2019 (11) TMI 662 - SC - Indian Laws

Rejection of Arbitration application - Section 11(6) of the Arbitration and Conciliation Act, 1996 - The insurer s objection about maintainability of the application on the ground that the respondent (Dicitex) had signed the discharge voucher and accepted the amount offered, thus, signifying accord and satisfaction, which in turn meant that there was no arbitrable dispute, was rejected - main theme of the appellant s argument in this case is that Dicitex could not have invoked the arbitration clause, since it had fully and finally accepted the amount offered (i.e..) and withdrawn its protests and reservations, by the letter dated 06.06.2014. HELD THAT - A close look at the facts in the present case would show that though the pleadings in the initial application under Section 11(6) are weak, nevertheless, the materials on the record, in the form of copies of the inter se correspondence of the parties which span over 2 years, clearly show that Dicitex kept repeatedly stating that it was facing financial crisis; it referred to credits obtained for its business and the urgency to pay back the bank. It is a matter of record that the Surveyor s report, dated 14.08.2014, recommended payment of ₹ 12,93,26,704.98/to Dicitex. Equally, it is a matter of record that the appellant referred the matter to a chartered accountant s firm, to verify certain inventory and sales figures. It went by the report of the latter, who stated that the estimate of loss could not be more than ₹ 7,16,30,148/. This is what was offered to Dicitex, by May, 2014. Dicitex s application under Section 11(6) is replete with references to the number of letters written to the appellant, seeking release of amounts; it also averred to inability to pay its income tax dues, the pressure from bankers (in support of which, copies of letters of bankers were produced along with the application). An overall reading of Dicitex s application (under Section 11(6)) clearly shows that its grievance with respect to the involuntary nature of the discharge voucher was articulated. It cannot be disputed, that several letters spanning over two yearsstating that it was facing financial crisis on account of the delay in settling the claim, were addressed to the appellant. This court is conscious of the fact that an application under Section 11(6) is in the form of a pleading which merely seeks an order of the court, for appointment of an arbitrator. It cannot be conclusive of the pleas or contentions that the claimant or the concerned party can take, in the arbitral proceedings. At this stage, therefore, the court which is required to ensure that an arbitrable dispute exists, has to be prima facie convinced about the genuineness or credibility of the plea of coercion - If the court were to take a contrary approach and minutely examine the plea and judge its credibility or reasonableness, there would be a danger of its denying a forum to the applicant altogether, because rejection of the application would render the finding (about the finality of the discharge and its effect as satisfaction) final, thus, precluding the applicant of its right event to approach a civil court. This court is of the opinion that the reasoning in the impugned judgment cannot be faulted - Appeal dismissed.

Issues Involved:
1. Maintainability of the arbitration application.
2. Validity of the discharge voucher signed by the respondent.
3. Allegations of economic duress and coercion.
4. Arbitrability of the dispute.
5. Jurisdiction of the court to examine the existence of an arbitrable dispute.

Detailed Analysis:

1. Maintainability of the Arbitration Application:
The insurer (appellant) contended that the arbitration application was not maintainable because the respondent (Dicitex) had signed a discharge voucher and accepted the payment in full and final settlement of the claim. The court, however, found that the application under Section 11(6) of the Arbitration and Conciliation Act, 1996, was maintainable. The court noted that the arbitration agreement existed between the parties as per Clause 13 of the insurance policy.

2. Validity of the Discharge Voucher Signed by the Respondent:
The appellant argued that the discharge voucher signed by Dicitex was unconditional and indicated full and final settlement of the claim. Dicitex, on the other hand, alleged that it signed the discharge voucher under economic duress and financial distress. The court found that the discharge voucher could not be considered unconditional, given the financial pressures and the circumstances under which it was signed. The court emphasized that the issue of whether the discharge voucher was signed under duress should be decided by the arbitral tribunal.

3. Allegations of Economic Duress and Coercion:
Dicitex claimed that it was coerced into signing the discharge voucher due to financial distress and the urgent need for funds to meet its liabilities. The court observed that the correspondence between the parties indicated that Dicitex was facing financial constraints and economic duress. The court noted that the appellant had delayed the settlement of the claim for 27 months, which added to Dicitex's financial difficulties. The court held that the discharge voucher could not be considered voluntary and unconditional.

4. Arbitrability of the Dispute:
The appellant argued that there was no arbitrable dispute since Dicitex had accepted the payment in full and final settlement. The court, however, held that the issue of whether the discharge voucher was signed under duress and whether there was accord and satisfaction should be decided by the arbitral tribunal. The court referred to previous judgments, including Boghara Polyfab and Master Construction, which recognized the concept of economic duress and allowed for arbitration in cases where discharge vouchers were signed under coercion.

5. Jurisdiction of the Court to Examine the Existence of an Arbitrable Dispute:
The court examined whether a dispute existed that could be referred to arbitration. The court found that the materials on record, including the correspondence between the parties, indicated that Dicitex was facing financial distress and had repeatedly requested the appellant to settle the claim. The court held that it was prima facie convinced about the genuineness of Dicitex's plea of coercion and that an arbitrable dispute existed. The court emphasized that at the stage of an application under Section 11(6), it is sufficient to establish a prima facie case of coercion to refer the dispute to arbitration.

Conclusion:
The court dismissed the appeal, holding that the arbitration application was maintainable and that the issue of whether the discharge voucher was signed under duress should be decided by the arbitral tribunal. The court found that an arbitrable dispute existed and that Dicitex's plea of coercion was credible. The appeal was dismissed without any order as to costs.

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