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TMI Blog2023 (4) TMI 652X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, entered into a contract for "Installation Services for Station Piping Package for Simhadri Super Thermal Power Project Stage II at NTPC at Simhadri, Vishakapatnam". In terms of the contract agreement, SPML furnished Performance Bank Guarantees and Advanced Bank Guarantees hereinafter referred to as 'Bank Guarantees' for Rs. 14,96,89,136/- to secure the Appellant. 4. Pursuant to the successful completion of the project, a Completion Certificate was issued by NTPC on 27.03.2019. By its letter dated 10.04.2019, NTPC informed SPML that the final payment under the contract would be released upon the receipt of a No-Demand Certificate from SPML. The No-Demand Certificate was issued by SPML on 12.04.2019 and NTPC also released the final payment amounting to Rs. 1,40,00,000/- in April 2019. The Bank Guarantees were however withheld. 5. On 14.05.2019, NTPC informed SPML that the Bank Guarantees were withheld on account of pending liabilities and disputes between the parties with respect to other projects at Bongaigon, Barh, and Korba. SPML naturally protested. By its letter dated 15.05.2019, SPML informed NTPC that the retention of Bank Guarantees, despite issuance of the Completion C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Employer or the Contractor may, within fifty six (56) days of such reference, give notice to the other party, with a copy for information to the Adjudicator of its intention to commence arbitration, as hereinafter provided, as to the matter in dispute, and no arbitration in respect of this matter may be commenced unless such notice is given." . In this Arbitration Petition, SPML alleged coercion and economic duress in the execution of the Settlement Agreement. The allegation was, that the retention of the Bank Guarantees compelled SPML to accept the terms of Settlement Agreement. SPML also averred that NTPC had failed to appoint an arbitrator in spite of repeated requests, and therefore the High Court must constitute an Arbitral Tribunal, in exercise of its jurisdiction under the Act. 11. In its reply to the Arbitration Petition, NTPC raised two-fold objections. Firstly, that SPML failed to follow the mandatory pre-arbitration procedure of first referring the disputes to an Adjudicator as per the terms of the Dispute Resolution Clause. Dispute resolution was provided under clause 6.1 of the General Conditions of Contract and clause 3 of Special Conditions of Contract; her ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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." (emphasis supplied) 13. After referring to the decisions of this Court in Mayavati Trading (P) Ltd. v. Pradyuat Deb Burman (2019) 8 SCC 714, Vidya Drolia and Ors. v. Durga Trading Corporation (2021) 2 SCC 1. (hereinafter 'Vidya Drolia'), Duro Felguera, S.A. v. Gangavaram Port Ltd. (2017) 9 SCC 729, Sanjiv Prakash v. Seema Kukreja and Ors. (2021) 9 SCC 732, and Oriental Insurance Co. Ltd. and Anr. v. Dicitex Furnishing Ltd. (2020) 4 SCC 621, the High Court allowed the Arbitration Petition. It appointed a former Judge of the Delhi High Court as the Arbitrator on behalf of NTPC, and directed the respective arbitrators to appoint the presiding Arbitrator. 14. Submissions by the Parties: Shri Adarsh Tripathi, Advocate appearing with and on behalf of the Solicitor General, for NTPC, submitted that the Settlement Agreement dated 27.05.2020 was arrived at during the pendency of the Writ Petition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edure provides other means for securing the appointment." of the Act has to be considered. 17. The position of law with respect to the pre-referral jurisdiction, as it existed before the advent of Section 11(6A) in the Act, was based on a well-articulated principle formulated by this Court in National Insurance Co. Ltd. v. Boghara Polyfab (P) Ltd (2009) 1 SCC 267. In Boghara Polyfab, this Court held that the issue of non-arbitrability of a dispute will have to be examined by the court in cases where accord and discharge of the contract is alleged. Following the principle in Boghara Polyfab, this Court in Union of India & Ors. v. Master Construction Co. (2011) 12 SCC 349: "18. In our opinion, there is no rule of the absolute kind. In a case where the claimant contends that a discharge voucher or no-claim certificate has been obtained by fraud, coercion, duress or undue influence and the other side contests the correctness thereof, the Chief Justice/his designate must look into this aspect to find out at least, prima facie, whether or not the dispute is bona fide and genuine. Where the dispute raised by the claimant with regard to validity of the discharge voucher or no-claim certif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the existence of an arbitration agreement." (emphasis supplied) 19. Taking cognizance of the legislative change, this Court in Duro Felguera (supra), noted that post the 2015 Amendments, the jurisdiction of the court under Section 11(6) of the Act is limited to examining whether an arbitration agreement exists between the parties - "nothing more, nothing less" Duro Felguera supra note 7, para 59 (concurring opinion of Kurian Joseph, J). 20. However, in the year 2019, in United India Insurance Co. Ltd. v. Antique Art Exports Pvt. Ltd. (2019) 5 SCC 362: "21. In the instant case, prima facie no dispute subsisted after the discharge voucher being signed by the respondent without any demur or protest and claim being finally settled with accord and satisfaction and after 11 weeks of the settlement of claim a letter was sent on 27-7-2016 for the first time raising a voice in the form of protest that the discharge voucher was signed under undue influence and coercion with no supportive prima facie evidence being placed on record in absence thereof, it must follow that the claim had been settled with accord and satisfaction leaving no arbitral dispute subsisting under the agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [SBP & Co. v. Patel Engg. Ltd., (2005) 8 SCC 618] on the scope of judicial review by the court while deciding an application under Sections 8 or 11 of the Arbitration Act, post the amendments by Act 3 of 2016 (with retrospective effect from 23-10-2015) and even post the amendments vide Act 33 of 2019 (with effect from 9-8-2019), is no longer applicable. 154.2. Scope of judicial review and jurisdiction of the court under Sections 8 and 11 of the Arbitration Act is identical but extremely limited and restricted. 