration agreement exists between parties, then the option of approaching the civil court becomes unavailable to them. In such a scenario, if the parties seek to raise a dispute, they necessarily have to do so before the arbitral tribunal. The arbitral tribunal, in turn, can only be constituted as per the procedure agreed upon between the parties. However, if there is a failure of the agreed upon procedure, then the duty of appointing the arbitral tribunal falls upon the referral court Under Section 11 of the Act, 1996. If the referral court, at this stage, goes beyond the scope of enquiry as provided under the Section and examines the issue of accord and satisfaction , then it would amount to usurpation of the power which the parties had intended to be exercisable by the arbitral tribunal alone and not by the national courts. Such a scenario would impeach arbitral autonomy and would not fit well with the scheme of the Act, 1996. The power available to the referral courts has to be construed in the light of the fact that no right to appeal is available against any order passed by the referral court Under Section 11 for either appointing or refusing to appoint an arbitrator. Thus, by delving into the domain of the arbitral tribunal at the nascent stage of Section 11, the referral courts also run the risk of leaving the claimant in a situation wherein it does not have any forum to approach for the adjudication of its claims, if it Section 11 application is rejected. The existence of the arbitration agreement as contained in Clause 13 of the insurance policy is not disputed by the Appellant. The dispute raised by the claimant being one of quantum and not of liability, prima facie, falls within the scope of the arbitration agreement. The dispute regarding accord and satisfaction as raised by the Appellant does not pertain to the existence of the arbitration agreement, and can be adjudicated upon by the arbitral tribunal as a preliminary issue. The appointment of Justice K.A. Puj, former Judge of the High Court of Gujarat as an arbitrator to resolve the disputes between the parties is affirmed - the order staying the arbitration proceedings stands vacated.
Issues Involved:
1. Whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoke arbitration? 2. What is the scope and standard of judicial scrutiny that an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 can be subjected to when a plea of "accord and satisfaction" is taken by the Defendant? 3. What is the effect of the decision of the Supreme Court in "In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899" on the scope of powers of the referral court under Section 11 of the Act, 1996? Issue-wise Analysis: 1. Whether the execution of a discharge voucher towards the full and final settlement between the parties would operate as a bar to invoke arbitration? The court examined the concept of "accord and satisfaction," which refers to the discharge of a contract by substituting new obligations and fulfilling them. It was noted that a discharge voucher or no-dues certificate, if validly and voluntarily executed, can signify the end of contractual obligations. However, the arbitration agreement, by virtue of the separability doctrine, survives the underlying contract. The court held that disputes pertaining to the validity of the discharge voucher itself are arbitrable. If the discharge voucher is alleged to have been obtained through fraud, coercion, or undue influence, and such allegations are established, the discharge is rendered void. Therefore, the execution of a discharge voucher does not automatically bar arbitration if its validity is contested. 2. What is the scope and standard of judicial scrutiny that an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 can be subjected to when a plea of "accord and satisfaction" is taken by the Defendant? The court discussed the evolution of judicial scrutiny under Section 11(6) of the Act, 1996. Initially, courts had wide discretion to decide preliminary issues, including "accord and satisfaction." However, the 2015 amendment to the Act introduced Section 11(6-A), limiting the court's role to examining the existence of an arbitration agreement. The court reaffirmed that the referral court's scrutiny should be limited to a prima facie examination of the arbitration agreement's existence. It was clarified that the referral court should not conduct a detailed inquiry into the validity of the discharge voucher or the merits of the dispute, as these fall within the arbitral tribunal's jurisdiction. 3. What is the effect of the decision of the Supreme Court in "In Re: Interplay Between Arbitration Agreements under the Arbitration and Conciliation Act 1996 and the Indian Stamp Act 1899" on the scope of powers of the referral court under Section 11 of the Act, 1996? The court in "In Re: Interplay" emphasized the principle of competence-competence, which allows the arbitral tribunal to rule on its own jurisdiction, including the validity of the arbitration agreement. The decision reinforced that the referral court's role is limited to a prima facie examination of the existence of an arbitration agreement. The court held that issues requiring detailed consideration, such as stamping and validity of the arbitration agreement, should be left to the arbitral tribunal. The referral court should avoid delving into contested facts or conducting a mini-trial, as this would undermine the principle of arbitral autonomy and the legislative intent of minimal judicial interference. Conclusion: The Supreme Court upheld the appointment of Justice K.A. Puj as the arbitrator, affirming that the dispute regarding "accord and satisfaction" can be adjudicated by the arbitral tribunal. The court vacated the stay on arbitration proceedings and clarified that all legal contentions and objections can be raised before the arbitrator. The referral court's role under Section 11 is limited to a prima facie examination of the existence of the arbitration agreement, and detailed inquiries into the merits of the dispute should be left to the arbitral tribunal.
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