154.3. The general rule and principle, in view of the legislative mandate clear from Act 3 of 2016 and Act 33 of 2019, and the principle of severability and competence-competence, is that the Arbitral Tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. The court has been conferred power of "second look" on aspects of non-arbitrability post the award in terms of sub-clauses (i), (ii) or (iv) of Section 34(2)(a) or sub-clause (i) of Section 34(2)(b) of the Arbitration Act. 154.4. Rarely as a demurrer the court may interfere at Section 8 or 11 stage when it is manifestly and ex facie certain that the arbitration agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t lost in thickets and decide debatable questions of facts. Referral proceedings are preliminary and summary and not a mini trial... ... 138...On the other hand, issues relating to contract formation, existence, validity and non-arbitrability would be connected and intertwined with the issues underlying the merits of the respective disputes/claims. They would be factual and disputed and for the Arbitral Tribunal to decide. 139. We would not like to be too prescriptive, albeit observe that the court may for legitimate reasons, to prevent wastage of public and private resources, can exercise judicial discretion to conduct an intense yet summary prima facie review while remaining conscious that it is to assist the arbitration procedure and not usurp jurisdiction of the Arbitral Tribunal. Undertaking a detailed full review or a long-drawn review at the referral stage would obstruct and cause delay undermining the integrity and efficacy of arbitration as a dispute resolution mechanism. Conversely, if the court becomes too reluctant to intervene, it may undermine effectiveness of both the arbitration and the court. There are certain cases where the prima facie examination may re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 11(6) of the Act is very narrow and inheres two inquiries. The primary inquiry is about the existence and the validity of an arbitration agreement, which also includes an inquiry as to the parties to the agreement and the applicant's privity to the said agreement. These are matters which require a thorough examination by the referral court. The secondary inquiry that may arise at the reference stage itself is with respect to the non-arbitrability of the dispute. 26. As a general rule and a principle, the arbitral tribunal is the preferred first authority to determine and decide all questions of non-arbitrability. As an exception to the rule, and rarely as a demurrer, the referral court may reject claims which are manifestly and ex-facie non-arbitrable Vidya Drolia supra note 7, para 154.4.. Explaining this position, flowing from the principles laid down in Vidya Drolia (supra), this Court in a subsequent decision in Nortel Networks (supra) held Nortel Networks supra note 22, para 45.1. : "45.1 ...While exercising jurisdiction under Section 11 as the judicial forum, the court may exercise the prima facie test to screen and knockdown ex facie meritless, frivolous, and disho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PML sought the release of the final payment, and NTPC, by its letter dated 10.04.2019, agreed to release the same. 31. A No-Demand Certificate was issued by SPML on 12.04.2019, and the final payment was released by April 2019. There is nothing on record about any pending claims of SPML during the subsistence of the contract or till the release of the final payment. This is evident from the Writ Petition as well as the Arbitration Petition under Section 11 of the Act. 32. While NTPC released the final payment, on 14.05.2019, it justified the withholding of SPML's Bank Guarantees on the ground that there are certain disputes between the parties with respect to other projects. 33. Objecting to the stand of NTPC by its letter dated 15.05.2019, SPML stated that linking the Bank Guarantees with claims under other projects was unjustified. In turn, SPML raised a claim of Rs. 72,01,53,899/- against NTPC. At the same time, SPML also sought the appointment of an "Adjudicator" to settle these claims. 34. It is in the above-referred context that SPML filed the Writ Petition before the High Court on 03.07.2019. The prayer in the Writ Petition, particularly in the context of the huge claim r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon receipt of original Bank Guarantees stated herein below lying with NTPC as mentioned herein below at Para 4. 2. That the Agency has agreed not to initiate any further proceedings in relation with the present contract agreement and work executed by the Agency, of any nature whatsoever. Further, the Agency has undertaken not to raise any claim of any nature whatsoever against the NTPC Ltd. in relation with the present contract agreement and work executed by the Agency, be it Arbitration proceedings, civil suit, writ petition, or any other proceedings before any judicial or quasi-judicial forum. 3. That the Agency has confirmed it has received entire payments arising out of the present contract and the same stands closed, and no further sum/money is payable to the Agency in any manner whatsoever by NTPC Ltd. under the subject contract. ... 5. That NTPC Ltd. has further agreed not to raise any contempt proceedings against the Agency for not keeping alive the BGs as directed by the Hon'ble High Court of Delhi in pending Writ Petition." 39. In compliance with the Settlement Agreement, NTPC released the Bank Guarantees on 30.06.2020, which were the subject matter of the pendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore the High Court, and, in fact, this submission is recorded by the High Court while issuing notice and injuncting NTPC. This fact clearly indicates that the plea of coercion and economic duress leading to the Settlement Agreement is an afterthought. 46. We will now examine whether the allegations of coercion and economic duress in the execution of the Settlement Agreement are bona fide or not. This inquiry has a direct bearing on the arbitrability of the dispute. It was during the subsistence of the Writ Petition and the High Court's interim order, when SPML had complete protection of the Court, that the parties entered into the Settlement Agreement. This agreement was comprehensive. It inter alia provided for (i) the release of Bank Guarantees by NTPC, (ii) the withdrawal of SPML's Writ Petition, (iii) restraining NTPC from filing contempt proceedings against SPML for letting the Bank Guarantees expire, and finally, (iv) restraining SPML from initiating any proceedings under the subject contract, including arbitration. The Settlement Agreement also recorded that there were no subsisting issues pending between the parties. 47. The plea of coercion and economic duress must be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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